NVEST CASH MANAGEMENT TRUST -
MONEY MARKET SERIES
NVEST TAX EXEMPT MONEY MARKET TRUST
Supplement dated November 21, 2000
to the Nvest Money Market Funds prospectus
dated September 1, 2000
Effective December 1, 2000 a 1.00% maximum front-end sales charge will be
imposed on purchases for new accounts of Class C shares of the Nvest Funds.
Accordingly, the section entitled, "Exchanging Shares - Exchange Options" will
be revised as follows:
EXCHANGE OPTIONS
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CLASS A SHARES OF A MONEY MARKET FUND NOT PREVIOUSLY SUBJECT TO A FRONT-END
SALES CHARGE OR CDSC MAY EXCHANGE INTO:
o Class A shares of a Money Market Fund without paying a front-end sales
charge or CDSC.
o Class A shares of a Nvest Fund plus applicable front-end sales charge and
CDSC.
CLASS A SHARES OF A MONEY MARKET FUND PREVIOUSLY SUBJECT TO A FRONT-END SALES
CHARGE OR CDSC MAY EXCHANGE INTO:
o Class A shares of the other Money Market Fund without a front-end sales
charge or CDSC.
o Class A shares of a Nvest Fund without paying a front-end sales charge or
CDSC (unless (i) you exchanged into a Money Market Fund from shares of the
Nvest Intermediate Term Tax Free Fund of California that you held for less
than 6 months, in which case you would be required to pay the difference
between the front-end sales charge previously paid on your California Fund
shares and the front-end sales charge currently imposed on other Nvest Fund
shares or (ii) you exchanged into a Money Market Fund from shares of Nvest
Short Term Corporate Income
CONTINUED ON THE REVERSE SIDE
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Fund (formerly Nvest Adjustable Rate U.S. Government Fund) purchased before
December 1, 1998, in which case you would be required to pay the difference
between the front-end sales charge previously paid on your Corporate Income Fund
shares and the front-end sales charge currently imposed on other Nvest Fund
shares).
CLASS B SHARES OF A MONEY MARKET FUND MAY EXCHANGE INTO:
o Class B shares of the other Money Market Fund without paying a front-end
sales charge or CDSC.
o Class B shares of a Nvest Fund subject to its CDSC schedule.
CLASS C SHARES IN ACCOUNTS OF CASH MANAGEMENT TRUST - MONEY MARKET SERIES
ESTABLISHED ON OR AFTER DECEMBER 1, 2000 MAY EXCHANGE INTO:
o Class C shares of a Nvest Fund subject to its front-end 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:
o Class C shares of a Nvest Fund without paying a front-end sales charge.
If you exchange shares of a Nvest Fund into shares of the Money Market Funds,
the holding period for purposes of determining the CDSC for Class A, B, or C
shares and conversion from Class B into 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.
SP121-1100
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NVEST MONEY MARKET FUNDS
NVEST CASH MANAGEMENT TRUST -- MONEY MARKET SERIES
NVEST TAX EXEMPT MONEY MARKET TRUST
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 2000 (AS REVISED NOVEMBER 21, 2000)
This Statement of Additional Information (the "Statement") is not a prospectus.
This Statement relates to the prospectus of Nvest Cash Management Trust - Money
Market Series and Nvest Tax Exempt Money Market Trust (the "Trusts" and each a
"Trust") for Class A, B and C shares dated September 1, 2000 (, the
"Prospectus"), and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from Nvest Funds Distributor, L.P. (the
"Distributor"), 399 Boylston Street, Boston, Massachusetts 02116.
The Trusts' financial statements and accompanying notes are incorporated by
reference into this Statement. Each Trust's annual and semiannual report
contains additional performance information and is available upon request and
without charge by calling 800-225-5478.
T a b l e o f C o n t e n t s
Page
Investment Objectives and Policies 2
Investment Restrictions 5
Management of the Funds 8
Investment Advisory, Subadvisory, Distribution and Other Services 11
Portfolio Transactions 15
Performance 15
Description of the Funds and Ownership of Shares 16
How to Buy Shares 20
Shareholder Services 20
Open Accounts 20
Automatic Investment Plans 21
Retirement Plans Offering Tax Benefits 21
Systematic Withdrawal Plans 21
Dividend Diversification Program 22
Exchange Privilege 22
Automatic Exchange Plan 23
Self-Servicing Your Account 25
Redemptions 26
Net Income, Dividends and Valuation 28
Tax-Free Investing 30
Taxes 31
Financial Statements 33
Appendix A - Description of Certain Nvest Cash Management
Trust - Money Market Series Investments A-1
Appendix B - Description of Certain Nvest Tax Exempt
Money Market Trust Investments B-1
Appendix C - Ratings of Corporate and Municipal Bonds,
Commercial Paper and Short-Term Tax Exempt
Obligations C-1
Appendix D - Media That May Contain Fund Information D-1
Appendix E - Advertising and Promotional Literature E-1
1
XM33-1100
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INVESTMENT OBJECTIVES AND POLICIES
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GENERAL
The investment objectives and policies of Nvest Cash Management Trust -
Money Market Series and Nvest Tax Exempt Money Market Trust (together, the
"Money Market Funds," or the "Funds," and each a "Fund") are summarized in the
Prospectus under "Goals, Strategies & Risks."
The investment policies and types of permitted investments of each Fund set
forth below and in the Prospectus may be changed without shareholder approval
except that the investment objective of each Fund, and any investment policy
expressly identified as fundamental, may not be changed without the approval of
a majority of the outstanding voting securities of that Fund.
The terms "shareholder approval" and "majority of the outstanding voting
securities" as used in the Prospectus and this Statement each refer to approval
by (A) 67% or more of the voting shares of the applicable Fund present at a
meeting, if the holders of more than 50% of the outstanding voting shares of
such Fund are present or represented by proxy; or (B) more than 50% of the
outstanding voting shares of such Fund, whichever is less.
CASH MANAGEMENT TRUST - MONEY MARKET SERIES
The Fund will invest only in securities which the Fund's subadviser, Back
Bay Advisors(R), L.P. ("Back Bay Advisors"), acting under guidelines established
by the Nvest Cash Management Trust's Board of Trustees, has determined are of
high quality and present minimal credit risk. For a description of certain of
the money market instruments in which the Fund may invest, and the related
descriptions of the ratings of Standard and Poor's Ratings Group ("S&P") and
Moody's Investors Service, Inc. ("Moody's"), see Appendices A and C to this
Statement. Money market instruments maturing in less than one year may yield
less than obligations of comparable quality having longer maturities.
The Fund's investments may include certificates of deposit, bankers'
acceptances and other U.S. dollar-denominated obligations of banks whose net
assets exceed $100 million. These obligations may be issued by U.S. banks,
foreign banks (including their U.S. branches) or foreign branches and
subsidiaries of U.S. banks. Obligations of foreign banks may be subject to
foreign economic, political and legal risks. Such risks include foreign economic
and political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign withholding
and other taxes on interest income, difficulties in obtaining and enforcing a
judgment against a foreign obligor, exchange control regulations (including
currency blockage), and the expropriation or nationalization of assets or
deposits. Foreign branches of U.S. banks and foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to domestic
banks. For instance, such branches and banks may not be subject to the types of
requirements imposed on domestic banks with respect to mandatory reserves, loan
limitations, examinations, accounting, auditing, record keeping and the public
availability of information. Obligations of such branches or banks will be
purchased only when Back Bay Advisors believes the risks are minimal.
The Fund may also invest in U.S. Government Securities that include all
securities issued or guaranteed by the U.S. government or its agencies,
authorities or instrumentalities ("U.S. Government Securities"). Some U.S.
Government Securities are backed by the full faith and credit of the United
States, some are supported by the discretionary authority of the U.S. government
to purchase the issuer's obligations (e.g., obligations of the Federal National
Mortgage Association), some by the right of the issuer to borrow from the U.S.
government (e.g., obligations of Federal Home Loan Banks), while still others
are supported only by the credit of the issuer itself (e.g., obligations of the
Student Loan Marketing Association).
All of the Fund's investments at the time of purchase (other than U.S.
Government Securities and repurchase agreements relating thereto) will be rated
in the highest rating category by a major credit agency or, if unrated, will be
of comparable quality as determined by the Fund's subadviser under guidelines
approved by the Nvest Cash Management Trust's Board of Trustees.
Considerations of liquidity, safety and preservation of capital may
preclude the Fund from investing in money market instruments paying the highest
available yield at a particular time. The Fund, consistent with its investment
objective, attempts to maximize yields by engaging in portfolio trading and by
buying and selling portfolio investments in anticipation of,
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or in response to, changing economic and money market conditions and trends. The
Fund also seeks to take advantage of what are believed to be temporary
disparities in the yields of the different segments or among particular
instruments within the same segment of the market. These policies, as well as
the relatively short maturity of obligations to be purchased by the Fund, may
result in frequent changes in the portfolio composition of the Fund. There are
usually no brokerage commissions as such paid by the Fund in connection with the
purchase of securities of the type in which it invests. See "Portfolio
Transactions" and "Investment Restrictions."
TAX EXEMPT MONEY MARKET TRUST
As described in the Prospectus, the Fund seeks to achieve its objective
through investment in a diversified portfolio consisting primarily of high
quality, short-term fixed, variable and floating rate debt securities the
interest on which is, in the opinion of bond counsel for the issuers of the
securities at the time of their issuance, exempt from federal income taxation
("Municipal Securities"). Municipal Securities are generally obligations issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, or by or on behalf of multi-state agencies or authorities.
The Fund will only invest in Municipal Securities which are (i) short-term notes
rated MIG-2 or better by Moody's or SP-2 or better by S&P; (ii) municipal bonds
rated Aa or better by Moody's or AA or better by S&P with a remaining maturity
of 397 days or less whose issuer has comparable short-term obligations that are
rated in the top rating category by Moody's or S&P; and (iii) other types of
Municipal Securities, including commercial paper, rated P-2 by Moody's or A-2 by
S&P or unrated Municipal Securities determined to be of comparable quality by
the Fund's subadviser under guidelines approved by the Nvest Tax Exempt Money
Market Trust's Board of Trustees, subject to any limitations imposed by Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"). For
a more complete description of various types of Municipal Securities and the
meanings of the ratings assigned to them by Moody's and S&P, see Appendices B
and C to this Statement. The Fund expects that at least 95% of all dividends
paid by the Fund in any given year will be exempt from federal income tax. See
"Taxes."
As indicated in the Prospectus, the Fund may elect on a temporary basis to
hold cash or to invest in obligations other than Municipal Securities when such
action is deemed advisable by Back Bay Advisors. For example, the Fund might
hold cash or make such temporary investments: (i) due to market conditions; (ii)
in the event of the scarcity of suitable Municipal Securities; (iii) pending
investment of proceeds from subscriptions for Fund shares or from the sale of
portfolio securities; or (iv) in anticipation of redemptions. The Fund will
limit its investments in obligations other than Municipal Securities to "money
market securities" such as (i) U.S. Government Securities, (ii) high quality
short-term domestic certificates of deposit, commercial paper and domestic
bankers' acceptances and other high quality money market instruments, or (iii)
repurchase agreements with brokers, dealers and banks relating to Municipal or
U.S. Government Securities. The interest earned on money market securities is
not exempt from federal income tax and will generally be taxable to shareholders
as ordinary income. The ability of the Fund to invest in such taxable money
market securities is limited by a requirement of the Internal Revenue Code (the
"Code") that at least 50% of the Fund's total assets be invested in Municipal
Securities at the end of each quarter of the Fund's fiscal year (see "Taxes")
and by a fundamental policy of the Fund which requires that during periods of
normal market conditions the Fund will not purchase any security if, as a
result, less than 80% of the Fund's net assets would then be invested in
Municipal Securities.
