SEMIANNUAL REPORT
[NVEST FUNDS LOGO]
NVEST STRATEGIC INCOME FUND
[WHERE THE BEST MINDS MEET ARTWORK GOES HERE]
June 30, 2000
<PAGE>
PRESIDENTS MESSAGE
================================================================================
AUGUST 2000
--------------------------------------------------------------------------------
[PICTURE OF JOHN HAILER GOES HERE]
John
T. Hailer President and
Chief Executive Officer
Nvest Funds
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months - three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
YOUR CHOICE OF INVESTMENT TOOLS
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions. No matter how you react to
shifting markets, don't let short-term events derail your long-range program.
Consult your financial representative before you make any changes.
NVEST IS POISED FOR GLOBAL GROWTH
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
[JOHN HAILER'S SIGNATURE APPEARS HERE]
"No matter how you react to shifting markets, don't let short-term events derail
your long- range program. Consult your financial representative before you make
any changes."
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
NVEST STRATEGIC INCOME FUND
================================================================================
INVESTMENT RESULTS THROUGH JUNE 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Strategic Income Fund's performance with a benchmark
index provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses, even if they could.
GROWTH OF A $10,000 INVESTMENT
[GROWTH OF $10,000 CHART GOES HERE]
NAV MSC Lehman Aggregate
-----------------------------------------------------------------
6/00 15,459 14,763 13,081 13,748
6/99 14,830 14,163 13,549 13,120
6/98 14,141 13,505 13,136 13,252
6/97 13,385 12,783 11,883 12,037
6/96 11,380 10,868 10,989 11,062
6/95 10,015 9,564 10,463 10,465
6/95 10,000 9,550 10,000 10,000
MAY 1995 (FUND INCEPTION) THROUGH JUNE 2000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
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<TABLE>
NVEST STRATEGIC INCOME FUND
================================================================================
AVERAGE ANNUAL TOTAL RETURNS--6/30/00
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (Inception 5/1/95) 6 MONTHS 1 YEAR 5 YEARS(8) SINCE INCEPTION(8)
Net Asset Value(1) ................. 1.51 4.29% 9.06 8.80%
With Maximum Sales Charge(2) ....... -3.07 -0.39 8.06 7.83
---------------------------------------------------------------------------------------------------
CLASS B (Inception 5/1/95) 6 Months 1 Year 5 YEARS(8) SINCE INCEPTION(8)
Net Asset Value(1) 1.05% 3.51% 8.22% 7.95%
With CDSC(3) -3.82 -1.26 7.95 7.82
---------------------------------------------------------------------------------------------------
CLASS C (Inception 5/1/95) 6 Months 1 Year 5 YEARS(8) SINCE INCEPTION(8)
Net Asset Value(1) 1.06% 3.42% 8.22% 7.90%
With CDSC(3) 0.08 2.47 8.22 7.90
---------------------------------------------------------------------------------------------------
Class Y (Inception 12/1/99) 6 MONTHS SINCE INCEPTION
Net Asset Value(1) 1.64% 4.34%
</TABLE>
<TABLE>
SINCE SINCE
CLASS A, B & C CLASS Y
<S> <C> <C> <C> <C> <C>
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS INCEPTION INCEPTION
Lehman Aggregate Bond Index(4) 3.99% 4.56% 6.25% 6.97% 3.63%
Lehman Universal Index(5) 3.79 4.78 6.37 7.09 3.72
Morningstar Multi-Sector Bond Average(6) 0.63 2.78 6.24 6.94 1.82
Lipper Multi-Sector Income Average(7) 0.43 2.09 6.24 6.21 1.51
</TABLE>
NOTES TO CHARTS
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
1 These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
2 These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 4.50%.
3 These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
4 Lehman Aggregate Bond Index is an unmanaged index of domestic debt issued
by the U.S. government and its agencies. Since-inception returns for Class
A, B and C shares are calculated from 4/30/95. Since-inception return for
Class Y shares is calculated from 11/30/99. You may not invest directly in
an index.
5 Lehman Universal Bond Index is an unmanaged index representing a blend of
the Lehman Aggregate, High Yield and Emerging Market indices. You may not
invest directly in an index. Since-inception returns for Class A, B and C
shares are calculated from 4/30/95. Since-inception return for Class Y
shares is calculated from 12/31/99.
6 Morningstar Multi-Sector Bond Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Morningstar, Inc. Since-inception returns for Class A, B and C shares are
calculated from 4/30/95. Since-inception return for Class Y shares is
calculated from 11/30/99.
7 Lipper Multi-Sector Income Average is the average performance without sales
charges of funds with a similar current investment style or objective as
calculated by Lipper Inc. Since-inception returns are calculated from
4/30/95. Since-inception returns for Class A, B and C shares are calculated
from 4/30/95. Since-inception return for Class Y shares is calculated from
12/1/99.
8 The Fund waived certain fees and expenses during the period indicated and
returns would have been lower had these fees not been waived.
2
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NVEST STRATEGIC INCOME FUND
================================================================================
INTERVIEW WITH YOUR PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PICTURE OF DAN FUSS AND KATHLEEN GAFFNEY APPEAR HERE]
Dan Fuss,
Kathleen Gaffney
Loomis, Sayles & Company, L.P.
Q. How did the Fund perform during the first half of 2000?
For the six months ended June 30, 2000, Nvest Strategic Income Fund's Class A
shares had a total return of 1.51% at net asset value, including $0.48 per share
in reinvested dividends. For the period, the Fund did not do as well as either
of its broad market indexes, Lehman Brothers Aggregate Bond Index and Lehman
Brothers Universal Bond Index, which returned 3.99% and 3.79%, respectively.
However, its results were above average for two lists of comparable funds
tracked by Morningstar and Lipper.
Q. What was the investment environment like?
Unlike the pattern of recent years, there was no increase in cash flows into
domestic or international high-yield securities early in 2000. Instead,
investors were distracted by high-tech stocks, leaving fixed-income markets
generally neglected.
At one level, the effect was that dealers who normally purchase high-yield and
other fixed-income securities were reluctant to do so, preferring to commit
capital to initial public offerings and merger activity, where the prospects for
reward by way of predetermined fees were more certain. Individuals, meanwhile,
turned away from fixed-income securities to pursue growth via stocks.
Spreads (additional yield available from high-yield bonds compared to higher
quality securities) remained very wide. But a number of defaults in sectors of
the low-grade bond market left individuals indifferent to the generous yields
that the wide spreads created.
Q. Given that market environment, what strategies did you pursue?
With interest rates rising and dealers unwilling to supply capital, high-yield
bond prices fell throughout the period, a circumstance that hurt the Fund's
six-month performance but which plays into our value-based approach. We believe
that recent lower price levels stem from market sentiment rather than from
fundamental weaknesses among issuers. Therefore, we have been buying
aggressively in sectors that our analysts believe hold the most potential for
price recovery as well as for stable, high income.
3
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NVEST STRATEGIC INCOME FUND
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For example, securities of Real Estate Investment Trusts (REITs) currently
represent excellent value, in our opinion. With the economy strong, supply and
demand for real estate properties are in good balance. Industry cash flows are
good, occupancy rates are high and rents are rising. The bonds of two of our
selections, Equity Office Property Trust and First Industrial, L.P., are
investment-grade (of sufficient quality to be purchased by institutions) but
currently offer yields usually associated with lower-grade bonds.
Nvest Strategic Income Fund's flexible investment policy allows us to pursue
opportunities anywhere in the world. At the end of the period, about two-thirds
of the portfolio was in foreign securities. In Canada, for example, the Fund's
investments are positioned to benefit from increasing exports of commodities and
natural resources to recovering global economies, and from a stronger Canadian
dollar. The Fund also has commitments in Argentina, where recession is ending,
and in Brazil, where inflation is dropping significantly and fiscal restraint is
taking hold. The outlook in Asia is bolstered by increased foreign investment
and healthy economic growth.
We have also been taking advantage of depressed valuations among cyclical
industries -- those that are tied to the ups and downs of business cycles.
Cyclical companies should do well in expanding overseas markets, even if the
United States economy begins to slow.
Q. What factors affected performance the most, either positively or negatively?
Although many bonds appeared to offer more attractive valuations than stocks, so
far this year investors continued to focus on growth to the exclusion of all
else. In addition, there is still some concern that if U.S. economic growth
slows in response to higher interest rates, the number of defaults may rise.
Offsetting that concern is the fact that recent defaults have occurred largely
among issues that came to market in the period 1996-1998, when the market was
very receptive to high-yield offerings and many underfinanced companies were
able to issue bonds. Because we focus on securities that have fallen to discount
levels, new issues are not part of the Fund's portfolio and did not affect
performance. In addition, our research-intensive approach is designed to steer
the Fund clear of marginal issuers.
Performance benefited from strength in domestic telecommunications companies and
technology issues. Technology results were enhanced by rising prices for
con-
4
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NVEST STRATEGIC INCOME FUND
================================================================================
PORTFOLIO COMPOSITION--6/30/00
% OF
COMPANY NET ASSETS
---------------------------------
1. Yankees* 40.4
2. Foreign Bonds 28.3
3. Corporate Bonds 18.1
4. Common Stocks 5.2
5. Short Term & Other 8.0
Average Portfolio Maturity = 17.0 years
Portfolio holdings and asset allocations will vary.
* Yankees are U.S. dollar-denominated foreign bonds.
vertible securities -- bonds and preferred stocks that can be exchanged for
common stock under specified conditions. We have been locking in gains in both
sectors to take advantage of compelling valuations. The Fund's energy
investments also did well, as oil prices rose dramatically.
Q. What is your outlook for the months ahead?
The consensus among investors is that the Federal Reserve Board will guide the
U.S. economy to a graceful exit from its overheated state; that is, higher
interest rates will let some of the steam out of the economy without bringing on
a recession. However, there could be some bumps along the way to the "soft"
economic landing. Since Nvest Strategic Income Fund's holdings already sell at
depressed prices, further market volatility may not have a significant impact.
Recovering overseas economies, including emerging markets, offer attractive
potential for high yields as well as price appreciation through improved credit
ratings. In addition, international economies are beginning to prosper on their
own, as they become less dependent on the power of the U.S. economy. We believe
these factors combine to provide attractive opportunities for Nvest Strategic
Income Fund in 2000 and beyond.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Strategic Income Fund may invest in foreign and emerging market
securities, which have special risks. It may also invest in lower-rated bonds,
which offer higher yields in return for more risk, and in mortgage securities
that are subject to prepayment risk. These risks affect the value of your
investment. See a prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
BONDS AND NOTES -- 84.9% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
RATINGS (C)
-----------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
-----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS-- 11.6%
CANADA-- 0.2%
<S> <C> <C> <C> <C>
$500,000 Rogers Communications, Inc., 2.000%, 11/26/2005 ................. Ba3 BB- $ 488,365
---------
Hong Kong-- 0.7%
4,075,000 Bangkok Bank Public Co., 4.589%, 3/03/2004 ...................... -- B+ 2,149,563
---------
Mauritius-- 0.8%
2,950,000 App Finance VII Mauritius Ltd., 3.500%, 4/30/2003 ............... B3 CCC+ 2,168,250
---------
Mexico-- 0.6%
3,325,000 Empresas ICA Sociedad, 5.000%, 3/15/2004 ........................ B3 B- 1,662,500
---------
Netherlands-- 0.2%
1,000,000 Burns Philp Treasury Co., Ltd., 5.500%, 4/30/2004 ............... -- B- 580,000
---------
South Korea-- 0.3%
250,000 Samsung SDI Co., Ltd., 0.250%, 3/12/2006 ........................ -- -- 289,375
1,000,000 Ssangyong Oil Refining Corp., Ltd., 3.000%, 12/31/2004(h)........ -- -- 670,000
---------
959,375
THAILAND-- 1.3%
2,130,000 Banpu Public Co., Ltd., 2.750%, 4/10/2003 ....................... -- -- 2,268,450
2,250,000 Loxley PLC, 2.500%, 4/04/2001(e) ................................ -- -- 742,500
1,130,000 Siam Commercial Bank, 3.250%, 1/24/2004 ......................... B2 BBB 563,587
200,000 Total Access Communications, 144A, 2.000%, 5/31/2006 ............ -- -- 244,000
---------
3,818,537
---------
UNITED STATES-- 7.5%
500,000 Baker Hughes, Inc., Zero Coupon, 5/05/2008 ...................... A2 A 389,700
96,000 Bell Sports Corp., 4.250%, 11/15/2000 ........................... B2 B- 86,400
3,910,000 Broadband Technologies, Inc., 144A, 5.000%, 5/15/2001 ........... -- -- 1,876,800
1,000,000 Builders Transport, Inc., 144A, 8.000%, 8/15/2005, (e) (g) ...... B3 -- 1,250
200,000 Builders Transport, Inc., 144A, 6.500%, 5/01/2011, (e) (g) ...... B3 -- 250
400,000 Centocor, Inc., 4.750%, 2/15/2005 ............................... -- AAA 539,500
325,000 Cirrus Logic, Inc., 6.000%, 12/15/2003 .......................... B3 CCC+ 286,406
275,000 CML Group, Inc., 144A, 5.500%, 1/15/2003,(e) (g) ................ -- -- 173
827,000 Cray Research, Inc., 6.125%, 2/01/2011 .......................... B2 B- 500,335
269,000 Dixie Group, Inc., 7.000%, 5/15/2012 ............................ B3 B+ 166,780
1,000,000 Dura Pharmaceuticals, Inc., 3.500%, 7/15/2002 ................... B1 B 810,000
1,050,000 EDO Corp., 7.000%, 12/15/2011 ................................... B3 -- 807,187
1,000,000 Einstein/Noah Bagel Corp., 7.250%, 6/01/2004 (e)(g) ............. -- -- 460,000
1,400,000 Exide Corp., 144A, 2.900%, 12/15/2005 ........................... B2 B 679,000
250,000 Federal Realty Investment Trust, 5.250%, 10/28/2003, (REIT) ..... Baa2 BBB 212,500
575,000 Glycomed, Inc., 7.500%, 1/01/2003 ............................... Caa -- 460,000
2,500,000 Intermedia Communications, Inc., 8.600%, 6/01/2008 .............. B2 B 2,300,000
525,000 Intevac, Inc., 6.500%, 3/01/2004 ................................ -- -- 234,938
1,375,000 Kent Electronics Corp., 4.500%, 9/01/2004 ....................... -- B 1,206,769
1,000,000 Lennar Corp. Zero Coupon, 7/29/2018 ............................. Ba1 BB+ 412,190
4,250,000 Loews Corp., 3.125%, 9/15/2007 .................................. A2 A+ 3,655,680
1,464,000 Maxtor Corp., 144A, 5.750%, 3/01/2012 ........................... Caa -- 1,024,800
1,098,000 Nabi, Inc., 6.500%, 2/01/2003 (h) ............................... B3 CCC- 834,480
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
BONDS AND NOTES -- CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
-----------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
-----------------------------------------------------------------------------------------------------------------------
UNITED STATES -- CONTINUED
<S> <C> <C> <C> <C>
$125,000 NorAm Energy Corp., 6.000%, 3/15/2012 ........................... Baa2 BBB- $ 108,750
750,000 Park Electrochemical Corp., 5.500%, 3/01/2006 ................... B2 B- 727,500
500,000 Phycor, Inc., 4.500%, 2/15/2003 ................................. B1 CCC+ 90,000
500,000 Preston Corp., 7.000%, 5/01/2011 ................................ B2 -- 380,000
155,000 Richardson Electronics Ltd., 7.250%, 12/15/2006 ................. B3 -- 130,200
450,000 S3, Inc., 5.750%, 10/01/2003 .................................... -- -- 426,375
500,000 Schuler Homes, Inc., 6.500%, 1/15/2003 .......................... B2 B- 400,000
500,000 Sizeler Property Investments, Inc., 8.000%,
7/15/2003, (REIT) ............................................... -- -- 443,750
600,000 Telxon Corp., 5.750%, 1/01/2003 ................................. -- CCC+ 525,750
150,000 Thermedics, Inc., Zero Coupon, 6/01/2003 ........................ -- -- 106,500
350,000 Thermo Electron Corp., 4.250%, 1/01/2003 ........................ Baa3 BBB 322,875
3,000,000 Western Digital Corp., Zero Coupon, 2/18/2018(h) ................ B3 B- 585,000
381,000 Worldway Corp., 6.250%, 4/15/2011 ............................... B1 BB+ 308,610
---------
21,500,448
----------
Total Convertible Bonds (Identified Cost $42,180,195) 33,327,038
----------
NON-CONVERTIBLE BONDS-- 73.3%
ARGENTINA-- 2.4%
1,800,000 Argentina Republic, 11.750%, 2/12/2007, (ARS) ................... -- BBB- 1,481,330
3,500,000 Argentina Republic, 8.875%, 3/01/2029, (ARS) .................... B1 BB 2,330,650
2,600,000 Buenos Aires City Argentina, 10.500%, 5/28/2004,(ARS) ........... -- BB 2,145,000
1,000,000 Compania de Alimentos Fargo SA, 13.250%, 8/01/2008 (ARS) ........ B1 BB- 855,000
---------
6,811,980
---------
BRAZIL-- 5.5%
6,588,040 Federal Republic of Brazil, 8.000%, 4/15/2014, (f) .............. B2 B+ 4,834,304
14,008,000 Federal Republic of Brazil, 10.125%, 5/15/2027 .................. B2 B+ 11,031,300
----------
15,865,604
----------
CANADA-- 20.8%
2,727,000 Alberta Province, 5.930%, 9/16/2016, (CAD) ...................... Aa1 AA+ 1,795,246
18,505,000 British Columbia Province, Zero Coupon, 9/05/2020, (CAD) ........ -- -- 3,396,353
17,900,000 British Columbia Province, Zero Coupon, 6/09/2022, (CAD) ........ -- -- 2,933,091
9,775,000 British Columbia Province, Zero Coupon, 8/19/2022, (CAD) ........ 1,585,030
35,000,000 British Columbia Province, Zero Coupon, 8/23/2024, (CAD) ........ -- -- 5,044,736
11,250,000 British Columbia Province, Zero Coupon, 11/19/2027, (CAD) ....... 1,371,894
84,475,000 Canada Government, Zero Coupon, 6/01/2025, (CAD) ................ -- -- 14,111,871
3,500,000 Clearnet Communications, Inc., 0/11.750%,
8/13/2007, (CAD) (d) ............................................ B3 -- 1,636,674
1,200,000 Clearnet Communications, Inc., 0/10.750%,
2/15/2009, (CAD) (d) ............................................ B3 -- 451,752
7,950,000 Manitoba Province, 6.500%, 9/22/2017, (CAD) ..................... Aa3 AA- 5,392,998
3,399,000 Manitoba Province, 7.750%, 12/22/2025, (CAD) .................... Aa3 AA- 2,668,292
17,135,000 Manitoba Province, Zero Coupon, 3/05/2031, (CAD) ................ Aa3 AA- 1,817,867
2,345,000 Microcell Telecommunications, 0/11.125%,
10/15/2007, (CAD) (d) ........................................... B3 B- 1,045,108
2,500,000 New Brunswick F M Project, Inc., 0/6.470%,
11/30/2027, (CAD) (d) ........................................... -- A 1,369,235
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
BONDS AND NOTES -- CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
-----------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
-----------------------------------------------------------------------------------------------------------------------
CANADA -- CONTINUED
<S> <C> <C> <C> <C>
$ 29,550,000 Ontario Hydro Bank, Zero Coupon, 10/15/2021, (CAD) .............. -- -- $ 5,096,273
750,000 Ontario Province, Zero Coupon, 7/13/2022, (CAD) ................. -- -- 123,330
12,600,000 Ontario Province, Zero Coupon, 6/02/2027, (CAD) ................. -- -- 1,637,940
8,800,000 Ontario Province, Zero Coupon, 3/08/2029, (CAD) ................. 1,070,511
8,500,000 Saskatchewan Province, Zero Coupon, 4/10/2014, (CAD) ............ -- -- 2,376,487
8,250,000 Saskatchewan Province, Zero Coupon, 2/04/2022, (CAD) ............ 1,368,835
9,605,000 Saskatchewan Province, Zero Coupon, 5/30/2025, (CAD) ............ -- -- 1,330,392
3,750,000 Saskatchewan Province, 5.750%, 3/05/2029, (CAD) ................. -- -- 2,337,464
---------
59,961,379
----------
CAYMAN ISLANDS-- 0.4%
1,365,000 Enersis SA, 7.400%, 12/01/2016 .................................. Baa1 A- 1,181,827
----------
COLOMBIA-- 0.2%
970,535 Transgas de Occidente SA, 144A, 9.790%, 11/01/2010 .............. Baa3 BB+ 701,211
----------
ECUADOR-- 0.3%
2,328,700 Republic of Ecuador, 7.188%, 2/27/2015, (e) (f) ................. B3 -- 557,444
500,000 Republic of Ecuador, 4.000%, 2/28/2025, (e) ..................... -- -- 168,750
----------
726,194
----------
HONG KONG-- 2.2%
8,475,000 Bangkok Bank Public Co., 9.025%, 3/15/2029 ...................... Ba3 B+ 6,356,250
----------
INDIA-- 1.3%
585,000 Reliance Industries Ltd., 10.375%, 6/24/2016 .................... Ba2 BB 555,048
4,000,000 Tata Electric Companies, 144A, 8.500%, 8/19/2017 ................ Ba2 BB 3,278,880
----------
3,833,928
----------
ISRAEL-- 0.5%
3,000,000 Barak I T C International, 144A, 0/12.500%,
11/15/2007, (d) B3 CCC+ 1,552,500
----------
IVORY COAST-- 0.1%
1,900,000 Ivory Coast, Inc., 1.000%, 3/31/2018(e) ......................... -- -- 323,000
MALAYSIA-- 1.7%
1,750,000 Telekom Malaysia Berhad, 7.875%, 8/01/2025 ...................... Baa3 BBB 1,525,732
4,300,000 Tenaga Nasional Berhad, 7.500%, 11/01/2025 ...................... Baa3 BBB 3,449,460
----------
4,975,192
----------
MAURITIUS-- 3.5%
500,000 Indah Kiat Finance Mauritius Ltd., 10.000%, 7/1/2007 ............ B3 CCC+ 300,000
2,700,000 Pindo Deli Finance Mauritius Ltd., 10.750%, 10/1/2007 ........... B3 CCC+ 1,620,000
2,650,000 Pindo Deli Finance Mauritius Ltd., 11.750%, 10/1/2017 ........... B3 CCC+ 1,404,500
5,000,000 Pindo Deli Finance Mauritius Ltd., 10.875%, 10/1/2027 ........... -- CCC+ 2,450,000
6,625,000 Tjiwi Kimia Mauritius Ltd., 10.000%, 8/01/2004 .................. B3 CCC+ 4,339,375
----------
10,113,875
----------
MEXICO-- 5.8%
1,000,000 Alestra SA de CV, 144A, 12.125%, 5/15/2006 ...................... B2 BB- 937,500
2,500,000 Espirito Santo Escelsa, 10.000%, 7/15/2007 ...................... B2 B+ 1,950,000
1,585,000 Perez Companc SA, 144A, 8.125%, 7/15/2007 ....................... B1 BBB- 1,327,437
1,000,000 Petroleos Mexicanos, 9.250%, 3/30/2018 .......................... Ba1 BB 945,000
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
BONDS AND NOTES -- CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
-----------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
----------------------------------------------------------------------------------------------------------------------------
MEXICO -- CONTINUED
<S> <C> <C> <C> <C>
$ 4,350,000 Petroleos Mexicanos, 9.500%, 9/15/2027 .......................... Ba1 BB+ $ 4,230,375
3,000,000 Petroleos Mexicanos, 144A, 8.625%, 12/01/2023 ................... Ba2 -- 2,610,000
6,960,000 TFM SA, 0/11.750%, 6/15/2009, (d) ............................... B2 B+ 4,767,600
----------
16,767,912
----------
PERU-- 0.2%
1,000,000 Republic of Peru, 3.750%, 3/07/2017 ............................. Ba3 BBB+ 603,800
----------
PHILIPPINES-- 2.3%
5,150,000 Bangko Sentral Ng Philipinas, 8.600%, 6/15/2027 ................. Ba1 BB+ 3,656,500
1,250,000 Philippine Long Distance Telephone Co., 8.350%, 3/6/2017 ........ Ba2 BB+ 836,385
2,750,000 Quezon Power Philippines Co., 8.860%, 6/15/2017 ................. Ba1 BB+ 2,172,500
----------
6,665,385
----------
SOUTH AFRICA-- 2.8%
23,100,000 Republic of South Africa, 12.500%, 12/21/2006, (ZAR) ............ -- A- 3,185,619
17,650,000 Republic of South Africa, 13.000%, 8/31/2010, (ZAR) ............. -- A- 2,437,575
17,000,000 Republic of South Africa, 13.500%, 9/15/2015, (ZAR) ............. Baa1 A- 2,407,080
----------
8,030,274
----------
SOUTH KOREA-- 1.8%
3,498,574 Korea Electric Power Corp., 7.400%, 4/01/2016 ................... Baa3 BBB 3,188,915
2,500,000 Samsung Electronics Ltd., 144A, 7.700%, 10/01/2027 .............. Baa3 BBB- 1,875,000
----------
5,063,915
----------
THAILAND-- 3.7%
2,850,000 Siam Commercial Bank PLC, 144A, 7.500%, 3/15/2006 ............... B2 B- 2,365,500
2,175,000 Thai Farmers Bank PLC, 8.250%, 8/21/2016 ........................ B2 B+ 1,653,000
3,000,000 Total Access Communications, PLC, 144A, 7.625%, 11/4/2001 ....... B2 BB- 2,730,000
4,525,000 Total Access Communications, PLC, 144A, 8.375%, 11/4/2006 ....... B2 BB- 3,823,625
----------
10,572,125
----------
UNITED KINGDOM-- 0.3%
2,875,000 Dolphin Telecom, 0/11.500%, 6/01/2008, (d) (EUR) ................ -- -- 910,985
UNITED STATES-- 15.3%
2,000,000 Borden, Inc., 7.875%, 2/15/2023 ................................. Ba1 BB+ 1,477,420
111,000 Boston Celtics LP, 6.000%, 6/30/2038 ............................ -- -- 58,553
1,000,000 Cablevision SA, 13.750%, 4/30/2007 .............................. B1 BB 925,000
250,000 CBS, Inc., 7.125%, 11/01/2023 ................................... Baa3 BBB+ 224,542
1,000,000 Century Communications Corp., 8.375%, 11/15/2017 ................ B1 BB- 782,500
2,175,000 Chesapeake Energy Corp., 7.875%, 3/15/2004 ...................... B2 B 2,011,875
250,000 Chesapeake Energy Corp., 9.625%, 5/01/2005 ...................... B2 B 244,375
500,000 Columbia/HCA Healthcare Corp., 7.500%, 12/15/2023 ............... Ba2 BB+ 400,000
820,000 Columbia/HCA Healthcare Corp., 7.050%, 12/01/2027 ............... Ba2 BB+ 606,800
250,000 Dillion Read Structured Finance Corp., 8.550%, 8/15/2019 ........ -- BBB 211,142
751,822 Dillon Read Structured Finance Corp., 6.660%, 8/15/2010 ......... -- BB+ 640,974
34,000,000 Fannie Mae, Zero Coupon, 10/29/2007, (NZD) ...................... Aaa -- 9,018,424
1,000,000 First Industrial LP, 7.600%, 7/15/2028 .......................... Baa2 BBB 835,560
2,480,000 Fox Family Worldwide, Inc., 0/10.250, 11/01/2007, (d) ........... B1 B 1,562,400
250,000 Fruit of the Loom, Inc., 7.375%, 11/15/2023(e)(g) ............... B2 D 126,250
</TABLE>
See accompanying notes to financial statemements.
9
<PAGE>
PORTFOLIO COMPOSITION -CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
BONDS AND NOTES -- CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
-----------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
----------------------------------------------------------------------------------------------------------------------------
UNITED STATES -- CONTINUED
<S> <C> <C> <C> <C>
22,300,000 International Bank of Reconstruction &
Development, Zero Coupon, 8/20/2007, (NZD) Aaa AAA $ 6,166,061
250,000 Kmart Corp., 9.440%, 7/01/2018 .................................. Ba2 BB+ 230,527
3,500,000 Kmart Corp., 7.950%, 2/01/2023 .................................. Baa3 BB+ 2,725,380
66,000 Missouri Pacific Railroad Co., 4.250%, 1/01/2005 ................ Baa1 BBB+ 57,565
5,375,000 Nextel Communications, Inc., 0/9.750, 10/31/2007, (d) ........... B1 B 4,031,250
1,405,000 PDVSA Finance Ltd., 7.400%, 8/15/2016 ........................... Baa1 -- 1,097,219
250,000 Phillips Van Heusen Corp., 7.750%, 11/15/2023 ................... Ba2 BB 183,750
775,000 Pioneer Standard Electronics, Inc., 8.500%, 8/1/2006 ............ Baa3 BB 745,397
2,000,000 RCN Corp., 0/9.800%, 2/15/2008, (d) ............................. B3 B- 1,105,000
2,500,000 Seagate Technology, 7.450%, 3/01/2037 ........................... Ba1 BBB 2,337,125
1,000,000 Security Capital Industrial Trust, 7.625%, 7/01/2017, (REIT) .... Baa2 BBB+ 878,700
3,500,000 Teligent, Inc., 144A, 0/11.500%, 3/01/2008 (d) .................. -- CCC 1,636,250
2,250,000 Westinghouse Electric Corp., 7.875%, 9/01/2023 .................. Baa3 BBB+ 2,185,200
1,000,000 Woolworth Corp., 7.000%, 10/15/2002 ............................. B1 BB 892,009
1,000,000 Woolworth Corp., 8.500%, 1/15/2022 .............................. Baa3 BB 670,000
699,000 Zenith Corp., 8.190%, 11/01/2009 ................................ -- -- 223,680
----------
44,290,928
----------
VENEZUELA-- 2.2%
500,000 Cerro Negro Finance Ltd., 7.900%, 12/01/2020 .................... Baa2 -- 405,850
9,000,000 Republic of Venezuela, 9.250%, 9/15/2027 ........................ B2 B 5,917,500
----------
6,323,350
----------
Total Non-Convertible Bonds (Identified Cost $230,048,216) 211,631,614
-----------
COMMON STOCK-- 5.2%
SHARES
----------------------------------------------------------------------------------------------------------------------------
BRITISH VIRGIN ISLANDS-- 1.5%
589,300 Sappi Ltd., ADR ................................................. 4,346,087
----------
INDONESIA-- 0.5%
6,786,500 PT Indah Kiat Pulp & Paper Corp. (IDR) .......................... 1,375,511
----------
THAILAND-- 0.4%
122,000 Siam Commercial Bank PLC, (THB) ................................. 62,261
122,000 Siam Commercial Bank PLC, Warrants (THB) ........................ 14,320
260,000 Total Access Communications, PLC, (THB) ......................... 1,045,200
----------
1,121,781
----------
UNITED STATES-- 2.8%
245,173 Advantica Restaurant Group, Inc. ................................ 237,511
162,900 Associated Estates Realty Corp. (REIT) .......................... 1,140,300
192,550 Chesapeake Energy Corp. ......................................... 1,492,263
177,100 Developers Diversified Realty Corp. (REIT) ...................... 2,645,431
26,133 Hvide Marine, Inc. .............................................. 155,165
111,700 Simon Property Group, Inc. (REIT) ............................... 2,478,344
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
PORTFOLIO COMPOSITION -CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK-- CONTINUED
SHARES DESCRIPTION VALUE(A)
----------------------------------------------------------------------------------------------------------------------------
UNITED STATES -- CONTINUED
<S> <C> <C>
150,150 Streamlogic Corp.(e)(g) ......................................... $ 150
693 Streamlogic Corp., Warrants(e)(g) ............................... 0
----------
8,149,164
----------
Total Common Stock (Identified Cost $18,613,604) 14,992,543
----------
PREFERRED STOCK-- 3.7%
----------------------------------------------------------------------------------------------------------------------------
PHILIPPINES-- 0.4%
32,800 Philippine Long Distance Telephone Co. (GDR) ..................... 1,205,400
---------
UNITED STATES-- 3.3%
2,639 Adelphia Business Solutions, Inc. ................................ 2,295,771
3,600 Archstone Communities Trust (REIT) ............................... 82,125
38,000 Arkansas Best Corp., Class A ..................................... 1,482,000
35,000 Bethlehem Steel Corp., $3.500, 12/31/2049 ........................ 507,500
6,500 Camden Property Trust, $2.250, 12/31/2049 (REIT) ................. 157,219
53,850 Chesapeake Energy Corp. .......................................... 3,446,400
13,500 Coltec Capital Trust ............................................. 540,000
22,500 Owens Corning, $6.500, 5/10/2025 ................................. 542,812
10,000 Owens Illinois, Inc. ............................................. 222,500
10,000 Western Gas Resources, Inc., $2.025, 12/31/2049 .................. 340,625
----------
9,616,952
----------
Total Preferred Stock (Identified Cost $10,040,379) 10,822,352
----------
SHORT TERM INVESTMENT-- 4.9%
PRINCIPAL
AMOUNT
----------------------------------------------------------------------------------------------------------------------------
$14,066,000 Repurchase Agreement with State Street Bank
and Trust Co. dated 6/30/2000 at 5.25% to be
repurchased at $14,072,154 on 7/03/2000,
collateralized by $12,600,000 U.S. Treasury
Bond at 7.125% due 2/15/2023 valued at $14,348,250 ............. 14,066,000
----------
Total Short Term Investment (Identified Cost $14,066,000) ..... 14,066,000
----------
Total Investments-- 98.7% (Identified Cost $314,948,394) (b) .. 284,839,547
Other assets less liabilities ................................. 3,807,800
----------
Total Net Assets-- 100% ....................................... $ 288,647,347
==============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
PORTFOLIO COMPOSITION -- CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized depreciation on investments based on cost of
$314,948,394 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ...................... $ 15,947,358
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ...................... (46,056,205)
-----------
Net unrealized depreciation .......................................... $ (30,108,847)
===============
</TABLE>
At December 31, 1999 the Fund had a capital loss carryover of approximately
$13,337,197 which expires on December 31, 2007. This may be available to
offset future realized capital gains, if any, to the extent provided by
regulations.
(c) The ratings shown are believed to be the most recent ratings available at
June 30, 2000. Securities are generally rated at the time of issuance. The
rating agencies may revise their rating from time to time. As a result,
there can be no assurance that the same ratings would be assigned if the
securities were rated at June 30, 2000. The Fund's subadviser independently
evaluates the Fund's portfolio securities and in making investment
decisions does not rely solely on the ratings of agencies.
(d) Step Bond: Coupon rate is zero or below market for an initial period and
then increases to a higher coupon rate at a specified date and rate.
(e) Non-income producing security
(f) Pay in kind securities.
(g) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
(h) Security valued at fair value as determined in good faith by or under the
direction of the Board of Trustees.
ADR/GDR An American Depositary Receipt (ADR) or Global Depositary Receipt (GDR)
is a certificate issued by a custodian bank representing the right to
receive securities of the foreign issuer described. The values of ADRs and
GDRs are significantly influenced by trading on exchanges not located in
the United States or Canada.
REIT Real Estate Investment Trust
144A Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these amounted to $27,035,364 or 9.2% of net assets.
Principal amount is stated in United States Dollars, unless otherwise noted as
the currency below:
ARS Argentine Peso
CAD Canadian Dollars
EUR Euro Currency
IDR Indonesian Rupiah
NZD New Zealand Dollars
THB Thai Baht
ZAR South African Rand
See accompanying notes to financial statements.
12
<PAGE>
PORTFOLIO COMPOSITION -- CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
--------------------------------------------------------------------------------
Ten Largest Industry Concentrations of Investments at June 30, 2000
Government 35.2%
Finance & Banking 10.6%
Industrial Services 6.5%
Industrials 6.0%
Electric Utilities 4.9%
Telecommunications 4.8%
Energy 2.8%
Real Estate 2.8%
Electronics 2.0%
Telephone 1.8%
See accompanying notes to financial statements.
13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
ASSETS
<S> <C> <C> <C>
Investments at value (Identified cost $314,948,394) ........................ $ 284,839,547
Cash ....................................................................... 876
Investments held as collateral for loaned securities ....................... 8,922,650
Receivable for:
Fund shares sold ...................................................... 380,585
Dividends and interest ................................................ 4,610,032
Miscellaneous ......................................................... 72
----------
298,753,762
LIABILITIES
Payable for:
Collateral on securities loaned, at value ............................. $ 8,922,650
Fund shares redeemed .................................................. 490,947
Withholding taxes ..................................................... 5,065
Dividends declared .................................................... 532,757
Accrued expenses:
Management fees ....................................................... 14,630
Deferred trustees' fees ............................................... 26,730
Accounting and administrative ......................................... 16,456
Transfer agent ........................................................ 38,450
Other ................................................................. 58,730
------
10,106,415
----------
NET ASSETS ......................................................................... $ 288,647,347
================
Net Assets consist of:
Paid-in capital ....................................................... $ 337,697,932
Undistributed net investment income ................................... 378,740
Accumulated net realized gains (losses) ............................... (19,320,038)
Unrealized appreciation (depreciation) on investments and
foreign currency ...................................................... (30,109,287)
-----------
NET ASSETS ......................................................................... $ 288,647,347
===============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($123,485,067 / 10,873,360 shares of beneficial interest) $ 11.36
==========
Offering price per share (100 / 95.50 of $11.36) $ 11.90*
==========
Net asset value and offering price of Class B shares
($125,481,485 / 11,051,453 shares of beneficial interest) $ 11.35**
==========
Net asset value and offering price of Class C shares
($39,610,142 / 3,491,908 shares of beneficial interest) $ 11.34**
==========
Net asset value, offering and redemption price of Class Y shares
($70,653 / 6,220 shares of beneficial interest) $ 11.36
==========
</TABLE>
* Based upon single purchases of less than $100,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
14
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
INVESTMENT INCOME
<S> <C> <C> <C>
Dividends (net of foreign taxes of $8,971) $ 592,810
Interest 13,466,588
Securities lending income 22,136
------
14,081,534
EXPENSES
Management fees $ 918,483
Service fees - Class A 154,752
Service and distribution fees - Class B 629,233
Service and distribution fees - Class C 199,543
Trustees' fees and expenses 9,353
Accounting and administrative 52,427
Custodian 83,476
Transfer agent - Class A, Class B, Class C 245,357
Transfer agent - Class Y 14
Audit and tax services 23,603
Legal 6,871
Printing 17,529
Registration 39,279
Amortization of organization expense 4,503
Miscellaneous 8,730
-----
Total expenses 2,393,153
---------
Net investment income 11,688,381
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net (4,724,747)
Foreign currency transactions - net (34,993)
-------
Total realized gain (loss) on investments and foreign currency transactions (4,759,740)
----------
Unrealized appreciation (depreciation) on:
Investments - net (3,242,649)
Foreign currency transactions - net (440)
----
Total unrealized appreciation (depreciation) on investments
and foreign currency transactions (3,243,089)
----------
Net gain (loss) on investment transactions (8,002,829)
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 3,685,552
===============
</TABLE>
See accompanying notes to financial statement.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
-----------------------------------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 26,084,279 $ 11,688,381
Net realized gain (loss) on investments and foreign currency transactions (12,179,304) (4,759,740)
Net unrealized appreciation (depreciation) on investments and
foreign currency transactions 19,325,785 (3,243,089)
---------- ----------
Increase (decrease) in net assets from operations 33,230,760 3,685,552
---------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (11,121,336) (4,998,216)
Class B (10,486,796) (4,621,930)
Class C (3,403,086) (1,467,004)
Class Y (2) (1,235)
-- ------
Net realized gain on investments
Class A (389,803) 0
Class B (401,214) 0
Class C (129,518) 0
-------- -
In excess of net realized gain on investments
Class A (23,287) 0
Class B (23,969) 0
Class C (7,737) 0
------ -
(25,986,748) (11,088,385)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS DERIVED
FROM CAPITAL SHARE TRANSACTIONS (21,198,379) 3,192,778
----------- ---------
Total increase (decrease) in net assets (13,954,367) (4,210,055)
----------- ----------
NET ASSETS
Beginning of the period 306,811,769 292,857,402
----------- -----------
End of the period $ 292,857,402 $ 288,647,347
=============== ===============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period $ (221,256) $ 378,740
=============== ===============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
MAY 1(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------
1995 1996 1997 1998 1999 2000
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period ........................ $ 12.50 $ 12.99 $ 13.36 $ 13.42 $ 11.37 $ 11.65
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.74 1.05 1.01 1.05 1.03 0.48
Net Realized and Unrealized Gain (Loss)
on Investments .................... 0.49 0.73 0.21 (1.30) 0.31 (0.29)
---- ---- ---- ----- ---- -----
Total From Investment Operations .. 1.23 1.78 1.22 (0.25) 1.34 0.19
---- ---- ---- ----- ---- ----
Less Distributions
Dividends From Net Investment
Income ............................ (0.73) (1.05) (1.01) (1.05) (1.02) (0.48)
Distributions in Excess of Net
Investment Income ................. (0.01) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ..................... 0.00 (0.36) (0.15) (0.70) (0.04) 0.00
Distributions in Excess of
Net Realized Capital Gains ........ 0.00 0.00 0.00 (0.05) 0.00(c) 0.00
---- ---- ---- ----- ---- ----
Total Distributions ............... (0.74) (1.41) (1.16) (1.80) (1.06) (0.48)
----- ----- ----- ----- ----- -----
Net Asset Value, End of the Period $ 12.99 $ 13.36 $ 13.42 $ 11.37 $ 11.65 $ 11.36
======= ======= ======= ======= ======= =======
Total Return (%)(b) ............... 10.3 14.5 9.3 (1.7) 12.2 1.5
Ratio of Operating Expenses to Average
Net Assets (%)(d) ................. 0.93(e) 0.96 1.18 1.19 1.21 1.22(e)
Ratio of Net Investment Income to Average
Net Assets (%) .................... 8.75(e) 8.23 7.36 8.33 9.09 8.53(e)
Portfolio Turnover Rate (%) ....... 22 52 37 33 19 3
Net Assets, End of the Period (000) $36,939 $90,729 $144,706 $127,306 $124,869 $123,485
(a) Commencement of operations.
(b) A sales charge is not reflected in total return calculations. Periods less
than one year are not computed on an annulaized basis.
(c) Amount is less than $0.01.
(d) The ratio of operating expenses to average net assets without giving effect
to voluntary expense
limitations would have been: 1.58(e) 1.31 -- -- -- --
(e) Computed on an annualized basis.
</TABLE>
See accompnaying notes to financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
MAY 1(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------
1995 1996 1997 1998 1999 2000
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period ........................ $ 12.50 $ 12.99 $ 13.36 $ 13.42 $ 11.37 $ 11.65
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.68 0.95 0.91 0.95 0.94 0.44
Net Realized and Unrealized Gain (Loss)
on Investments .................... 0.49 0.73 0.21 (1.30) 0.31 (0.30)
---- ---- ---- ----- ---- -----
Total From Investment Operations .. 1.17 1.68 1.12 (0.35) 1.25 0.14
---- ---- ---- ----- ---- ----
Less Distributions
Dividends From Net Investment Income (0.67) (0.95) (0.91) (0.95) (0.93) (0.44)
Distributions in Excess of Net
Investment Income ................. (0.01) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ..................... 0.00 (0.36) (0.15) (0.70) (0.04) 0.00
Distributions in Excess of Net Realized
Capital Gains ..................... 0.00 0.00 0.00 (0.05) 0.00(b) 0.00
---- ---- ---- ----- ---- ----
Total Distributions ............... (0.68) (1.31) (1.06) (1.70) (0.97) (0.44)
----- ----- ----- ----- ----- -----
Net Asset Value, End of the Period $ 12.99 $ 13.36 $ 13.42 $ 11.37 $ 11.65 $ 11.35
======= ======= ======= ======= ======= =======
Total Return (%)(c) ............... 9.7 13.7 8.5 (2.5) 11.3 1.1
Ratio of Operating Expenses to Average
Net Assets (%)(d) ................. 1.68(e) 1.71 1.93 1.94 1.96 1.97(e)
Ratio of Net Investment Income to Average
Net Assets (%) .................... 8.00(e) 7.48 6.61 7.58 8.34 7.77(e)
Portfolio Turnover Rate (%) ....... 22 52 37 33 19 3
Net Assets, End of the Period (000) $38,767 $93,408 $146,083 $134,049 $127,723 $125,481
(a) Commencement of operations.
(b) Amount is less than $0.01
(c) A contingent deferred ales charge is not reflected in total return
calculations. Periods less than one year are not computed on an annualized
basis.
(d) The ratio of operating expenses to average net assets without giving effect
to voluntary expense limitations
would have been: 2.33(e) 2.06 -- -- -- --
(e) Computed on an annualized basis..
</TABLE>
18
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------
MAY 1(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------
1995 1996 1997 1998 1999 2000
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period ........................ $ 12.50 $ 12.99 $ 13.35 $ 13.41 $ 11.36 $ 11.64
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.67 0.95 0.91 0.95 0.94 0.44
Net Realized and Unrealized Gain (Loss)
on Investments .................... 0.49 0.72 0.21 (1.30) 0.31 (0.30)
---- ---- ---- ----- ---- -----
Total From Investment Operations .. 1.16 1.67 1.12 (0.35) 1.25 0.14
---- ---- ---- ----- ---- ----
Less Distributions
Dividends From Net Investment Income (0.66) (0.95) (0.91) (0.95) (0.93) (0.44)
Distributions in Excess of Net
Investment Income ................. (0.01) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ..................... 0.00 (0.36) (0.15) (0.70) (0.04) 0.00
Distributions in Excess of Net Realized
Capital Gains ..................... 0.00 0.00 0.00 (0.05) 0.00(b) 0.00
---- ---- ---- ----- ---- ----
Total Distributions ............... (0.67) (1.31) (1.06) (1.70) (0.97) (0.44)
----- ----- ----- ----- ----- -----
Net Asset Value, End of the Period $ 12.99 $ 13.35 $ 13.41 $ 11.36 $ 11.64 $ 11.34
======= ======= ======= ======= ======= =======
Total Return (%)(c) ............... 9.7 13.6 8.5 (2.5) 11.3 1.1
Ratio of Operating Expenses to Average
Net Assets (%)(d) ................. 1.68(e) 1.71 1.93 1.94 1.96 1.97(e)
Ratio of Net Investment Income to Average
Net Assets (%) .................... 8.00(e) 7.48 6.61 7.58 8.34(e) 7.77(e)
Portfolio Turnover Rate (%) ....... 22 52 37 33 19 3
Net Assets, End of the Period (000) $12,252 $31,746 $56,515 $45,457 $40,265 $39,610
(a) Commencement of operations.
(b) Amount is less than $0.01.
(c) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not computed on an annualized
basis.
(d) The ratio of operating expenses to average net assets
without giving effect to voluntary expense
limitations would have been: 2.33(e) 2.06 -- -- -- --
(e) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
CLASS Y
----------------------------------
DECEMBER 1(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1999 2000
----------------------------------
Net Asset Value, Beginning of the Period $ 11.45 $ 11.65
------- -------
Income From Investment Operations
Net Investment Income 0.86 0.21
Net Realized and Unrealized Gain (Loss)
on Investments (0.56) (0.01)
----- -----
Total From Investment Operations 0.30 0.20
---- ----
Less Distributions
Dividends From Net Investment Income (0.10) (0.49)
Distributions in Excess of Net
Investment Income 0.00 0.00
Distributions From
Net Realized Capital Gains 0.00 0.00
Distributions in Excess of Net Realized
Capital Gains 0.00(b) 0.00
---- ----
Total Distributions (0.10) (0.49)
----- -----
Net Asset Value, End of the Period $ 11.65 $ 11.36
======= =======
Total Return (%) 2.7 1.6
Ratio of Operating Expenses to Average
Net Assets (%)(d) 0.96(c) 0.90(c)
Ratio of Net Investment Income to
Average Net Assets (%) 9.34(c) 9.07(c)
Portfolio Turnover Rate (%) 19 3
Net Assets, End of the Period (000) $ 0.2 $ 71
(a) Commencement of operations.
(b) Amount is less than $0.01.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks high current income with a
secondary objective of capital growth. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares of the Trust in multiple series
(each series is a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 4.50%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased prior to
May 1, 1997). Class C shares do not pay front end sales charges and do not
convert to any class of shares, but they do pay a higher ongoing distribution
fee than Class A shares and may be subject to a contingent deferred sales charge
if those shares are redeemed within one year. Class Y shares do not pay a front
end load, a contingent deferred sales charge or distribution fees. They are
intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro rata by the holders of all classes of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service, distribution fees and transfer agent fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 plan.
Shares of each class would receive their pro rata share of the net assets of the
Fund, if the Fund was liquidated. In addition, the Trustees approve separate
dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service authorized by the Board of
Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
B. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translat-
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
ed into U.S. dollars based upon foreign exchange rates prevailing at the end of
the period. Purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities resulting from changes in the exchange rate.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Interest
income is increased by the accretion of original issue discount and/or market
discount. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record at the time and are paid monthly. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for mortgage backed securities, real estate investment
trust adjustments, foreign currency gains and losses and differences in income
accrual for certain holdings for book and tax purposes. Permanent book and tax
basis differences will result in reclassifications to capital accounts.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
G. ORGANIZATION EXPENSE. Costs incurred in 1995 in connection with the Fund's
organization and initial registration amounting to $67,920 were paid by the Fund
and were amortized over 60 months beginning May 1, 1995.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$8,476,122 and $21,864,133 respectively.
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 0.65% of the first $200 million of the Fund's
average daily net assets and 0.60% of such assets in excess of $200 million
reduced by the payment to the Fund's investment subadviser, Loomis Sayles &
Company, L.P. ("Loomis Sayles") at the rate of 0.35% of the first $200 million
of the Fund's average daily net assets and 0.30% of such assets in excess of
$200 million. Certain officers and directors of Nvest Management are also
officers or Trustees of the Fund. Nvest Management and Loomis Sayles are wholly
owned subsidiaries of Nvest Companies, L.P. ("Nvest"), which is a subsidiary of
Metropolitan Life Insurance Company (Note 7). Fees earned by Nvest Management
and Loomis Sayles under the management and subadvisory agreements in effect
during the six months ended June 30, 2000 are as follows:
Fees Earned
Nvest Management $ 434,378
Loomis Sayles 484,105
--------
$ 918,483
========
The effective annualized management fee for the six months ended June 30, 2000
was 0.63 %.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $52,427 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative fee for the six months ended June 30, 2000 was 0.034%.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the fund for out of
pocket expenses. Class Y shares bear a transfer agent fee of 0.10% of average
daily net assets. For the six months ended June 30, 2000, the Fund paid NSC
$192,899 as compensation for its services as transfer agent.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attrib
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
utable to the Fund's Class A shares, as reimbursement for expenses (including
certain payments to securities dealers, who may be affiliated with Nvest Funds)
incurred by Nvest Funds in providing personal services to investors in Class A
shares and/or the maintenance of shareholder accounts. For the six months ended
June 30, 2000, the Fund paid Nvest Funds $154,752 in fees under the Class A
Plan. If the expenses of Nvest Funds that are otherwise reimbursable under the
Class A Plan incurred in any year exceed the amounts payable by the Fund under
the Class A Plan, the unreimbursed amount (together with unreimbursed amounts
from prior years) may be carried forward for reimbursement in future years in
which the Class A Plan remains in effect.
Under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly service
fee at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000 the Fund paid Nvest
Funds $157,308 and $49,886 in service fees under the Class B and Class C Plans,
respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly
distribution fee at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B shares and Class C shares, as compensation
for services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000 the Fund paid Nvest Funds $471,925 and $149,657 in
distribution fees under the Class B and Class C Plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors of shares of the Fund during the six months ended June
30, 2000 amounted to $409,498.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
4. CAPITAL SHARES. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
CLASS A SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................................................... 1,785,154 $ 20,839,875 1,219,879 $ 14,169,301
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............................. 736,089 8,549,347 346,892 3,994,849
Distributions from net realized gain .............................. 31,800 362,837 0 0
------ ------- - -
..................................................................... 2,553,043 29,752,059 1,566,771 18,164,150
Shares repurchased ................................................... (3,031,274) (35,226,587) (1,411,367) (16,375,416)
---------- ----------- ---------- -----------
Net increase (decrease) .............................................. (478,231) $ (5,474,528) 155,404 $ 1,788,734
-------- --------------- ------- ------------
YEAR ENDED SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
CLASS B SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
Shares sold .......................................................... 1,466,960 $ 17,085,174 1,105,175 $ 12,786,757
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............................. 587,333 6,820,440 270,426 3,112,251
Distributions from net realized gain .............................. 28,144 321,125 0 0
------ ------- - -
..................................................................... 2,082,437 24,226,739 1,375,601 15,899,008
Shares repurchased ................................................... (2,909,430) (33,741,391) (1,288,071) (14,922,290)
---------- ----------- ---------- -----------
Net increase (decrease) .............................................. (826,993) $ (9,514,652) 87,530 $ 976,718
-------- --------------- ------ ------------
YEAR ENDED SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
CLASS C SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
Shares sold .......................................................... 505,563 $ 5,852,124 332,290 $ 3,858,148
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............................. 220,279 2,555,812 100,201 1,152,381
Distributions from net realized gain .............................. 9,937 113,282 0 0
----- ------- - -
735,779 8,521,218 432,491 5,010,529
Shares repurchased ................................................... (1,278,107) (14,730,584) (400,085) (4,653,604)
---------- ----------- -------- ----------
Net increase (decrease) .............................................. (542,328) $ (6,209,366) 32,406 $ 356,925
-------- --------------- ------ ------------
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
DECEMBER 1, 1999 (A) TO SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
CLASS Y SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................................................... 15 $ 167 7,865 $ 90,163
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............................. 0 0 109 1,250
- - --- -----
..................................................................... 15 167 7,974 91,413
Shares repurchased ................................................... 0 0 (1,769) (21,012)
- - ------ -------
Net increase (decrease) .............................................. 15 $ 167 6,205 $ 70,401
-- ------------ ----- ------------
Increase (decrease) derived from capital shares transactions ......... (1,847,537) $(21,198,379) 281,545 $ 3,192,778
========== ============ ======= ============
</TABLE>
(a) Commencement of operations.
5. LINE OF CREDIT. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
6. SECURITY LENDING. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 2000, the Fund loaned securities having a market value of $8,706,811 and
collateralized by cash in the amount of $8,922,650 which was invested in a
short-term investment.
7. SUBSEQUENT EVENT. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
26
<PAGE>
NVEST MUNICIPAL INCOME FUND
NVEST MASSACHUSETTS TAX FREE INCOME FUND
NVEST INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
Supplement dated August 21, 2000
to Nvest Bond Funds Prospectus Classes A, B and C and Nvest Massachusetts
Tax Free Income Fund and Nvest Intermediate Term Tax Free Fund of
California Prospectuses, each dated May 1, 2000
John Maloney has become co-manager of the Funds, joining James Welch. Mr.
Maloney, Vice President at Back Bay Advisors, has been with the company since
1989. Mr. Maloney has a B.A. in Economics from the University of Massachusetts
and has 17 years of investment experience.
27
<PAGE>
================================================================================
GLOSSARY FOR MUTUAL FUND INVESTORS
--------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
period, assuming all earnings are reinvested in additional shares of the fund.
Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year, when available.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration allows you to compare the volatility of different instruments.
As a general rule, for every 1% move in interest rates, a bond is expected to
fluctuate in value as indicated by its duration. For example, if interest rates
fall by 1%, a bond with a duration of 4 years should rise in value 4%.
Conversely, the bond should decline 4% in value if interest rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges. A small portion of
income may be subject to federal and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax.
20
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund
Bullseye Fund GOVERNMENT INCOME FUNDS
Equity Income Fund Limited Term U.S. Government Fund
Government Securities Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund MONEY MARKET FUNDS*
Kobrick Emerging Growth Fund Cash Management Trust
Tax Exempt Money Market Trust
*Investments in the money market
funds are not insured or
gauranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
VISIT OUR WEB SITE AT WWW.NVESTFUNDS.COM
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when it
is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest Funds are
members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[Nvest Funds Logo appears here]
ST58-0600
Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Bond Income Fund
Where
The Best
Minds Meet(R)
-----------------
June 30, 2000
-----------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST BOND INCOME FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Bond Income Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. It is not
possible to invest directly in an index. Unlike a fund, the index is unmanaged,
and does not have expenses that affect the results. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
June 1990 through June 2000
NAV MSC Lehman Aggregat Lehman Intmdt G/C
-----------------------------------------------------------------------
6/00 22,147 21,149 21,232 21,944
6/99 22,687 21,666 21,895 21,305
6/98 20,938 19,996 19,681 20,910
6/97 18,805 17,959 17,805 18,773
6/96 16,997 16,232 16,463 17,256
6/95 16,166 15,438 15,676 16,416
6/94 14,141 13,505 13,928 14,260
6/93 14,463 13,813 14,111 14,533
6/92 12,706 12,134 12,624 12,760
6/91 11,002 10,507 11,070 11,052
6/90 10,000 9,550 10,000 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees, and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST BOND INCOME FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 11/7/73) 6 Months 1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Net Asset Value(1) 2.48% 3.83% 6.52% 8.28%
With Maximum Sales Charge(2) -2.12 -0.88 5.55 7.78
--------------------------------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) 2.11% 3.05% 5.72% 5.09%
With CDSC(3) -2.84 -1.78 5.42 5.09
--------------------------------------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) 2.10% 3.04% 5.72% 7.20%
With CDSC(3) 1.11 2.07 5.72 7.20
--------------------------------------------------------------------------------------------------------------------------
Class Y (Inception 12/30/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) 2.60% 4.18% 6.80% 8.45%
</TABLE>
<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
Class B Class C Class Y
Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept. Incept. Incept.
<S> <C> <C> <C> <C> <C> <C> <C>
Lehman Aggregate Bond Index(4) 3.99% 4.56% 6.25% 7.82% 5.78% 7.77% 7.77%
Lehman Corporate Bond Index(5) 2.68 3.00 5.98 8.18 5.56 7.93 7.93
Morningstar Int. Bond Average(6) 2.92 3.25 5.35 7.35 4.93 6.83 6.83
Lipper Int. Investment Grade Debt Avg.(7) 3.06 3.42 5.35 7.27 4.95 6.80 6.80
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 4.50%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) Lehman Brothers Aggregate Bond Index is an unmanaged index of nearly all
debt issued by the U.S. Treasury, U.S. government agencies and U.S.
corporations rated investment-grade, and U.S. agency debt backed by
mortgage pools. You may not invest directly in an index. Class B
since-inception return is calculated from 9/30/93.
(5) Lehman Brothers Corporate Bond Index is an unmanaged index of domestic debt
issued by U.S. Government and its agencies. You may not invest directly in
an index. Class B since-inception return is calculated from 9/30/93.
(6) Morningstar Intermediate Bond Average is the average performance without
sales charge of funds with similar investment objectives as calculated by
Morningstar, Inc. Class B since-inception return is calculated from
9/30/93.
(7) Lipper Intermediate Investment Grade Debt Average is the average
performance without sales charge of funds with similar investment
objectives as calculated by Lipper Inc. Class B since-inception return is
calculated from 9/30/93.
2
<PAGE>
NVEST BOND INCOME FUND
================================================================================
Interview with Your Portfolio Managers
--------------------------------------------------------------------------------
[PHOTO]
[PHOTO]
Peter Palfrey
Richard Raczkowski
Back Bay Advisors, L.P.
Q. How did Nvest Bond Income Fund perform during the six months ended June 30,
2000?
For the six months ended June 30, 2000, Class A shares of Nvest
Bond Income Fund provided a total return of 2.48% at net asset value, including
$0.40 in dividends reinvested during the period. For the same period, the return
on the Fund's benchmark, Lehman Brothers Aggregate Bond Index was 3.99%. The
Fund underperformed its benchmark during this period as a result of its emphasis
on U.S. corporate bonds with relatively long maturities at a time when the
market was experiencing what's known as an "inverted yield curve" - when
short-term interest rates rise above long-term rates for a time.