As described in the Prospectus, the Fund may invest in variable or floating
rate Municipal Securities. These obligations pay a rate of interest adjusted on
a periodic basis and determined by reference to a prescribed formula. Such
obligations will be subject to prepayment without penalty, at the option of
either the Fund or the issuer, and may be backed by letters of credit or similar
arrangements where necessary to ensure that the obligations are of appropriate
investment quality. Back Bay Advisors intends to evaluate the credit of the
issuers of these obligations and the providers of credit support no less
frequently than quarterly.
The price stability and liquidity of the Fund may not be equal to that of a
money market fund which invests exclusively in short-term taxable money market
securities, because the taxable money market is a broader and more liquid market
with a greater number of investors, issuers and market makers than the
short-term Municipal Securities market and because the average portfolio
maturity of a money market fund will generally be shorter than the average
portfolio maturity of a tax exempt money fund such as the Fund. Adverse
economic, business or political developments might affect all or a substantial
portion of the Fund's Municipal Securities in the same manner. The issuer of a
Municipal Security may make payments from money raised through a variety of
sources, such as (i) the issuer's general taxing power; (ii) a specific type of
tax such as a property tax; or (iii) a particular facility or project such as a
highway. The ability of an issuer to make these payments could be affected by
litigation, legislation or other political events or the bankruptcy of the
issuer.
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When-Issued Securities
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The Tax Exempt Money Market Trust may purchase Municipal Securities on a
when-issued basis, which means that delivery and payment for the securities
normally occur between 15 to 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the buyer enters into the commitment.
Pending delivery of securities purchased on a when-issued basis, the amount of
the purchase price will be held in liquid assets such as cash or high quality
debt obligations. Such obligations and cash will be maintained in a separate
account with the Fund's custodian in an amount equal on a daily basis to the
amount of the Fund's when-issued commitments. By committing itself to purchase
Municipal Securities on a when-issued basis, the Fund subjects itself to market
and credit risks on such commitments as well as such risks otherwise applicable
to its portfolio securities. Therefore, to the extent the Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a greater possibility that the market
value of the Fund's assets will vary from $1.00 per share. (See "Net Income,
Dividends and Valuation.") The Fund will make commitments to purchase such
securities only with the intention of actually acquiring the securities.
However, the Fund may sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy. Such sales may result in
capital gains that are not exempt from federal income taxes. When the time comes
to pay for when-issued securities, the Fund will meet its obligations from then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the when-issued securities (which may
have a value greater or less than the Fund's payment obligation).
Purchase of Securities with Rights to Put Securities to Seller
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The Tax Exempt Money Market Trust has authority to purchase securities,
including Municipal Securities, at a price which would result in a
yield-to-maturity ratio lower than that generally offered by the seller at the
time of purchase if the Fund simultaneously acquires the right to sell the
securities back to the seller at an agreed-upon price at any time during a
stated period or on a certain date. Such a right is generally called a "put."
The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity and to permit the Fund to meet redemptions while
remaining as fully invested as possible in Municipal Securities. The Fund will
acquire puts only from recognized securities dealers.
For the purposes of asset valuation, the Fund will not ascribe any value to
puts. The Fund will rarely pay specific consideration for them (although
typically the yield on a security that is subject to a put will be lower than
for an otherwise comparable security that is not subject to a put). In no event
will the specific consideration paid for puts held in the Fund's portfolio at
any time exceed 1/2 of 1% of the Fund's net assets. Puts purchased by the Fund
will generally not be marketable and the Fund's ability to exercise puts will
depend on the creditworthiness of the other party to the transaction.
BOTH FUNDS
As noted in the Prospectus, each Fund may enter into repurchase agreements,
which are agreements pursuant to which the Fund purchases a security and obtains
a simultaneous commitment from the seller (a member bank of the Federal Reserve
or, to the extent permitted by the 1940 Act, a recognized securities dealer) to
repurchase the security at an agreed-upon price and date (usually seven days or
less from the date of original purchase). 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 each Fund the
opportunity to earn a return on temporarily available cash at relatively low
market risk. While the underlying security may be a U.S. Government Security (in
the case of either Fund), a Municipal Security (in the case of the Tax Exempt
Money Market Trust) or another type of high quality money market instrument, the
obligation of the seller is not guaranteed by the U.S. Government, the issuer of
the Municipal Security, or the issuer of any other high quality money market
instrument underlying the agreement, 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, in case of such a default, a 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 attempted enforcement. Each Fund will enter
into repurchase agreements only where the market value of the underlying
security equals or exceeds the repurchase price, and each Fund will require the
seller to provide additional collateral if this market value falls below the
repurchase price at any time during the term of the repurchase agreement. It is
a fundamental policy of each Fund that no more than 10% of the net assets of the
Fund are to be invested in illiquid securities, including repurchase agreements
with maturities of more than seven days.
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As described in the Prospectus, all of each Fund's investments will be in
U.S. dollars and will be determined to present minimal credit risks by the
subadviser under guidelines established by each Trust's Board of Trustees. Also,
all of each Fund's investments will, at the time of investment, have remaining
maturities of 397 days or less. The dollar-weighted average maturity of each
Fund's portfolio securities will not exceed 90 days at the time of each
investment. If the disposition of a portfolio security results in a
dollar-weighted average portfolio maturity in excess of 90 days for any Fund,
such Fund will invest its available cash in such a manner as to reduce its
dollar-weighted average portfolio maturity to 90 days or less as soon as
reasonably practicable. For the purposes of the foregoing maturity restrictions,
variable rate instruments which are scheduled to mature in more than 397 days
are treated as having a maturity equal to the longer of (i) the period remaining
until the next readjustment of the interest rate and (ii) if the Fund is
entitled to demand prepayment of the instrument, the notice period remaining
before the Fund is entitled to such prepayment; other variable rate instruments
are treated as having a maturity equal to the shorter of such periods. Floating
rate instruments which are scheduled to mature in more than 397 days are treated
as having a maturity equal to the notice period remaining before the Fund is
entitled to demand prepayment of the instrument; other floating rate
instruments, and all such instruments which are U.S. Government Securities, are
treated as having a maturity of one day.
The value of the securities in each Fund can be expected to vary inversely
with changes in prevailing interest rates. Thus, if interest rates increase
after a security is purchased, that security, if sold, might be sold at a loss.
Conversely, if interest rates decline after purchase, the security, if sold,
might be sold at a profit. In either instance, if the security were held to
maturity, no gain or loss would normally be realized as a result of these
fluctuations. Substantial redemptions of the shares of any Fund might require
the sale of portfolio investments of that Fund at a time when a sale might not
be desirable.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund but neither
event will require a sale of such security by such Fund. However, such event
will be considered in determining whether the Fund should continue to hold the
security. To the extent that the ratings given by Moody's or S&P (or another
nationally recognized statistical rating organization ["NRSRO"] approved by the
Securities and Exchange Commission (the "SEC") may change as a result of changes
in such organizations or their rating systems, each Fund will, in accordance
with standards approved by the relevant Board of Trustees, attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus.
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INVESTMENT RESTRICTIONS
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The following is a list of each Fund's investment restrictions. The
restrictions set forth in the numbered paragraphs below are fundamental policies
and, accordingly, will not be changed without the consent of the holders of a
majority of the outstanding voting securities of the applicable Fund.
CASH MANAGEMENT TRUST - MONEY MARKET SERIES
The Fund will not:
(1) Purchase any security (other than U.S. Government Securities and repurchase
agreements relating thereto) if, as a result, more than 5% of the Fund's
total assets (taken at current value) would be invested in securities of a
single issuer. This restriction applies to securities subject to repurchase
agreements but not to the repurchase agreements themselves;
(2) Purchase any security if, as a result of such purchase, more than 25% of
the Fund's total assets (taken at current value) would be invested in any
one industry. This restriction does not apply to U.S. Government Securities
and bank obligations. For purposes of this restriction, telephone, gas and
electric public utilities are each regarded as separate industries and
finance companies whose financing activities are related primarily to the
activities of their parent companies are classified in the industry of
their parents;
(3) Purchase securities on margin (but it may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of securities);
or make short sales except where, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
the Fund will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales;
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(4) Acquire more than 10% of the total value of any class of the outstanding
securities of an issuer or acquire more than 10% of the outstanding voting
securities of an issuer. This restriction does not apply to U.S. Government
Securities;
(5) Borrow money, except as a temporary measure for extraordinary or emergency
purposes (but not for the purpose of investment) up to an amount not in
excess of the lower of (i) 10% of its total assets (taken at cost) and (ii)
5% of such total assets (taken at current value);
(6) Pledge, mortgage or hypothecate more than 10% of its total assets (taken at
cost);
(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;
(8) Purchase or retain securities of any issuer if, to the knowledge of the
Fund, officers and trustees of the Fund or officers and directors of any
investment adviser of the Fund who individually own beneficially more than
1/2 of 1% of the securities of that issuer, together own beneficially more
than 5%;
(9) Make loans, except by purchase of debt obligations in which the Fund may
invest consistent with its objective and investment policies. This
restriction does not apply to repurchase agreements;
(10) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
commodities or commodity contracts or real estate. This restriction does
not prevent the Fund from purchasing securities of companies investing in
real estate or of companies which are not principally engaged in the
business of buying or selling such leases, rights or contracts;
(11) Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws;
(12) Make investments for the purpose of exercising control or management;
(13) Participate on a joint or joint and several basis in any trading account in
securities. (The "bunching" of orders for the purchase or sale of portfolio
securities with other accounts under the management of Back Bay Advisors to
reduce acquisition costs, to average prices among them, or to facilitate
such transactions, is not considered participating in a trading account in
securities);
(14) Write or purchase puts, calls or combinations thereof; or
(15) Invest in the securities of other investment companies, except in
connection with a merger, consolidation or similar transaction.
Except as otherwise stated, the foregoing percentages 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.
TAX EXEMPT MONEY MARKET TRUST
The Fund will not:
(1) Purchase any security if, as a result, more than 5% of the Fund's total
assets (based on current value) would then be invested in the securities of
a single issuer. This limitation does not apply to U.S. Government
Securities. The limitation applies to securities subject to credit
enhancement, but guarantors, insurers, issuers of puts and letters of
credit and other parties providing credit enhancement are not considered
issuers for purposes of the restriction, although investment in such
securities may be limited by applicable regulatory restrictions. The
restriction also applies to securities subject to repurchase agreements but
not to the repurchase agreements themselves. (The SEC staff currently takes
the position that only fully collateralized repurchase agreements may be
excluded from such restriction);
(2) Purchase voting securities or make investments for the purpose of
exercising control or management;
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(3) Invest more than 25% of its total assets in industrial development bonds
which are based, directly or indirectly, on the credit of private entities
in any one industry or in securities of private issuers in any one
industry. (In the utilities category, gas, electric, water and telephone
companies will be considered as being in separate industries.);
(4) Participate on a joint or joint and several basis in any trading account in
securities;
(5) Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of securities transactions;
(6) Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of its total assets taken at cost, except that the
Fund may enter into reverse repurchase agreements. The Fund will not,
however, borrow or enter into reverse repurchase agreements if the value of
the Fund's assets would be less than 300% of its borrowing and reverse
repurchase agreement obligations. In addition, when borrowings (other than
reverse repurchase agreements) exceed 5% of the Fund's total assets (taken
at current value), the Fund will not purchase additional portfolio
securities. Permissible borrowings and reverse repurchase agreements will
be entered into solely for the purpose of facilitating the orderly sale of
portfolio securities to accommodate redemption requests;
(7) Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies and may enter into
loan participations and repurchase agreements;
(8) Pledge, mortgage or hypothecate its assets except in connection with
reverse repurchase agreements and except to secure temporary borrowings
permitted by restriction (6) above in aggregate amounts not to exceed 10%
of its net assets taken at cost at the time of the incurrence of such
borrowings;
(9) Act as an underwriter of securities of other issuers except that, in the
disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities laws;
(10) Invest in securities of other investment companies, except by purchases in
the open market involving only customary brokers' commissions, or in
connection with a merger, consolidation, reorganization 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;
(11) Purchase or retain securities of an issuer if, to the knowledge of the
Fund, officers, trustees or directors of the Fund or any investment adviser
of the Fund who individually own beneficially more than 1/2 of 1% of the
shares or securities of that issuer together own beneficially more than 5%
of such shares or securities;
(12) Purchase securities of any company which has (with predecessor businesses
and entities) a record of less than three years' continuing operation or
purchase securities whose source of repayment is based, directly or
indirectly, on the credit of such a company, except (i) obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities, or (ii) Municipal Securities which are rated by at least
two nationally recognized municipal bond rating services, if as a result
more than 5% of the total assets of the Fund (taken at current value) would
be invested in such securities;
(13) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
commodities or commodity contracts or real estate (except that the Fund may
buy Municipal Securities or other permitted investments secured by real
estate or interests therein); or
(14) Write or purchase puts, calls, warrants, straddles, spreads or combinations
thereof, except that the Fund may purchase puts as described under
"Investment Objectives and Policies -- Tax Exempt Money Market Trust --
Purchase of Securities with Rights to Put Securities to Seller" and may
purchase Municipal Securities on a "when-issued" basis as described above
under "Investment Objectives and Policies -- Tax Exempt Money Market Trust
-- When-Issued Securities";
Except as otherwise stated, the foregoing percentages 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.
7
<PAGE>
For the purpose of the foregoing investment restrictions, the
identification of the "issuer" of Municipal Securities which are not general
obligation bonds (see Appendix B) is made by Back Bay Advisors on the basis of
the characteristics of the obligation, the most significant of which is the
source of funds for the payment of principal and interest on such securities. If
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government of such
subdivision, and the obligation is based solely on the assets and revenues of
such subdivision, such subdivision would be regarded as the sole issuer.
Similarly, in the case of industrial development bonds (see Appendix B), if the
bond is backed only by the assets and revenues of the non-governmental user, the
non-governmental user would be regarded as the sole issuer.
BOTH FUNDS
No Fund will purchase any security restricted as to disposition under
federal securities laws if, as a result, more than 10% of such Fund's net assets
would be invested in such securities or in other securities that are illiquid.
The Funds have implemented procedures to determine the liquidity of Section 4(2)
commercial paper purchased by the Funds for purposes of determining whether the
Fund's limit on the purchases of illiquid securities has been met.
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are "illiquid" securities. Each Fund currently
intends to conduct its operations in a manner consistent with this view. In
addition, certain loan participations may be "illiquid" securities for this
purpose.
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
The Funds are governed by a Board of Trustees, which is responsible for
generally overseeing the conduct of Fund business and for protecting the
interests of shareholders. The trustees meet periodically throughout the year to
oversee the Funds' activities, review contractual arrangements with companies
that provide services to the Funds and review the Funds' performance.
Trustees
--------
The trustees of the Trusts, their position with the Trusts (underlined),
and their ages (in parentheses), addresses and principal occupations during at
least the past five years are listed below. Those marked with an asterisk (*)
may be deemed to be an "interested person" of the Trusts 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 Trusts; 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 Trusts; 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 Trusts; 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
Trusts; Partner, The Carlyle Group (investments); Public Service Professor,
John F. Kennedy School of Government, Harvard University; Trustee, Council
for Excellence in Government (not-for-profit); Director, Frontier Ventures
(personal investment); Director, Telcom Ventures (telecommunications);
Director, Neptune Communications (undersea cable systems); formerly,
Director of the U.S.
8
<PAGE>
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 (39); 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. ("Nvest Management"); 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 Trusts; Senior Vice President and
Director, The Boston Consulting Group, Inc. (management consulting);
Director, Verizon Communications (communication 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 Drive, Woburn, Massachusetts 01801;
Member of the Audit Committee for the Trusts; 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).
* PETER S. VOSS -- CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND TRUSTEE
(53); 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; formerly, 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
Trusts; 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 Funds is comprised solely of
disinterested trustees and considers matters relating to advisory, subadvisory
and distribution arrangements, potential conflicts of interest between the
adviser or subadviser and the Funds, and governance matters relating to the
Funds.
The Audit Committee of the Funds is comprised solely of disinterested trustees
and considers matters relating to the scope and results of the Funds' 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 SEC and Internal Revenue Service (the "IRS") as well as
operational issues relating to the transfer agent.
Officers
--------
Officers of the Trusts, in addition to Mr. Voss, and their positions with
the Trusts (underlined), their ages (in parentheses) and principal occupations
during at least the past five years are listed below.
JOHN T. HAILER -- PRESIDENT (39); Executive Vice President, Nvest Distribution
Corporation; President and Chief Executive Officer, the Distributor; and
President and Chief Executive Officer, Nvest Management; formerly, Senior
Vice President, International Division and Head of Strategic Marketing,
Fidelity Investments.
THOMAS P. CUNNINGHAM - TREASURER (54); Senior Vice President, Nvest Services
Company; Senior Vice President, Nvest Management; 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); Director, Nvest Distribution
Corporation; Senior Vice President, General Counsel, Secretary and Clerk,
the Distributor; Senior Vice President, General Counsel, Secretary and
Clerk, Nvest
9
<PAGE>
Management; Executive Vice President, General Counsel, Secretary and Clerk,
Nvest Services Company; formerly, Senior Vice President and General
Counsel, Funds Distributor, Inc. (mutual fund 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 both Trusts.
Previous positions during the past five years with the Distributor, or Nvest
Management 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 trustees is also a director or trustee of several other
investment companies for which the Distributor acts as principal underwriter.
Except as indicated above, the address of each trustee and officer of the
Trusts is 399 Boylston Street, Boston, Massachusetts 02116.
Trustee Fees
------------
Neither Trust pays compensation to its officers, or to its trustees who are
"interested persons" of the Trusts as defined in the 1940 Act.
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, Nvest Funds Trust
I, Nvest Funds Trust II and Nvest Funds Trust III (all five trusts collectively,
the "Nvest Funds Trusts"), comprising as of March 31, 2000 a total of 22 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 he or she
attends. 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 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.
During the fiscal year ended June 30, 2000, the trustees of the Trusts
received the amounts set forth in the following table for serving as a trustee
of the Trusts; and during the year ended December 31, 1999, such persons
received the amounts set forth below for serving as trustee of the Trusts and
for also serving as trustees of the other Nvest Funds Trusts.
<TABLE>
<CAPTION>
Pension or
Aggregate Aggregate Retirement
Compensation Compensation from Benefits Accrued Total Compensation
from Nvest Cash Nvest Tax Exempt as Part of Fund Estimated from the Nvest
Management Trust Money Market Trust Expenses in the Annual Funds Trusts in the
in the Year Ended in the Year Ended Year Ended Benefits Upon Year Ended
Name of Trustee June 30, 2000* June 30, 2000* June 30, 2000* Retirement December 31, 1999
--------------- -------------- -------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Graham T. Allison, Jr. $5,462 $1,090 $0 $0 $60,000
Daniel M. Cain $5,847 $1,151 $0 $0 $64,000
Kenneth J. Cowan $5,847 $1,151 $0 $0 $64,000
Richard Darman $5,462 $1,090 $0 $0 $60,000
Sandra O. Moose $5,462 $1,090 $0 $0 $60,000
John A. Shane $5,462 $748 $0 $0 $60,000
Pendleton P. White $5,462 $1,090 $0 $0 $60,000
</TABLE>
* Amounts include payments deferred by trustees for the fiscal year ended
June 30, 2000. The total amount of deferred compensation accrued for all of
the Nvest Funds Trusts as of June 30, 2000 for the trustees follows:
Allison: $819,969; Cain: $46,813; Cowan: $80,000; Darman: $42,645.
The Funds provide no pension or retirement benefits to trustees, but have
adopted a deferred payment arrangement under which each trustee may elect not to
receive fees from each 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. Each 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.
As of July 31, 2000, the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of each Fund.
10
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT ADVISORY, SUBADVISORY, DISTRIBUTION AND OTHER SERVICES
--------------------------------------------------------------------------------
Investment Advisory and Subadvisory Agreements
----------------------------------------------
Pursuant to separate advisory agreements, each dated October 30, 2000(the
"Advisory Agreements"), Nvest Management has agreed, subject to the supervision
of the Board of Trustees of the relevant Trust, to manage the investment and
reinvestment of the assets of each Fund and to provide a range of administrative
services, including executive and other personnel, to each Fund. In addition to
overseeing the management of the Funds, Nvest Management provides executive and
other personnel for the management of the Trusts. For the services described in
the advisory agreements, each Fund has agreed to pay Nvest Management a
management fee set forth in the following table, reduced by the amount of any
subadvisory fee payable by the Fund to Back Bay Advisors (as described below):
MANAGEMENT FEE PAYABLE BY FUND TO
NVEST MANAGEMENT (INCLUDES ANY
SUBADVISER FEES PAID) AS A
PERCENTAGE OF AVERAGE DAILY NET
FUND ASSETS OF THE FUND)
--------------------------------------------------------------------------------
Cash Management Trust - Money Market Series 0.425% of the first $500 million
0.400% of the next $500 million
0.350% of the next $500 million
0.300% of the next $500 million
0.250% of amounts in excess
of $2 billion
Tax Exempt Money Market Trust 0.400% of the first $100 million
0.300% of amounts in excess
of $100 million
The Advisory Agreements each provide that Nvest Management may delegate its
responsibilities thereunder to other parties. Pursuant to separate subadvisory
agreements, each dated October 30, 2000(the "Subadvisory Agreements"), Nvest
Management has delegated responsibilities for managing the investment and
reinvestment of each Fund to Back Bay Advisors as subadviser. For providing such
subadvisory services to the Funds, each Fund pays Back Bay Advisors the
following fee:
SUBADVISORY FEE PAYABLE BY THE FUND
(AS A PERCENTAGE OF AVERAGE DAILY
FUND NET ASSETS OF THE FUND)
--------------------------------------------------------------------------------
Cash Management Trust - Money Market Series 0.205% of the first $500 million
0.180% of the next $500 million
0.160% of the next $500 million
0.140% of the next $500 million
0.120% of amounts in excess
of $2 billion
Tax Exempt Money Market Trust 0.200% of the first $100 million
0.150% of amounts in excess
of $100 million
From January 2, 1996 to May 1, 1998, Nvest Management served as adviser and
Back Bay Advisors served as subadviser to each Fund pursuant to separate
advisory and subadvisory agreements providing for the same management and
subadvisory fees as are currently in effect for the Funds; except that Nvest
Management, and not the Fund, paid Back Bay Advisors for the services it
rendered to each Fund.
For the fiscal years ended June 30, 1998, 1999 and 2000, the Cash
Management Trust - Money Market Series paid management fees of $1,535,052,
$1,713,918 and $1,827,365 to Nvest Management. During this period, Back Bay
Advisors received subadvisory fees of $1,380,613, $1,527,291 and $1,620,119.
From January 2, 1996 to August 31, 2000 Nvest Management and Back Bay
Advisors each agreed to proportionately reduce their fee and/or pay the charges,
expenses and fees of Tax Exempt Money Market Trust (not including fees payable
to the trustees who are not "interested persons" of the Trust as defined in the
1940 Act) to the extent
11
<PAGE>
necessary to limit the Fund's expenses to an annual rate of 0.65% of average net
assets. For the fiscal years ended June 30, 1998, 1999 and 2000, gross
management fees (which include gross subadvisory fees) payable to Nvest
Management of $274,666, $310,993 and $318,953 were reduced by $165,118, $118,782
and $109,957, respectively, resulting in net management fees of $109,548,
$192,211 and $208,996 respectively, and gross subadvisory fees payable to Back
Bay Advisors of $137,333, $155,496 and $159,476 were reduced by $82,559, $59,391
and $54,978, respectively, resulting in net subadvisory fees, of $54,774,
$96,105 and $104,498 respectively, as a result of this expense limitation.