Q. What was the investment environment like during the first half of 2000?
As an asset class, bonds posted respectable returns for the first half of the
year, outperforming the stock market averages for the first time since 1993.
Treasury securities performed especially well during this period, while the
corporate and lower rated markets lagged. The Federal Reserve Board increased
short-term interest rates by a total of 100 basis points during the first six
months of 2000, continuing its efforts to slow economic growth and cool
inflationary pressures. At the same time, the U.S. Treasury launched an
unprecedented program, using its mounting budget surpluses to buy back $30
billion worth of long-term debt. This reduced the supply of these top-quality
bonds at a time when turbulence in the stock market prompted many investors to
seek the relative tranquility offered by this traditional haven. Reduced supply
and increased demand caused yields on intermediate- and long-term debt to
decline while short-term rates rose, reversing the customary relationship
between long and short rates.
3
<PAGE>
NVEST BOND INCOME FUND
================================================================================
--------------------------------------------------------------------------------
Credit Quality Composition -- 6/30/00
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
AAA - 33.4%
AA - 10.8%
A - 15.9%
BBB - 22.9%
BB - 14.4%
B - 2.6%
Average Portfolio Quality:A
Portfolio holdings and asset allocation will vary.
Although the supply of corporate debt in both higher and lower quality sectors
is less than it was at the same time last year, demand is also relatively low
because of the attractive yields on government securities. As a result, we
believe that corporate bonds are now attractively valued, especially given the
strength of the underlying economy. Mortgage-backed securities and agency
debentures performed better than the corporate sector, but not as well as
Treasuries, creating more attractive opportunities for fixed-income investors.
The same factors that influenced the U.S. corporate bond market also affected
Yankee bonds -- dollar-denominated debt issued in the U.S. by foreign banks and
corporations. Your Fund's holdings in Canadian, Australian and Euro-denominated
bonds provided positive performance during the year, although the sharp decline
in these countries' currencies relative to the U.S. dollar negated these
results. Emerging market debt also fared well during the period, reflecting the
continued rebound in global economies.
Q. What was your strategy with Nvest Bond Income Fund?
We had anticipated the Fed's aggressive tightening early in the
year, so we reduced the Fund's position in Treasury securities, including those
with longer maturities. At the same time, we emphasized long-maturity domestic
corporate bonds because we believed them to be attractively priced, especially
given the strength of the underlying economy. Although these moves caused Nvest
Bond Income Fund to lag its benchmark during the first half of the year, we
believe the Fund is well positioned for the balance of the year. In fact, we
have already seen a rebound in June's performance results.
4
<PAGE>
NVEST BOND INCOME FUND
================================================================================
--------------------------------------------------------------------------------
Q. What is your current outlook?
Currently, the portfolio emphasizes five- to 10-year government securities and
longer-maturity issues. Our outlook calls for the yield difference between
corporates and Treasuries to decline, which would be positive for corporate
bonds. We may even experience modestly lower interest rates in the second half
of the year, as the U. S. economy slows due to Fed tightening.
Corporate bonds, mortgage-backed securities and Yankees currently offer
attractive yields, especially given our view that the Federal Reserve appears to
be on track toward achieving its desired "soft landing" for the U.S. economy. We
believe the corporate market, in particular, is attractive. Nvest Bond Income
Fund's holdings in this sector, 62% as of June 30, 2000, emphasize defensive
industries, including cable, media, and telecommunications. We expect these
sectors to do well as the U. S. economy slows to a more sustainable growth rate
in coming months.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Bond Income Fund invests primarily in quality corporate and U.S.
government bonds. Treasuries and U.S. government securities are guaranteed;
mutual funds that invest in these securities are not. It may invest in lower
rated corporate bonds, which offer higher yields in return for more risk, and in
mortgage-backed securities that are subject to prepayment risk. The Fund is also
permitted to invest a portion of assets in foreign and emerging market
securities, which have special risks. These risks effect the value of your
investment. See a prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Bonds and Notes -- 97.8% of Total Net Assets
<TABLE>
<CAPTION>
Ratings (c)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aerospace -- 0.9%
$ 1,715,000 Lockheed Martin Corp., 8.200%, 12/01/2009 ....................... Baa3 BBB- $ 1,734,110
1,045,000 Lockheed Martin Corp., 8.500%, 12/01/2029 ....................... Baa3 BBB- 1,066,981
-------------
2,801,091
-------------
Auto & Related -- 1.9%
6,130,000 Ford Motor Co., 7.450%, 7/16/2031 ............................... A2 A 5,765,817
-------------
Business Services -- 1.0%
3,500,000 Equifax, Inc., 6.900%, 7/01/2028 ................................ A3 A- 3,043,254
-------------
Electric Utilities -- 7.0%
9,905,000 Arizona Public Service Corp., 8.000%, 12/30/2015 ................ Baa3 BBB 9,909,388
5,000,000 BVPS II Funding Corp., 8.890%, 6/01/2017 ........................ -- BB- 5,009,575
3,692,000 New Mexico Public Service Corp., 10.250%, 10/01/2012 ............ Ba2 BBB- 3,892,512
2,000,000 Ohio Edison Corp., 8.680%, 6/01/2017 ............................ Ba1 BB- 1,984,178
-------------
20,795,653
-------------
Energy -- 2.4%
2,500,000 PECO Energy Transition Trust, 7.650%, 3/01/2010 (e) ............. Aaa AAA 2,528,044
360,000 Phillips Petroleum Co., 8.500%, 5/25/2005 ....................... Baa2 BBB 372,918
400,000 Phillips Petroleum Co., 8.750%, 5/25/2010 ....................... Baa2 BBB 424,247
3,615,000 Pioneer Natural Resources Co., 9.625%, 4/01/2010 ................ Ba2 BB+ 3,738,843
-------------
7,064,052
-------------
Federal Agencies -- 21.6%
6,630,000 Federal Home Loan Mortgage Corp., 5.000%, 1/15/2004 ............. Aaa AAA 6,210,454
29,126 Federal Home Loan Mortgage Corp., 9.000%, 5/1/2001 .............. Aaa AAA 28,875
6,500,000 Federal National Mortgage Association, 5.250%, 1/15/2009 ........ Aaa AAA 5,729,165
10,767,109 Federal National Mortgage Association, 6.500%,
with various maturities to 2014 ............................... Aaa AAA 10,465,241
13,985,379 Federal National Mortgage Association, 7.500%,
with various maturities to 2024 ............................... Aaa AAA 13,858,320
6,608,636 Government National Mortgage Association, 6.500%,
with various maturities to 2029 ............................... Aaa AAA 6,274,176
10,870,390 Government National Mortgage Association, 7.000%,
with various maturities to 2029 (d) ........................... Aaa AAA 10,584,214
5,815,009 Government National Mortgage Association, 7.500%,
with various maturities to 2025 (d) ........................... Aaa AAA 5,790,741
3,382,669 Government National Mortgage Association, 8.000%, 11/15/29 ...... Aaa AAA 3,420,961
1,558,512 Government National Mortgage Association, 8.500%,
with various maturities to 2023 (d) ........................... Aaa AAA 1,602,521
112,119 Government National Mortgage Association, 9.000%,
with various maturities to 2016 (d) ........................... Aaa AAA 117,227
154,859 Government National Mortgage Association, 11.500%,
with various maturities to 2018 (d) ........................... Aaa AAA 169,992
-------------
64,251,887
-------------
Finance -- 0.8%
2,460,000 Americredit Automobile, 7.150%, 8/12/2004 (e) ................... Aaa AAA 2,453,087
-------------
</TABLE>
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance & Banking -- 4.0%
$ 4,075,000 American General Finance Corp., 8.450%, 10/15/2009 .............. A2 A+ $ 4,180,062
5,770,000 Bank of America, 7.800%, 2/15/2010 .............................. Aa3 A 5,749,055
2,200,000 BankAmerica Corp., 5.875%, 2/15/2009 ............................ Aa2 A+ 1,946,221
-------------
11,875,338
-------------
Food & Beverages -- 1.5%
4,600,000 Aramark Services, Inc., 7.000%, 7/15/2006 ....................... Baa3 BBB- 4,293,309
-------------
Food-Retailers/Wholesalers -- 0.7%
2,155,000 Great Atlantic and Pacific Tea, Inc., 7.750%, 4/15/2007 ......... Ba1 BBB- 1,949,846
-------------
Foreign Issues -- 8.1%
11,100,000 Government of Canada, 7.250%, 6/01/2007 (CAD) ................... Aa1 AAA 8,040,750
4,000,000 Government of Canada, 7.500%, 12/01/2003 (CAD) .................. Aa1 AAA 2,824,054
1,500,000 Manitoba Province, Canada, 5.650%, 7/15/2004 (CAD) .............. Aa3 AA- 993,466
1,600,000 Panama Republic, 8.875%, 9/30/2027 .............................. Ba1 BB+ 1,352,000
2,970,000 Philippines Republic, 9.875%, 1/15/2019 ......................... Ba1 BB+ 2,435,400
7,000,000 Province of British Columbia, Canada, 7.750%, 6/16/2003 (CAD) ... -- AA- 4,928,473
660,000 United Mexican States, 9.875%, 2/01/2010 ........................ Baa3 BB+ 684,750
5,000,000 World Bank, 5.500%, 5/14/2003 (AUD) ............................. Aaa AAA 2,915,494
-------------
24,174,387
-------------
Insurance -- 0.4%
1,810,000 Conseco, Inc., 9.000%, 10/15/2006 ............................... Ba1 BB- 1,276,050
-------------
Internet -- 1.1%
3,785,000 Kpnqwest, 7.125%, 6/01/2009 ..................................... Ba1 BB 3,346,139
-------------
Media & Entertainment -- 8.1%
685,000 Clear Channel Communications, 7.875%, 6/15/2005 ................. Baa3 BBB- 689,009
4,300,000 Continental Cablevision, Inc., 9.500%, 8/01/2013 ................ Baa2 AA- 4,662,069
3,000,000 News America Holdings, Inc., 7.750%, 2/01/2024 .................. Baa3 BBB- 2,734,158
2,245,000 News America Holdings, Inc., 8.250%, 8/10/2018 .................. Baa3 BBB- 2,183,983
2,000,000 TCI Communications, Inc., 8.750%, 8/01/2015 ..................... A2 AA- 2,166,856
9,342,000 Tele-Communications, Inc., 9.250%, 1/15/2023 .................... A2 AA- 9,971,127
2,027,000 Tele-Communications, Inc., 9.800%, 2/01/2012 .................... A2 AA- 2,330,424
-------------
24,737,626
-------------
Paper & Forest Products -- 0.8%
2,200,000 International Paper Co., 8.125%, 7/08/2005 ...................... Baa1 BBB+ 2,221,648
-------------
Retail Department Store -- 0.5%
1,785,000 Penney J C, Inc., 9.750%, 6/15/2021 ............................. Baa2 BBB 1,583,724
-------------
Retail-Food & Drug -- 0.4%
1,370,000 Rite Aid Corp., 7.125%, 1/15/2007 ............................... B1 B- 705,550
750,000 Rite Aid Corp., 7.700%, 2/15/2027 ............................... B1 B- 337,500
-------------
1,043,050
-------------
</TABLE>
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steel -- 1.7%
$ 2,000,000 CSC Holdings, Inc., 7.625%, 7/15/2018 ........................... Ba1 BB+ $ 1,797,952
3,500,000 CSC Holdings, Inc., 7.875%, 2/15/2018 ........................... Ba1 BB+ 3,226,681
-------------
5,024,633
-------------
Telecommunications -- 11.0%
2,840,000 AT&T Corp., 8.625%, 12/01/2031 .................................. A1 AA- 2,874,864
1,885,000 Corning, Inc., 5.625%, 2/18/2005 ................................ A2 A 1,777,115
3,540,000 Deutsche Telekom International, 8.000%, 6/15/2010 ............... Aa2 AA- 3,575,903
2,540,000 Global Crossings Holdings, Ltd., 9.625%, 5/15/2008 .............. Ba2 BB 2,476,500
6,150,000 GTE Corp., 7.900%, 2/01/2027 .................................... Baa1 A+ 5,847,026
4,200,000 LCI International, Inc., 7.250%, 6/15/2007 ...................... Ba1 BB+ 4,043,378
1,500,000 McLeodUSA, Inc., 8.125%, 2/15/2009 .............................. B1 B+ 1,357,500
2,000,000 McLeodUSA, Inc., 8.375%, 3/15/2008 .............................. B1 B+ 1,850,000
500,000 McLeodUSA, Inc., 9.500%, 11/01/2008 ............................. B1 B+ 491,250
795,000 Metromedia Fiber Network, Inc., 10.000%, 12/15/2009 ............. B2 B+ 787,050
365,000 Shaw Communications, Inc., 8.250%, 4/11/2010 .................... Baa2 BBB+ 369,872
1,010,000 Sprint Capital Corp., 6.900%, 5/01/2019 ......................... Baa1 BBB+ 898,714
6,061,000 WorldCom, Inc., 8.875%, 1/15/2006 ............................... A3 A- 6,252,200
-------------
32,601,372
-------------
U.S. Government -- 4.6%
4,700,000 United States Treasury Notes 5.625%, 5/15/2008 .................. Aaa AAA 4,534,043
3,800,000 United States Treasury Notes 5.750%, 8/15/2003 .................. Aaa AAA 3,735,286
2,780,000 United States Treasury Notes 6.000%, 8/15/2009 .................. AAA Aaa 2,757,843
2,450,000 United States Treasury Notes 6.500%, 2/15/2010 .................. Aaa AAA 2,533,839
-------------
13,561,011
-------------
Yankee -- 19.1%
5,000,000 Abitibi-Consolidated, Inc., 6.950%, 4/01/2008 ................... Baa3 BBB- 4,543,300
1,990,000 British Sky Broadcasting Group, 8.200%, 7/15/2009 ............... Baa3 BB+ 1,870,009
2,900,000 Empresa Nacional de Electric, 8.500%, 4/01/2009 ................. Baa1 A- 2,830,417
1,150,000 Endesa-Chile Overseas, 7.200%, 4/01/2006 ........................ Baa1 A- 1,072,628
4,300,000 Freeport Term Malta PLC, 144A, 7.250%, 5/15/2028 ................ A3 A 3,844,308
3,050,000 Hydro Quebec, 8.050%, 7/07/2024.................................. A2 A+ 3,236,864
2,000,000 Kappa Beheer BV, 144A, 10.625%, 7/15/2009........................ B2 B 1,989,174
4,500,000 Merita Bank, Ltd.,144A, 7.150%, 12/29/2049 (f)................... A2 BBB+ 4,398,349
1,750,000 Multicanal SA, 9.250%, 2/01/2002................................. B1 BB+ 1,658,125
1,250,000 Multicanal SA, 10.500%, 4/15/2018................................ B1 BB+ 990,625
3,800,000 Multicanal SA, 13.125%, 4/15/2009................................ B1 BB+ 3,657,500
4,000,000 Orange PLC, 8.750%, 6/01/2006.................................... Ba3 -- 4,130,000
469,000 PDVSA Finance Ltd., 144A, 8.750%, 2/15/2004...................... Baa1 -- 463,138
6,535,000 Pemex Finance Ltd., 8.020%, 5/15/2007............................ Baa1 BBB+ 6,205,995
3,000,000 Pemex Finance Ltd., 9.150%, 11/15/2018........................... Baa1 BBB+ 3,058,845
1,000,000 Republic of Colombia, 8.375%, 2/15/2027.......................... Ba2 BB 637,500
</TABLE>
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Yankee -- continued
$ 1,900,000 Republic of Colombia, 9.750%, 4/23/2009.......................... Ba2 BB+ $ 1,672,000
2,500,000 Republic of Korea, 8.875%, 4/15/2008............................. Baa2 BBB 2,596,875
2,700,000 SK Telecom Company, Ltd., 7.750%, 4/29/2004...................... Ba1 BBB 2,635,538
5,700,000 YPF SA, 7.750%, 8/27/2007........................................ B1 BBB- 5,415,000
-------------
56,906,190
-------------
Total Bonds and Notes (Identified Cost $300,636,808)............. 290,769,164
-------------
Short Term Investment -- 0.6%
---------------------------------------------------------------------------------------------------------------------------
1,845,000 Household Finance Corp. 6.880%, 7/03/2000........................ 1,844,295
-------------
Total Short Term Investment (Identified Cost $1,844,295)......... 1,844,295
-------------
Total Investments -- 98.4% (Identified Cost $302,481,103) (b).... 292,613,459
Other assets less liabilities.................................... 4,592,916
-------------
Total Net Assets -- 100%......................................... $ 297,206,375
===============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized depreciation on investments based on
cost of $302,481,103 for federal income tax purposes was as
follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ......................... $ 1,711,302
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................... (11,578,946)
-------------
Net unrealized depreciation................................................ $ (9,867,644)
=============
At December 31, 1999 the Fund had a capital loss carry over of $2,808,699
that expires December 31, 2007.
This may be available to offset future realized gains, if any, to the
extent provided by regulations.
(c) The ratings shown are believed to be the most recent ratings available at
June 30, 2000. Securities are generally rated at the time of issuance. The
rating agencies may revise their rating from time to time. As a result,
there can be no assurance that the same ratings would be assigned if the
securities were rated at June 30, 2000. The Fund's subadviser independently
evaluates the Fund's portfolio securities and in making investment
decisions does not rely solely on the ratings of agencies.
(d) The Fund's investments in Federal National Mortgage Association and
Government National Mortgage Association securities, which have the same
coupon rate, have been aggregated for the purpose of presentation in the
schedule of investments.
(e) Security valued at fair value as determined in good faith by or under the
direction of the Board of Trustees.
(f) Multi Coupon: coupon rate is as stated for an initial period and then
increases to a higher coupon rate at a specified date and rate.
144A Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. June 30, 2000,
the value of these securities amounted to $10,684,969 or 3.6% of net
assets.
AUD Australian Dollars.
CAD Canadian Dollars.
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $302,481,103) ..................... $ 292,613,459
Cash .................................................................... 4,893
Investments held as collateral for loaned securities .................... 11,555,145
Receivable for:
Fund shares sold .................................................... 1,059,214
Securities sold ..................................................... 3,371,500
Interest ............................................................ 5,484,070
-------------
314,088,281
LIABILITIES
Payable for:
Collateral on securities loaned, at value ........................... $ 11,555,145
Securities purchased ................................................ 539,682
Fund shares redeemed ................................................ 4,212,612
Dividends declared .................................................. 337,725
Accrued expenses:
Transfer agent ...................................................... 61,507
Management fees ..................................................... 9,935
Deferred Trustees' fees ............................................. 89,665
Accounting and administrative ....................................... 16,880
Other ............................................................... 58,755
-------------
16,881,906
-------------
NET ASSETS .................................................................. $ 297,206,375
=============
Net Assets consist of:
Paid in capital ..................................................... 316,502,527
Undistributed net investment income ................................. 530,829
Accumulated net realized gains (losses) ............................. (9,959,382)
Unrealized appreciation (depreciation) on investments
and foreign currency ................................................ (9,867,599)
-------------
NET ASSETS .................................................................. $ 297,206,375
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($180,690,731 / 15,846,815 shares of beneficial interest) ............. $ 11.40
=============
Offering price per share (100 / 95.50 of $11.40) ........................ $ 11.94*
=============
Net asset value and offering price of Class B shares
($91,744,613 / 8,049,683 shares of beneficial interest) ............... $ 11.40**
=============
Net asset value and offering price of Class C shares
($13,710,766 / 1,201,729 shares of beneficial interest) ............... $ 11.41**
=============
Net asset value, offering and redemption price of Class Y shares
($11,060,265 / 967,796 shares of beneficial interest) ................. $ 11.43
=============
</TABLE>
* Based upon single purchases of less than $100,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
10 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest .............................................................................. $ 12,075,327
Securities lending income ............................................................. 39,403
------------
12,114,730
------------
Expenses
Management fees ................................................................... $ 619,619
Service fees - Class A ............................................................ 232,578
Service and distribution fees - Class B ........................................... 437,244
Service and distribution fees - Class C ........................................... 70,610
Trustees' fees and expenses ....................................................... 9,441
Accounting and administrative ..................................................... 55,924
Custodian ......................................................................... 74,987
Transfer agent - Class A, Class B, Class C ........................................ 293,163
Transfer agent - Class Y .......................................................... 4,839
Audit and tax services ............................................................ 17,405
Legal ............................................................................. 7,501
Printing .......................................................................... 22,000
Registration ...................................................................... 30,009
Miscellaneous ..................................................................... 5,310
------------
Total expenses .................................................................... 1,880,630
------------
Net investment income ............................................................. 10,234,100
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ................................................................. (6,910,089)
Foreign currency transactions - net ............................................... 192,382
------------
Total realized gain (loss) on investments and foreign currency transactions ....... (6,717,707)
------------
Unrealized appreciation (depreciation) on:
Investments - net ................................................................. 3,194,190
Foreign currency transactions - net ............................................... 45
------------
Total unrealized appreciation (depreciation)
on investments and foreign currency transactions .................................. 3,194,235
------------
Net gain (loss) on investment transactions ............................................ (3,523,472)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ..................................... $ 6,710,628
============
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................................... $ 21,851,209 $ 10,234,100
Net realized gain (loss) on investments and foreign currency transactions (2,780,855) (6,717,707)
Unrealized appreciation (depreciation) on investments
and foreign currency transactions .................................... (20,965,075) 3,194,235
------------- -------------
Increase (decrease) in net assets from operations ....................... (1,894,721) 6,710,628
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .............................................................. (14,939,750) (6,352,757)
Class B .............................................................. (4,785,260) (2,678,164)
Class C .............................................................. (741,180) (431,505)
Class Y .............................................................. (747,853) (344,791)
Net realized gain on investments
Class A .............................................................. (187,042) 0
Class B .............................................................. (72,950) 0
Class C .............................................................. (11,768) 0
Class Y .............................................................. (8,834) 0
In excess of net realized gain
Class A .............................................................. (42,382) 0
Class B .............................................................. (16,530) 0
Class C .............................................................. (2,666) 0
Class Y .............................................................. (2,002) 0
------------- -------------
(21,558,217) (9,807,217)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ..................................... 47,329,080 (27,870,909)
------------- -------------
Total increase (decrease) in net assets ...................................... 23,876,142 (30,967,498)
NET ASSETS
Beginning of the period ................................................. 304,297,731 328,173,873
------------- -------------
End of the period ....................................................... $ 328,173,873 $ 297,206,375
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period ....................................................... $ 103,946 $ 530,829
============= =============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 10.95 $ 12.36 $ 12.05 $ 12.39 $ 12.36 $ 11.51
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.81 0.84 0.83 0.81 0.81 0.42
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 1.40 (0.31) 0.45 0.15 (0.86) (0.13)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.21 0.53 1.28 0.96 (0.05) 0.29
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.80) (0.84) (0.81) (0.78) (0.79) (0.40)
Distributions in Excess of Net
Investment Income ......................... 0.00 0.00 (0.01) (0.03) 0.00 0.00
Distributions From Net Realized
Capital Gains ............................. 0.00 0.00 (0.12) (0.17) (0.01) 0.00
Distributions in Excess of Net Realized Gains 0.00 0.00 0.00 (0.01) 0.00(b) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.80) (0.84) (0.94) (0.99) (0.80) (0.40)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 12.36 $ 12.05 $ 12.39 $ 12.36 $ 11.51 $ 11.40
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................ 20.8 4.6 11.0 8.0 (0.3) 2.5
Ratio of Operating Expenses to
Average Net Assets (%) .................... 1.14 1.05 1.05 1.01 0.97 1.02(c)
Ratio of Net Investment Income to
Average Net Assets (%) .................... 6.81 7.00 6.73 6.44 6.87 7.13(c)
Portfolio Turnover Rate (%) ................. 81 104 54 65 63 43
Net Assets, End of the Period (000) ......... $ 200,285 $ 189,685 $ 193,513 $ 221,799 $ 213,769 $ 180,691
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) Amount is less that $0.01.
(c) Computed on an annualized basis.
See accompanying notes to financial statements. 13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 10.95 $ 12.36 $ 12.04 $ 12.39 $ 12.36 $ 11.51
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.72 0.75 0.74 0.71 0.72 0.35
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 1.40 (0.32) 0.46 0.15 (0.86) (0.10)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.12 0.43 1.20 0.86 (0.14) 0.25
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.71) (0.75) (0.72) (0.69) (0.70) (0.36)
Distributions in Excess of Net
Investment Income ......................... 0.00 0.00 (0.01) (0.02) 0.00 0.00
Distributions From Net Realized Capital Gains 0.00 0.00 (0.12) (0.17) (0.01) 0.00
Distributions in Excess of
Net Realized Capital Gains ................ 0.00 0.00 0.00 (0.01) 0.00(b) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.71) (0.75) (0.85) (0.89) (0.71) (0.36)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 12.36 $ 12.04 $ 12.39 $ 12.36 $ 11.51 $ 11.40
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................ 19.9 3.7 10.3 7.2 (1.1) 2.1
Ratio of Operating Expenses to
Average Net Assets (%) .................... 1.89 1.80 1.80 1.76 1.72 1.75(c)
Ratio of Net Investment Income to
Average Net Assets (%) .................... 6.06 6.25 5.98 5.69 6.12 6.38(c)
Portfolio Turnover Rate (%) ................. 81 104 54 65 63 43
Net Assets, End of the Period (000) ....... $ 23,398 $ 31,191 $ 37,559 $ 64,240 $ 89,213 $ 91,745
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Amount is less than $0.01.
(c) Computed on an annualized basis.
14 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 10.95 $ 12.36 $ 12.06 $ 12.40 $ 12.37 $ 11.52
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.56 0.75 0.74 0.71 0.72 0.37
Net Realized and Unrealized Gain (Loss) on
Investments ............................... 1.40 (0.30) 0.45 0.15 (0.86) (0.12)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 1.96 0.45 1.19 0.86 (0.14) 0.25
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.55) (0.75) (0.72) (0.69) (0.70) (0.36)
Distributions in Excess of Net
Investment Income ......................... 0.00 0.00 (0.01) (0.02) 0.00 0.00
Distributions from Net Realized Capital Gains 0.00 0.00 (0.12) (0.17) (0.01) 0.00
Distributions in Excess of Net Realized Gains 0.00 0.00 0.00 (0.01) 0.00(b) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.55) (0.75) (0.85) (0.89) (0.71) (0.36)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 12.36 $ 12.06 $ 12.40 $ 12.37 $ 11.52 $ 11.41
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................ 18.1 3.9 10.2 7.2 (1.1) 2.1
Ratio of Operating Expenses
to Average Net Assets(%) .................. 1.89 1.80 1.80 1.76 1.72 1.75(c)
Ratio of Net Investment Income
to Average Net Assets(%) .................. 6.06 6.25 5.98 5.69 6.12 6.38(c)
Portfolio Turnover Rate (%) ................. 81 104 54 65 63 43
Net Assets, End of the Period (000) ......... $ 1,009 $ 2,391 $ 5,276 $ 8,969 $ 14,872 $ 13,711
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Amount is less than $0.01.
(c) Computed on an annualized basis.
See accompanying notes to financial statements. 15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class Y
------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 10.95 $ 12.40 $ 12.06 $ 12.41 $ 12.38 $ 11.54
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income
0.80 0.87 0.86 0.84 0.85 0.37
Net Realized and Unrealized Gain (Loss) on
Investments ............................... 1.44 (0.34) 0.46 0.15 (0.86) (0.06)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.24 0.53 1.32 0.99 (0.01) 0.31
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.79) (0.87) (0.84) (0.81) (0.82) (0.42)
Distributions in Excess of Net
Investment Income ......................... 0.00 0.00 (0.01) (0.03) 0.00 0.00
Distributions from Net Realized Capital Gain 0.00 0.00 (0.12) (0.17) (0.01) 0.00
Distributions in Excess of Net Realized Gains.. 0.00 0.00 0.00 (0.01) 0.00(a) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.79) (0.87) (0.97) (1.02) (0.83) (0.42)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 12.40 $ 12.06 $ 12.41 $ 12.38 $ 11.54 $ 11.43
========= ========= ========= ========= ========= =========
Total Return (%) ............................ 21.0 4.6 11.4 8.2 (0.0)(b) 2.6
Ratio of Operating Expenses
to Average Net Assets(%) .................. 0.89 0.80 0.80 0.76 0.72 0.65(c)
Ratio of Net Investment Income
to Average Net Assets(%) .................. 7.06 7.25 6.98 6.69 7.12 7.49(c)
Portfolio Turnover Rate (%) ................. 81 104 54 65 63 43
Net Assets, End of the Period (000) ......... $ 2,241 $ 1,844 $ 4,153 $ 9,289 $ 10,320 $ 11,060
</TABLE>
(a) Amount is less than $0.01.
(b) Amount is less than one tenth of one percent.
(c) Computed on an annualized basis.
16 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Fund invests
primarily in corporate and U.S. Government bonds. The Declaration of Trust
permits the Trustees to issue an unlimited number of shares of the Trust in
multiple series (each such series is a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 4.50%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay front end sales charges and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and are subject to a contingent deferred sales charge if
those shares are redeemed within one year. Class Y shares do not pay a front end
sales charge, a contingent deferred sales charge or service and distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro rata by the holders of all classes
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees and transfer agent expenses
applicable to such class), and votes as a class only with respect to its own
Rule 12b-1 plan. Shares of each class would receive their pro rata share of the
net assets of the Fund, if the Fund was liquidated. In addition, the Trustees
approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Debt securities (other than short-term obligations with a
remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of Trustees,
which service determines valuations for normal, institutional-size trading units
of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser
under the supervision of the Fund's Trustees.
b. Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.
c. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Interest income is recorded on the accrual
basis. Interest income is increased by the accretion of original issue discount
and/or market discount. In determining net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
d. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
e. Dividends and Distributions to Shareholders. Dividends are declared daily to
shareholders of record at the time and are paid monthly. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for mortgage backed securities and foreign currency
transactions for book and tax purposes. Permanent book and tax basis differences
will result in reclassifications to capital accounts.
f. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
2. Purchases and Sales of Securities. For six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were as
follows:
Purchases Sales
----------------------------------- ---------------------------------
U.S. Government Other U.S. Government Other
--------------- ------------- --------------- -------------
$ 73,638,629 $ 54,571,107 $ 46,384,153 $ 110,589,283
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management L.P. ("Nvest
Management") at the annual rate of 0.50% of the first $100 million of the Fund's
average daily net assets and 0.375% of such assets in excess of $100 million
reduced by the payment to the Fund's investment subadviser Back Bay Advisors,
L.P. ("Back Bay"), at the rate of 0.25% of the first $100 million of the Fund's
average daily net assets and 0.1875% of such assets in excess of $100 million.