In addition to the management fees paid to Nvest Management and the
subadvisory fees paid to Back Bay Advisors, each Fund pays the Distributor for
providing certain accounting and administrative services. The amount of the
payments is based on the allocated costs that the Distributor incurs in
providing these services.
In General.
-----------
Nvest Management, formed in 1995, is a limited partnership whose sole
general partner, Nvest Distribution Corporation, is a wholly-owned subsidiary of
Nvest Holdings, L.P. ("Nvest Holdings"), which in turn is a wholly-owned
subsidiary of Nvest Companies. Nvest Distribution Corporation is also the sole
general partner of the Distributor, and the sole shareholder of Nvest Services
Company, Inc., the transfer and dividend disbursing agent of the Funds. Nvest
Companies owns the entire limited partnership interest in each of Nvest
Management and the Distributor. Nvest Services Company, Inc. has subcontracted
certain of its obligations as the transfer and dividend disbursing agent of the
Funds 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 of assets under management or administration as of June 30,
2000.
Back Bay Advisors, formed in 1986, is a limited partnership whose sole
general partner, Back Bay Advisors, Inc., is a wholly-owned subsidiary of Nvest
Holdings. Nvest Companies owns the entire limited partnership interest in Back
Bay Advisors. Back Bay Advisors specializes in fixed-income management and
provides investment management services to institutional clients, including
other registered investment companies and accounts of New England Financial and
its affiliates.
Each Fund pays all expenses not borne by Nvest Management or Back Bay
Advisors including, but not limited to, the charges and expenses of the Fund's
custodian and transfer agent, independent auditors and legal counsel for the
Funds and the Trusts' independent trustees, 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 each of the Fund's adviser, subadviser(s) or their affiliates,
other than affiliated registered investment companies. Each Fund also pays Nvest
Management for certain legal and accounting services provided to the Fund by
Nvest Management.
Each Fund's Advisory Agreement and Subadvisory 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 of the relevant Trust or by vote of a majority of the
outstanding voting securities of the relevant Fund and (ii) by vote of a
majority of the trustees who are not "interested persons" of the relevant 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. Each Fund has received an exemptive
order from the Securities and Exchange Commission, which permits Nvest
Management to amend or continue existing subadvisory agreements without
shareholder approval when approved by the Fund's Board of Trustees. The
exemption also permits Nvest Management to enter into new subadvisory agreements
with subadvisers that are not affiliated with Nvest Management, if approved by
the Fund's Board of Trustees. Shareholders will be notified of any subadviser
changes. Each
12
<PAGE>
Advisory Agreement and Subadvisory Agreement may be terminated without penalty
by vote of the Board of Trustees of the relevant Trust or by vote of a majority
of the outstanding voting securities of the relevant Fund, upon 60 days' written
notice, or by the Fund's adviser upon 90 days' written notice, and each
terminates automatically in the event of its assignment. Each Subadvisory
Agreement also may be terminated by the Fund's subadviser upon 90 days' notice
and automatically terminates upon termination of the related Advisory Agreement.
Each Fund's Advisory Agreement and Subadvisory Agreement provides that
Nvest Management or Back Bay Advisors 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.
Certain officers and employees of Back Bay Advisors have responsibility for
portfolio management of other advisory accounts and clients of Back Bay Advisors
(including other registered investment companies and accounts of affiliates of
Back Bay Advisors) that may invest in securities in which the Funds also invest.
If Back Bay Advisors determines that an investment purchase or sale opportunity
is appropriate and desirable for more than one advisory account, purchase and
sale orders may be executed separately or may be combined and, to the extent
practicable, allocated by Back Bay Advisors to the participating accounts. Where
advisory accounts have competing interests in a limited investment opportunity,
Back Bay Advisors will allocate an investment purchase opportunity based on the
relative time the competing accounts have had funds available for investment,
and the relative amounts of available funds, and will allocate an investment
sale opportunity based on relative cash requirements and the time the competing
accounts have had investments available for sale. It is Back Bay Advisors'
policy to allocate, to the extent practicable, investment opportunities to each
client over a period of time on a fair and equitable basis relative to its other
clients. It is believed that the ability of the Funds to participate in larger
volume transactions in this manner will in some cases produce better executions
for the Funds. However, in some cases, this procedure could have a detrimental
effect on the price and amount of a security available to a Fund or the price at
which a security may be sold. The trustees are of the view that the benefits of
retaining Back Bay Advisors as subadviser to each of the Funds outweigh the
disadvantages, if any, that may result from participating in such transactions.
Distribution Agreement
----------------------
Under separate agreements with each Fund, the Distributoracts as the
distributor of each class of the Funds' shares, which are sold at net asset
value without any sales charge. The Distributor receives no compensation from
the Funds or purchasers of Fund shares for acting as distributor. Under these
agreements, the Distributor conducts a continuous offering and is not obligated
to sell a specific number of shares. Under the agreements, the Distributor pays
promotion and distribution expenses relating to the sale of Fund shares,
including the cost of preparing, printing and distributing prospectuses used in
offering shares of the Funds for sale. Each Fund pays the cost of registering
and qualifying its shares under state and federal securities laws.
The Distributor pays investment dealers a service fee in order to
compensate them for services they provide and expenses they incur in connection
with the establishment or maintenance of shareholder accounts in the Funds. The
service fee is paid quarterly at an annual rate equal to the following
percentages of average Fund net assets, including reinvested dividends, in
accounts serviced by the investment dealer during the year. The Distributor pays
the service fee; the fee is not a direct or indirect expense of the Funds or
their shareholders and does not affect the Funds' yields.
Average Daily Net Asset Balance Fee
------------------------------- ---
$0 - 5 million none
$ over 5 million to 10 million .05%
$ over 10 million .10%
The Distributor controls the words "Nvest" in the names of the Trusts and
the Funds and if it should cease to be the distributor, Nvest Cash Management
Trust, Nvest Tax Exempt Money Market Trust or the affected Fund may be required
to change their names and delete these words or letters. The Distributor also
acts as general distributor for Kobrick Capital Fund, Kobrick Emerging Growth
Fund, Kobrick Growth Fund (together, the "Kobrick Funds"), Nvest Funds Trust I,
Nvest Trust II and Nvest Funds Trust III. The address of the Distributor is 399
Boylston Street, Boston, Massachusetts 02116. The Distributor may publish
information about the Funds in the media described in Appendix D and may include
information in advertising and sales literature as described in Appendix E.
Independent Accountants
-----------------------
The Trusts' independent accountants are PricewaterhouseCoopers LLP, 160
Federal Street, Boston, Massachusetts 02110. The independent accountants conduct
an annual audit of each Fund's financial statements, assist in the preparation
of
13
<PAGE>
federal and state income tax returns and consult with the Trusts as to matters
of accounting and federal and state income taxation. The information concerning
financial highlights in the Prospectus, and financial statements contained in
the Funds' annual reports for the year ended June 30, 2000 and incorporated by
reference into this Statement, have been so included in reliance on the reports
of each Trust's independent accountants, given on the authority of said firm as
experts in auditing and accounting.
Custodial Arrangements
----------------------
State Street Bank and Trust Company ("State Street Bank"), 225 Franklin
Street, Boston, Massachusetts 02110, is the Trusts' custodian. As such, State
Street Bank holds in safekeeping certificated securities and cash belonging to
each Fund and, in such capacity, is the registered owner of securities in
book-entry form belonging to each Fund. Upon instruction, State Street Bank
receives and delivers cash and securities of each Fund in connection with Fund
transactions and collects all dividends and other distributions made with
respect to each Fund's portfolio securities. State Street Bank also maintains
certain accounts and records of the Trusts and calculates the total net asset
value, total net income and net asset value per share of each Fund on a daily
basis.
Other Arrangements
------------------
Pursuant to a contract between the Trusts and Nvest Services Company, Nvest
Services Company acts as shareholder servicing and transfer agent for the Funds
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 Funds' shares. The Funds
pay an asset-based fee to Nvest Services Company for these services. This fee is
assessed at the greater of (i) 0.239% of aggregate average daily net assets for
the Funds up to $650 million; at 0.20% of such assets between $650 million and
$5.65 billion; and at 0.195% of such assets in excess of $5.65 billion, or (ii)
a minimum fee of $1.55 million. The aggregate amount of fees paid by the Funds
to Nvest Services Company for these services during the three most recent fiscal
years of the Funds were as follows:
<TABLE>
<CAPTION>
Fund Fiscal Year Ended June 30,
--------------------------------------------------------------------------------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Cash Management Trust - Money Market Series $1,685,387 $1,672,122 $1,507,132
Tax Exempt Money Market Trust $73,566 $69,140 $72,061
--------------------------------------------------------------------------------------------------------
</TABLE>
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, during the fiscal year ended June 30, 2000, Nvest Services
Company performed certain accounting and administrative services for the Funds,
pursuant to an Administrative Services Agreement (the "Administrative
Agreement"). Under the Administrative Agreement, Nvest Services Company provides
the following services to the Funds: (i) expenses for personnel performing
bookkeeping, accounting, internal auditing and financial reporting functions and
clerical functions relating to the Fund, (ii) expenses for services required in
connection with the preparation of registration statements and prospectuses,
registration of shares in various states, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance, and (iii)
registration, filing and other fees in connection with requirements of
regulatory authorities. For these services, the Nvest Funds pay Nvest Services
Company a group fee equal to the annual rate of 0.035% of the first $5 billion
of the Funds' average daily net assets, 0.0325% of the next $5 billion of the
Funds' average daily net assets and 0.03% of the Funds' average daily net assets
in excess of $10 billion.
For these services, Nvest Services Company received fees from the Funds for
the following fiscal years ending June 30, 1998, 1999 and 2000:
14
<PAGE>
<TABLE>
<CAPTION>
Fund Fiscal Year Ended June 30,
--------------------------------------------------------------------------------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Cash Management Trust - Money Market Series $100,532 $191,303 $264,886
Tax Exempt Money Market Trust $23,386 $32,738 $28,480
--------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
In General
----------
In placing orders for the purchase and sale of portfolio securities for
each Fund, Back Bay Advisors will always seek the best price and execution. It
is expected that the Funds' portfolio transactions will generally be with
issuers or dealers in money market instruments acting as principal. Accordingly,
the Funds do not anticipate that they will pay significant brokerage
commissions. During the fiscal years ended June 30, 1998, 1999 and 2000, the
Funds did not incur any brokerage fees in connection with portfolio
transactions.
Some of the portfolio transactions for each Fund are placed with dealers
who provide Back Bay Advisors with supplementary investment and statistical
information or furnish market quotations to the Funds or other investment
companies advised by Back Bay Advisors. The business would not be so placed if
the Funds would not thereby obtain the best price and execution. Although it is
not possible to assign an exact dollar value to these research services, they
may, to the extent used, tend to reduce the expenses of Back Bay Advisors. The
research services may also be used by Back Bay Advisors in connection with its
other advisory accounts and in some cases may not be used with respect to the
Funds.
The Board of Trustees of each Trust has requested that Back Bay Advisors
seek to reduce underwriting commissions or similar fees on Fund portfolio
transactions through certain methods currently available. It is not expected
that these methods will result in material reductions. The Boards have not
requested that Back Bay Advisors or its affiliates attempt to join underwriting
syndicates to reduce underwriting commissions or fees.