Certain officers and directors of Nvest Management are also officers or Trustees
of the Fund. Nvest Management and Back Bay are wholly owned subsidiaries of
Nvest Companies, L.P. ("Nvest"), which is a subsidiary of Metropolitan Life
Insurance Company (see Note 6). Fees earned by Nvest Management and Back Bay
under the management and subadvisory agreements in effect during six months
ended June 30, 2000 are as follows:
Fees Earned
-----------
Nvest Management $ 309,809
Back Bay 309,810
-------------
$ 619,619
=============
The effective annualized management fee for six months ended June 30, 2000 was
0.42%.
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $55,924 and are shown separately in the financial
statements as accounting and administrative.The effective annualized accounting
and administration expense for the six months ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
out-of-pocket expenses. Class Y shares bear a transfer agent fee of 0.10% of
average daily net assets. For the six months ended June 30, 2000, the Fund paid
NSC $220,389 as compensation for its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For six months
ended June 30, 2000, the Fund paid Nvest Funds $232,578 in fees under the Class
A Plan. If the expenses of Nvest Funds that are otherwise reimbursable under the
Class A Plan incurred in any year exceed the amounts payable by the Fund under
the Class A Plan, the
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
unreimbursed amount (together with unreimbursed amounts from prior years) may be
carried forward for reimbursement in future years in which the Class A Plan
remains in effect. The amount of unreimbursed expenses carried forward at June
30, 2000 is $1,919,349.
Under the Class B and Class C Plans, the Fund pays Nvest Funds monthly service
fees at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For six months ended June 30, 2000, the Fund paid Nvest
Funds $109,311 and $17,652 in service fees under the Class B and Class C Plans,
respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For six
months ended June 30, 2000, the Fund paid Nvest Funds $327,933 and $52,958 in
distribution fees under the Class B and Class C Plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during six months ended June 30,
2000 amounted to $528,229.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
4. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 7,081,566 $ 84,892,202 3,389,992 $ 37,892,626
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 1,008,210 11,946,031 477,412 5,433,480
Distributions from net realized gain ............. 16,733 193,774 0 0
------------ ------------ ------------ ------------
8,106,509 97,032,007 3,867,404 43,326,106
Shares repurchased .................................. (7,480,202) (88,965,876) (6,585,849) (74,983,733)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. 626,307 $ 8,066,131 (2,718,445) $(31,657,627)
------------ ------------ ------------ ------------
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
---------------------------- ----------------------------
Class B Shares Amount Shares Amount
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 3,874,628 $ 46,282,836 1,420,549 $ 16,797,057
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 304,344 3,596,122 183,062 2,081,895
Distributions from net realized gain ............. 6,223 72,058 0 0
------------ ------------ ------------ ------------
4,185,195 49,951,016 1,603,611 18,878,952
Shares repurchased .................................. (1,631,207) (19,265,518) (1,304,928) (14,881,381)
------------ ------------ ------------ ------------
Net increase ........................................ 2,553,988 $ 30,685,498 298,683 $ 3,997,571
------------ ------------ ------------ ------------
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
---------------------------- ----------------------------
Class C Shares Amount Shares Amount
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 863,321 $ 10,317,158 188,032 $ 2,143,014
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 44,159 522,256 25,947 295,363
Distributions from net realized gain ............. 912 10,568 0 0
------------ ------------ ------------ ------------
908,392 10,849,982 213,979 2,438,377
Shares repurchased .................................. (342,543) (4,058,281) (302,956) (3,463,200)
------------ ------------ ------------ ------------
Net increase ........................................ 565,849 $ 6,791,701 (88,977) $ (1,024,823)
------------ ------------ ------------ ------------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
---------------------------- ----------------------------
Class Y Shares Amount Shares Amount
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 411,333 $ 5,002,343 302,298 $ 3,442,473
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 52,565 624,421 23,743 270,665
Distributions from net realized gain ............. 882 10,266 0 0
------------ ------------ ------------ ------------
464,780 5,637,030 326,041 3,713,138
Shares repurchased .................................. (320,208) (3,851,280) (252,848) (2,899,168)
------------ ------------ ------------ ------------
Net increase ........................................ 144,572 $ 1,785,750 73,193 $ 813,970
------------ ------------ ------------ ------------
Increase derived from capital shares transactions ... 3,890,716 $ 47,329,080 (2,435,546) $(27,870,909)
============ ============ ============ ============
</TABLE>
5. Security Lending. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 2000, the Fund had loaned securities having a market value of $11,299,999
and collateralized by cash in the amount of $11,555,145 which was invested in a
short-term investment.
6. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
22
<PAGE>
================================================================================
NVEST MUNICIPAL INCOME FUND
NVEST MASSACHUSETTS TAX FREE INCOME FUND
NVEST INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
Supplement dated August 21, 2000
to Nvest Bond Funds Prospectus Classes A, B and C and Nvest Massachusetts
Tax Free Income Fund and Nvest Intermediate Term Tax Free Fund of California
Prospectuses, each dated May 1, 2000
John Maloney has become co-manager of the Funds, joining James Welch. Mr.
Maloney, Vice President at Back Bay Advisors, has been with the company since
1989. Mr. Maloney has a B.A. in Economics from the University of Massachusetts
and has 17 years of investment experience.
23
<PAGE>
================================================================================
Glossary for Mutual Fund Investors
--------------------------------------------------------------------------------
Total Return - The change in value of a mutual fund investment over a specific
period, assuming all earnings are reinvested in additional shares of the fund.
Expressed as a percentage.
Income Distributions - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
Capital Gains Distributions - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year, when available.
Yield - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
Maturity - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
Duration - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration allows you to compare the volatility of different instruments.
As a general rule, for every 1% move in interest rates, a bond is expected to
fluctuate in value as indicated by its duration. For example, if interest rates
fall by 1%, a bond with a duration of 4 years should rise in value 4%.
Conversely, the bond should decline 4% in value if interest rates rise 1%.
Treasuries - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
Municipal Bond - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges. A small portion of
income may be subject to federal and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax.
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
* Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P, and other firms selling shares of Nvest Funds
are members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
BI58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] NvestFunds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Municipal Income Fund
Where
The Best
Minds Meet(R)
-------------
June 30, 2000 Please read the prospectus
------------- supplement on page 20.
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Municipal Income Fund's performance to a benchmark
index provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses, even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
June 1990 through June 2000
NAV MSC Muni
------------------------------------------------
6/00 18,376 17,540 19,782
6/99 18,268 17,446 19,300
6/98 17,888 17,084 18,781
6/97 16,514 15,771 17,285
6/96 15,308 14,619 15,857
6/95 14,417 13,768 14,870
6/94 13,374 12,772 13,669
6/93 13,557 12,947 13,641
6/92 12,111 11,566 12,184
6/91 10,731 10,248 10,901
6/90 10,000 9,550 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees, and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Class A (Inception 5/9/77) 6 Months 1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Net Asset Value(1) 3.11% 0.67% 4.99% 6.27%
With Maximum Sales Charge(2) -1.55 -3.92 4.02 5.78
----------------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) 2.74% -0.09% 4.23% 3.27%
With CDSC(3) -2.26 -4.88 3.89 3.27
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since
Fund's
Class B
Comparative Performance 6 Months 1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Lehman Municipal Bond Index(4) 4.48% 3.25% 5.88% 7.06% 5.15%
Morningstar Muni National Long Avg.(5) 3.64 0.45 4.73 6.34 3.94
Lipper General Municipal Debt Average(6) 3.95 0.98 4.76 6.40 4.05
----------------------------------------------------------------------------------------------------------
</TABLE>
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown.
Yields as of 6/30/00
--------------------------------------------------------------------------------
Class A Class B
SEC 30-day Yield(7) 5.31% 4.84%
Taxable Equivalent Yield(8) 8.79 8.01
--------------------------------------------------------------------------------
Notes to Charts
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 4.50%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares.
(4) Lehman Municipal Bond Index is an unmanaged composite measure of the
performance of the municipal bond market. You may not invest directly in an
index. Class B since inception return is calculated from 9/30/93.
(5) Morningstar Muni National Long Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Morningstar, Inc. Class B since inception return is calculated from
9/30/93.
(6) Lipper General Municipal Debt Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Lipper Inc. Class B since inception return is calculated from 9/30/93.
(7) SEC Yield is based on the Fund's net investment income over a 30-day period
and is calculated in accordance with Securities and Exchange Commission
guidelines.
(8) Taxable equivalent yield is based on the maximum federal income tax bracket
of 39.6%. A portion of income may be subject to federal, state and/or
alternative minimum tax. Capital gains distributions, if any, are subject
to the capital gains tax rate.
2
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
Interview with Your Portfolio Manager
--------------------------------------------------------------------------------
[PHOTO]
James Welch
Back Bay Advisors, L.P.
Q. How did Nvest Municipal Income Fund perform over the past six months?
The return on Class A shares of Nvest Municipal Income Fund was 3.11% at net
asset value for the six months ended June 30, 2000, including $0.18 per share in
reinvested dividends. For the same period, the Fund's benchmark, Lehman Brothers
Municipal Bond Index returned 4.48%. Throughout the period, we maintained a
neutral to short average portfolio maturity relative to the Fund's benchmark and
its peer group, in an effort to smooth out the price volatility of the market.
This strategy was successful early in the period, when interest rates were
rising, but detracted from performance in June, as rates fell.
The 30-day SEC yield on Class A shares of Nvest Municipal Income Fund was 5.31%
as of June 30, 2000, which is equivalent to a taxable yield of 8.79%, based on
the maximum federal income tax rate of 39.6%.
Q. What was the investment environment for municipal bonds during the period?
Despite a series of short-term interest rate hikes by the Federal Reserve Board
during the first six months of 2000, the environment for fixed-income
investments in general was surprisingly favorable. Although the economy
continued to grow at a brisk pace, inflation was kept at bay.
The fixed-income market was also bolstered by the U.S. Treasury Department's
announcement that it was buying back long-term debt. This created a bidding war
for long-term Treasuries, driving up prices and depressing yields, leading to an
inverted yield curve -- where yields on short-term bonds rise above yields on
long-term bonds.
Meanwhile, municipalities continued to gain financial strength as robust
economic growth allowed tax revenues to continue to climb, increasing the cash
flow of many state and local governments and improving their fiscal health.
3
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
--------------------------------------------------------------------------------
Finally, as yields on long-term Treasuries fell, so too did yields on long-term
municipals. This decline in yields (and corresponding increase in prices) meant
that long-term municipal bonds tended to outperform short- and intermediate-term
municipal bonds.
Q. Did supply and demand impact the tax-exempt market?
During the period, the supply of high-quality, tax-exempt issues failed to keep
pace with demand for several reasons. In contrast to several years ago, many
state and local governments are enjoying record budget surpluses. This reduced
the need for municipalities to issue new debt to finance projects.
At the same time, the stock market's intense volatility caused many investors to
focus on wealth preservation rather than wealth creation -- increasing the
demand for fixed-income investments, particularly municipal securities. By late
June and into July investors were eager to capitalize on tax-free yields not
seen in nearly five years.
Q. What strategies did you use in managing Nvest Municipal Income Fund?
We continued to follow the same general strategy we pursued over the previous
six months because the investment environment has stayed relatively the same:
The economy is healthy, inflation is under control, and consumer confidence and
consumer spending are high. This led to a positive backdrop for municipal
securities, particularly general obligation bonds, which are backed by tax
revenues. These issues made up a substantial portion of the Fund's portfolio
over the last six months.
As always, we rely on Back Bay Advisor's research staff to uncover promising
investment opportunities in cyclical industries such as airlines, paper
companies and utilities. Finally, we are beginning to believe in the Fed's
ability to successfully engineer a "soft landing" for the economy (slower growth
without recession), so we're gradually shifting assets into bonds with longer
maturities, which tend to offer higher yields in exchange for slightly higher
risk.
4
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
--------------------------------------------------------------------------------
Credit Quality Composition -- 6/30/00
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
AAA 31.1%
AA 6.0%
A 25.6%
BBB 27.9%
BB 5.4%
Not Rated 4.0%
Average Credit Quality = A
Average Portfolio Maturity = 16.6 Years
Quality is based on ratings provided by Standard & Poor's.
Portfolio holdings and asset allocation will vary.
Q. What is your outlook for municipal bonds over the next few months?
Generally speaking, it's favorable. We expect the difference between long-term
and short-term yields to continue to narrow, which would mean that longer
duration assets would outperform shorter duration assets.
In addition, although we are confident in the Fed's ability to slow the economy
and curb inflation, we expect continued stock market volatility. As a result, we
believe investors will continue to seek relative safety and superior after-tax
yields available from municipal securities. This should keep demand steady,
supporting bond prices and creating a positive environment for shareholders of
Nvest Municipal Income Fund.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Municipal Income Fund may invest a portion of assets in lower rated bonds
that offer higher yields in return for more risk. Some income may be subject to
federal and state taxes. Capital gains are fully taxable. Investors may be
subject to the Alternative Minimum Tax (AMT). This portfolio may also include
U.S. government securities, which are guaranteed if held to maturity; mutual
funds that invest in these securities are not. These risks affect your
investment's value. See a prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Tax Exempt Obligations -- 98.5% of Total Net Assets
<TABLE>
<CAPTION>
Ratings (c)
-----------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alaska -- 0.3%
$ 530,000 Alaska State Housing Finance Corp. Revenue Bond, 6.500%, 6/01/2034, (MBIA insured) .... Aaa AAA $ 536,386
------------
Arizona -- 2.7%
1,805,000 Mesa Arizona Industrial Development Authority Revenue, 5.750%, 1/01/2025,
(MBIA insured) ...................................................................... Aaa AAA 1,783,954
2,300,000 University of Arizona Revenue Bond, 6.350%, 6/01/2014 ................................. A1 AA 2,467,003
------------
4,250,957
------------
California -- 14.6%
5,000,000 California Educational Facilities Authority Revenue, 5.200%, 12/01/2027 ............... Aaa AAA 4,688,000
2,000,000 California Pollution Control Finance Authority Revenue Bond, 7.150%, 2/01/2011 ........ Ba1 BBB 2,031,180
1,500,000 Foothill/Eastern Transportation Corridor Agency Revenue Bond, 5.800%, 1/15/2020, (d) .. Baa3 BBB- 821,715
4,300,000 Foothill/Eastern Transportation Corridor Agency Revenue Bond, 6.500%, 1/01/2032 ....... Aaa AAA 4,789,340
2,000,000 Los Angeles Convention & Exhibition Center Authority Pre-Refunded Certificate of
Participation, 9.000%, 12/1/2020 .................................................... Aaa AAA 2,429,400
3,000,000 Los Angeles Regional Airport Revenue Bond, 6.350%, 11/01/2025 ......................... Baa3 BBB- 2,868,960
2,000,000 Sacramento Co-generation Authority Pre-Refunded Revenue Bond, 6.500%, 7/01/2021 ....... -- AAA 2,220,300
3,000,000 Sacramento Power Authority Revenue Bond, 6.000%, 7/1/2022 ............................. -- BBB- 2,946,120
------------
22,795,015
------------
Colorado -- 6.6%
1,500,000 Denver City & County Airport Pre-Refunded Revenue Bond, 7.500%, 11/15/2006 ............ A2 AAA 1,621,935
1,500,000 Denver City & County Airport Pre-Refunded Revenue Bond, 7.500%, 11/15/2012 ............ A2 AAA 1,621,935
1,655,000 Denver City & County Airport Revenue Bond, 7.750%, 11/15/2023 ......................... A2 A 1,761,251
3,960,000 Denver City & County Airport Revenue Bond, 7.750%, 11/15/2021 ......................... A2 A 4,156,772
1,040,000 Denver City & County Airport Revenue Pre-Refunded Bond, 7.750%, 11/15/2021 ............ Aaa A 1,100,986
------------
10,262,879
------------
Florida -- 1.9%
3,000,000 Escambia County Pollution Control, 6.900%, 8/01/2022 .................................. Baa1 BBB+ 3,053,190
------------
Georgia -- 1.6%
2,500,000 Atlanta Special Purpose Facilities Revenue Bond, 7.900%, 12/01/2018 ................... Ba2 BBB- 2,551,475
------------
</TABLE>
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Tax Exempt Obligations -- continued
<TABLE>
<CAPTION>
Ratings (c)
-----------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois -- 3.3%
$ 2,500,000 Illinois Development Finance Authority Pollution Control Revenue Bond, 7.375%,
7/01/2021 ........................................................................... Baa1 BBB+ $ 2,687,500
2,250,000 O'Hare International Airport Revenue Bond, 8.200%,12/1/2024 ........................... Baa1 BBB- 2,440,755
------------
5,128,255
------------
Indiana -- 5.1%
3,500,000 Indiana Development Finance Authority Pollution Control Revenue Bond, 6.850%,
12/01/2012 .......................................................................... B1 BB 3,347,890
4,500,000 Indianapolis Independent Airport Authority Revenue Bond, 7.100%, 1/15/2017 ............ Baa2 BBB 4,644,000
------------
7,991,890
------------
Kansas -- 0.9%
1,350,000 Kansas City Utility Systems Pre-Refunded Revenue Bond, 6.375%, 9/01/2023 .............. Aaa AAA 1,400,854
------------
Kentucky -- 1.3%
2,000,000 Kenton County Airport Board Revenue Bond, 7.500%, 2/1/2012 ............................ Baa3 BBB- 2,070,280
------------
Massachusetts -- 7.2%
6,035,000 Massachusetts State Housing Finance Agency, 6.600%, 12/1/2026 ......................... Aa A+ 6,154,131
2,500,000 Massachusetts State Housing Finance Agency Revenue Bond, 6.300%, 10/01/2013 ........... A1 A+ 2,557,075
2,500,000 Massachusetts State Health & Education Facility Authority, 6.000%, 7/01/2035 .......... Aaa AAA 2,579,125
------------
11,290,331
------------
Mississipi -- 1.4%
2,000,000 Lowndes County Mississippi Solid Waste Disposal, 6.700%, 4/01/2022 .................... A3 A 2,145,700
------------
New Jersey -- 5.4%
5,000,000 New Jersey Economic Development Authority Revenue Bond, 6.625%, 9/15/2012 ............. Ba2 BB 5,038,900
3,630,000 New Jersey State Educational Facilities Authority, 5.000%, 7/01/2019 .................. Aaa AAA 3,357,351
------------
8,396,251
------------
New York -- 16.4%
1,900,000 New York City General Obligation Bond, 7.500%, 2/1/2005 ............................... A3 A- 2,003,626
2,000,000 New York City, Pre-refunded General Obligation Bond, 7.000%, 10/01/2013 ............... A3 A- 2,128,680
2,040,000 New York State Dormitory Authority Revenue Bond, 5.375%, 5/15/2016 .................... A3 A- 1,977,433
4,000,000 New York State Dormitory Authority Revenue Bond, 5.500%, 5/15/2013 .................... A3 A 4,040,160
</TABLE>
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Tax Exempt Obligations -- continued
<TABLE>
<CAPTION>
Ratings (c)
-----------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York -- continued
$ 2,740,000 New York State Dormitory Authority Revenue Bond, 5.750%, 7/01/2013 .................... Baa1 A $ 2,823,488
1,880,000 New York State Dormitory Authority Revenue Bond, 7.500%, 5/15/2013 .................... A3 A 2,244,363
3,000,000 New York State Dormitory Authority Revenues, 5.750%, 7/1/2027 ......................... Aaa AAA 3,032,940
4,150,000 New York State Medical Care Facilities Finance Agency Pre-Refunded
Revenue Bond, 5.250%, 8/15/2014 ..................................................... A3 A 4,036,954
1,000,000 Onondaga County Industrial Development Agency Revenue Bond, 9.000%, 10/01/2007 ........ A3 A 1,211,140
2,000,000 Port Authority New York & New Jersey Special Obligation Revenue Bond,
7.000%, 10/01/2007 .................................................................. -- -- 2,120,560
------------
25,619,344
------------
Ohio -- 2.1%
3,000,000 Cleveland Public Power Systems Pre-Refunded Revenue Bond, 7.000%, 11/15/2024 .......... Aaa AAA 3,310,320
------------
Oregon -- 2.6%
4,000,000 Western Generation Agency Revenue Bond, 7.400%, 1/1/2016 .............................. -- -- 4,140,000
------------
Pennsylvania -- 11.6%
3,000,000 Delaware County Industrial Development Authority Revenue Bond, 7.375%, 4/01/2021 ...... Baa1 A 3,127,170
2,725,000 Pennsylvania Convention Center Revenue Bond, 6.700%, 9/1/2014 ......................... Baa2 BBB 2,790,727
2,000,000 Pennsylvania Convention Center Revenue Bond, 6.750%, 9/1/2019 ......................... Baa2 BBB 2,040,000
3,000,000 Pennsylvania Economic Development Financing Authority Revenue Bond,
6.600%, 1/01/2019 ................................................................... -- BBB- 2,865,000
4,000,000 Pennsylvania Economic Development Financing Authority Revenue Bond,
7.150%, 12/01/2018 .................................................................. -- BBB- 4,095,000
3,000,000 Pennsylvania Economic Development Financing Authority Revenue Bond,
7.600%, 12/01/2024 .................................................................. Baa3 BBB 3,220,890
------------
18,138,787
------------
Puerto Rico -- 2.0%
2,000,000 Commonwealth Highway & Transporation Authority Pre-Refunded Revenue Bond,
6.625%, 7/01/2018 ................................................................... Aaa AAA 2,112,040
1,000,000 Puerto Rico Commonwealth Highway and Transportation, 5.500%, 7/01/2026, (MBIA insured) Aaa AAA 978,350
------------
3,090,390
------------
Tennessee -- 1.6%
2,500,000 Maury County Industrial Development Board Revenue Bond, 6.500%, 9/01/2024 ............. A2 A 2,559,400
------------
</TABLE>
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Tax Exempt Obligations -- continued
<TABLE>
<CAPTION>
Ratings (c)
-----------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas -- 4.4%
$ 2,000,000 Alliance Airport Authority Revenue Bond, 6.375%, 4/1/2021 ............................. Baa2 BBB $ 1,960,360
2,825,000 Dallas-Fort Worth International Airport Facility Revenue Bond, 7.250%, 11/01/2030 ..... Baa1 BBB- 2,865,200
2,000,000 Gulf Coast Waste Disposal Authority Texas, 6.875%, 12/1/2028 .......................... Baa1 BBB+ 2,011,880
------------
6,837,440
------------
US Virgin Islands -- 2.8%
4,000,000 US Virgin Islands Public Finance Authority Pre-Refunded Revenue Bond,
7.250%, 10/01/2018, ................................................................. -- AAA 4,314,240
------------
Washington -- 0.7%
1,000,000 Washington State Public Power Supply Revenue Bond, 6.800%, 7/01/2007 .................. Aaa AA- 1,041,270
------------
Wyoming -- 2.0%
3,000,000 Wyoming Student Loan Corporation Revenue Bond, 6.200%, 6/1/2024 ....................... -- AA 3,072,630
------------
Total Tax Exempt Obligations (Identified Cost $146,120,954) ........................... 153,997,284
------------
Total Investments -- 98.5% (Identified Cost $146,120,954) (b) ......................... 153,997,284
Other assets less liabilities ......................................................... 2,314,711
------------
Total Net Assets -- 100% .............................................................. $156,311,995
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized appreciation on investments based on
cost of $146,120,954 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of value over tax cost ............................................................ $ 8,479,612
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ...................................................... (603,282)
------------
Net unrealized appreciation .................................................................... $ 7,876,330
============
</TABLE>
At December 31, 1999 the Fund had a capital loss carryover of approximately
$7,680,420 of which $4,839,685 expires on December 31, 2002, $25,731
expires on December 31, 2005 and $2,815,004 expires on December 31, 2007.
This may be available to offset future realized capital gains, if any, to
the extent provided by regulations.
(c) The ratings shown are believed to be the most recent ratings available at
June 30, 2000. Securities are generally rated at the time of issuance. The
rating agencies may revise their rating from time to time. As a result,
there can be no assurance that the same ratings would be assigned if the
securities were rated at June 30, 2000. The Fund's subadviser independently
evaluates the Fund's portfolio securities and in making investment
decisions does not rely solely on the ratings of agencies.
(d) Multi - Coupon: Coupon rate is zero or below market for an initial period
and then increases to a higher coupon rate at a specified date and time.
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $146,120,954) ........................... $ 153,997,284
Receivable for:
Fund shares sold ............................................................ 45,697
Securities sold ............................................................. 3,160,819
Dividends and interest ...................................................... 2,588,026
-------------
159,791,826
LIABILITIES
Payable for:
Securities purchased ........................................................ $ 2,646,973
Fund shares redeemed ........................................................ 261,973
Custodial bank .............................................................. 241,119
Dividends declared .......................................................... 211,649
Accrued expenses:
Management fees ............................................................. 5,817
Deferred trustees' fees ..................................................... 51,734
Accounting and administrative ............................................... 8,939
Transfer agent .............................................................. 16,030
Other ....................................................................... 35,597
-------------
3,479,831
-------------
NET ASSETS ....................................................................... $ 156,311,995
=============
Net Assets consist of:
Paid-in capital ............................................................. $ 158,329,650
Undistributed net investment income ......................................... 599,315
Accumulated net realized gains (losses) ..................................... (10,493,300)
Unrealized appreciation (depreciation) on investments ....................... 7,876,330
-------------
NET ASSETS ....................................................................... $ 156,311,995
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($141,879,530 / 19,648,056 shares of beneficial interest) ...................... $ 7.22
========
Offering price per share (100 / 95.50 of $7.22) .................................. $ 7.56*
========
Net asset value and offering price of Class B shares
($14,432,465 / 1,998,416 shares of beneficial interest) ........................ $ 7.22**
========
</TABLE>
* Based upon single purchases of less than $100,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
10 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Month Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................................................... $ 5,196,040
Expenses
Management fees ...................................................................... $ 362,763
Service fees - Class A ............................................................... 181,700
Service and distribution fees - Class B .............................................. 74,813
Trustees' fees and expenses .......................................................... 6,552
Accounting and administrative ........................................................ 28,256
Custodian ............................................................................ 45,068
Transfer agent ....................................................................... 63,603
Audit and tax services ............................................................... 18,242
Legal ................................................................................ 2,762
Printing ............................................................................. 7,544
Registration ......................................................................... 16,846
Miscellaneous ........................................................................ 3,983
-----------
Total expenses ......................................................................... 812,132
-----------
Net investment income .................................................................. 4,383,908
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
WRITTEN OPTIONS AND FUTURES CONTRACTS
Realized gain (loss) on:
Investments - net .................................................................... (1,215,413)
Written options - net ................................................................ (101,306)
Futures contracts - net .............................................................. (4,344)
-----------
Total realized gain (loss) on investments, written options and futures contracts ..... (1,321,063)
-----------
Unrealized appreciation (depreciation) on investments ................................ 1,859,571
-----------
Net gain (loss) on investment transactions, written options and futures contracts ...... 538,508
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ..................................... $ 4,922,416
===========
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .............................................. $ 9,149,672 $ 4,383,908
Net realized gain (loss) on investments, written options
and futures contracts ............................................ (2,126,562) (1,321,063)
Unrealized appreciation (depreciation) on investments .............. (12,111,760) 1,859,571
------------- -------------
Increase (decrease) in net assets from operations .................. (5,088,650) 4,922,416
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .......................................................... (8,416,716) (3,472,064)
Class B .......................................................... (706,615) (301,235)
------------- -------------
(9,123,331) (3,773,299)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ............................. (5,835,275) (13,310,756)
------------- -------------
Total increase (decrease) in net assets ............................... (20,047,256) (12,161,639)
NET ASSETS
Beginning of the period ............................................ 188,520,890 168,473,634
------------- -------------
End of the period .................................................. $ 168,473,634 $ 156,311,995
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period .................................................. $ (11,294) $ 599,315
============= =============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
--------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period . $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.17
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .................... 0.42 0.41 0.40 0.39 0.39 0.20
Net Realized and Unrealized Gain
(Loss) on Investments .................. 0.74 (0.07) 0.23 0.01 (0.59) 0.03
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ......... 1.16 0.34 0.63 0.40 (0.20) 0.23
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ..... (0.41) (0.41) (0.41) (0.39) (0.39) (0.18)
--------- --------- --------- --------- --------- ---------
Total Distributions ...................... (0.41) (0.41) (0.41) (0.39) (0.39) (0.18)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ....... $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.17 $ 7.22
========= ========= ========= ========= ========= =========
Total Return (%) (a) ..................... 17.2 4.6 8.6 5.3 (2.8) 3.1
Ratio of Operating Expenses to
Average Net Assets (%) ................. 0.93 0.92 0.93 0.93 0.93 0.94(b)
Ratio of Net Investment Income to
Average Net Assets (%) ................. 5.52 5.46 5.19 5.03 5.13 5.47(b)
Portfolio Turnover Rate (%) .............. 93 24 14 26 137 80
Net Assets, End of the Period (000) ...... $ 195,301 $ 180,983 $ 177,099 $ 172,643 $ 152,829 $ 141,880
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) Computed on an annualized basis.
See accompanying notes to financial statements. 13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
----------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
----------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ....... $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.17
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .......................... 0.36 0.35 0.34 0.33 0.33 0.18
Net Realized and Unrealized Gain
(Loss) on Investments ........................ 0.74 (0.07) 0.23 0.01 (0.59) 0.02
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............... 1.10 0.28 0.57 0.34 (0.26) 0.20
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........... (0.35) (0.35) (0.35) (0.33) (0.33) (0.15)
--------- --------- --------- --------- --------- ---------
Total Distributions ............................ (0.35) (0.35) (0.35) (0.33) (0.33) (0.15)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ............. $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.17 $ 7.22
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................... 16.3 3.9 7.8 4.5 (3.5) 2.7
Ratio of Operating Expenses to
Average Net Assets (%) ....................... 1.68 1.67 1.68 1.68 1.68 1.69(b)
Ratio of Net Investment Income to
Average Net Assets (%) ....................... 4.77 4.71 4.44 4.28 4.38 4.70(b)
Portfolio Turnover Rate (%) .................... 93 24 14 26 137 80
Net Assets, End of the Period (000) ............ $ 12,069 $ 12,568 $ 13,356 $ 15,878 $ 15,644 $ 14,432
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Computed on an annualized basis.