Tax Exempt Money Market Trust
-----------------------------
It is expected that the Tax Exempt Money Market Trust's portfolio
securities will normally be purchased directly from an underwriter or in the
over-the-counter market from the principal dealers in such securities, unless it
appears that a better price or execution may be obtained elsewhere. Purchases
from underwriters will include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers will include the spread between the
bid and asked price.
--------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------
From time to time, the Funds may use performance data in advertisements and
promotional material. These results may include comparisons to the average daily
yields of money market funds reporting to IBC/Donoghue's Money Fund Report
("Donoghue's"), including comparisons of such average yields for funds
considered by Donoghue's to be in the same category as each of the Funds. See
"Net Income, Dividends and Valuation" below for an explanation of how the Funds
calculate yield and "effective" (or "compound") yield.
The 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
any of the Nvest Funds. The 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 Trusts, the Distributor, and the transfer
agent of the Funds, with respect to investing in shares of the 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.
15
<PAGE>
The Distributor may make reference in its advertising and sales literature
to awards, citations and honor bestowed on it by industry organizations and
other observers and raters, including, but not limited to Dalbar's Quality
Tested Service Seal and Key Honors Award. 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.
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.
The Funds may enter into arrangements with banks exempted from
broker-dealer registration under the Securities Exchange Act of 1934.
Advertising and sales literature developed to publicize such arrangements will
explain the relationship of such bank to the Nvest Funds and the Distributor as
well as the services provided by the bank relative to the 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 Funds'
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.
--------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS AND OWNERSHIP OF SHARES
--------------------------------------------------------------------------------
Nvest Cash Management Trust was organized as a Massachusetts business trust
under the laws of Massachusetts by an Agreement and Declaration of Trust (a
"Declaration of Trust") dated June 5, 1980. The Trust commenced operations on
October 3, 1980 by acquiring all the assets and liabilities of NEL Cash
Management Account, Inc., which commenced operations on July 10, 1978. The Trust
was established with the same investment objective, policies, restrictions and
investment adviser as NEL Cash Management Account, Inc. then had. The Cash
Management Trust - Money Market Series is the only series of Nvest Cash
Management Trust currently in existence. The Fund has three classes of shares
(Classes A, B and C) available for purchase. The Trust is a diversified,
open-end management investment company.
Nvest Tax Exempt Money Market Trust was organized as a Massachusetts
business trust under the laws of Massachusetts by a Declaration of Trust dated
January 18, 1983, and commenced operations on April 21, 1983. Only one series of
shares of Nvest Tax Exempt Money Market Trust is currently in existence; it has
two classes of shares (Classes A and B) available for purchase. The Trust is a
diversified, open-end management investment company.
Class A, B and C shares of the Cash Management Trust - Money Market Series
and Class A and B shares of the Tax Exempt Money Market Trust are identical
except that the classes have different exchange privileges, as set forth in
detail in the Prospectus. The Class A, Class B,and Class C structure could be
terminated should certain Internal Revenue Service rulings be rescinded.
Each Declaration of Trust currently permits each Trust's trustees to issue
an unlimited number of full and fractional shares of each Fund. Each Fund is
represented by a particular series of shares. Each Declaration of Trust further
permits each Trust's 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 trustees may determine. When you invest
in a Fund, you acquire freely transferable shares of beneficial interest that
entitle you to receive annual or quarterly dividends as determined by the
respective Trust's Board of Trustees and to cast a vote for each share you own
at stockholder meetings. The shares of each Fund have no pre-emptive rights.
Upon termination of any Fund, whether pursuant to liquidation of the Fund or
otherwise, shareholders of each series of shares are entitled to share pro rata
in the net assets belonging to that series then available for distribution to
such shareholders. Each Declaration of Trust also permits the trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
16
<PAGE>
If a Trust were to issue shares of more than one series, the assets
received by each series of the Trust from the issue or sale of shares of each
series thereof and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to, and constitute the
underlying assets of, that series. The underlying assets of each series are
segregated and are charged with the expenses in respect of that series and with
a share of the general expenses of the Trust. Any general expenses of the Trust
not readily identifiable as belonging specifically to a particular series 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 each series of the Trust, certain
expenses may be legally chargeable against the assets of both series.
Each Declaration of Trust also permits each Trust's Board of Trustees,
without shareholder approval, to subdivide any series or class of shares into
various sub-series or sub-classes participating in the same portfolio with such
dividend preferences and other rights as the trustees may designate. While each
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. Each Trust's Board of Trustees may also, without
shareholder approval, establish one or more additional series or classes or
merge two or more series or classes. At such time as the trustees of the Trusts
create another series, the Trusts would become a "series" company as that term
is used in Section 18(f) of the 1940 Act.
Each Declaration of Trust provides for the perpetual existence of the
Trusts. Either Trust or any Fund, however, may be terminated at any time by vote
of at least two-thirds of the outstanding shares of the Fund affected.
Similarly, any class within a Fund may be terminated by vote of at least
two-thirds of the outstanding shares of such class. While each Declaration of
Trust further provides that the Board of Trustees may also terminate the
relevant Trust upon written notice to its shareholders, the 1940 Act requires
that the Trust receive the authorization of a majority of its outstanding shares
in order to change the nature of its business so as to cease to be an investment
company.
Voting Rights
-------------
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and may vote (to the extent
described below) in the election of trustees and the termination of the Funds
and on other matters submitted to the vote of shareholders.
The Declaration of Trust for each Trust provides that, on any matter
submitted to a vote of all Trust shareholders, all of a Trust's 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 Trust'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) each Trust
will hold a meeting of its shareholders 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, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, trustees of the Tax Exempt Money Market Trust 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 the
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
$25,000 or constituting 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 Tax Exempt Money Market Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders).
17
<PAGE>
Except as set forth above, the trustees shall continue to hold office and
may appoint successor trustees. Shareholder voting rights are not cumulative.
No amendment may be made to a Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the relevant Trust except (i) to
change the name of the Trust or a series thereof or to cure technical problems
in the Declaration of Trust, (ii) to establish and designate new series or
classes of Trust shares, and (iii) to establish, designate or modify new and
existing series or classes of Trust shares or modify other provisions relating
to Trust shares in response to applicable laws or regulations, or, in the case
of the Tax Exempt Money Market Trust, in order to convert the Fund into a
"series" company. If one or more new series of either Trust is established and
designated by the trustees, the shareholders having beneficial interests in the
Funds described in this Statement shall not be entitled to vote on matters
exclusively affecting such new series, such matters including, without
limitation, the adoption of or any change in the investment objectives, policies
or restrictions of the new series and the approval of the investment advisory
contracts of the new series. Similarly, the shareholders of the new series shall
not be entitled to vote on any such matters as they affect the Funds.
Shareholder and Trustee Liability
---------------------------------
Under Massachusetts law, a Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declarations of Trust disclaim shareholder liability for acts or
obligations of a Fund and require that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by a Trust or
its trustees. The Declarations of Trust provide for indemnification out of the
assets of a Fund for all loss and expense of any shareholder held personally
liable for the obligations of that 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.
Each Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declarations 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 each Trust provide for indemnification by the
Trust of the trustees and the officers of the relevant 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 person may not be indemnified against any liability
to the Trust or its 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. Each Trust
offers only its own Funds' shares for sale, but it is possible that a Trust
might become liable for any misstatements in a Prospectus that relate to another
Trust. The trustees of each Trust have considered this potential liability and
approved the use of the combined Prospectus for Funds of both Trusts.
Code of Ethics
--------------
The Funds, their advisers 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 is on public file with, and
is available from, the SEC.
Ownership of Shares
-------------------
As of July 31, 2000, to the Trusts' knowledge, the following persons owned
of record or beneficially 5% or more of the outstanding shares of the indicated
classes set forth below. At July 31, 2000, the officers and trustees of the
Trusts as a group owned less than 1% of the outstanding shares of each Fund.
Ownership
Fund Shareholder and Address Percentage
---- ----------------------- ----------
18
<PAGE>
CASH MANAGEMENT TRUST -
MONEY MARKET SERIES
Class C shares NTO LLC 7.37%
P.O. Box 55
Odum, GA 31555-0055
State Street Bank and Trust Co. 5.98%
Custodian for IRA Rollover of
Jack M. Jensen
805 Tipperary Road
Oregon, WI 53575-2641
State Street Bank and Trust Co. 5.69%
Custodian for IRA Rollover of
Roger L. Dahlin
9111 Octavia Ct.
Sprinfield, VA 22153-1637
CLASS Y SHARES* National Financial Services Corp. 100%
For the Exclusive Benefit of Our
Customers
P.O. Box 3752
Church Street Station
New York, NY 10008-3752
TAX EXEMPT MONEY MARKET TRUST
CLASS A SHARES National Financial Services Corp. 22.42%
For the Exclusive Benefit of Our
Customers
P.O. Box 3752
Church Street Station
New York, NY 10008-3752
CLASS B SHARES Donaldson Lufkin Jenrette 11.17%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Fred Luntsford 36.18%
Ann Luntsford TOD
Paul K. Luntsford
Kathyrn Robinson
14155 Magnolia Blvd. #128
Sherman Oaks, CA 91433-1150
Judith A. Gizara 6.81%
56 Old County Rd
Mason, NH 03048-4308
Charles Joseph Wine 6.51%
Joann Gross Wine Trustees
CJ Wine TR
DTD 3/9/89
3117 Hickory Stick Rd
Oklahoma City, OK 73120-6001
* Effective October 30, 2000, the Y Class of Cash Management Trust-Money
Market Series was liquidated.
Primevest Financial Services FBO 6.29%
19
<PAGE>
Sheli A. Tieppo Trustee
7758592
400 First Street SO Suite 300
PO Box 283
St. Cloud, MN 56302-0283
Carruth Educational Trust I 5.62%
FBO Alicia Carruth
DTD 2/6/91
4605 Oak Springs Dr
Flower Mound, TX 75028-7329
--------------------------------------------------------------------------------
HOW TO BUY SHARES
--------------------------------------------------------------------------------
The procedures for purchasing shares of the Funds are summarized in the
Prospectus. Under certain conditions, exceptions may be made to the policies
listed here and in the Prospectus, subject to senior management approval. All
purchases made by check should be drawn on U.S. banks and payable in U.S.
dollars and made payable to Nvest Funds, or, in the case of a retirement
account, the custodian or trustee. Shares of each Fund are offered for sale
continuously at their respective net asset values, which the Funds seek to
maintain at a constant $1 per share. See "Net Income, Dividends and Valuation"
in this Statement. There is no sales charge to purchase the Funds' shares. The
minimum initial investment is $2,500, with a $100 minimum for subsequent
investments. There are reduced initial investment minimums for certain
investments described below under "Shareholder Services."
Shares may also be purchased either in writing, by phone, 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.
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.
--------------------------------------------------------------------------------
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
Open Accounts
-------------
Except for investors who own shares through certain broker "street name" or
retirement plan arrangements, each shareholder's investment is automatically
credited to a separate open account maintained for the shareholder by State
Street Bank, and the shareholder will receive a daily statement disclosing the
current balance of shares owned in the shareholder's account and the details of
all transactions in that account for the day; however, if there were no
transactions other than dividend declarations during a month, the shareholder
will only receive a quarterly statement. After the close of each calendar year,
State Street Bank will send the shareholder a statement for each of his or her
accounts providing federal tax information on dividends and distributions paid
during the year including information as to that percentage, if any, of Tax
Exempt Money Market Trust dividends that are not exempt from federal income
taxation. Shareholders should retain this as a permanent record. Nvest Services
Company reserves the right to charge a fee for providing duplicate information.
20
<PAGE>
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 Funds and
no direct charges are made to shareholders. Although the Funds have no present
intention of making such direct charges to shareholders, they each reserve 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 each Fund's investor eligibility requirements, investors may
automatically invest in additional shares of a 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 you 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 - Cash Management Trust -
----------------------------------------------------------------
Money Market Series (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 Cash Management Trust -
Money Market Series 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 and profit sharing plans,
including 401(k) plans, and retirement plans for public school systems and
certain tax exempt organizations (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 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 either 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.