14 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The 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. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares of the Trust in multiple series
(each such series is a "Fund").
The Fund offers both Class A and Class B shares. Class A shares are sold with a
maximum front end sales charge of 4.50%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares for
eight years (at which point they automatically convert to Class A shares), and
are subject to a contingent deferred sales charge if those shares are redeemed
within six years of purchase (or five years if purchased before May 1, 1997).
Expenses of the Fund are borne pro rata by the holders of both classes of
shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 Plan. Shares of each
class would receive their pro rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the Trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Debt securities (other than short-term obligations with a
remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees,
which service determines valuations for normal institutional-size trading units
of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Interest income is recorded on the accrual
basis. Interest income is increased by the accretion of original issue discount.
Interest income is reduced by the amortization of premium. In determining net
gain or loss on securities sold, the cost of securities has been determined on
the identified cost basis.
c. Options. The Fund may use options to hedge against changes in the values of
securities the Fund owns or expects to purchase. Writing puts and buying calls
tends to increase the Fund's exposure to the underlying instrument and writing
calls or buying puts tends to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of options contracts may not correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty is unable to perform.
The maximum loss for purchased options is limited to premium initially paid for
the option. For options written by the Fund, the maximum loss is not limited to
the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
d. Interest Rate Futures Contracts. The Fund may purchase or sell interest rate
futures contracts to hedge against changes in the values of securities the Fund
owns or expects to purchase. An interest rate futures contract is an agreement
between two parties to buy and sell a security for a set price (or to deliver an
amount of cash) on a future date. Upon entering into such a contract, the
purchasing Fund is required to pledge to the broker an amount of cash, U.S.
Government securities or other high quality debt securities equal to the minimum
"initial margin" requirements of the exchange. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract.
Such receipts or payments are known as "variation margin," and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The potential risk to the Fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in the value of the hedged instruments. In addition,
there is a risk that the Fund may not be able to close out its futures positions
due to an illiquid secondary market.
e. Delayed Delivery Transactions. The Fund may purchase securities on a forward
commitment basis. Payment and delivery may take place a month or more after the
date of the transaction. The price of the underlying securities and the date
when the securities will be delivered and paid for are fixed at the time the
transaction is negotiated.
f. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
g. Dividends and Distributions to Shareholders. Dividends are declared daily to
shareholders of record and are paid monthly. The timing and characterization of
certain income and capital gains distributions are determined in accordance with
federal tax regulations, which may differ from generally accepted accounting
principles. These differences primarily relate to differing treatments of market
discount. Permanent book and tax basis differences will result in
reclassification to the capital accounts.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
2. Purchases and Sales of Securities. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$127,009,809 and $138,077,717 respectively.
Transactions in written options for the six months ended June 30, 2000 are
summarized as follows:
Written Options
--------------------
Number of Premiums
Contracts Received
--------------------
Open at December 31, 1999 .. 0 $ 0
Contracts opened ........... (200) (5,450)
Contracts closed ........... 200 5,450
------- -------
Open at June 30, 2000 ...... 0 $ 0
======= =======
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 0.50% of the first $100 million of the Fund's
average daily net assets and 0.375% of such assets in excess of $100 million,
reduced by the payment to the Fund's investment subadviser, Back Bay Advisors,
L.P., ("Back Bay") at the rate of 0.25% of the first $100 million of the Fund's
average daily net assets and 0.1875% of such assets in excess of $100 million.
Certain officers and directors of Nvest Management are also officers or Trustees
of the Fund. Nvest Management and Back Bay Advisors are wholly owned
subsidiaries of Nvest Companies, L.P., ("Nvest") which is a subsidiary of
Metropolitan Life Insurance Company (see Note 6). Fees earned by Nvest
Management and Back Bay Advisors under the management and subadvisory agreements
in effect during the six months ended June 30, 2000 are as follows:
Fees Earned
-----------
Nvest Management $ 181,382
Back Bay 181,381
---------
$ 362,763
=========
The effective annualized management fee for the six months ended June 30, 2000
was 0.45%.
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $28,256 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative expense for the six months ended June 30, 2000 was 0.034%
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account for shareholder accounts. NSC and BFDS
are also reimbursed by the Fund for out-of-pocket expenses. For the six months
ended June 30, 2000, the Fund paid NSC $51,862 as compensation for its services
as transfer agent.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and a Service and Distribution Plan relating to the Fund's Class
B shares (the "Class B Plan").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor, (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $181,700 in fees under the
Class A Plan. If the expenses of Nvest Funds that are otherwise reimbursable
under the Class A Plan incurred in any year exceed the amounts payable by the
Fund under the Class A Plan, the unreimbursed amount (together with unreimbursed
amounts from prior years) may be carried forward for reimbursement in future
years in which the Class A Plan remains in effect. The amount of unreimbursed
expenses carried forward at June 30, 2000 is $1,700,600.
Under the Class B Plan, the Fund pays Nvest Funds a monthly service fee at the
annual rate of 0.25% of the average daily net assets attributable to the Fund's
Class B shares, as compensation for services provided and expenses (including
certain payments to securities dealers, who may be affiliated with Nvest Funds)
incurred by Nvest Funds in providing personal services to investors in Class B
shares and/or the maintenance of shareholder accounts. For the six months ended
June 30, 2000, the Fund paid Nvest Funds $18,703 in service fees under the Class
B Plan.
Also under the Class B Plan, the Fund pays Nvest Funds a monthly distribution
fee at the annual rate of 0.75% of the average daily net assets attributable to
the Fund's Class B shares, as compensation for services provided and expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in connection with the marketing or sale of
Class B shares. For the six months ended June 30, 2000, the Fund paid Nvest
Funds $56,110 in distribution fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors of shares of the Fund during the six months ended June
30, 2000 amounted to $93,505.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
4. Concentration of Credit. At June 30, 2000, the Fund had the following
industry concentrations in excess of 10% as a percentage of the Fund's total net
assets: Industrial/Pollution 20.5%, Airports 17.3% and State Housing Authorities
14.9%. The Fund also had more than 10% of its total net assets invested in: New
York 16.4%, California 14.6% and Pennsylvania 11.6% at June 30, 2000. Certain
risks arise from concentrating investments in any state. Certain revenue or tax
related events in a state may impair the ability of issuers of municipal
securities to pay principal and interest on their obligations.
5. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, Class A and Class B.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ...................................................... 1,990,350 $ 15,053,406 470,977 $ 3,388,686
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........................... 757,810 5,703,292 338,922 2,430,101
------------ ------------ ------------ ------------
2,748,160 20,756,698 809,899 5,818,787
Shares repurchased ............................................... (3,669,760) (27,649,417) (2,487,325) (17,810,073)
------------ ------------ ------------ ------------
Net increase (decrease) .......................................... (921,600) $ (6,892,719) (1,677,426) $(11,991,286)
------------ ------------ ------------ ------------
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
---------------------------- ----------------------------
Class B Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ...................................................... 655,245 $ 4,900,420 95,192 $ 680,980
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........................... 50,159 377,387 22,531 161,558
------------ ------------ ------------ ------------
705,404 5,277,807 117,723 842,538
Shares repurchased ............................................... (568,649) (4,220,363) (301,898) (2,162,008)
------------ ------------ ------------ ------------
Net increase (decrease) .......................................... 136,755 $ 1,057,444 (184,175) $ (1,319,470)
------------ ------------ ------------ ------------
Increase (decrease) derived from capital shares transactions ..... (784,845) $ (5,835,275) (1,861,601) $(13,310,756)
============ ============ ============ ============
</TABLE>
6. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
19
<PAGE>
================================================================================
NVEST MUNICIPAL INCOME FUND
NVEST MASSACHUSETTS TAX FREE INCOME FUND
NVEST INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
Supplement dated August 21, 2000
to Nvest Bond Funds Prospectus Classes A, B and C and Nvest Massachusetts
Tax Free Income Fund and Nvest Intermediate Term Tax Free Fund of California
Prospectuses, each dated May 1, 2000
John Maloney has become co-manager of the Funds, joining James Welch. Mr.
Maloney, Vice President at Back Bay Advisors, has been with the company since
1989. Mr. Maloney has a B.A. in Economics from the University of Massachusetts
and has 17 years of investment experience.
20
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
*Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest
Funds are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you of the
availability of a brochure on its Public Disclosure Program. The program
provides access to information about securities firms and their representatives.
Investors may obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[LOGO] NvestFunds(SM)
Where The Best Minds Meet(R)
MU58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
[NVEST FUNDS LOGO GOES HERE]
--------------------------------------------------------------------------------
NVEST GOVERNMENT SECURITIES FUND
[WHERE THE BEST MINDS MEET ARTWORK GOES HERE]
JUNE 30, 2000
<PAGE>
PRESIDENTS MESSAGE
================================================================================
AUGUST 2000
--------------------------------------------------------------------------------
[PICTURE OF JOHN HAILER GOES HERE]
John
T. Hailer President and
Chief Executive Officer
Nvest Funds
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months - three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
YOUR CHOICE OF INVESTMENT TOOLS
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions. No matter how you react to
shifting markets, don't let short-term events derail your long-range program.
Consult your financial representative before you make any changes.
NVEST IS POISED FOR GLOBAL GROWTH
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
[JOHN HAILERS SIGNATURE APPEARS HERE]
"No matter how you react to shifting markets, don't let short-term events derail
your long- range program. Consult your financial representative before you make
any changes."
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
INVESTMENT RESULTS THROUGH JUNE 30, 2000
--------------------------------------------------------------------------------
PUTTING PERFORMANCE IN PERSPECTIVE
The charts comparing Nvest Government Securities Fund's performance with a
benchmark index provide you with a general sense of how your Fund performed. To
put this information in context, it may be helpful to understand the special
differences between the two. Your Fund's total return for the period shown below
appears with and without sales charges and includes Fund expenses and management
fees. A securities index measures the performance of a theoretical portfolio.
Unlike a fund, the index is unmanaged and has no expenses that affect the
results. It is not possible to invest directly in an index. In addition, few
investors could purchase all of the securities necessary to match the index and
would incur transaction costs and other expenses, even if they could.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[GROWTH OF $10,000 CHART GOES HERE
NAV MSC Gov Bond Index
--------------------------------------------------------
6/00 19,086 18,227 21,131
6/99 18,550 17,715 20,123
6/98 18,587 17,751 19,528
6/97 16,573 15,827 17,553
6/96 15,521 14,823 16,343
6/95 15,014 14,338 15,640
6/94 13,445 12,840 13,956
6/93 13,825 13,203 14,146
6/92 12,447 11,887 12,531
6/91 10,533 10,059 11,015
6/90 10,000 9,550 10,000
JUNE 1990 THROUGH JUNE 2000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary, and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/00
--------------------------------------------------------------------------------
CLASS A (INCEPTION 9/16/85) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 4.68% 2.89% 4.92% 6.67%
With Maximum Sales Charge(2) -1.34 -1.75 3.96 6.18
SINCE
CLASS B (INCEPTION 9/23/93) 6 MONTHS 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
Net Asset Value(1) 4.30% 2.12% 4.14% 3.60%
With CDSC(3) -0.70 -2.72 3.82 3.60
SINCE
CLASS Y (INCEPTION 3/31/94) 6 MONTHS 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
Net Asset Value(1) 5.03% 3.27% 5.20% 5.74%
<TABLE>
SINCE SINCE
FUND'S FUND'S
CLASS B CLASS Y
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION INCEPTION
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lehman Government Bond Index(4) 4.97% 5.01% 6.20% 7.70% 5.63% 6.67%
Morningstar Long Government Average(5) 6.15 4.33 5.65 7.76 4.98 6.53
Lipper General Government Average(6) 3.95 3.60 5.19 6.82 4.61 5.60
</TABLE>
NOTES TO CHARTS
These returns represent past performance and do not guarantee future results.
Share price and returns will vary, and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
1 These results include reinvestment of any dividends and capital gains,
but do not include a sales charge.
2 These results include reinvestment of any dividends and capital gains,
and the maximum sales charge of 4.50%.
3 These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent
deferred sales charge applied when you sell shares.
4 Lehman Government Bond Index is an unmanaged index of public debt of
the U.S. Treasury, government agencies, and their obligations. You may
not invest directly in an index. Class B since-inception return is
calculated from 9/30/93.
5 Morningstar Long Government Average is the average performance without
sales charges of all mutual funds with a similar investment objectives
as calculated by Morningstar, Inc. Class B since-inception return is
calculated from 9/30/93.
6 Lipper General Government Average is the average performance without
sales charges of all mutual funds with a similar current investment
style or objective as determined by Lipper Inc. Class B
since-inception return is calculated from 9/30/93.
2
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
INTERVIEW WITH YOUR PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PICTURES OF SCOTT NICHOLSON, JAMES WELCH GOES HERE]
Scott Nicholson, James Welch
Members of subadviser team,
Back Bay Advisors, L.P.
Q. HOW DID NVEST GOVERNMENT SECURITIES FUND PERFORM OVER THE SIX MONTHS ENDING
JUNE 30, 2000?
The first six months of 2000 proved to be one of the best six-month periods for
Treasury securities that we've seen in years, especially for the longer-maturity
Treasuries in which the Fund currently invests. For the six months ending June
30, 2000, Class A shares of Nvest Government Securities Fund returned 4.68% at
net asset value. The Fund's return included $0.32 per share in dividends
reinvested during the period. By comparison, your Fund's benchmark, the Lehman
Government Bond Index, returned 4.97% for the same period.
Q. WHY DID TREASURY SECURITIES PERFORM SO WELL?
To begin with, there was an overall improvement in the sentiment of bond market
investors, in spite of the Federal Reserve Board's continued program of raising
short-term interest rates. That's because the market responded favorably to the
Fed's attempts to slow growth and head off inflation. Inflation is a bond
investor's worst enemy because it eats into the value of a bond's fixed
payments. Stock market volatility also revived interest in bonds, as investors
sought relative stability from fixed income securities.
Treasury securities performed especially well during the period because hefty
budget surpluses reduced the government's financing needs. The U.S. Treasury
started buying back high-yielding, longer-term U.S. Treasury bonds in February
2000. A combination of increased investor demand and decreased supply helped
push yields on long-term Treasury bonds lower and their prices higher. And as
long-term yields declined, the Fed's series of increases in short-term interest
rates caused the Treasury yield curve to invert. The yields offered by
short-term Treasury securities were actually higher than the yields offered by
long-term Treasury bonds.
3
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
Q. WHAT WAS YOUR STRATEGY WITH THE FUND DURING THIS PERIOD?
We focused our investments on Treasury debt with maturities of 10 years or
longer, the part of the Treasury market that offered the best returns. In
addition, we increased the Treasury bond allocation of the portfolio, a positive
move because Treasury securities performed better than the other segments of the
bond market in which the Fund can invest. Government agency securities came
under pressure during the period as members of Congress and Treasury officials
began to question their implied government guarantees. Although securities
issued by agencies, such as the Federal National Mortgage Association (Fannie
Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), are not
backed by the full faith and credit of the U.S. government, they do enjoy the
implicit backing of the government because they were created by an act of
Congress and are issued by a government agency. The Fund's exposure to these
agencies had been reduced to zero by the time they experienced their worst
performance. We maintained a modest investment in mortgage-backed securities,
which performed better than other non-Treasury sectors, because refinancing
activity was quelled by rising interest rates.
4
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
Q. WHAT IS YOUR CURRENT OUTLOOK?
After the past several years, when the stock market dominated financial
headlines, we believe the fixed-income markets will return to prominence.
Although the Fed continues to raise rates -- contributing to stock market
uncertainty -- it is doing so prudently. We think the lion's share of the Fed's
rate hike program may be behind us.
If so, the bond market generally, and Treasuries in particular, should be poised
for a rally. As long as the supply and demand dynamic remains positive for
Treasury securities, the portfolio should continue to have a bias toward
Treasuries instead of agency and mortgage-backed securities. All in all, we are
positive about the outlook for Nvest Government Securities Fund for the balance
of 2000.
PORTFOLIO MIX -- 6/30/00
[PORTFOLIO MIX PIE CHART GOES HERE]
U.S. Government Securities 66.1%
Mortgage-Backed Securities 30.9%
Short Term and Other 3.0%
Portfolio holdings and asset allocation will vary.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Government Securities Fund invests primarily in U.S. government
securities, which are guaranteed if held to maturity; mutual funds that invest
in these securities are not. It may also invest a portion of assets in
mortgage-backed securities that are subject to prepayment risk. These risks
affect the value of your investment. See a prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
BONDS AND NOTES -- 97.0% OF TOTAL NET ASSETS
<TABLE>
RATINGS (C)
-----------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------------------------------
MORTGAGE BACKED-- 30.9%
<S> <C> <C> <C> <C>
$ 3,000,000 Federal Home Loan Mortgage Corp., 6.500%, 1/15/2022 ............. Aaa AAA $2,741,250
1,963,351 Federal Home Loan Mortgage Corp., 7.500%, 4/1/2012 .............. Aaa AAA 1,964,175
2,773,829 Federal National Mortgage Association, 7.500%, 8/1/2013 ......... Aaa AAA 2,778,184
1,576,346 Government National Mortgage Association, 7.500%, 4/15/2027 ...... Aaa AAA 1,566,557
15,685,368 Government National Mortgage Association, 8.000%,
with various maturities to 2030 (d) .............................. Aaa AAA 15,862,927
189,408 Government National Mortgage Association, 8.500%, 2/15/2006 ...... Aaa AAA 193,873
344,952 Government National Mortgage Association, 9.000%,
with various maturities to 2016 (d) .............................. Aaa AAA 358,668
128,185 Government National Mortgage Association, 9.500%,
with various maturities to 2009 (d) .............................. Aaa AAA 134,283
136,597 Government National Mortgage Association, 10.000%,
with various maturities to 2016 (d)..... ......................... Aaa AAA 144,262
19,215 Government National Mortgage Association, 12.500%,
with various maturities to 2014 (d)............................... Aaa AAA 21,543
-----------
25,765,722
-----------
U.S. GOVERNMENT-- 66.1%
13,000,000 United States Treasury Bonds, 7.625%, 2/15/2025 .................. Aaa AAA . 15,372,500
12,000,000 United States Treasury Bonds, 8.750%,
with various maturities to 2020 (d).... .......................... Aaa AAA 15,166,540
14,000,000 United States Treasury Bonds, 8.875%, 2/15/2019 .................. Aaa AAA 18,018,420
5,000,000 United States Treasury Bonds, 9.125%, 5/15/2018 .................. Aaa AAA 6,537,500
-----------
55,094,960
-----------
Total Bonds and Notes (Identified Cost $80,453,255) 80,860,682
-----------
SHORT TERM INVESTMENT-- 1.4%
-------------------------------------------------------------------------------------------------------------
1,156,000 Repurchase Agreement with State Street Bank & Trust Co.
dated 6/30/2000 at 5.25% to be repurchased at $1,156,506 on 7/03/2000
collateralized by $1,040,000 U.S. Treasury Bond 7.125%, due 2/15/2023,
valued at $1,184,300 ............................................. 1,156,000
---------
Total Short Term Investment (Identified Cost $1,156,000) 1,156,000
---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION-CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
OPTIONS-- 0.0%
CONTRACTS DESCRIPTION VALUE (A)
-------------------------------------------------------------------------------
100 United States Treasury Note Futures, 100 Call,
September 2000 ................................. $ 37,500
-----------
Total Options (Identified Cost $28,525) ........ 37,500
-----------
Total Investments 98.4% (Identified Cost
$81,637,780) (b) ............................. 82,054,182
Other assets less liabilities .................. 1,321,490
-----------
Total Net Assets 100% .......................... $ 83,375,672
=================
WRITTEN OPTIONS UNREALIZED
DEPRECIATION
--------------------------------------------------------------------------------
100 United States Treasury Bond Futures, 99 Call,
August 2000 ..................................... $ (9,775)
===========
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000, the net unrealized appreciation
on investments based on cost for federal income tax
purposes of $81,637,780 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess of
value over tax cost ............................... $ 797,987
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value ......................... (381,585)
Net unrealized appreciation ...................... $ 416,402
=========
At December 31, 1999, the Fund had a net tax basis capital loss
carryover of approximately $13,257,788 of which $4,040,060 expires on
December 31, 2002, $3,530,050 expires on December 31, 2004 and
$5,687,678 expires on December 31, 2007. This may be available to
offset future realized capital gains, if any, to the extent provided
by regulations.
(c) The ratings shown are believed to be the most recent ratings available
at June 30, 2000. Securities are generally rated at the time of
issuance. The rating agencies may revise their ratings from time to
time. As a result there can be no assurance that the same ratings
would be assigned if the securities were rated at June 30, 2000. The
Fund's advisor independently evaluates the Fund's portfolio securities
and in making investment decisions does not rely solely on the ratings
of agencies.
(d) The Fund's investment in securites of the U.S. Government and
mortgage-backed securities of the Government National Mortgage
Association are interests in separate pools of treasury bonds and
mortgages. All separate investments in securities of these issuers
which have the same coupon rate have been aggregated for the purpose
of presentation in the schedule of investments.
See accompanying notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
ASSETS
<S> <C> <C> <C>
Investments at value (Identified cost $81,637,780) $ 82,054,182
Cash 939
Receivable for:
Fund shares sold 422,709
Dividends and interest 1,243,342
---------
83,721,172
LIABILITIES
Payable for:
Fund shares redeemed $ 131,079
Dividends declared 63,023
Written options contracts - (proceeds of $26,925 ) 37,500
Accrued expenses:
Management fees 4,600
Deferred trustees' fees 50,455
Transfer agent 17,935
Accounting and administrative 5,142
Other 35,766
------
345,500
-------
NET ASSETS $83,375,672
===========
Net Assets consist of:
Paid in capital $ 99,466,915
Undistributed net investment income 26,239
Accumulated net realized gains (losses) (16,524,109)
Unrealized appreciation (depreciation)
on investments and written options 406,627
-------
NET ASSETS $83,375,672
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($72,157,983 / 6,773,152 shares of beneficial interest) $ 10.65
========
Offering price per share (100/95.50 of $10.65)...... $ 11.15 *
========
Net asset value and offering price of Class B shares
($8,554,982 / 803,017 shares of beneficial interest) $ 10.65**
========
Net asset value, offering and redemption price of Class Y shares
($2,662,707 / 250,294 shares of beneficial interest) $ 10.64
========
</TABLE>
* Based upon single purchases of less than $100,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charges.
See accompanying notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30,2000
(unaudited)
<TABLE>
INVESTMENT INCOME
<S> <C> <C>
Interest .............................................................. $ 3,267,273
Expenses
Management fees .................................................. $ 291,197
Service fees - Class A ........................................... 97,840
Service and distribution fees - Class B .......................... 43,039
Trustees' fees and expenses ...................................... 5,146
Accounting and administrative .................................... 15,363
Custodian ........................................................ 39,925
Transfer agent - Class A and Class B ............................. 99,759
Transfer agent - Class Y ......................................... 1,360
Audit and tax services ........................................... 14,211
Legal ............................................................ 2,339
Printing ......................................................... 11,466
Registration ..................................................... 16,439
Miscellaneous .................................................... 2,968
-----
Total expenses ............................................................. 641,052
-------
Net investment income ...................................................... 2,626,221
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments - net (2,380,219)
Written options - net (210,797)
Futures contracts - net (274,483)
--------
Total realized gain (loss) on investments, written options
and futures contracts (2,865,499)
Unrealized appreciation (depreciation) on investments,
written options and futures contracts 4,380,756
---------
Net gain (loss) on investment transactions 1,515,257
---------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 4,141,478
=============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------- --------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 6,345,756 $ 2,626,221
Net realized gain (loss) on investments, written options and
futures contracts (5,908,703) (2,865,499)
Unrealized appreciation (depreciation) on investments and
written options (7,738,435) 4,380,756
---------- ---------
(7,301,382) 4,141,478
---------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (5,749,722) (2,264,329)
Class B (537,791) (217,636)
Class Y (182,001) (82,872)
-------- -------
(6,469,514) (2,564,837)
---------- ----------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS (5,234,472) (15,288,421)
---------- -----------
Total increase (decrease) in net assets............. (19,005,368) (13,711,780)
NET ASSETS
Beginning of the period 116,092,820 97,087,452
----------- ----------
End of the period $ 97,087,452 $ 83,375,672
=============== ===============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period $ (35,145) $ 26,239
=============== ===============
</TABLE>
10
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHTLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
CLASS A
--------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------
1995 1996 1997 1998 1999 2000
------------------------------------------------ -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ..................... $ 10.43 $ 11.73 $ 11.08 $ 11.56 $ 11.90 $ 10.47
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.74 0.71 0.62 0.68 0.67 0.34
Net Realized and Unrealized Gain
(Loss) on Investments ............. 1.29 (0.64) 0.48 0.33 (1.42) 0.16
---- ----- ---- ---- ----- ----
Total From Investment Operations .. 2.03 0.07 1.10 1.01 (0.75) 0.50
---- ---- ---- ---- ----- ----
Less Distributions
Dividends From Net Investment Income (0.73) (0.72) (0.62) (0.67) (0.68) (0.32)
----- ----- ----- ----- ----- -----
Total Distributions ............... (0.73) (0.72) (0.62) (0.67) (0.68) (0.32)
----- ----- ----- ----- ----- -----
Net Asset Value, End of the Period $ 11.73 $ 11.08 $ 11.56 $ 11.90 $ 10.47 $ 10.65
======= ======= ======= ======= ======= =======
Total Return (%) (a) .............. 20.0 0.8 10.3 9.0 (6.4) 4.7
Ratio of Operating Expenses to Average
Net Assets (%) .................... 1.35 1.32 1.36 1.38 1.36 1.37(c)
Ratio of Net Investment Income to
Average Net Assets (%) ............ 6.69 6.45 5.63 5.80 6.00 5.92(c)
Portfolio Turnover Rate (%) . ..... 559 462 391 106 313 335
Net Assets, End of the Period (000) $147,503 $120,607 $103,583 $103,032 $84,904 $72,158
CLASS B
--------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------
1995 1996 1997 1998 1999 2000
------------------------------------------------ -------
Net Asset Value, Beginning
of the Period ..................... $ 10.43 $ 11.74 $ 11.08 $ 11.56 $ 11.90 $ 10.47
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.65 0.63 0.54 0.58 0.59 0.28
Net Realized and Unrealized Gain
(Loss) on Investments ............. 1.30 (0.65) 0.48 0.34 (1.42) 0.18
---- ----- ---- ---- ----- ----
Total From Investment Operations .. 1.95 (0.02) 1.02 0.92 (0.83) 0.46
---- ----- ---- ---- ----- ----
Less Distributions
Dividends From Net
Investment Income ................. (0.64) (0.64) (0.54) (0.58) (0.60) (0.28)
----- ----- ----- ----- ----- -----
Total Distributions ............... (0.64) (0.64) (0.54) (0.58) (0.60) (0.28)
----- ----- ----- ----- ----- -----
Net Asset Value, End of the Period $ 11.74 $ 11.08 $ 11.56 $ 11.90 $ 10.47 $ 10.65
======= ======= ======= ======= ======= =======
Total Return (%) (b) .............. 19.2 (0.1) 9.5 8.2 (7.1) 4.3
Ratio of Operating Expenses to Average
Net Assets (%) .................... 2.10 2.07 2.11 2.13 2.11 2.12(c)
Ratio of Net Investment Income to
Average Net Assets (%) ............ 5.94 5.70 4.88 5.05 5.25 5.17(c)
Portfolio Turnover Rate (%) . ..... 559 462 391 106 313 335
Net Assets, End of the Period (000) $ 4,858 $ 5,385 $ 5,654 $ 9,657 $ 9,430 $ 8,555
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) A contingent deferred sales charge is not reflected in total return
calculations.
(c) Computed on an annualized basis.
11
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
CLASS Y
--------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------
1995 1996 1997 1998 1999 2000
------------------------------------------------ -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ..................... $ 10.44 $ 11.71 $ 11.07 $ 11.54 $ 11.88 $ 10.44
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.80 0.74 0.65 0.72 0.70 0.34
Net Realized and Unrealized Gain
(Loss) on Investments ............. 1.26 (0.63) 0.47 0.32 (1.43) 0.19
---- ----- ---- ---- ----- ----
Total From Investment Operations .. 2.06 0.11 1.12 1.04 (0.73) 0.53
---- ---- ---- ---- ----- ----
Less Distributions
Distributions from Net
Investment Income ................. (0.79) (0.75) (0.65) (0.70) (0.71) (0.33)
----- ----- ----- ----- ----- -----
Total Distributions ............... (0.79) (0.75) (0.65) (0.70) (0.71) (0.33)
----- ----- ----- ----- ----- -----
Net Asset Value, End of the Period $ 11.71 $ 11.07 $ 11.54 $ 11.88 $ 10.44 $ 10.64
======= ======= ======= ======= ======= =======
Total Return (%) .................. 20.3 1.1 10.5 9.3 (6.3) 5.0
Ratio of Operating Expenses to
Average Net Assets (%) ............ 1.10 1.07 1.11 1.13 1.11 0.99(a)
Ratio of Net Investment Income to
Average Net Assets (%) ............ 6.94 6.70 5.88 6.05 6.25 6.29(a)
Portfolio Turnover Rate (%) . ..... 559 462 391 106 313 335
Net Assets, End of the Period ..... $ 7,364 $ 6,384 $ 6,658 $ 3,404 $ 2,754 $ 2,663
</TABLE>
(a) Computed on an annualized basis.
12
See accompanying notes to financial statements.
<PAGE>
NOTES OT FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks a high level of current income
consistent with safety of principal by investing in U.S. Government securities.