Systematic Withdrawal Plans (Class A, B and C shares)
-----------------------------------------------------
An investor owning a Fund's shares having a value of $5,000 or more 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
21
<PAGE>
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.
On Systematic Withdrawal Plans for accounts subject to a contingent
deferred sales charge ("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.
All shares under the Plan must be held in an open (uncertificated) account.
Income dividends and capital gain distributions will be reinvested.
Since systematic 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 period of low earnings. Accordingly,
a shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The
Funds and the Distributor make no recommendations or representations in this
regard. It may be appropriate for the 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. 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 a Nvest Fund or Money Market Fund, subject to the
investor eligibility requirements of that other Fund and to state securities law
requirements. Shares will be purchased at the selected Fund's net asset value
(plus any applicable sales charge or CDSC) on the dividend record date. A
dividend diversification account must be in the same registration (shareholder
name) as the distributing Fund account and, if a new account in the purchased
Fund is being established, the purchased Fund's minimum investment requirements
must be met. Before establishing a Dividend Diversification Program into any
other Nvest Fund or Money Market Fund, you must obtain and carefully read a copy
of that Fund's Prospectus.
Exchange Privilege
------------------
Class A shares of a Fund may be exchanged for shares of Class A of the
other Money Market Fund and Class B shares of a Fund may be exchanged for Class
B shares of the other Money Market Fund without a sales charge or CDSC, subject
to the investor eligibility requirements of the Fund into which you are
exchanging. Shareholders may also exchange their shares in the Money Market
Funds for shares of the same class of any other Nvest Fund listed below, subject
to those funds' eligibility requirements and sales charges. These options are
summarized in the Prospectus.
Shareholders of any of the Nvest Funds may exchange all or any portion of
their shares (including the proceeds of shares of the other funds redeemed
within 120 days before the exchange) for shares of the same class of the Money
Market Funds. However, Class A, Class B or Class C shares of a Money Market Fund
acquired by exchange either from the Nvest Funds or the other Money Market Fund
will be subject to a CDSC if, and to the extent as, the shares exchanged were
subject to a CDSC. Such exchanges may be made by telephoning or writing Nvest
Funds or certain investment dealers. An exchange of the Class B shares of the
Nvest Funds into Class B shares of a Money Market Fund stops the aging period
for purposes of determining the CDSC and conversion to Class A, and the aging
resumes only when an exchange is made back into a Nvest Fund.
Class C shares in accounts of 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 a Nvest Fund without paying a
front-end sales charge. For the purpose of computing the CDSC payable upon
redemption of shares acquired by such exchange, the holding period of any Nvest
Fund Class C shares that were exchanged for Class C shares of the Fund is
included, but the holding period of the Class C shares of the Fund is not
included.
22
<PAGE>
Shares of any Fund acquired through an exchange from the Nvest Funds listed
below may be re-exchanged for shares of the same class of those Nvest Funds. Any
such exchange will be based on the respective current net asset values of the
shares involved and no sales charge will be imposed (unless you exchanged into a
Money Market Fund from Class A shares of the Nvest Intermediate Tax Free Fund of
California that you held for less than 6 months, which would subject you to pay
the difference between the sales charge previously paid on your California Fund
shares and the sales charge currently imposed on other Nvest Fund shares or you
exchanged into a Money Market Fund from Class A shares of Nvest Short Term
Corporate Income Fund (formerly Nvest Adjustable Rate U.S. Government Fund)
purchased before December 1, 1998, which would subject you to pay the difference
between the sales charge previously paid on your Corporate Income Fund shares
and the sales charge currently imposed on other Nvest Fund shares). Shareholders
making such exchanges must provide Nvest Funds with sufficient information to
permit verification of their prior ownership of shares.
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 Funds or Nvest Services Company at
800-225-5478 or (2) a written exchange request to the Funds or Nvest Services
Company, P.O. Box 8551, Boston, MA 02266-8551. You must acknowledge receipt of a
current Prospectus for a Fund before an exchange for that Fund can be effected.
The minimum amount for an exchange is $1,000.
Except as otherwise permitted by SEC rule, shareholders will receive at
least 60 days advance notice of any material change to the exchange privilege.
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 a Fund are automatically redeemed each month and immediately
reinvested in shares of the same class of one or more of the Nvest Funds listed
below, subject to the investor eligibility requirement of that other fund and
the exchange rules regarding Class A, Class B and Class C above. Registrations
on all accounts must be identical. The two dates each month on which exchanges
may be made are the 15th or 28th (or the first business day thereafter if the
15th or the 28th are not business days) and are made 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. A sales charge will
be imposed on such exchanges unless the shares being exchanged were previously
acquired through an exchange from one of the Nvest Funds listed below. Complete
the account application or the Service Options Form available from Nvest
Services Company or your financial representative to establish an Automatic
Exchange Plan.
Every exchange constitutes a sale of fund shares for federal income tax
purposes, on which an investor may realize a long- or short-term capital gain or
loss.
The investment objectives of the Nvest Funds (including the Kobrick Funds) as
set forth in the Prospectus are as follows:
STOCK FUNDS:
-----------
NVEST AEW REAL ESTATE FUND (upon availability) seeks above-average income
and long-term growth of capital.
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.
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.
23
<PAGE>
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.
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.
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.
Self-Servicing Your Account with Nvest Funds Personal Access Line(R)
--------------------------------------------------------------------
and Web site
------------
24
<PAGE>
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 is 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:
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.
25
<PAGE>
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.
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
PO 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 Fund shares are summarized in the
Prospectus. Under certain conditions, exceptions may be made to the policies
listed here and in the Prospectus, subject to senior management approval. As
described in the Prospectus, a CDSC may be imposed in certain instances upon the
redemption of Fund shares that were acquired through an exchange of shares of
the Nvest Funds. For purposes of the CDSC, an exchange of shares from one Fund
to another Fund is not considered a redemption or 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. Any applicable CDSC will be calculated in the manner described in the
relevant prospectus of the Nvest Funds and the related Statement of Additional
Information.
26
<PAGE>
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. However, a signature guarantee will not 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 a 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 New York Stock Exchange (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 Funds 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 Nvest Services Company
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 Nvest Services
Company 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 Funds, 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, as agreed to with the Funds, 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.
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
of 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.
Checkwriting is available on Class A shares of the Funds. To elect
checkwriting for your account, select the checkwriting option on your
application and complete the attached signature card. To add checkwriting to an
existing account, please call 800-225-5478 for our Service Options Form. The
Funds will send you checks drawn on State Street Bank. You will continue to earn
dividends on shares redeemed by check until the check clears. Each check must be
written for $250 or more. The checkwriting privilege does not apply to shares
for which you have requested share certificates be issued. Checkwriting is not
available for investor accounts containing Class A shares subject to a CDSC. If
you use withdrawal checks, you will be subject to State Street Bank's rules
governing checking accounts. The Funds and the Distributor are in no way
responsible for any checkwriting account established with State Street Bank. You
may not close your account by withdrawal check because the exact balance of you
account will not be known until after the check is received by State Street
Bank.
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 State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank 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 Funds reserve the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited within ten calendar
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
27
<PAGE>
The Funds will normally redeem shares for cash; however, the Funds reserve
the right to pay the redemption price wholly or partly in kind if the relevant
Trust's Board of Trustees determines it to be advisable and in the interest of
the remaining shareholders of a Fund. The redemptions in kind will be selected
by the Fund's subadviser 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 Funds have elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which the Funds are 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 relevant Fund at the
beginning of such period. The Funds do not currently intend to impose any
redemption charge (other than the CDSC imposed by the Funds' distributor),
although it reserves the right to charge a fee not exceeding 1% of the
redemption price. 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 the sections "Net Income, Dividends and Valuation" and "Taxes"
below.
The Funds may also close your account and send you the proceeds if the
balance in your account falls below a minimum amount set by each Trust'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.
--------------------------------------------------------------------------------
NET INCOME, DIVIDENDS AND VALUATION
--------------------------------------------------------------------------------
Determination of Net Income
---------------------------
The net income of each Fund is determined as of the close of regular
trading on the Exchange on each day that the Exchange is open for trading. The
Exchange is expected to be closed on the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Net income includes (i) all
interest accrued and discount earned on the portfolio investments of the Fund,
minus (ii) amortized premium on such investments, plus or minus (iii) all
realized gains and losses on such investments, and minus (iv) all expenses of
the Fund.
Daily Dividends
---------------
As described in the Prospectus, the net income of each Fund is declared as
a dividend, at the closing of regular trading on the Exchange each day that the
Exchange is open. In general, all investments in the fund begin to accrue
dividends on the business day following the date the purchase amount is invested
in the fund. Dividends accrue up to and including the date of redemption.
Dividends will be paid in cash to the shareholder if the shareholder has
notified State Street Bank in writing of the election on or before payable date.
The net income for Saturdays, Sundays and other days on which the Exchange is
closed is declared as a dividend on the immediately preceding business day.
Although the Funds do not expect to realize any long-term capital gains, if such
gains are realized they will be distributed once a year. 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 be automatically changed and your future dividends will be
reinvested. No interest will accrue on amounts represented by uncashed dividend
or redemption checks.
Valuation of the Funds' Portfolio Investments
---------------------------------------------
The total net asset value of each Fund (the excess of the Fund's assets
over its liabilities) is determined by State Street Bank as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
(See "Determination of Net Income.") The portfolio securities of each Fund are
valued at their fair value as determined in good faith by the relevant Trust's
Board of Trustees or persons acting at their direction. Under normal market
conditions, portfolio securities will be valued at amortized cost as described
below. Expenses of each Fund are paid or accrued each day.
28
<PAGE>
Under the amortized cost method of valuation, securities are valued at cost
on the date of purchase. Thereafter, the value of securities purchased at a
discount or premium is increased or decreased incrementally each day so that at
maturity the purchase discount or premium is fully amortized and the value of
the security is equal to its principal amount. Due to fluctuations in interest
rates, the amortized cost value of the securities of a Fund may at times be more
or less than their market value.
By using amortized cost valuation, the Funds seek to maintain a constant
net asset value of $1.00 per share despite minor shifts in the market value of
their portfolio securities. The yield on a shareholder's investment may be more
or less than that which would be recognized if the net asset value per share
were not constant and were permitted to fluctuate with the market value of the
portfolio securities of each Fund. However, as a result of the following
procedures, it is believed that any difference will normally be minimal. The
trustees monitor quarterly the deviation between the net asset value per share
of each Fund as determined by using available market quotations and its
amortized cost price per share. Back Bay Advisors makes such comparisons at
least weekly and will advise the trustees promptly in the event of any
significant deviation. If the deviation exceeds 1/2 of 1% for any Fund, the
relevant Board of Trustees will consider what action, if any, should be
initiated to provide fair valuation of the portfolio securities of that Fund and
prevent material dilution or other unfair results to shareholders. Such action
may include redemption of shares in kind; selling portfolio securities prior to
maturity; withholding dividends; or using a net asset value per share as
determined by using available market quotations. There is no assurance that each
Fund will be able to maintain its net asset value at $1.00.
Determination of Yield
----------------------
YIELD. Each Fund's yield, as it may appear in advertisements or written
sales material, represents the net change, exclusive of capital changes, in the
value of a hypothetical account having a balance of one share at the beginning
of the period for which yield is determined (the "base period"). Current yield
for the base period (for example, seven calendar days) is calculated by dividing
(i) the net change in the value of the account for the base period by (ii) the
number of days in the base period. The resulting number is then multiplied by
365 to determine the net income on an annualized basis. This amount is divided
by the value of the account as of the beginning of the base period, normally $1,
in order to state the current yield as a percentage. Yield may also be
calculated on a compound basis ("effective" or "compound" yield) which assumes
continual reinvestment throughout an entire year of net income earned at the
same rate as net income is earned by the account for the base period.
Each Fund's yield for the seven days ended June 30, 2000 and effective
yield based on such seven-day period were, respectively, 5.76% and 5.93% (Cash
Management Trust - Money Market Series) and 3.77% and 3.84% (Tax Exempt Money
Market Trust). The yield is based on the expenses paid by Class A, B, and C
shares.
Yield is calculated without regard to realized and unrealized gains and
losses. The yield of each Fund will vary depending on prevailing interest rates,
operating expenses and the quality, maturity and type of instruments held in the
portfolio of that Fund. Consequently, no yield quotation should be considered as
representative of what the yield of the applicable Fund may be for any future
period. The Funds' yields are not guaranteed. At any time in the future, yields
and total return may be higher or lower than past yields and there can be no
assurance that any historical results will continue.
Investors in the other Nvest Funds are specifically advised that share
prices, expressed as the net asset values per share, will vary just as yield
will vary. An investor's focus on the yield of a Fund to the exclusion of the
consideration of the share price of that Fund may result in the investor's
misunderstanding the total return he or she may derive from the Fund.
Shareholders comparing a Fund's yield with that of alternative investments
(such as savings accounts, various types of bank deposits, and other money
market funds) should consider such things as liquidity, minimum balance
requirements, checkwriting privileges, the differences in the periods and
methods used in the calculation of the yields being compared, and the impact of
taxes on alternative types of investments.
Yield information may be useful in reviewing each Fund's performance and
providing a basis for comparison with other investment alternatives. However,
unlike bank deposits, traditional corporate or municipal bonds or other
investments which pay a fixed yield for a stated period of time, money market
and tax exempt money market fund yields fluctuate.
TAXABLE-EQUIVALENT YIELD. The Tax Exempt Money Market Trust may also
advertise a taxable-equivalent yield or taxable-equivalent effective yield,
calculated as described above, except that, for any given tax bracket, net
investment income will be calculated using as gross investment income an amount
equal to the sum of (i) any taxable income of the Fund
29
<PAGE>
plus (ii) the tax exempt income of the Fund divided by the difference between 1
and the effective federal income tax rate for taxpayers in that tax bracket.
Taxable-Equivalent Yield and Taxable-Equivalent
Effective Yield for the 7 day period ended June 30, 2000
--------------------------------------------------------
7 day yield: 3.77%
7 day effective: 3.84%
Federal Taxable-Equivalent Taxable-Equivalent
Tax Rate Yield Effective Yield
-------- ----- ---------------
15% 4.44% 4.52%
28% 5.24% 5.33%
31% 5.46% 5.57%
36% 5.89% 6.00%
39.6% 6.24% 6.36%
Calculation of Total Return.
---------------------------
Total return is a measure of the change in value of an investment in a Fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the same class of that
Fund rather than paid to the investor in cash. Each 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 class, if shorter) through the end of the most recent
calendar quarter. The formula for total return used by the Funds is prescribed
by the SEC and includes three steps: (1) adding to the total number of shares of
the particular class 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 number of shares owned at the end of the period by the net asset value per
share of the relevant class on the last trading day of the period; (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 a Fund. If a Fund presents returns reflecting an expense limitation
or waiver, its total return would have been lower if no limitation or waiver
were in effect.
--------------------------------------------------------------------------------
TAX-FREE INVESTING
--------------------------------------------------------------------------------
The table below compares taxable and tax-free yields, based on tax rates
for 2000:
<TABLE>
<CAPTION>
Federal
Marginal
Tax
Taxable Income* Rate If Tax Exempt Yield Is
--------------------------------------------------- --------------------------------------------------------
Single Joint (2000) 2% 3% 4% 5% 6%
Return Return Then the Equivalent Taxable Yield Would Be
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0 - $25,750 $0 - $43,050 15% 2.35% 3.53% 4.71% 5.88% 7.06%
$25,751 - $62,450 $43,051 - $104,050 28% 2.78% 4.17% 5.56% 6.94% 8.33%
$62,451 - $130,250 $104,051 - $158,550 31% 2.90% 4.35% 5.80% 7.25% 8.70%
$130,251 - $283,150 $158,551 - $283,150 36% 3.13% 4.69% 6.25% 7.81% 9.38%
$283,151 and over $283,151 and over 39.6% 3.31% 4.97% 6.62% 8.28% 9.93%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code.
The table above does not take into account the effect of state and local
taxes, if any, or federal income taxes on social security benefits which may
arise as a result of receiving tax exempt income.
30
<PAGE>
--------------------------------------------------------------------------------
TAXES
--------------------------------------------------------------------------------
In General
----------
The tax status of the Funds and the distributions that each Fund may make
are summarized in the section of the Prospectus entitled "Tax Consequences."
Each Fund intends to qualify as a regulated investment company under the Code.
This means that the Fund will not be subject to federal income tax on net income
and net realized capital gains distributed to shareholders provided it (i)
distributes annually substantially all its net investment income and net
realized short-term capital gains; (ii) derives at least 90% of its gross income
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; and (iii) diversifies 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 same, similar or
related trades or businesses.
To avoid certain excise taxes, each Fund must distribute by December 31
each year virtually all of its ordinary income realized in that year, and any
previously undistributed capital gains it realized in the twelve months ended on
October 31 of that year. Certain dividends declared by a Fund in October,
November or December but not actually received by you until January will be
treated for federal tax purposes as though you had received them on December 31
of the year in which declared.
Cash Management Trust - Money Market Series
-------------------------------------------
It is not expected that the Fund will realize any long-term capital gains.
However, to the extent that distributions of any net realized 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) are
made to shareholders of the Fund, such gains are taxable to such shareholders as
long-term capital gains, whether received in cash or additional shares and
regardless of how long shareholders have held their shares. Such distributions
are not eligible for the dividends received deduction for corporations.
Distributions derived from short-term capital gains and investment income are
generally taxable to you at ordinary income rates.
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 a Fund is notified that you have
underreported income in the past, or if you fail to certify to a 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.
Tax Exempt Money Market Trust
-----------------------------
The Fund intends to have at least 50% of its total assets invested in
Municipal Securities at the close of each quarter of its taxable year so that
dividends paid by the Fund which are derived from interest on Municipal
Securities will be "exempt-interest dividends" within the meaning of the Code.
Exempt-interest dividends may be treated by shareholders as interest excludable
from gross income under Section 103(a) of the Code. Dividends derived from
income which is not exempt from federal income tax, including interest earned on
investments in taxable money market securities or in repurchase agreements and
any net short-term capital gains realized by the Fund, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
Determination of the taxability status of dividends is made using the average
annual method. The percentage of income designated as tax-exempt for any
particular distribution may be substantially different from the percentage of
the Fund's income that was tax-exempt during the period covered by the
distribution. The interest on certain types of Municipal Securities, known as
"private activity" bonds, is an item of tax preference, subject to the federal
alternative minimum tax with a maximum rate of 28%. The Fund has instituted
procedures to avoid investment in "private activity" Municipal Securities in
order to reduce the possibility that Fund dividends will constitute an item of
tax preference. However, there can be no assurance that these procedures will be
totally effective. The Fund
31
<PAGE>
intends to continue these procedures so long as it deems them necessary and
prudent. Shareholders should be aware that, while these procedures are in
effect, the Fund will not be able to invest in the full range of issues
available in the Municipal Securities market. The Fund's investments in
Municipal Securities that are subject to the federal alternative minimum tax,
together with other investments the interest on which is subject to the
alternative minimum tax, will not normally exceed 20% of Fund investments. See
the Prospectus for information regarding certain other limitations on the
tax-exempt status of interest on Municipal Securities.
The interest on Municipal Securities issued after August 15, 1986 is
retroactively taxable from the date of issuance if the issuer does not comply
with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.
Net long-term capital gain distributions, if any, will be taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has held shares of the Fund.
None of the Fund's dividends or distributions are expected to be eligible
for the dividends-received deduction available to corporations.
Under the Code, investors may not deduct interest on indebtedness incurred
or continued to purchase or carry shares of an investment company paying
exempt-interest dividends, such as the Fund. (See Section 264 (a)(4) of the
Code.) Further, entities or persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by industrial development
bonds (see Appendix B) should consult their tax advisers before purchasing
shares of the Fund.
Shareholders are advised to consult their own tax advisers for more
detailed information concerning the federal income taxation of the Fund and the
income tax consequences to its shareholders.
Both Funds
----------
The sale, exchange or redemption of Fund shares may give rise to a gain or
loss. In general, any gain or loss realized upon a taxable disposition of shares
will be treated as long-term capital gain or loss if the shares have been held
for more than 12 months. Otherwise the gain or loss on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain or loss.
However, if a shareholder sells shares at a loss within six months of purchase,
any loss will be disallowed for federal income tax purposes to the extent of any
exempt-interest dividends received on such shares. In addition, any loss (not
already disallowed as provided in the preceding sentence) realized upon a
taxable disposition of shares held for six months or less will be treated as
long-term, rather than short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to shares. All or a
portion of any loss realized upon a taxable disposition of fund shares will be
disallowed if other shares of the same fund are purchased within 30 days before
or after the disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
For taxable years beginning after December 31, 2000, the maximum capital
gains tax rates for capital assets (including Fund shares) held by a
noncorporate shareholder for more than 5 years will be 8 percent and 18 percent
(rather than 10 percent and 20 percent). The 18-percent rate applies only to
assets the holding period for which begins after December 31, 2000 (including by
way of an election to mark the asset to the market, and to pay the tax gain
thereon, as of January, 2, 2001). The mark-to-market election may be
disadvantageous from a federal tax perspective, and shareholders should consult
their tax advisors before making such an election.
The foregoing relates only to federal income taxation of individuals and
corporations. Prospective shareholders should consult their tax advisers as to
the possible application of state and local income tax laws to Fund dividends
and capital gain distributions and the tax consequences of retirement plans
offering tax benefits. Information regarding the tax status of distributions
made by the Funds will be sent to shareholders shortly after the end of each
calendar year.
32
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Financial Statements of each of the Funds and the related reports of
the independent accountants included in the annual reports of the Funds for the
year ended June 30, 2000 are incorporated herein by reference. Each Fund's
annual and semi-annual report is available upon request and without charge. Each
Fund will send a single copy of its annual and semi-annual reports to an address
at which more than one shareholder of record with the same last name has
indicated that mail is to be delivered. Shareholders may request additional
copies of any annual or semi-annual report by telephone at (800) 225-5478 or by
writing to the Funds at: Nvest Funds Distributor, L.P., 399 Boylston Street,
Boston, Massachusetts 02116.
33
<PAGE>
--------------------------------------------------------------------------------
APPENDIX A
--------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN NVEST CASH MANAGEMENT TRUST - MONEY MARKET SERIES
INVESTMENTS:
OBLIGATIONS BACKED BY FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT -- are
bills, certificates of indebtedness, notes and bonds issued by (i) the U.S.
Treasury or (ii) agencies, authorities and instrumentalities of the U.S.
Government or other entities and backed by the full faith and credit of the U.S.
Government. Such obligations include, but are not limited to, obligations issued
by the Government National Mortgage Association, the Farmers' Home
Administration and the Small Business Administration.
OTHER U.S. GOVERNMENT OBLIGATIONS -- are bills, certificates of
indebtedness, notes and bonds issued by agencies, authorities and
instrumentalities of the U.S. Government which are supported by the right of the
issuer to borrow from the U.S. Treasury or by the credit of the agency,
authority or instrumentality itself. Such obligations include, but are not
limited to, obligations issued by the Tennessee Valley Authority, the Bank for
Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal National Mortgage Association.