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of the Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B and Class Y shares. Class A shares are sold
with a maximum front end sales charge of 4.50%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class Y shares do not pay a front end sales charge, a contingent
deferred sales charge or service and distribution fees. They are intended for
institutional investors with a minimum of $1,000,000 to invest. Expenses of the
Fund are borne pro rata by the holders of all classes of shares, except that
each class bears expenses unique to that class (including the Rule 12b-1 service
and distribution fees and transfer agent fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the Trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
A. SECURITY VALUATION. Debt securities (other than short-term obligations with a
remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of Trustees,
which service determines valuations for normal, institutional-size trading units
of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and the subadviser,
under the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Interest income is recorded on the accrual
basis. Interest income is increased by the accretion of original issue discount
and/or market discount. In determining net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
C. OPTIONS. The Fund may use options to hedge against changes in the values of
securities the Fund owns or expects to purchase. Writing puts and buying calls
tends to increase the Fund's exposure to the underlying instrument and writing
calls or buying puts tends to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
13
<PAGE>
NOTES OT FINANCIAL STATEMENTS-CONTINUED
================================================================================
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of options contracts may not correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty is unable to perform.
The maximum loss for purchased options is limited to the premium initially paid
for the option. For options written by the Fund, the maximum loss is not limited
to the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
D. INTEREST RATE FUTURES CONTRACTS. The Fund may purchase or sell interest rate
futures contracts to hedge against changes in the values of securities the Fund
owns or expects to purchase. An interest rate futures contract is an agreement
between two parties to buy and sell a security for a set price (or to deliver an
amount of cash) on a future date. Upon entering into such a contract, the
purchasing Fund is required to pledge to the broker an amount of cash, U.S.
Government securities or other high quality debt securities equal to the minimum
"initial margin" requirements of the exchange. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract.
Such receipts or payments are known as "variation margin," and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The potential risk to the Fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in the value of the hedged instruments. In addition,
there is a risk that the Fund may not be able to close out its futures positions
due to an illiquid secondary market.
E. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record at the time and are paid monthly. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatment for mortgage-backed securities for book and tax purposes.
Permanent book and tax basis differences will result in reclassification to the
capital accounts.
G. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of
14
<PAGE>
NOTES OT FINANCIAL STATEMENTS-CONTINUED
================================================================================
default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
H. DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a forward
commitment basis. Payment and delivery may take place a month or more after the
date of the transaction. The price of the underlying securities and the date
when the securities will be delivered and paid for are fixed at the time the
transaction is negotiated. At June 30, 2000 the Fund held no delayed delivery
securities.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 2000,
purchases and sales of securities (excluding short-term investments) were as
follows:
PURCHASES SALES
----------------------------- -------------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
-------------- ----------- ---------------- -----------
$293,910,492 $5,263,244 $311,239,049 $5,235,519
Transactions in written options for the six months ended June 30, 2000 are
summarized as follows:
WRITTEN OPTIONS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Open at December 31, 1999........... 0 $ 0
Contracts opened.................... (900) (339,293)
Contracts closed.................... 800 311,568
--------- ---------
Open at June 30, 2000............... (100) $(27,725)
========= =========
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("NFM")
at the annual rate of 0.65% of the first $200 million of the Fund's average
daily net assets, 0.625% of the next $300 million and 0.60% of such assets in
excess of $500 million, reduced by the payment to the Fund's investment
subadviser, Back Bay Advisors, L.P., ("Back Bay") at the rate of 0.325% of the
first $200 million of the Fund's average daily net assets, 0.3125% of the next
$300 million and 0.30% of such assets in excess of $500 million. Certain
officers and directors of Nvest Management are also officers or Trustees of the
Fund. Nvest Management and Back Bay are wholly owned subsidiaries of Nvest
Companies, L.P., ("Nvest"), which is a subsidiary of Metropolitan Life Insurance
Company (see Note 6). Fees earned by Nvest Management and Back Bay under the
management and subadvisory agreements in effect during the six months ended June
30, 2000 are as follows:
FEES EARNED
-----------
Nvest Management $ 145,599
Back Bay 145,598
------
$ 291,197
The effective annualized management fee for the six months ended June 30, 2000
was 0.65%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE.. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a
15
<PAGE>
NOTES OT FINANCIAL STATEMENTS-CONTINUED
================================================================================
group fee for these services equal to the annual rate of 0.035% of the first $5
billion of Nvest Funds' average daily net assets, 0.0325% of the next $5 billion
of the Nvest Funds' average daily net assets, and 0.03% of the Nvest Funds'
average daily net assets in excess of $10 billion. For the six months ended June
30, 2000, these expenses amounted to $15,363, and are shown separately in the
financial statements as accounting and administrative. The effective annualized
accounting and administrative expense for the six months ended June 30, 2000 was
0.034%.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for Class A and Class B
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
out-of-pocket expenses. Class Y shares bear a transfer agent fee of 0.10% of
average daily net assets. For the six months ended June 30, 2000, the Fund paid
NSC $82,605 as compensation for its services as transfer agent.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A Shares (the
"Class A Plan") and a Service and Distribution Plan relating to the Fund's Class
B shares (the "Class B Plan").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor, (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $97,840 in fees under the
Class A Plan. If the expenses of Nvest Funds that are otherwise reimbursable
under the Class A Plan incurred in any year exceed the amounts payable by the
Fund under the Class A Plan, the unreimbursed amount (together with unreimbursed
amounts from prior years) may be carried forward for reimbursement in future
years in which the Class A Plan remains in effect. The amount of unreimbursed
expenses carried forward at June 30, 2000 is $1,583,658.
Under the Class B Plan, the Fund pays Nvest Funds a monthly service fee at the
annual rate of 0.25% of the average daily net assets attributable to the Fund's
Class B shares, as compensation for services provided and expenses (including
certain payments to securities dealers, who may be affiliated with Nvest Funds)
incurred by Nvest Funds in providing personal services to investors in Class B
shares and/or the maintenance of shareholder accounts. For the six months ended
June 30, 2000, the Fund paid Nvest Funds $10,760 in service fees under the Class
B Plan.
Also under the Class B Plan, the Fund pays Nvest Funds a monthly distribution
fee at the annual rate of 0.75% of the average daily net assets attributable to
the Fund's Class B shares, as compensation for services provided and expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in connection with the marketing or sale of
Class B shares. For the six months ended June 30, 2000, the Fund paid Nvest
Funds $32,279 in distribution fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $122,510.
16
<PAGE>
NOTES OT FINANCIAL STATEMENTS-CONTINUED
================================================================================
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. CAPITAL SHARES. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B and
Class Y. Transactions in capital shares were as follows:
<TABLE>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
----- --------------- ------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Shares Sold 2,132,834 $ 23,656,205 289,613 $ 3,046,881
Shares issued in connection with the reinvestment of:
Dividends from net investment income.. 461,816 5,100,959 195,023 2,065,730
------- --------- ------- ---------
2,594,650 28,757,164 484,636 5,112,611
Shares repurchased (3,141,142) (34,765,081) (1,824,402) (19,232,822)
---------- ----------- ---------- -----------
Net increase (decrease) (546,492) $ (6,007,917) (1,339,766) $(14,120,211)
-------- ------------ ---------- ------------
YEAR ENDED SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
----- --------------- ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------------- -----------------------------------------------------
Shares sold 378,984 $ 4,266,989 72,626 $ 767,559
Shares issued in connection with the reinvestment of:
Dividends from net investment income.. 33,386 368,048 14,962 158,490
------ ------- ------ -------
412,370 4,635,037 87,588 926,049
Shares repurchased (322,881) (3,584,575) (185,571) (1,955,458)
-------- ---------- -------- ----------
Net increase (decrease) 89,489 $ 1,050,462 (97,983) $ (1,029,409)
------ ------------ ------- ------------
</TABLE>
17
<PAGE>
NOTES OT FINANCIAL STATEMENTS-CONTINUED
================================================================================
<TABLE>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1999 ENDED JUNE 30, 2000
----- --------------- ------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 71,052 $ 788,905 21,334 $ 224,894
Shares issued in connection with the reinvestment of:
Dividends from net investment income 16,199 178,666 8,109 82,872
------ ------- ----- ------
87,251 967,571 29,443 307,766
Shares repurchased (110,237) (1,244,588) (42,807) (446,567)
-------- ---------- ------- --------
Net increase (decrease) (22,986) $ (277,017) (13,364) $ (138,801)
------- ------------ ------- ------------
Increase (decrease) derived from capital
shares transactions (479,989) $ (5,234,472) (1,451,113) $(15,288,421)
======== ============ ========== ============
</TABLE>
5. SECURITY LENDING. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. For the
six months ended June 30, 2000, the Fund did not enter into any securities
lending transactions.
6. SUBSEQUENT EVENT. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
18
<PAGE>
NVEST MUNICIPAL INCOME FUND
NVEST MASSACHUSETTS TAX FREE INCOME FUND
NVEST INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
Supplement dated August 21, 2000
to Nvest Bond Funds Prospectus Classes A, B and C and Nvest Massachusetts
Tax Free Income Fund and Nvest Intermediate Term Tax Free Fund of
California Prospectuses, each dated May 1, 2000
John Maloney has become co-manager of the Funds, joining James Welch. Mr.
Maloney, Vice President at Back Bay Advisors, has been with the company since
1989. Mr. Maloney has a B.A. in Economics from the University of Massachusetts
and has 17 years of investment experience.
19
<PAGE>
================================================================================
GLOSSARY FOR MUTUAL FUND INVESTORS
--------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
period, assuming all earnings are reinvested in additional shares of the fund.
Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year, when available.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration allows you to compare the volatility of different instruments.
As a general rule, for every 1% move in interest rates, a bond is expected to
fluctuate in value as indicated by its duration. For example, if interest rates
fall by 1%, a bond with a duration of 4 years should rise in value 4%.
Conversely, the bond should decline 4% in value if interest rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges. A small portion of
income may be subject to federal and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax.
20
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund
Bullseye Fund GOVERNMENT INCOME FUNDS
Equity Income Fund Limited Term U.S. Government Fund
Government Securities Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund MONEY MARKET FUNDS*
Kobrick Emerging Growth Fund Cash Management Trust
Tax Exempt Money Market Trust
*Investments in the money market
funds are not insured or
gauranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
VISIT OUR WEB SITE AT WWW.NVESTFUNDS.COM
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when it
is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest Funds are
members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[Nvest Funds Logo appears here]
GV58-0600
Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] NvestFunds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest International
Equity Fund
Where
The Best
Minds Meet(R)
-------------
June 30, 2000
-------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest International Equity Fund's performance to a
benchmark index provide you with a general sense of how your Fund performed. To
put this information in context, it may be helpful to understand the special
differences between the two. Your Fund's total return for the period shown below
appears with and without sales charges and includes Fund expenses and management
fees. A securities index measures the performance of a theoretical portfolio.
Unlike a fund, the index is unmanaged and does not have expenses that affect the
results. It is not possible to invest directly in an index. In addition, few
investors could purchase all of the securities necessary to match the index and
would incur transaction costs and other expenses, even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
May 1992 (Inception) through June 2000
NAV MSC EAFE
--------------------------------------------------
6/00 23,424 22,082 20,855
6/99 14,404 13,576 20,302
6/98 14,331 13,507 18,812
6/97 14,688 13,843 17,684
6/96 14,673 13,830 15,627
6/95 13,145 12,389 13,754
6/94 13,137 12,381 13,491
6/93 11,025 10,391 11,501
6/92 9,685 9,128 9,529
5/92 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees, and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 5/21/92) 6 Months 1 Year 5 Years Since Inception
<S> <C> <C> <C> <C>
Net Asset Value (1)(4) -12.76% 60.06% 11.90% 11.07%
With Maximum Sales Charge (2)(4) -17.78 50.85 10.58 10.26
------------------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value (1)(4) -13.19% 58.73% 11.08% 9.25%
With CDSC (3)(4) -17.53 53.73 10.82 9.25
------------------------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value (1)(4) -13.16% 58.78% 11.12% 10.13%
With CDSC (3)(4) -14.02 57.78 11.12 10.13
------------------------------------------------------------------------------------------------------------
Class Y (Inception 9/9/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value (1)(4) -12.59% 60.74% 12.61% 10.76%
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since Since Since Since
Fund's Fund's Fund's Fund's
Class A Class B Class C Class Y
Comparative Performance 6 Months 1 Year 5 Years Incept. Incept. Incept. Incept.
<S> <C> <C> <C> <C> <C> <C> <C>
MSCI EAFE(5) -4.06% 17.16% 11.33% 9.48% 8.04% 10.76% 7.97%
Morningstar Foreign Stock Average(6) -3.99 27.08 13.48 12.09 12.49 13.72 12.49
Lipper International Average(7) -4.56 24.46 13.15 11.54 11.39 12.43 11.21
------------------------------------------------------------------------------------------------------------
</TABLE>
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
Notes to Charts
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) The Fund waived certain fees and expenses during the period indicated and
the Fund's return would have been lower had these fees not been waived.
(5) The Morgan Stanley Capital International (MSCI) Europe Australasia Far East
Index (EAFE) is an unmanaged index of common stocks traded outside the U.S.
You may not invest directly in an index.
(6) Morningstar Foreign Stock Average is the average performance without sales
charges of all mutual funds with similar investment objectives as
calculated by Morningstar, Inc. Class A since-inception return is
calculated from 5/31/92. Class B and Y since-inception returns are
calculated from 9/30/93.
(7) Lipper International Average is the average performance without sales
charges of all mutual funds with a similar current investment style or
objective as determined by Lipper Inc. Class A since-inception return is
calculated from 5/28/92. Class B and Class Y since-inception returns are
calculated from 9/30/93.
2
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
Interview with Your Portfolio Managers
--------------------------------------------------------------------------------
[PHOTO]
[PHOTO]
[PHOTO]
Alexander Muromcew,
John Tribolet
and Eswar Menon
Loomis, Sayles &
Company, L.P.
Q. How did Nvest International Equity Fund perform during the first half of
2000?
For the six months ended June 30, 2000, Class A shares of Nvest International
Equity Fund posted a return of -12.76% at net asset value. For the same period,
the Fund's benchmark, the MSCI EAFE Index, returned -4.06%. The Fund's emphasis
on technology stocks propelled your fund ahead of its benchmark in 1999 and
during the first quarter of 2000. However, technology stocks experienced a
worldwide price downtrend during much of the second quarter, causing the Fund to
lose the ground it had gained in the first quarter.
Q. What was the overseas investment environment like during the period?
International stocks faced a challenging environment during the first half of
2000, in sharp contrast to last year, when the climate overseas was generally
favorable. High stock valuations and rising interest rates throughout much of
the world caused an outflow of assets from equities markets to the fixed-income
markets.
The Japanese stock market experienced additional volatility, as investors grew
concerned about future growth in that country's Gross Domestic Product and lofty
stock market valuations. Japan's weakness also dragged down the rest of
developed Asia, whose markets are strongly dependent on the Japanese economy.
Following a rebound in 1999, emerging markets in Europe continued to deliver
solid returns. Scandinavia has been the strongest market so far this year. Top
performers included large telecommunications and wireless technology companies
headquartered in Sweden, Finland and Denmark. Soaring use of mobile phones and
the Internet have put Scandinavia at the forefront in demand for technology
products worldwide.
Q. How did you allocate assets during the period?
As the year got underway, Nvest International Equity Fund continued to
outperform its benchmark, partly as a result of major shifts in the portfolio's
country allocations. We reduced the Fund's emphasis in Japan and other developed
economies in Asia, and shifted assets to Europe, focusing on tech-heavy
Scandinavia.
3
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
--------------------------------------------------------------------------------
However, a correction in the technology and telecommunications sectors, similar
to that in the U.S., hurt the Fund's performance in the second quarter. As of
the end of June 2000 technology and telecommunications stocks accounted for more
than 24% of the Fund's assets, including industry leaders Nokia and Ericcson,
and Canadian-based Nortel Networks. Despite the setback in the second quarter of
2000, we're firmly committed to the long-term potential of these companies and
sectors.
Finland-based Nokia, for example, is the number-one retailer of mobile phones.
The company recently unveiled a prototype of a wireless product that combines
television, mobile phone and Internet access. Ericsson, headquartered in
Stockholm, is a global telecommunications leader that has implemented
competitive structural changes to take advantage of deregulation in this
burgeoning industry. It has forged important alliances with America Online,
Compaq, IBM, Intel and Microsoft. With operations in 150 countries and
territories around the world, Nortel Networks is also dedicated to staying ahead
of the technology curve through research and development. Despite the effects of
industry-wide, short-term price swings, we believe these companies are
significantly altering the way the world does business, and offer superior
long-term prospects for investors.
Q. What strategies do you follow when managing the Fund?
Since we assumed management of Nvest International Equity Fund in August 1999,
we've followed an intensive, "bottom-up" approach to researching individual
companies. We concentrate on leading companies in developed countries outside of
the U.S. Rather than basing our investment decisions on macroeconomic trends, we
focus on the fundamentals in each individual business. We look for companies
that demonstrate solid revenue and profit growth, significant industry
leadership, strong management and the potential for increased market share.
Your Fund's Top 10 Country Mix -- 6/30/00
% of
Country Assets
-------------------------------------------------
1. Japan 23.0
-------------------------------------------------
2. United Kingdom 11.7
-------------------------------------------------
3. France 8.3
-------------------------------------------------
4. Netherlands 8.2
-------------------------------------------------
5. Germany 6.5
-------------------------------------------------
6. Canada 5.4
-------------------------------------------------
7. Sweden 5.0
-------------------------------------------------
8. Finland 4.4
-------------------------------------------------
9. Hong Kong 4.3
-------------------------------------------------
10. United States 3.9
-------------------------------------------------
Portfolio holdings and asset allocations will vary.
4
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
--------------------------------------------------------------------------------
Each member of our management team is responsible for covering investments in
different parts of the world, which allows us to follow individual companies
with great care. As always, we're more concerned with a company's long-term
prospects than with short-term ups and downs.
Q. What is your current outlook?
Outside of the U.S., we believe that most of the downside in major stock markets
has already occurred and that economic conditions should improve in the latter
half of the year. We believe that many of today's best growth opportunities are
in European markets, and many of those are still attractively priced -- more so
than valuations in Asia and the United States.
For example, one encouraging trend emerging in Europe is the adoption of
U.S.-style economic standards, as they apply to corporate takeovers. There are
indications that many European firms are beginning to manage their operations
for the benefit of shareholders rather than management -- increasing their
attractiveness.
Overall, we remain optimistic about international investing, despite volatility
in markets around the world. We believe the best way to combat this volatility
is to remain as close to fully invested as possible at all times and maintain a
broadly diversified, international portfolio. This is the policy we use to
manage Nvest International Equity Fund.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest International Equity Fund invests in foreign and emerging market
securities -- strategies that have special risks, including political, economic,
regulatory and currency risks. Emerging markets may be more subject to these
risks than developed markets. The Fund emphasizes growth stocks, which are
generally more sensitive to market movements because their stock prices are
based on future expectations. It also invests in stocks of small-cap and
emerging-growth companies, which are also more volatile than the overall market.
These risks effect the value of your investment. See a prospectus for details.
This actively managed Fund tends to have a high portfolio turnover, which may
increase your risk of greater tax liability and lower your return.
Your Fund's 10 Largest Investments -- 6/30/00
% of
Company Assets
------------------------------------------------------
1. Nokia Oyj 2.5
------------------------------------------------------
2. Nortel Networks Corp. 2.3
------------------------------------------------------
3. Ericsson (L.M) Telefoniaktiebolag AB 2.1
------------------------------------------------------
4. AXA 1.7
------------------------------------------------------
5. Alcatel SA 1.7
------------------------------------------------------
6. Check Point Software Technologies Ltd. 1.6
------------------------------------------------------
7. Precision Drilling Corp. 1.5
------------------------------------------------------
8. ADVA AG Optical Networking 1.5
------------------------------------------------------
9. ASM Lithography Holding NV 1.5
------------------------------------------------------
10. San Paolo - IMI SpA 1.5
------------------------------------------------------
Portfolio holdings and asset allocations will vary.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- 98.1% of Total Net Assets
Shares Description Value (a)
--------------------------------------------------------------------------------
Australia -- 1.5%
44,000 News Corp., 144A ................................ $ 605,227
23,000 News Corp., Ltd. (ADR) .......................... 1,253,500
-------------
1,858,727
-------------
Canada -- 5.4%
22,100 Bank Montreal Quebec ............................ 933,277
38,000 Canadian Natural Resources Ltd. (c) ............. 1,104,054
40,800 Nortel Networks Corp. ........................... 2,831,189
49,800 Precision Drilling Corp. ........................ 1,924,703
-------------
6,793,223
-------------
Denmark -- 2.0%
17,600 ISS AS .......................................... 1,339,867
33,000 Vestas Wind Systems AS .......................... 1,211,792
-------------
2,551,659
-------------
Finland -- 4.4%
58,500 Comptel ......................................... 1,178,435
13,000 Helsingin Puhelin OYJ ........................... 1,273,379
60,200 Nokia OYJ ....................................... 3,071,930
-------------
5,523,744
-------------
France -- 8.3%
32,700 Alcatel SA ...................................... 2,144,725
13,800 AXA ............................................. 2,173,853
15,300 Coflexip SA ..................................... 1,855,078
19,500 Societe Television Francaise 1 .................. 1,359,016
11,900 Total Fina SA Class B ........................... 1,824,566
11,400 Vivendi SA ...................................... 1,006,187
-------------
10,363,425
-------------
Germany -- 6.5%
3,350 ADVA AG Optical Networking ...................... 1,902,956
19,600 Em.TV & Merchandising AG ........................ 1,154,538
12,500 EPCOS AG ........................................ 1,246,958
3,190 Marschollek Lautenschlaeger und Partner AG ...... 1,577,871
48,000 Senator Entertainment AG ........................ 953,173
8,600 Siemens AG ...................................... 1,297,247
-------------
8,132,743
-------------
Hong Kong -- 4.3%
164,000 China Telecom Ltd., (ADR) (c) ................... 1,446,347
1,134,000 Giordano International, Ltd. .................... 1,723,802
606,000 Legend Holdings, Ltd. ........................... 586,916
318,000 Li & Fung, Ltd. ................................ 1,590,918
-------------
5,347,983
-------------
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Ireland -- 1.3%
111,000 Independent News & Media PLC .................... $ 403,258
32,700 Ryanair Holdings PLC (ADR) (c) .................. 1,193,550
-------------
1,596,808
-------------
Israel -- 1.6%
9,300 Check Point Software Technolgies, Ltd. (c) ...... 1,969,275
-------------
Italy -- 2.2%
105,200 San Paolo-IMI SpA ............................... 1,867,077
81,600 Telecom Italia Mobile SpA ....................... 833,568
-------------
2,700,645
-------------
Japan -- 23.0%
57,500 Credit Saison Co., Ltd., 144A ................... 1,333,113
92,000 Daiwa Securities Group, Inc. .................... 1,213,892
79 Fuji Television Network, Inc. ................... 1,235,946
2,600 Funai Electric Co., Ltd. ........................ 432,741
5,200 Funai Electric Co., Ltd. ........................ 812,554
42,000 Hitachi Chemical Co., Ltd. ...................... 971,773
30 Japan Telecom Co., Ltd. ......................... 1,300,598
148,000 Komatsu, Ltd. ................................... 1,040,554
7,700 Kyocera Corp. ................................... 1,305,528
23,200 Meitec Corp. .................................... 918,336
126,000 Mitsui Fudosan Co., Ltd. ........................ 1,365,628
7,000 Murata Manufacturing Co. ........................ 1,004,100
39,000 NEC Corp. ....................................... 1,223,976
34,000 Nikon Corp. ..................................... 1,259,319
157,000 Nissan Motor Co., Ltd. .......................... 924,791
42 NTT Mobile Communications Network, Inc. ......... 1,136,045
8,400 Orix Corp. ...................................... 1,238,961
33,000 Pioneer Corp. ................................... 1,284,482
150,000 Sanyo Electric Co. .............................. 1,348,664
64,000 Sharp Corp. ..................................... 1,130,955
17,000 Taiyo Yuden Co. ................................. 1,063,852
8,500 Toys R Us-Japan, Ltd. ........................... 1,441,968
3 Yahoo Japan Corp. (c) ........................... 1,188,917
15,000 Yamada Denki Co. ................................ 1,344,423
23,000 Yamanouchi Pharmaceutical Company, Ltd. ......... 1,255,078
-------------
28,776,194
-------------
Mexico -- 2.0%
16,000 Grupo Televisa SA de CV (ADR) ................... 1,103,000
23,400 Telefonos de Mexico SA de CV (ADR) 144A ......... 1,336,725
-------------
2,439,725
-------------
Netherlands -- 8.2%
43,100 ASM Lithography Holding NV (c) .................. 1,901,787
21,000 Heineken NV ..................................... 1,278,105
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Netherlands -- continued
13,100 Koninklijke (Royal) Philips Electronic NV ....... $ 617,825
26,400 KPN NV .......................................... 1,180,812
20,500 Kpnqwest NV (c) ................................. 806,340
28,800 Royal Dutch Petroleum Co. ....................... 1,789,949
28,200 STMicroelectronics NV ........................... 1,810,088
20,700 VersaTel Telecom International NV (c) ........... 892,687
-------------
10,277,593
-------------
Russia -- 0.8%
19,000 OAO LukOil Holdings (ADR) ....................... 978,500
-------------
Singapore -- 1.3%
184,080 Datacraft Asia .................................. 1,619,904
-------------
South Korea -- 1.5%
5,600 Samsung Electronics ............................. 1,853,232
-------------
Spain -- 2.0%
83,400 Banco Bilbao Vizcaya SA ......................... 1,246,084
60,000 Telefonica SA (ADR) ............................. 1,288,846
-------------
2,534,930
-------------
Sweden -- 5.0%
220,000 Enea Date AB .................................... 1,496,599
135,200 Ericsson (L.M.) Telefoniaktiebolag AB Series B .. 2,674,875
61,400 Skandia Forsakring AB ........................... 1,622,018
36,700 Tele1 Europe Holdings AB ........................ 449,388
-------------
6,242,880
-------------
Switzerland -- 0.9%
5,900 Credit Suisse Group ............................. 1,173,635
-------------
Turkey -- 0.3%
37,620,000 Yapi Ve Kredi Bankasi ........................... 418,394
-------------
United Kingdom -- 11.7%
115,000 Arm Holdings PLC ................................ 1,231,966
80,000 Cable & Wireless PLC ............................ 1,354,527
53,000 Capita Group PLC ................................ 1,296,742
71,000 Celltech Group PLC (c) .......................... 1,375,105
28,000 COLT Telecom Group PLC (c) ...................... 932,069
166,800 Enterprise Oil PLC .............................. 1,390,642
80,800 HSBC Holdings PLC ............................... 925,072
111,000 Independent News & Media PLC .................... 386,294
18,400 Jazztel PLC (c) ................................. 483,000
44,000 Logica PLC ...................................... 1,041,255
39,300 Pearson PLC ..................................... 1,248,761
94,500 Shire Pharma Group PLC (c) ...................... 1,644,361
190,300 Spirent PLC (c) ................................. 1,279,907
-------------
14,589,701
-------------
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
United States -- 3.9%
17,400 Chartered Semiconductor Manufacturing Ltd. (c) .. $ 1,566,000
11,000 Comverse Technology, Inc. (c) ................... 1,023,000
11,300 JDS Uniphase Corp. .............................. 1,354,587
7,300 Netease.com, Inc. (c) ........................... 88,513
4,500 PMC-Sierra, Inc. (c) ............................ 799,594
-------------
4,831,694
-------------
Total Common Stock (Identified Cost $107,664,780) 122,574,614
-------------
Short Term Investment 2.6%
Principal
Amount Description Value (a)
-------------------------------------------------------------------------------
$ 3,249,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/00 at 5.25%
to be repurchased at $3,250,421 on 7/03/00,
collateralized by $2,200,000 U.S. Treasury
Bond, at 5.750%, due 8/15/03 valued at
$2,211,000 and by $975,000 U.S. Treasury
Bond, at 7.125%, due 2/15/23 valued at
$1,110,281 ...................................... 3,249,000
-------------
Total Short Term Investment
(Identified Cost $3,249,000) .................... 3,249,000
-------------
Total Investments 100.7%
(Identified Cost $110,913,780)(b) ............... 125,823,614
Other assets less liabilities ................... (920,625)
-------------
Total Net Assets 100% ........................... $ 124,902,989
=============
(a) See note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized appreciation
on investments based on cost of $110,913,780 for
federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .......................................... $ 19,781,248
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ........................................ (4,871,414)
-------------
Net unrealized appreciation............................ $ 14,909,834
=============
(c) Non-income producing security.
ADR An American Depositary Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States.
144A Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,275,065 or 2.6% of net
assets.
Ten Largest Industry Holdings at June 30, 2000.
Computers & Business Broadcasting 4.3%
Equipment 13.3% Communication Services 4.2
Electronics 11.6 Household Appliances
Telecommunications 10.4 & Home Furnishings 4.1
Domestic Oil 7.2 Business Services 3.9
Insurance 4.3 Drugs & Healthcare 3.4
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $110,913,780) ................ $ 125,823,614
Cash ............................................................... 701
Foreign currency at value (Identified cost $246,531) ............... 242,358
Investments held as collateral for loaned securities ............... 21,901,815
Receivable for:
Fund shares sold ................................................. 433,434
Securities sold .................................................. 2,480,151
Dividends and interest ........................................... 25,138
Tax reclaims ..................................................... 40,742
-------------
150,947,953
LIABILITIES
Payable for:
Collateral on securities loaned, at value ..................... $ 21,901,815
Securities purchased .......................................... 124,432
Fund shares redeemed .......................................... 3,608,909
Withholding Taxes ............................................. 3,594
Accrued expenses:
Transfer agent ................................................ 37,197
Management fees ............................................... 275,849
Deferred trustees' fees ....................................... 26,356
Accounting and administrative ................................. 6,850
Other ......................................................... 59,962
-------------
26,044,964
-------------
NET ASSETS ......................................................... $ 124,902,989
=============
Net Assets consist of:
Paid in capital ............................................... $ 93,725,718
Undistributed net investment income (loss) .................... (597,259)
Accumulated net realized gains (losses) ....................... 16,862,500
Unrealized appreciation (depreciation) on investments
and foreign currency transactions ........................... 14,912,030
-------------
NET ASSETS ......................................................... $ 124,902,989
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($70,527,910 / 3,184,742 shares of beneficial interest) ......... $ 22.15
========
Offering price per share (100/94.25 of $22.15) ..................... $ 23.50*
========
Net asset value and offering price of Class B shares
($35,218,069 / 1,641,892 shares of beneficial interest) ......... $ 21.45**
========
Net asset value and offering price of Class C shares
($4,294,559 / 199,549 shares of beneficial interest) ............ $ 21.52**
========
Net asset value, offering and redemption price of Class Y shares
($14,862,451 / 658,801 shares of beneficial interest) ........... $ 22.56
========
</TABLE>
* Based upon single purchases of less than $50,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
10 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $83,336) ..................................... $ 454,297
Interest ........................................................................ 161,657
Securities lending income ....................................................... 63,886
------------
679,840
Expenses
Management fees ................................................................. $ 560,366
Service fees - Class A .......................................................... 90,648
Service and distribution fees - Class B ......................................... 169,620
Service and distribution fees - Class C ......................................... 13,617
Trustees' fees and expenses ..................................................... 5,862
Accounting and administrative ................................................... 22,550
Custodian ....................................................................... 137,209
Transfer agent - Class A, Class B, Class C ...................................... 199,271
Transfer agent - Class Y ........................................................ 7,680
Audit and tax services .......................................................... 27,595
Legal ........................................................................... 3,496
Printing ........................................................................ 19,166
Registration .................................................................... 43,268
Miscellaneous ................................................................... 3,572
------------
Total expenses .................................................................... 1,303,920
------------
Net investment income (loss) ...................................................... (624,080)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments - net ............................................................... 12,376,028
Foreign currency transactions - net ............................................. (43,793)
------------
Total realized gain (loss) on investments and foreign currency transactions ..... 12,332,235
------------
Unrealized appreciation (depreciation) on:
Investments -- net .............................................................. (29,619,232)
Foreign currency transactions -- net ............................................ 14,879
------------
Total unrealized appreciation (depreciation) on investments
and foreign currency transactions ............................................. (29,604,353)
------------
Net gain (loss) on investment transactions ........................................ (17,272,118)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................................ $(17,896,198)
============
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ....................................................... $ (229,671) $ (624,080)
Net realized gain (loss) on investments and
foreign currency transactions ............................................. 11,756,432 12,332,235
Unrealized appreciation (depreciation) on investments
and foreign currency transactions ......................................... 41,051,584 (29,604,353)
------------- -------------
Increase (decrease) in net assets from operations ........................... 52,578,345 (17,896,198)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .................................................................. (49,375) 0
Class Y .................................................................. (30,949) 0
------------- -------------
Net realized gain on investments
Class A .................................................................. (2,895,169) 0
Class B .................................................................. (1,259,652) 0
Class C .................................................................. (58,452) 0
Class Y .................................................................. (573,138) 0
------------- -------------
(4,866,735) 0
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ...................................... (9,414,479) 30,849,049
------------- -------------
Total increase (decrease) in net assets ........................................ 38,297,131 12,952,851
NET ASSETS
Beginning of the period ..................................................... 73,653,007 111,950,138
------------- -------------
End of the period ........................................................... $ 111,950,138 $ 124,902,989
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period ........................................................... $ 26,821 $ (597,259)
============= =============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ..... $ 15.50 $ 16.13 $ 16.31 $ 14.06 $ 14.26 $ 25.39
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................. 0.27 0.02(b) 0.09(b) 0.15(b) (0.03)(b) (0.10)
Net Realized and Unrealized Gain
(Loss) on Investments ...................... 0.63 0.51 (1.25) 0.77 12.31 (3.14)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............. 0.90 0.53 (1.16) 0.92 12.28 (3.24)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ......... (0.27) (0.02) 0.00 (0.23) (0.02) 0.00
Dividends in Excess of Net Investment Income . 0.00 0.00 0.00 (0.21) 0.00 0.00
Distributions From Net Realized Capital Gains 0.00 (0.33) (1.05) (0.19) (1.13) 0.00
Distributions in Excess of Net Realized Gains 0.00 0.00 (0.04) (0.09) 0.00 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions .......................... (0.27) (0.35) (1.09) (0.72) (1.15) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ........... $ 16.13 $ 16.31 $ 14.06 $ 14.26 $ 25.39 $ 22.15
========= ========= ========= ========= ========= =========
Total Return (%) (a) ......................... 5.8 3.3 (7.6) 6.7 87.6 (12.8)
Ratio of Operating Expenses to
Average Net Assets (%) (c) ................ 1.75 1.75 1.75 1.91 2.00 1.94 (d)
Ratio of Net Investment Income to
Average Net Assets (%) ..................... 1.24 0.14 0.62 1.04 (0.15) (0.86)(d)
Portfolio Turnover Rate (%) .................. 119 59 154 105 229 85
Net Assets, End of the Period (000) .......... $ 136,848 $ 109,773 $ 57,845 $ 47,444 $ 67,197 $ 70,528
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the period.
(c) The ratio of operating expenses to average net assets without giving effect
to voluntary expense limitations in effect until April 30, 2000 would have
been (%) 1.83 1.79 2.14 2.25 2.26 1.94(d)
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements. 13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
-------------------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ....... $ 15.35 $ 15.93 $ 16.00 $ 13.71 $ 13.98 $ 24.71
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ................... 0.19 (0.10)(b) (0.03)(b) 0.04(b) (0.15)(b) (0.16)
Net Realized and Unrealized Gain
(Loss) on Investments ........................ 0.58 0.50 (1.17) 0.75 12.01 (3.10)
-------- -------- -------- -------- -------- --------
Total From Investment Operations ............... 0.77 0.40 (1.20) 0.79 11.86 (3.26)
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ........... (0.19) 0.00 0.00 (0.12) 0.00 0.00
Dividends in Excess of Net Investment Income ... 0.00 0.00 0.00 (0.12) 0.00 0.00
Distributions From Net Realized Capital Gains .. 0.00 (0.33) (1.05) (0.19) (1.13) 0.00
Distributions in Excess of Net Realized Gains .. 0.00 0.00 (0.04) (0.09) 0.00 0.00
-------- -------- -------- -------- -------- --------
Total Distributions ............................ (0.19) (0.33) (1.09) (0.52) (1.13) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period ............. $ 15.93 $ 16.00 $ 13.71 $ 13.98 $ 24.71 $ 21.45
======== ======== ======== ======== ======== ========
Total Return (%) (a) ........................... 5.0 2.5 (8.0) 5.8 86.3 (13.2)
Ratio of Operating Expenses to
Average Net Assets (%) (c) .................. 2.50 2.50 2.50 2.66 2.75 2.69 (d)
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) .................... 0.49 (0.61) (0.13) 0.29 (0.90) (1.58)(d)
Portfolio Turnover Rate (%) .................... 119 59 154 105 229 85
Net Assets, End of the Period (000) ............ $ 52,895 $ 45,974 $ 25,216 $ 19,797 $ 29,045 $ 35,218
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the period.
(c) The ratio of operating expenses to average net assets without giving effect
to voluntary expense limitations in effect until April 30, 2000 would have
been (%) 2.58 2.54 2.89 3.00 3.01 2.69(d)
(d) Computed on an annualized basis.
</TABLE>
14 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
--------------------------------------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ...................... $ 15.35 $ 15.96 $ 16.03 $ 13.74 $ 14.02 $ 24.78
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) .................................. 0.19 (0.10)(b) (0.03)(b) 0.05(b) (0.15)(b) (0.10)
Net Realized and Unrealized Gain (Loss) on Investments ........ 0.61 0.50 (1.17) 0.75 12.04 (3.16)
------- ------- ------- ------- ------- -------
Total From Investment Operations .............................. 0.80 0.40 (1.20) 0.80 11.89 (3.26)
------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income .......................... (0.19) 0.00 0.00 (0.12) 0.00 0.00
Dividends in Excess of Net Investment Income .................. 0.00 0.00 0.00 (0.12) 0.00 0.00
Distributions From Net Realized Capital Gains ................. 0.00 (0.33) (1.05) (0.19) (1.13) 0.00
Distributions in Excess of Net Realized Gains ................. 0.00 0.00 (0.04) (0.09) 0.00 0.00
------- ------- ------- ------- ------- -------
Total Distributions ........................................... (0.19) (0.33) (1.09) (0.52) (1.13) 0.00
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period ............................ $ 15.96 $ 16.03 $ 13.74 $ 14.02 $ 24.78 $ 21.52
======= ======= ======= ======= ======= =======
Total Return (%) (a) .......................................... 5.2 2.5 (8.0) 5.9 86.2 (13.2)
Ratio of Operating Expenses to Average Net Assets(%)(c) ....... 2.50 2.50 2.50 2.66 2.75 2.69 (d)
Ratio of Net Investment Income (Loss) to Average Net Assets (%) 0.49 (0.61) (0.13) 0.29 (0.90) (1.58)(d)
Portfolio Turnover Rate (%) ................................... 119 59 154 105 229 85
Net Assets, End of the Period (000) ........................... $ 1,066 $ 850 $ 843 $ 860 $ 1,267 $ 4,295
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the period.
(c) The ratio of operating expenses to average net assets without giving effect
to voluntary expense limitations in effect until April 30, 2000 would have
been (%) 2.58 2.54 2.89 3.00 3.01 2.69(d)
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements. 15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class Y
---------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
-------------------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ......... $ 15.64 $ 16.25 $ 16.48 $ 14.35 $ 14.45 $ 25.81
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ..................... 0.42 0.11(a) 0.19(a) 0.25(a) 0.02(a) (0.04)
Net Realized and Unrealized Gain
(Loss) on Investments .......................... 0.60 0.54 (1.23) 0.77 12.54 (3.21)
-------- -------- -------- -------- -------- --------
Total From Investment Operations ................. 1.02 0.65 (1.04) 1.02 12.56 (3.25)
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ............. (0.41) (0.09) 0.00 (0.33) (0.07) 0.00
Dividends in Excess of Net Investment Income ..... 0.00 0.00 0.00 (0.31) 0.00 0.00
Distributions From Net Realized Capital Gains .... 0.00 (0.33) (1.05) (0.19) (1.13) 0.00
Distributions in Excess of Net Realized Gains .... 0.00 0.00 (0.04) (0.09) 0.00 0.00
-------- -------- -------- -------- -------- --------
Total Distributions .............................. (0.41) (0.42) (1.09) (0.92) (1.20) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period ............... $ 16.25 $ 16.48 $ 14.35 $ 14.45 $ 25.81 $ 22.56
======== ======== ======== ======== ======== ========
Total Return (%) ................................. 6.6 4.0 (6.7) 7.3 88.6 (12.6)
Ratio of Operating Expenses to
Average Net Assets (%) (b) ..................... 1.00 1.00 1.15 1.31 1.55 1.42 (c)
Ratio of Net Investment Income to
Average Net Assets (%) ......................... 1.99 0.89 1.22 1.64 0.10 (0.34)(c)
Portfolio Turnover Rate (%) ...................... 119 59 154 105 229 85
Net Assets, End of the Period (000) .............. $ 83,119 $ 52,161 $ 4,752 $ 5,552 $ 14,441 $ 14,862
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) Per share net investment income has been calculated using the average
shares outstanding during the period.
(b) The ratio of operating expenses to average net assets without giving effect
to voluntary expense limitations in effect until April 30, 2000 would have
been (%) 1.21 1.19 1.41 1.65 1.81 1.42(c)
(c) Computed on an annualized basis.
</TABLE>
16 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end
management investment company. The Fund seeks total return from long-term growth
of capital and dividend income, primarily through investments in international
equity securities. The Declaration of Trust permits the Trustees to issue an
unlimited number of shares of the Trust in multiple series (each such series is
a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years (or five years if purchased prior to May 1, 1997).
Class C shares do not pay front end sales charges and do not convert to any
class of shares, but they do pay a higher ongoing distribution fee than Class A
shares and may be subject to a contingent deferred sales charge if those shares
are redeemed within one year. Class Y shares do not pay a front end sales
charge, a contingent deferred sales charge or distribution fees. They are
intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees and transfer agent fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 plan.
Shares of each class would receive their pro rata share of the net assets of the
Fund, if the Fund were liquidated. In addition, the Trustees approve separate
dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service authorized by the Board of
Trustees, which service determines valuations for normal, institutional- size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date or when the Fund first learns of the dividend, and interest
income is recorded on the accrual basis. Investment income is recorded net of
foreign taxes withheld when recovery of such taxes is uncertain. In determining
net gain or loss on securities sold, the cost of securities has been
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
determined on the identified cost basis.
c. Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from investments.
Foreign exchange gains or losses included in realized net gain or loss on
foreign currency transactions arise from: sales of foreign currency, currency
gains or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities, resulting from changes in exchange rates.
d. Forward Foreign Currency Contracts. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Fund's investments against currency fluctuation. Also, a contract to buy or sell
can offset a previous contract. These contracts involve market risk in excess of
the unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The U.S. dollar value of the currencies the Fund has committed to
buy or sell (if any) is shown in the schedule of investments under the caption
"Forward Foreign Currency Contracts Outstanding." This amount represents the
aggregate exposure to each currency the Fund has acquired or hedged through
currency contracts outstanding at period end. Losses may arise from changes in
the value of the foreign currency or if the counterparties do not perform under
the contracts' terms.
All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
e. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
f. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions and passive foreign investment companies for
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
book and tax purposes. Permanent book and tax basis differences will result in
reclassification to capital accounts.
g. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the portfolio's ability to dispose of the underlying
securities.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$131,489,818 and $101,242,555, respectively.
3a. Management Fees and Other Transactions with Affiliates. The Fund pays
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million, reduced by the payment to Loomis Sayles &
Company, L.P. ("Loomis Sayles") at the rate of 0.40% of the first $200 million
of the Fund's average daily net assets and 0.35% of such assets in excess of
$200 million. Certain officers and directors of Nvest Management are also
officers or Trustees of the Fund. Nvest Management and Loomis Sayles are wholly
owned subsidiaries of Nvest Companies, L.P. ("Nvest") which is a subsidiary of
Metropolitan Life Insurance Company (see Note 8).
Fees earned by Nvest Management and Loomis Sayles under the management and
subadvisory agreements in effect during the six months ended June 30, 2000 are
as follows:
Fees Earned
-----------
Nvest Management $ 311,314
Loomis Sayles 249,052
----------
$ 560,366
==========
The effective annualized management fee for the six months ended June 30, 2000
was 0.90%.
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $22,550 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative expense for the six months ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
out-of-pocket expenses. Class Y
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
shares bear a transfer agent fee of 0.10% of average daily net assets. For the
six months ended June 30, 2000, the Fund paid NSC $161,355 as compensation for
its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor, (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by the Nvest Funds in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts. For
the six months ended June 30, 2000, the Fund paid Nvest Funds $90,648 in fees
under the Class A Plan. If the expenses of Nvest Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at June 30, 2000 is $514,256.
Under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly service
fee at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000, the Fund paid
Nvest Funds $42,405 and $3,404 in service fees under the Class B and Class C
plans, respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly
distribution fee at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $127,215 and $10,213 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors of shares of the Fund during the six months ended June
30, 2000 amounted to $253,387.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. Concentration of Risk. The Fund had the following geographic concentration in
excess of 10% of its total net assets at June 30, 2000: Japan 23.0% and United
Kingdom 11.7%. The Fund pursues its objectives by investing in foreign
securities. There are certain risks involved in investing in foreign securities
which are in addition to the usual risks inherent in domestic investments. These
risks include those resulting from future adverse political or economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions.
5. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
------------------------------- -------------------------------
Class A Shares Amount Shares Amount
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 8,948,596 $ 133,717,101 3,497,468 $ 81,285,952
Shares issued in connection with the reinvestment of:
Dividends from net investment income ..................... 2,866 48,761 0 0
Distributions from net realized gain ..................... 184,256 2,759,892 0 0
------------- ------------- ------------- -------------
9,135,718 136,525,754 3,497,468 81,285,952
Shares repurchased ......................................... (9,816,773) (146,515,786) (2,959,053) (68,559,035)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (681,055) $ (9,990,032) 538,415 $ 12,726,917
------------- ------------- ------------- -------------
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
------------------------------- -------------------------------
Class B Shares Amount Shares Amount
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 174,034 $ 2,997,379 652,837 $ 15,915,351
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 56,778 1,196,312 0 0
------------- ------------- ------------- -------------
230,812 4,193,691 652,837 15,915,351
Shares repurchased ......................................... (471,443) (7,021,664) (186,576) (4,466,902)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (240,631) $ (2,827,973) 466,261 $ 11,448,449
------------- ------------- ------------- -------------
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
------------------------------- -------------------------------
Class C Shares Amount Shares Amount
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 69,578 $ 1,151,320 197,293 $ 4,772,910
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 2,643 55,847 0 0
------------- ------------- ------------- -------------
72,221 1,207,167 197,293 4,772,910
Shares repurchased ......................................... (82,442) (1,285,310) (48,874) (1,092,761)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (10,221) $ (78,143) 148,419 $ 3,680,149
------------- ------------- ------------- -------------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
---------------------------- ----------------------------
Class Y Shares Amount Shares Amount
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ........................................................ 220,939 $ 3,992,137 222,932 $ 5,933,680
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............................. 1,792 30,949 0 0
Distributions from net realized gain ............................. 26,052 573,138 0 0
------------ ------------ ------------ ------------
248,783 4,596,224 222,932 5,933,680
Shares repurchased ................................................. (73,477) (1,114,555) (123,695) (2,940,146)
------------ ------------ ------------ ------------
Net increase (decrease) ..................................... 175,306 $ 3,481,669 99,237 $ 2,993,534
------------ ------------ ------------ ------------
Increase (decrease) derived from capital shares transactions ....... (756,601) $ (9,414,479) 1,252,332 $ 30,849,049
======== ============ ========= ============
</TABLE>
6. Line of Credit. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
7. Security Lending. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 2000 the Fund had on loan securities having a market value of $21,032,348
and collateralized by cash in the amount of $21,901,815 which was invested in a
short-term investment.
8. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
22
<PAGE>
NVEST EQUITY INCOME FUND
Supplement dated August 21, 2000 to Nvest Stock Funds Prospectus Class A, B
and C dated May 1, 2000
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the Fund.
23
<PAGE>
REGULAR INVESTING PAYS
================================================================================
Five Good Reasons to Invest Regularly
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you can
invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
The Power of Monthly Investing
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
24
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
*Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest
Funds are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you of the
availability of a brochure on its Public Disclosure Program. The program
provides access to information about securities firms and their representatives.
Investors may obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[LOGO] NvestFunds(SM)
Where The Best Minds Meet(R)
IE58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
[NVEST FUNDS LOGO GOES HERE]
NVEST GROWTH FUND
[WHERE THE BEST MINDS MEET]
JUNE 30, 2000
<PAGE>
PRESIDENTS MESSAGE
================================================================================
AUGUST 2000
--------------------------------------------------------------------------------
[PICTURE OF JOHN HAILER GOES HERE]
John
T. Hailer President and
Chief Executive Officer
Nvest Funds
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months - three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
YOUR CHOICE OF INVESTMENT TOOLS
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions. No matter how you react to
shifting markets, don't let short-term events derail your long-range program.
Consult your financial representative before you make any changes.
NVEST IS POISED FOR GLOBAL GROWTH
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
[JOHN HAILER'S SIGNATURE APPEARS HERE]
"No matter how you react to shifting markets, don't let short-term events derail
your long- range program. Consult your financial representative before you make
any changes."
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
NVEST GROWTH FUND
================================================================================
INVESTMENT RESULTS THROUGH JUNE 30, 2000
--------------------------------------------------------------------------------
PUTTING PERFORMANCE IN PERSPECTIVE
The charts comparing Nvest Growth Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index, and would
incur transaction costs and other expenses even if they could.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES OVER 20 YEARS
June 1980 through June 2000
NAV MSC S&P 500
--------------------------------------------
6/00 296,539 279,488 306,073
6/99 287,594 271,058 285,410
6/98 259,890 244,946 232,570
6/97 197,440 186,087 178,776
6/96 144,645 136,328 132,791
6/95 126,848 119,554 105,448
6/94 100,913 95,111 83,696
6/93 100,092 94,337 82,516
6/92 92,790 87,454 72,656
6/91 78,869 74,334 64,093
6/90 69,889 65,870 59,683
6/89 56,618 53,362 51,279
6/88 52,795 49,759 42,576
6/87 57,051 53,771 45,756
6/86 45,441 42,828 36,564
6/85 32,757 30,874 26,951
6/84 24,843 23,414 20,598
6/83 32,192 30,341 21,605
6/82 15,716 14,813 13,426
6/81 15,718 14,814 12,052
6/80 10,000 9,425 10,000
6/79 10,000 10,000 10,000
6/78 10,000 9,425 10,000
Growth of a $10,000 Investment in Class A Shares Over 10 Years
June 1990 through June 2000
NAV MSC S&P 500
-----------------------------------------------------
6/00 42,471 40,029 51,283
6/99 41,150 38,784 47,821
6/98 37,186 35,048 38,967
6/97 28,251 26,626 29,954
6/96 20,696 19,506 22,249
6/95 18,150 17,106 17,668
6/94 14,439 13,609 14,023
6/93 14,322 13,498 13,826
6/92 13,277 12,513 12,174
6/91 11,285 10,636 10,739
6/90 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees, and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST GROWTH FUND
================================================================================
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/00
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (INCEPTION 11/27/68) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS 15 YEARS 20 YEARS
Net Asset Value(1) -5.91% 3.11% 18.51% 15.55% 15.82% 18.41%
With Maximum Sales Charge(2) -11.31 -2.83 17.12 14.87 15.36 18.06
SINCE
CLASS B (Inception 2/28/97) 6 MONTHS 1 YEAR INCEPTION
-------------------------------------------------------------
Net Asset Value(1) -6.19% 2.43 15.68%
With CDSC(3) -10.88 -1.85 15.16
SINCE
CLASS C (Inception 9/1/98) 6 MONTHS 1 YEAR INCEPTION
--------------------------------------------------------------
Net Asset Value(1) -6.19% 2.43% 15.98%
With CDSC(3) -7.12 1.57 15.98
SINCE
CLASS Y (Inception 6/30/99) 6 MONTHS 1 YEAR INCEPTION
--------------------------------------------------------------
Net Asset Value(1) -5.72 3.39 3.39%
SINCE SINCE SINCE
FUND'S FUND'S FUND'S
COMPARATIVE 6 1 5 10 15 20 CLASS B CLASS C CLASS Y
PERFORMANCE MONTHS YEAR YEARS YEARS YEARS YEARS INCEPTION INCEPTION INCEPTION
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500(4) -0.42% 7.24% 23.80% 17.80% 17.64% 17.36% 21.81% 25.59% 7.24%
Morningstar Large
Blend Average(5) 0.51 8.43 20.35 15.60 15.23 -- 18.78 25.50 8.69
Lipper Large-Cap
Core Average(6) -1.64 -0.87 18.01 14.75 14.86 15.37 14.76 17.82 -0.87
</TABLE>
NOTES TO CHARTS
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those noted. Class Y
shares are available to certain institutional investors only.
1 These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
2 These results include reinvestment of any dividends and capital gains and
the maximum sales charge of 5.75%.
3 These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
4 S&P 500 is an unmanaged index of U.S. common stock performance. You may not
invest directly in an index.
5 Morningstar Large Blend Average is the average performance without sales
charges of funds with similar investment objectives as calculated by
Morningstar, Inc. Class C since inception return is calculated from
8/31/98. The Morningstar Large Blend Average does not track a 20-year
performance average.
6 Lipper Large-Cap Core Average is the average performance without sales
charges of all mutual funds with a similar current investment style or
objective as determined by Lipper Inc. Class C since inception return is
calculated from 8/31/98.
2
<PAGE>
NVEST GROWTH FUND
================================================================================
INTERVIEW WITH YOUR PORTFOLIO MANAGER
--------------------------------------------------------------------------------
[PICTURE OF G. KENNETH HEEBNER GOES HERE]
G. Kenneth Heebner
Capital Growth Management
Q. HOW DID NVEST GROWTH FUND PERFORM DURING THE FIRST HALF OF 2000?
For the six months ended June 30, 2000, the return for Nvest Growth Fund A
shares was -5.91%, at on net asset value. The return on the Fund's benchmark,
the Standard & Poor's 500 Index, was -0.42% for the same period. The difference
between Fund's results and those of its benchmark reflect its participation in
sectors and markets (such as foreign investments) that have little or no
representation in the Index -- markets we continue to favor for the long-term.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE PERIOD?
The U.S. economy continued to move forward, and economies in Latin America,
which had been in recession, improved. Asia continued to grow rapidly, with
Japan and China -- the laggards in the region over the past few years -- showing
signs of accelerated growth. In the United States, the Federal Reserve Board
became increasingly concerned that low unemployment (currently about 4%
nationally*) would lead to wage inflation, and this contributed to their
decision to raise short-term interest rates three times so far this year.
However, recent indications are that growth is slowing, which leads us to
believe that the Fed may not raise rates again during the closing half of the
year.
Q. WHAT WAS YOUR STRATEGY WITH THE FUND?
We maintained the Fund in a fully invested position because we expect growth
trends around the world to continue over the balance of the year and into 2001.
The business cycle in the United States is mature, unlike the younger economies
of Asia, Europe, and Latin America. Consequently, we've looked for opportunities
in ADRs -- American Depositary Receipts -- which enable American investors to
buy shares of foreign-based companies on domestic stock exchanges. We invested
in ADRs of foreign companies that we believe should be unaffected by a slowdown
in the U.S. economy. For example, we continue to hold shares of Telefonos
*According to press release from the U.S. Department of Labor, statistics for
non-farm workers for June 2000.
3
<PAGE>
NVEST GROWTH FUND
================================================================================
de Mexico (better known as Telmex, Mexico's dominant telephone company) and
Koninklijke Philips Electronics (the world's biggest electronics company, based
in the Netherlands). We also continue to favor Pohang Iron and Steel of Korea,
which is poised for a recovery as the company used strong cash flows to trim its
debt, raising its credit rating and earnings forecasts. We believe these
companies will benefit from improving economic conditions in Latin America,
Europe and Asia.
In addition, we've tried to capture opportunities offered by companies dealing
in certain commodities that enjoyed price increases stemming from economic
strength. Examples include Pohang Steel and Inco, Ltd., one of the world's
leading producers of nickel. We also increased the Fund's position in energy
stocks, to 17.6% of assets as of June 30, 2000, from 1.6% at the end of 1999.
Nvest Growth Fund's exposure to real estate investment trusts (REITs) provides a
combination of income and appreciation potential. And although we reduced the
Fund's holdings in semiconductors and related stocks as valuations rose, we
continue to favor this sector.
Q. WHICH STOCKS BOOSTED PERFORMANCE AND WHICH ONES DID NOT?
The Fund's best performers included its semiconductor holdings -- notably Micron
Technology -- and its investments in REITs, including Vornado Realty Trust and
Boston Properties. Strongly positive performance from semiconductors reflected
the growth in earnings these companies experienced as a result of robust global
demand. Prices of REITs had been depressed while investors were dazzled by the
promise of high-tech companies, but as the year unfolded, heightened concerns
about inflation helped revive interest in this market, which is experiencing
rising occupancy levels and rents.
However, Nvest Growth Fund's investments in metals, including Pohang and Inco,
fell in price during the first half of the year even though the companies posted
sharp increases in earnings. We continue to hold these stocks in anticipation of
better price performance in the future.
4
<PAGE>
NVEST GROWTH FUND
================================================================================
Q. WHAT IS YOUR CURRENT OUTLOOK?
Day-to-day market activity will continue to be influenced -- up or down -- by
data releases, earnings reports and news of mergers and acquisitions, and we are
likely to continue to see considerable short-term rotation from sector to
sector. Overall, we look for strong global growth during the next 12 months,
although we recognize that the U.S. economy needs to maintain a slow,
sustainable pace.
Domestically, we'll focus on companies whose earnings progress seems least
likely to be negatively impacted by an economic slowdown. We believe the
greatest opportunities will come from companies -- whether based in the U.S. or
overseas -- that are able to participate in foreign growth or rising commodity
prices, as we seek the long-term growth of capital that is the primary objective
of Nvest Growth Fund.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Growth Fund invests primarily in growth stocks which tend to be more
sensitive to market movements because their stock prices are based on future
expectations. It also invests in foreign securities, which involves special
risks. REITs are subject to changes in underlying real estate values, rising
interest rates, limited diversification of holdings, higher costs and prepayment
risk associated with related mortgages. Frequent portfolio turnover may increase
your risk of greater tax liability, which can lower your return from this fund.
These risks may increase share price volatility. See the Fund's prospectus for
details.