REPURCHASE AGREEMENTS -- are agreements by which the Fund purchases a
security (usually a U.S. Government Obligation) and obtains a simultaneous
commitment from the seller (a member bank of the Federal Reserve System or, to
the extent permitted by the 1940 Act, a recognized securities dealer) 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 an
opportunity for the Fund to earn a return on temporarily available cash at
minimal market risk, although the Fund may be subject to various delays and
risks of loss if the seller is unable to meet its obligation to repurchase.
CERTIFICATES OF DEPOSIT -- are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified rate of return
and are normally negotiable.
BANKERS' ACCEPTANCES -- are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
YANKEEDOLLAR OBLIGATIONS -- obligations of U.S. branches of foreign banks.
EURODOLLAR OBLIGATIONS -- dollar-denominated obligations of foreign banks
(including U.S. and London branches of foreign banks) and foreign branches of
U.S. banks.
COMMERCIAL PAPER -- refers to promissory notes issued by corporations in
order to finance their short-term credit needs. (See Appendix C.)
CORPORATE OBLIGATIONS -- include bonds and notes issued by corporations in
order to finance longer-term credit needs. (See Appendix C.)
A-1
<PAGE>
--------------------------------------------------------------------------------
APPENDIX B
--------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN NVEST TAX EXEMPT MONEY MARKET TRUST INVESTMENTS
The three principal classifications of Municipal Securities are "Notes,"
"Bonds" and "Commercial Paper."
MUNICIPAL NOTES. Municipal Notes are generally issued to finance short-term
capital needs and generally have maturities of one year or less. Municipal Notes
include:
1. PROJECT NOTES. Project Notes are issued by public bodies (called "local
issuing agencies") created under the laws of a state, territory or U.S.
possession. They have maturities that range up to one year from the date of
issuance. These Notes provide financing for a wide range of financial assistance
programs for housing, redevelopment and related needs (such as low-income
housing programs and urban renewal programs). While they are the primary
obligations of the local public housing agencies or the local urban renewal
agencies, they are also backed by the full faith and credit of the U.S.
Government. Accordingly, investment restriction (1) of Nvest Tax Exempt Money
Market Trust is not applicable to Project Notes. See "Investment Restrictions."
2. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance working
capital needs of states, counties, municipalities and other public bodies that
have the legal power to tax. Generally, they are issued in anticipation of
various seasonal tax revenues, such as real and personal property, income,
sales, use and business taxes, and are payable from some or all of these
specific future taxes.
3. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued to provide
interim financing in expectation of receipt of various types of non-tax revenue,
such as revenues available to the issuer under various federal revenue sharing
programs. In some cases, Revenue Anticipation Notes may be payable additionally
from tax revenues.
4. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds, when sold and issued, then provide the money for repayment of
the Notes.
5. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to provide
construction financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or "Ginnie Mae"
(the Government National Mortgage Association) programs.
MUNICIPAL BONDS. Municipal Bonds, which meet longer-term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: General Obligation Bonds and Limited Obligation or Revenue
Bonds. One type of Municipal Revenue Bonds is referred to as Industrial
Development Bonds. These three are discussed below.
1. GENERAL OBLIGATION BONDS. Issuers of General Obligation Bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. General Obligation Bonds are not payable from any
particular fund or source. The characteristics and method of enforcement of
General Obligation Bonds vary according to the law applicable to the particular
issuer and payment may be dependent upon an appropriation by the issuer's
legislative body. The taxes that can be levied for the payment of debt service
may be limited or unlimited as to rate or amount. Such bonds may be additionally
secured by special assessments.
B-1
2. LIMITED OBLIGATION OR REVENUE BONDS. The principal source for repayment of a
Revenue Bond is generally the net revenues derived from a particular facility or
group of facilities or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue Bonds have been or may be issued to finance a
wide variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges and tunnels; port facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund whose money may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidies and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
3. INDUSTRIAL DEVELOPMENT BONDS. Prior to the Tax Reform Act of 1986, certain
debt obligations known as Industrial Development Bonds could be issued by or on
behalf of public authorities to raise money to finance various
privately-operated facilities for business and manufacturing, housing, sports
and pollution control; such obligations are included within the term Municipal
Bonds if the interest paid thereon is, in the opinion of bond counsel, exempt
from federal income tax. These bonds also have been or may be used to finance
public facilities, which may be privately used and operated, such as airports,
mass transit systems, ports and parking. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real or personal
property so financed as security for such payment. The Tax Reform Act of 1986
eliminated some types of industrial revenue bonds but retained others under the
general category of "private activity bonds."
TAX-EXEMPT COMMERCIAL PAPER. Tax-Exempt Commercial Paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by agencies
of state and local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer term financing. Tax-Exempt
Commercial Paper is often renewed or refunded at its maturity by the issuance of
other short or long-term obligations.
OTHER TYPES OF MUNICIPAL SECURITIES. The foregoing describes types of
Municipal Securities which are presently available. Nvest Tax Exempt Money
Market Trust may, to the extent consistent with its investment objective,
policies and restrictions, invest in other types of Municipal Securities as they
become available in the future.
B-2
<PAGE>
--------------------------------------------------------------------------------
APPENDIX C
--------------------------------------------------------------------------------
RATINGS OF CORPORATE AND MUNICIPAL BONDS, COMMERCIAL PAPER AND
SHORT-TERM TAX-EXEMPT OBLIGATIONS
Set forth below are descriptions of the highest ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") for
corporate and municipal bonds, commercial paper and short-term tax-exempt
obligations. Ratings for commercial paper have been included since certain of
the obligations which the Funds are authorized to purchase have characteristics
of commercial paper and have been rated as such by Moody's and S&P.
MOODY'S RATINGS
Corporate and Municipal Bonds
-----------------------------
Aaa -- Bonds which 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 which 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 which make
the long-term risks appear somewhat larger than in Aaa securities.
Short-Term Municipal Notes
--------------------------
The two highest ratings of Moody's for short-term municipal notes are MIG-1 and
MIG-2: MIG-1 denotes "best quality, enjoying strong protection from established
cash flows;" MIG-2 denotes "high quality," with margins of protection ample
although not so large as in the preceding group.
Commercial Paper
----------------
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
Issuers rated Prime-1 are judged to be of the best quality. Their short-term
debt obligations carry the smallest degree of investment risk. Margins of
support for current indebtedness are large or stable with cash flow and asset
protection well assured. Current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are generally
available. While protective elements may change over the intermediate or long
term, such changes are most unlikely to impair the fundamentally strong position
of short-term obligations.
C-1
S&P RATINGS
Corporate and Municipal Bonds
-----------------------------
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
Short-Term Municipal Notes
--------------------------
S&P does not rate short-term municipal notes as such.
Commercial Paper
----------------
Commercial paper rated A-1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Commercial paper within the A-1 category
which has overwhelming safety characteristics is denoted "A-1+."
<PAGE>
C-2
[IMPORT OMITTED]
<PAGE>
--------------------------------------------------------------------------------
APPENDIX D
--------------------------------------------------------------------------------
MEDIA THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Fitch Insights
Adam Smith's Money World Forbes
America Online Fort Worth Star-Telegram
Anchorage Daily News Fortune
Atlanta Constitution Fox Network and affiliates
Atlanta Journal Fund Action
Arizona Republic Fund Decoder
Austin American Statesman Global Finance
Baltimore Sun (the) Guarantor
Bank Investment Marketing Hartford Courant
Barron's Houston Chronicle
Bergen County Record (NJ) INC
Bloomberg Business News Indianapolis Star
B'nai B'rith Jewish Monthly Individual Investor
Bond Buyer Institutional Investor
Boston Business Journal International Herald Tribune
Boston Globe Internet
Boston Herald Investment Advisor
Broker World Investment Company Institute
Business Radio Network Investment Dealers Digest
Business Week Investment Profiles
CBS and affiliates Investment Vision
CFO Investor's Business Daily
Changing Times IRA Reporter
Chicago Sun Times Journal of Commerce
Chicago Tribune Kansas City Star
Christian Science Monitor KCMO (Kansas City)
Christian Science Monitor News Service KOA-AM (Denver)
Cincinnati Enquirer Los Angeles Times
Cincinnati Post Leckey, Andrew (syndicated column)
CNBC Lear's
CNN Life Association News
Columbus Dispatch Lifetime Channel
CompuServe Miami Herald
Dallas Morning News Milwaukee Sentinel
Dallas Times-Herald Money
Denver Post Money Maker
Des Moines Register Money Management Letter
Detroit Free Press Morningstar
Donoghues Money Fund Report Mutual Fund Market News
Dorfman, Dan (syndicated column) Mutual Funds Magazine
Dow Jones News Service National Public Radio
Economist National Underwriter
FACS of the Week NBC and affiliates
Fee Adviser New England Business
Financial News Network New England Cable News
Financial Planning New Orleans Times-Picayune
Financial Planning on Wall Street New York Daily News
Financial Research Corp. New York Times
Financial Services Week Newark Star Ledger
Financial World Newsday
D-1
<PAGE>
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
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
D-4
<PAGE>
--------------------------------------------------------------------------------
APPENDIX E
--------------------------------------------------------------------------------
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in Nvest Funds' advertising and promotional
literature to Nvest Companies and to its affiliates that perform advisory and
subadvisory functions for Nvest Funds including, but not limited to: 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 Loomis Sayles Funds and the Oakmark Funds advised by
Harris Associates, L.P.
References may be included in Nvest Funds' advertising and promotional
literature to other -Nvest Companies affiliates including, but not limited to
AEW Capital Management, L.P., Synder Capital Management, L.P., Reich & Tang
Capital Management, Reich and Tang Funds and their fund groups.
References to subadvisers unaffiliated with Nvest Companies that perform
subadvisory functions on behalf of Nvest Funds may be contained in Nvest Funds'
advertising and promotional literature including, but not limited to, Janus
Capital Corporation, Montgomery Asset Management, LLC and RS Investment
Management, L.P.
Nvest Funds' advertising and promotional material will include, but is not
limited to, discussions of the following information about both affiliated and
unaffiliated entities:
O 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;
O Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions;
O Specific and general investment philosophies, strategies, processes,
techniques and types of analysis;
O 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;
O The corporate histories, founding dates and names of founders of the
entities;
O Awards, honors and recognition given to the entities;
O The names of those with ownership interest and the percentage of ownership
interest;
O 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;
O Current capitalizations, levels of profitability and other financial and
statistical information;
O Identification of portfolio managers, researchers, economists, principals
and other staff members and employees;
O 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;
O Specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments;
E-1
<PAGE>
O Current and historical statistics regarding:
-total dollar amount of assets managed
-Nvest Funds' assets managed in total and by fund
-the growth of assets -asset types managed
-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 subadviser;
O The general and specific strategies applied by the subadvisers in the
management of 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 & Company,
L.P., the strict buy/sell guidelines and focus on sound value it employs,
and goals and benchmarks that it establishes in management, e.g., Capital
Growth Management Limited Partnership 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 Investment Advisors, L.P.'s efforts to identify overvalued and
undervalued issues; and
O 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 subadvisers, including,
but not limited to, those provided by Morningstar, Lipper, Inc., 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 management arm of France's Caisse des
Depots et Consignations ("CDC"), a major diversified financial institution. As
of June 30, 2000 Nvest Companies had more than $130 billion in assets under
management. In addition, promotional materials may include:
O 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.
E-2
<PAGE>
Nvest Managed Account Services ("NMAS"), Nvest Advisor Services ("NAS") and
Nvest Retirement Services ("NRS"), divisions ofNvest 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 Fund 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 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, Inc.; 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:
O 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.
O 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.
O 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.
O Specific and general discussion of the benefits of 401(k) investment and
retirement plans as well as benefits of investing in mutual funds for
401(k) and retirement plans to both plan sponsors and participants,
including explanations, statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
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-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.
O 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.
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