TOP 10 PORTFOLIO HOLDINGS -- 6/30/00
-----------------------------------------------------
% OF
COMPANY NET ASSETS
1. Micron Technology, Inc. 8.4
2. Total Fina Elf SA 6.3
3. Telefonos de Mexico SA de CV 5.8
4. United Health Group, Inc. 5.5
5. Pohang Iron & Steel Co., Ltd. 5.4
6. Koninklijke Philips Electronics NV 5.4
7. El Paso Energy Corp. 5.3
8. Halliburton Co. 5.0
9. Inco Ltd. 4.9
10. Advanced Micro Devices, Inc. 4.9
Portfolio holdings and asset allocations will vary.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
INVESTMENTS AS OF JUNE 30, 2000
(UNAUDITED)
COMMON STOCK -- 99.3% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
ALUMINUM-- 5.7%
1,670,000 Alcan Aluminium Ltd. ........... $ 51,770,000
1,580,000 Alcoa, Inc. .................... 45,820,000
----------
97,590,000
----------
BEVERAGES & TOBACCO-- 8.5%
885,000 Anheuser-Busch Companies, Inc. . 66,098,438
3,050,000 Philip Morris Companies, Inc. .. 81,015,625
----------
147,114,063
-----------
COMPUTER SOFTWARE & SERVICES-- 1.8%
410,000 Computer Sciences Corp. ........ 30,621,875
----------
CONSUMER DURABLES-- 5.4%
1,948,200 Koninklijke (Royal) Philips Electronics 92,539,500
----------
DRUGS & HEALTHCARE-- 7.0%
870,000 HCA-The Healthcare Co. ......... 26,426,250
1,100,000 United Health Group, Inc. ...... 94,325,000
----------
120,751,250
-----------
ELECTRONIC COMPONENTS-- 9.0%
1,090,000 Advanced Micro Devices, Inc. (c) 84,202,500
1,240,000 National Semiconductor Corp. (c) 70,370,000
----------
154,572,500
-----------
FOOD & BEVERAGES-- 5.3%
1,355,000 Hershey Foods Corp. ............ 65,717,500
335,000 Quaker Oats Co. ................ 25,166,875
----------
90,884,375
----------
GAS & PIPELINE UTILITIES-- 5.3%
1,800,000 El Paso Energy Corp. ........... 91,687,500
----------
INSURANCE-- 2.0%
570,600 Chubb Corp. .................... 35,091,900
----------
METALS & MINING-- 4.9%
5,500,000 Inco Ltd. ...................... 84,562,500
----------
OIL-MAJOR INTEGRATED-- 7.3%
690,000 Conoco, Inc. ................... 16,948,125
1,420,000 Total Fina Elf SA (ADR) ........ 109,073,750
----------
126,021,875
-----------
OIL SERVICES-- 5.0%
1,830,000 Halliburton Co. ................ 86,353,125
----------
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
INVESTMENTS AS OF JUNE 30, 2000
(UNAUDITED)
COMMON STOCK -- CONTINUED
SHARES DESCRIPTION VALUE (A)
-------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS-- 12.5%
1,337,500 Apartment Investment & Management Co. $ 57,846,875
1,470,000 Boston Properties, Inc. ........ 56,778,750
1,181,700 Spieker Properties, Inc. ....... 54,358,200
1,325,000 Vornado Realty Trust ........... 46,043,750
----------
215,027,575
-----------
SEMICONDUCTORS-- 8.4%
1,644,000 Micron Technology, Inc. (c) .... 144,774,750
-----------
STEEL-- 5.4%
3,900,000 Pohang Iron & Steel Co., Ltd. (ADR) 93,600,000
----------
TELEPHONE-- 5.9%
1,761,000 Telefonos de Mexico SA de CV (ADR) 100,597,125
-----------
100,597,125
-----------
Total Common Stock
(Identified Cost $1,679,010,589) 1,711,789,913
-------------
SHORT TERM INVESTMENTS-- 0.0%
PRINCIPAL
AMOUNT
-------------------------------------------------------------------------------
$ 465,000 American Express Credit Corp.,
6.880%, 7/03/2000 465,000
-------
Total Short Term Investments
(Identified Cost $465,000) 465,000
-------
Total Investments-- 99.4%
(Identified Cost $1,679,475,589)(b) 1,712,254,913
Other assets less liabilities 10,829,059
----------
Total Net Assets-- 100% $1,723,083,972
==============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 2000 the net unrealized
appreciation on investments based on cost of $1,679,475,589
for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost $ 148,054,298
Aggregate gross unrealized depreciation for all
investments in which there is an excess of
tax cost over value. (115,274,974)
------------
Net unrealized appreciation $ 32,779,324
==================
(c) Non-income producing security.
ADR An American Depositary Receipt is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The value of ADRs are significantly influenced by trading
on exchanges not located in the United States.
Percentage of net assets by country at June 30, 2000:
United States 69.2% Canada 7.9%
France 6.3 Mexico 5.8
South Korea 5.4 Netherlands 5.4
See accompanying notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
ASSETS
<S> <C> <C>
Investments at value (Identified cost $1,679,475,589) $ 1,712,254,913
Cash 3,141
Receivable for:
Fund shares sold 2,805,237
Securities sold 28,663,470
Dividends and interest 5,853,736
Tax reclaims 195,595
-------
1,749,776,092
LIABILITIES
Payable for:
Securities purchased $ 24,205,521
Fund shares redeemed 1,507,647
Withholding Taxes 188,892
Accrued expenses:
Management fees 95,441
Deferred trustees' fees 193,655
Transfer agent 215,583
Accounting and administrative 107,931
Other 177,450
-------
26,692,120
----------
NET ASSETS $ 1,723,083,972
===============
Net Assets consist of:
Paid-in capital $ 1,427,541,061
Undistributed net investment income 8,746,142
Accumulated net realized gains (losses) 254,017,445
Unrealized appreciation (depreciation) on investments 32,779,324
----------
NET ASSETS $ 1,723,083,972
===================
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($1,588,213,925 / 153,385,614 shares of beneficial interest) $ 10.35
================
Offering price per share (100/94.25 of $10.35) $ 10.98*
================
Net asset value and offering price of Class B shares
($115,573,381 / 11,549,656 shares of beneficial interest) $ 10.01**
================
Net asset value and offering price of Class C shares
($5,881,780 / 587,703 shares of beneficial interest) $ 10.01**
================
Net asset value, offering and redemption price of Class Y shares
($13,414,886 / 1,292,948 shares of beneficial interest) $ 10.38
================
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charges.
See accompanying notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
INVESTMENT INCOME
<S> <C> <C>
Dividends (net of foreign taxes of $564,829) $ 17,004,406
Interest 418,273
-------
17,422,679
Expenses
Management fees $ 6,254,261
Service fees - Class A 2,157,086
Service and distribution fees - Class B 622,068
Service and distribution fees - Class C 33,482
Trustees' fees and expenses 43,314
Accounting and administrative 363,498
Custodian 142,521
Transfer agent - Class A, Class B, Class C 1,576,385
Transfer agent - Class Y 7,177
Audit and tax services 32,612
Legal 25,022
Printing 62,017
Registration 78,593
Miscellaneous 22,379
------
Total expenses before reductions 11,420,415
Less reductions (120,917) 11,299,498
-------- ----------
Net investment income 6,123,181
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on Investments - net 171,327,413
Unrealized appreciation (depreciation) on Investments - net (288,562,825)
------------
Net gain (loss) on investment transactions (117,235,412)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (111,112,231)
==================
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1999 2000
----------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 3,468,742 $ 6,123,181
Net realized gain (loss) on investments 394,461,456 171,327,413
Unrealized appreciation (depreciation) on investments (123,562,713) (288,562,825)
------------ ------------
Increase (decrease) in net assets from operations 274,367,485 (111,112,231)
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A (284,686,939) 0
Class B (20,990,502) 0
Class C (1,367,985) 0
Class Y (2,322,809) 0
---------- -
(309,368,235) 0
------------ -
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS 163,514,961 (196,900,238)
Total increase (decrease) in net assets 128,514,211 (308,012,469)
NET ASSETS
Beginning of the period 1,902,582,230 2,031,096,441
------------- -------------
End of the period $ 2,031,096,441 $ 1,723,083,972
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period $ 2,622,961 $ 8,746,142
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
CLASS A
----------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------
1995 1996 1997 1998 1999 2000
---------------------------------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.87 $ 10.55 $ 11.63 $ 10.41 $ 11.36 $ 11.00
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ...... 0.05 0.04 0.01 0.08(a) 0.02 0.04
Net Realized and Unrealized
Gain (Loss) on Investments ........ 3.30 2.07 2.79 3.00 1.57 (0.69)
---- ---- ---- ---- ---- -----
Total From Investment Operations .. 3.35 2.11 2.80 3.08 1.59 (0.65)
---- ---- ---- ---- ---- -----
Less Distributions
Distributions From Net
Investment Income ................. (0.05) (0.04) 0.00 (0.10) 0.00 0.00
Distributions From Net Realized
Gain on Investments ............... (1.62) (0.99) (4.02) (1.32) (1.95) 0.00
Distributions in Excess of Realized
Gain on Investments ............... 0.00 0.00 0.00 (0.35) 0.00 0.00
Distributions From Return of Capital 0.00 0.00 0.00 (0.36) 0.00 0.00
---- ---- ---- ----- ---- ----
Total Distributions ............... (1.67) (1.03) (4.02) (2.13) (1.95) 0.00
----- ----- ----- ----- ----- ----
Net Asset Value, End of Period .... $ 10.55 $ 11.63 $ 10.41 $ 11.36 $ 11.00 $ 10.35
======= ======= ======= ======= ======= =======
Total Return (%) (b) .............. 38.1 20.9 23.5 33.4 15.2 (5.9)
Ratio of Operating Expenses
to Average Net Assets(%) .......... 1.20 1.18 1.12 1.12 1.12 1.17(c)
Ratio of Operating Expenses to
Average Net Assets after Expense
Reductions (%) .................... 1.20 1.18 1.12 1.12 1.12 1.16(c)
Ratio of Net Investment Income
to Average Net Assets(%) .......... 0.42 0.33 0.08 0.74 0.23 0.70(c)
Portfolio Turnover Rate (%) ....... 235 199 214 202 206 137
Net Assets, End of Period (000,000) $ 1,201 $ 1,297 $ 1,460 $ 1,825 $ 1,871 $ 1,588
(a) Per share net investment income has been calculated using the average
shares outstanding during the year.
(b) A sales charge is not reflected in total return calculations.
(c) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
CLASS B
--------------------------------------------------------------------------------
FEBRUARY 28,
1997(A) SIX MONTHS
THROUGH YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31, JUNE 30,
------------------
1997 1998 1999 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.47 $ 10.32 $ 11.15 $ 10.67
------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ...... (0.07) (0.00)(b) (0.05) 0.00
Net Realized and Unrealized
Gain (Loss) on Investments ........ 1.94 2.95 1.52 (0.66)
---- ---- ---- -----
Total From Investment Operations .. 1.87 2.95 1.47 (0.66)
---- ---- ---- -----
Less Distributions Distributions in Excess
of Net Investment Income .......... 0.00 (0.06) 0.00 0.00
Distributions From Net Realized
Gain on Investments ............... (4.02) (1.32) (1.95) 0.00
Distributions in Excess of Realized
Gain on Investments ............... 0.00 (0.35) 0.00 0.00
Distributions From Return
of Capital ........................ 0.00 (0.39) 0.00 0.00
---- ----- ---- ----
Total Distributions ............... (4.02) (2.12) (1.95) 0.00
----- ----- ----- ----
Net Asset Value, End of Period .... $ 10.32 $ 11.15 $ 10.67 $ 10.01
======= ======= ======= =======
Total Return (%) (c) .............. 14.4 32.4 14.4 (6.2)
Ratio of Operating Expenses to
Average Net Assets (%) ............ 1.87 (d) 1.87 1.87 1.92(d)
Ratio of Net Operating Expenses to
Average Net Assets After
Expense Reductions (%) ............ 1.87 (d) 1.87 1.87 1.91(d)
Ratio of Net Investment Income
to Average Net Assets (%) ......... (0.67)(d) (0.01) (0.52) 0.04(d)
Portfolio Turnover Rate (%) ....... 214 202 206 137
Net Assets, End of Period (000,000) $ 18 $ 75 $ 136 $ 116
</TABLE>
(a) Commencement of opreations.
(b) Per share net investment loss has been calculated using the average
shares outstanding during the year.
(c) A contingent deferred sales charge is not reflected in total return
calculations.
(d) Computed on an annualized basis.
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
Class C Class Y
--------------------------- ---------------------
September 1
1998(a) Six Months June 30, 1999(a) Six Months
through Year Ended Ended through Ended
December 31, December 31, June 30, December 31, June 30,
1998 1999 2000 1999 2000
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.18 $11.15 $10.67 $11.94 $11.01
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) (0.00)(b) (0.05) 0.00(b) 0.03 0.05
Net Realized and Unrealized
Gain (Loss) on Investments 2.09 1.52 (0.66) 0.99 (0.68)
---- ---- ----- ---- -----
Total From Investment Operations 2.09 1.47 (0.66) 1.02 (0.63)
---- ---- ----- ---- -----
Less Distributions Distributions in Excess
of Net Investment Income (0.06) 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments (1.32) (1.95) 0.00 (1.95) 0.00
Distributions in Excess of Realized
Gain on Investments (0.35) 0.00 0.00 0.00 0.00
Distributions From Return of Capital (0.39) 0.00 0.00 0.00 0.00
----- ---- ---- ---- ----
Total Distributions (2.12) (1.95) 0.00 (1.95) 0.00
----- ----- ---- ----- ----
Net Asset Value, End of Period $11.15 $10.67 $10.01 $11.01 $10.38
====== ====== ====== ====== ======
Total Return (%) 22.2 14.4 (6.2) 9.7 (5.7)
Ratio of Operating Expenses
to Average Net Assets (%) 1.87(d) 1.87 1.92(d) 0.87(d) 0.90(d)
Ratio of Operating Expenses to Average
Net Assets After Expense Reductions(%) 1.87(d) 1.87 1.91(d) 0.87(d) 0.89(d)
Ratio of Net Investment Income
to Average Net Assets (%) (0.01)(d) (0.52) 0.04(d) 0.48(d) 0.98(d)
Portfolio Turnover Rate (%) 202 206 137 206 137
Net Assets, End of Period (000,000) $2 $9 $6 $15 13
</TABLE>
(a) Commencement of operations.
(b) Per share net investment loss has been calculated using the average
shares outstanding during the period.
(c) A contingent deferred sales charge is not reflected in total return
calculations of Class C shares. Periods less than one year are not
annualized.
(d) Computed on an annualized basis.
See accompanying notes to financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a Series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks long-term growth of capital
through investment in equity securities of companies whose earnings are expected
to grow at a faster rate than the United States economy. The Declaration of
Trust permits the Trustees to issue an unlimited number of shares of the Trust
in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay a front end sales charge and do not convert
to any class of shares, but they do pay a higher ongoing distribution fee than
Class A shares and may be subject to a contingent deferred sales charge if those
shares are redeemed within one year. Class Y shares do not pay a front end sales
charge, a contingent deferred sales charge or distribution fees. They are
intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 Plan. Shares of each class would
receive their pro rata share of the net assets of the Fund, if the Fund were
liquidated. In addition, the Trustees approve separate dividends on each class
of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser under the
supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Interest
income for the Fund is increased by the accretion of discount. In determining
net gain or loss on securities sold, the cost of securities has been determined
on the identified cost basis.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for distributions
from real estate investment trusts. Permanent book and tax basis differences
will result in reclassification to the capital accounts.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's adviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$2,547,939,188 and $2,746,190,008 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the six
months ended June 30, 2000, the Fund incurred management fees payable to its
investment adviser, Capital Growth Management, L.P. ("Capital Growth
Management"). Capital Growth Management is an affiliate of Nvest Companies, L.P.
("Nvest"), which is a subsidiary of Metropolitan Life Insurance Company (see
Note 6). The management agreement in effect during the six months ended June 30,
2000 provided for fees as set forth below:
FEES EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
--------------------------------------------------------------------------------
$6,254,261 0.750% the first $200 million
0.700% the next $300 million
0.650% the next $1,500 million
0.600% the excess over $2 billion
The effective annualized management fee for the six months ended June 30, 2000
was 0.67%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $363,498 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative expense was 0.034%.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as a sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
out-of-pocket expenses. NSC receives account fees for Class A, Class B and Class
C shareholder accounts. Class Y shares bear a transfer agent fee 0.1% of average
daily net assets. For the six months ended June 30, 2000, the Fund paid NSC
$1,083,854 as compensation for its services in that capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and a Service and Distribution Plan relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor, a wholly owned subsidiary of Nvest, a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $2,157,086 in fees under
the Class A Plan. If the expenses of Nvest Funds that are otherwise reimbursable
under the Class A Plan incurred in any year exceed the amounts payable by the
Fund under the Class A Plan, the unreimbursed amount (together with unreimbursed
amounts from prior years) may be carried forward for reimbursement in future
years in which the Class A Plan remains in effect. The amount of unreimbursed
expenses as of June 30, 2000 is $2,030,882.
Under the Class B and Class C Plans, the Fund pays Nvest Funds monthly service
fees at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000, the Fund paid
Nvest Funds $155,517 and $8,370 in service fees under the Class B and Class C
plans, respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly
distribution fee at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $466,551 and $25,112 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000, amounted to $1,188,909.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Funds Management, L.P., Nvest Funds, Nvest, NSC or their affiliates.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Each other Trustee receives a retainer fee at the annual rate of $40,000 and
meeting attendance fees of $3,500 for each meeting of the Board of Trustees
attended. Each committee member receives an additional retainer fee at the
annual rate of $6,000 while each committee chairman receives a retainer fee
(beyond the $6,000 fee) at the annual rate of $4,000. These fees are allocated
to the various Nvest Funds based on a formula that takes into account, among
other factors, the relative net assets of each fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Fund until distributed in accordance with the Plan.
4. CAPITAL SHARES. At June 30, 2000, there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 18,434,322 $213,507,329 4,473,669 $ 48,009,923
Shares issued in connection with the reinvestment of:
Distributions from net realized gain 26,795,700 275,995,710 0 0
---------- ----------- - -
45,230,022 489,503,039 4,473,669 48,009,923
Shares repurchased (35,860,181) (413,701,486) (21,161,669) (228,878,835)
----------- ------------ ----------- ------------
Net increase (decrease) 9,369,841 $ 75,801,553 (16,688,000)$(180,868,912)
--------- ------------ ----------- -------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
Shares sold 6,618,990 $ 75,011,147 1,189,235 $ 12,416,486
Shares issued in connection with the reinvestment of:
Distributions from net realized gain 1,918,125 19,181,257 0 0
--------- ---------- - -
8,537,115 94,192,404 1,189,235 12,416,486
Shares repurchased (2,578,844) (29,179,794) (2,363,737) (24,899,038)
---------- ----------- ---------- -----------
Net increase (decrease) 5,958,271 $ 65,012,610 (1,174,502) $(12,482,552)
--------- ------------ ---------- ------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
Shares sold 734,168 $ 8,233,147 74,454 $ 776,992
Shares issued in connection with the reinvestment of:
Distributions from net realized gain 79,732 797,323 0 0
------ ------- - -
813,900 9,119,470 74,454 776,992
Shares repurchased (175,788) (1,978,356) (306,973) (3,155,993)
-------- ---------- -------- ----------
Net increase (decrease) 638,112 $ 7,141,114 (232,519) $ (2,379,001)
------- ------------ -------- ------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
Shares sold 1,258,953 $ 14,177,783 92,564 $ 1,001,867
Shares issued in connection with the reinvestment of:
Distributions from net realized gain 225,296 2,322,801
------- --------- ------- ---------
1,484,249 16,500,584 92,564 1,001,867
Shares repurchased (83,631) (940,900) (200,234) (2,171,640)
------- -------- -------- ----------
Net increase (decrease) 1,400,618 $ 15,559,684 (107,670) $ (1,169,773)
--------- ------------ -------- ------------
Increase (decrease) derived from capital shares transactions 17,366,842 $163,514,961 (18,202,691) $(196,900,238)
========== ============ =========== =============
</TABLE>
5. LINE OF CREDIT. The Fund along with certain other portfolios that comprise
the Nvest Funds (the "Funds") participate in a $100,000,000 committed line of
credit provided by Citibank, N.A. under a credit agreement (the "Agreement")
dated March 3, 2000. Advances under the Agreement are taken primarily for
temporary or emergency purposes. Borrowings under the Agreement bear interest at
a rate tied to one of several short-term rates that may be selected from time to
time. In addition, the Funds are charged a facility fee equal to 0.08% per annum
on the unused portion of the line of credit. The annual cost of maintaining the
line of credit and the facility fee is apportioned pro rata among the
participating Funds. There were no borrowings under the line of credit during
the six months ended June 30, 2000.
6. EXPENSE REDUCTIONS. The Fund has entered into agreements with brokers whereby
the brokers will rebate a portion of brokerage commissions. Amounts earned by
the Fund under such agreements are presented as a reduction of expenses in the
Statement of Operations. For the six months ended June 30, 2000, the Fund's
expenses were reduced by $120,917 under these agreements.
7. CONCENTRATION OF RISK. The Fund had the following geographic concentration in
excess of 10% of its total net assets at June 30, 2000: United States 68.5%. The
Fund pursues its objectives by investing in foreign securities. There are
certain risks involved in investing in foreign securities which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from future adverse political or economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions.
8. SUBSEQUENT EVENT. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
18
<PAGE>
NVEST EQUITY INCOME FUND
Supplement dated August 21, 2000 to Nvest
Stock Funds Prospectus Class A, B and C dated May 1, 2000
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the Fund.
19
<PAGE>
================================================================================
REGULAR INVESTING PAYS
FIVE GOOD REASONS TO INVEST REGULARLY
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you can
invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
THE POWER OF MONTHLY INVESTING
[A CHART THAT SHOWS INVESTMENTS OVER A 20 YEAR SPAN]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
20
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund
Bullseye Fund GOVERNMENT INCOME FUNDS
Equity Income Fund Limited Term U.S. Government Fund
Government Securities Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund MONEY MARKET FUNDS*
Kobrick Emerging Growth Fund Cash Management Trust
Tax Exempt Money Market Trust
*Investments in the money market
funds are not insured or
gauranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
VISIT OUR WEB SITE AT WWW.NVESTFUNDS.COM
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when it
is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest Funds are
members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[Nvest Funds Logo appears here]
GF58-0600
Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Capital Growth Fund
Where
The Best
Minds Meet(R)
-----------------
June 30, 2000
-----------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Capital Growth Fund's performance to a benchmark
index provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses, even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
August 1992 (inception) Through June 2000
NAV MSC Russell 1000 Growth
---------------------------------------------------------
6/00 36,898 34,775 47,855
6/99 30,138 28,405 39,032
6/98 25,957 24,464 30,671
6/97 20,899 19,697 23,343
6/96 17,779 16,757 17,773
6/95 14,838 13,985 13,906
6/94 11,329 10,678 10,655
6/93 11,952 11,265 10,684
6/92 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees, and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 8/3/92) 6 Months 1 Year 5 Years Since Inception
<S> <C> <C> <C> <C>
Net Asset Value(1) 4.68% 22.29% 20.20% 17.94%
With Maximum Sales Charge(2) -1.32 15.24 18.79 17.07
---------------------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) 4.32% 21.38% 19.20% 17.10%
With CDSC(3) -0.68 16.38 19.00 17.10
---------------------------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) 4.51% 21.61% 19.23% 21.32%
With CDSC(3) 3.46 20.61 19.23 21.32
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
Class A Class B Class C
Comparative Performance 6 Months 1 Year 5 Years Inception Inception Inception
<S> <C> <C> <C> <C> <C> <C>
Russell 1000 Growth(4) 4.23% 25.66% 28.67% 21.88% 23.37% 30.05%
Morningstar Large Growth Average(5) 3.07 27.19 24.93 20.70 21.63 27.24
Lipper Multi-Cap Growth Avg.(6) 6.47 45.76 26.00 20.96 21.84 27.52
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) Russell 1000 Growth Index is an unmanaged index measuring the performance
of the largest 1000 U.S. companies within the Russell 3000 selected for
their-growth orientation. You may not invest directly in an index. Class A
since-inception return is calculated from 7/31/92. Class B since-inception
return is calculated from 9/30/93.
(5) Morningstar Large Growth Average is the average performance without sales
charges of funds with similar investment objectives as calculated by
Morningstar, Inc. Class A since-inception return is calculated from
7/31/92. Class B since-inception return is calculated from 9/30/93.
(6) Lipper Multi-Cap Growth Average is the average performance without sales
charges of all mutual funds with a similar investment style or objective as
determined by Lipper Inc. Class A since-inception return is calculated from
7/31/92. Class B since-inception return is calculated from 9/30/93.
2
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
Interview with Your Portfolio Manager
--------------------------------------------------------------------------------
[PHOTO]
Gerald Scriver
Westpeak Investment
Advisors, L.P.
Q. How did Nvest Capital Growth Fund perform during the first half of 2000?
For the six months ended June 30, 2000, the return on Class A shares of Nvest
Capital Growth Fund was 4.68% based on net asset value. For the same period, the
return on the Fund's benchmark, the Russell 1000 Growth Index, was 4.23%.
Q. What was the investment environment like during the period?
During the first few months of 2000, leadership in the market was provided by
the stocks of high-growth technology firms selling at extremely high valuations
-- a trend that had been in place for about a year and a half. Stocks with
strong price momentum soared to high price/earning ratios (p/e ratios) -- a
measure of whether a company's stock price is high or low relative to its
earnings. These so-called "new economy" stocks have been extremely popular among
investors, despite their volatility and the fact that many of them had little or
no current earnings. Many had reached p/e ratios of 100 times earnings, or more,
driving the market indices to new highs.
Early in March the market shifted, and high-technology stocks, as a group,
plunged in value. In their place, "old economy" stocks selling at much lower p/e
ratios came back into vogue, reflecting their strong fundamentals. By June,
growth stocks in the technology sector were experiencing a tentative recovery,
as investors began to buy back issues that were selling below their peaks.
However, we believe this sector of the market is still overvalued.
Q. How did you position the Fund in response to these events?
As the year began, we believed the market's extreme enthusiasm for high-growth
technology shares was nearing an end. Consequently, we constructed a portfolio
of growth stocks offering attractive valuations and below-average volatility.
The average stock in the Nvest Capital Growth Fund had a p/e ratio of 29 times
earnings as of the end of June. Although this is on the high side for the Fund,
historically, it is much lower than the average p/e of the Russell 1000 Growth
Index,
3
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
which was selling at nearly 36 times earnings for the same period. Your Fund was
able to remain close to its benchmark despite its relatively conservative
positioning, because of the superior prospects of the individual stocks we
selected.
In addition to its lower average p/e, Nvest Capital Growth Fund had less
emphasis on technology stocks than the Russell 1000 Growth Index during the
first half of the year, and a greater emphasis on financial services firms and
other companies that are sensitive to interest rates. The portfolio featured
stocks of such major pharmaceutical companies as Johnson & Johnson (a worldwide
supplier of health-care products with a 100-year record of growth), Pfizer
(whose product line includes the fast-selling drug Viagra) and Merck (also a
world leader in pharmaceuticals, with 14 new medicines launched in the past four
years). During the second quarter of 2000, when high-tech stocks were
experiencing reversals, both finance and pharmaceutical stocks fared well
because they offered better value, less volatility and the promise of steady
earnings gains.
Top 10 Portfolio Holdings -- 6/30/00
% of
Company Net Assets
---------------------------------------------
1. General Electric Co. 8.1
---------------------------------------------
2. Intel Corp. 6.0
---------------------------------------------
3. Cisco Systems, Inc. 5.7
---------------------------------------------
4. Microsoft Corp. 3.9
---------------------------------------------
5. Sun Microsystems, Inc. 3.5
---------------------------------------------
6. Pfizer, Inc. 3.5
---------------------------------------------
7. Texas Instruments, Inc. 3.0
---------------------------------------------
8. Applied Materials, Inc. 2.5
---------------------------------------------
9. Johnson & Johnson, Inc. 2.4
---------------------------------------------
10. Oracle Corp. 2.3
---------------------------------------------
Portfolio holdings and asset allocation will vary.
Q. Which investments affected performance the most, positively or negatively?
Within the growth universe, stocks that started with relatively low valuations
performed the best. Nvest Capital Growth Fund's top performers included
financial services companies and the pharmaceutical firms mentioned before, as
well as lesser known IVAX Corporation, a holding company for several businesses
that develop and market pharmaceuticals, including the oncology medication
Paxene. The Fund's other performance leaders during the period included MGM
Grand (a leading operator of gambling resorts and casinos that enjoyed sales
growth of nearly 80% in 1999), and ADC Telecommunications (which makes systems
that improve the rate at which voice, data and video signals are transmitted).
4
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
Worst performers during the first half of 2000 included technology stocks that
had done well for the Fund during the exuberant market period that led up to the
reversal in March. Most of these laggards were Internet-related. Examples
include RealNetworks, Adaptec, and Advanced Digital Information, all of which we
sold.
Q. What is your current outlook?
We look for a continuation of the overall trend away from high-priced technology
stocks and toward the value end of the market. If interest rates stay roughly at
current levels, we think the market will continue to shift away from a
speculative bias, back toward more traditional methods of rewarding stocks that
have positive fundamentals with higher valuations.
Growth stocks currently selling at high p/e ratios -- especially those that have
yet to post any earnings -- appear risky, even though the companies might have
attractive growth rates. Consequently, we are maintaining Nvest Capital Growth
Fund's emphasis on stocks that offer appealing valuations, solid earnings
growth, and the potential to post positive earnings surprises. These should
provide appreciation potential over the long term, with less volatility than the
market as a whole.
This portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Capital Growth Fund invests primarily in growth stocks, which are
generally more sensitive to market movements because their stock prices are
based on future expectations. From time to time it may also invest a portion of
assets in small-cap companies, which are more volatile than the overall market.
These risks affect the value of your investment. See a prospectus for details.
Frequent portfolio turnover may increase your risk of greater tax liability,
which could lower your return from this fund.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- 98.0% of Total Net Assets
Shares Description Value (a)
--------------------------------------------------------------------------------
Aerospace -- 0.6%
39,100 Boeing Co....................................... $ 1,634,869
-------------
Banks -- 0.4%
19,500 Citigroup, Inc............. .................... 1,174,875
-------------
Chemicals -- 0.2%
19,800 Cabot Corp...................................... 539,550
-------------
Computer Hardware -- 12.7%
27,600 Advanced Digital Information Corp............... 439,875
23,700 Cabletron Systems, Inc.(c)...................... 598,425
247,200 Cisco Systems, Inc.(c).......................... 15,712,650
46,200 EMC Corp.(c).................................... 3,554,513
36,200 Hewlett-Packard Co.............................. 4,520,475
8,000 SanDisk Corp.(c)................................ 489,500
105,100 Sun Microsystems, Inc.(c)....................... 9,557,531
-------------
34,872,969
-------------
Computer Software -- 3.3%
58,400 BEA Systems, Inc. .............................. 2,887,150
51,900 International Business Machines Corp. .......... 5,686,294
4,850 VERITAS Software Corp.(c) ...................... 548,126
-------------
9,121,570
-------------
Computer Software & Services -- 7.4%
9,400 Adobe Systems, Inc. ............................ 1,222,000
66,300 Citrix Systems, Inc.(c) ........................ 1,255,556
18,500 Computer Associates International, Inc. ........ 946,969
134,900 Microsoft Corp. (c) ............................ 10,792,000
73,600 Oracle Corp.(c) ................................ 6,187,000
-------------
20,403,525
-------------
Drugs -- 13.2%
78,900 Allergan, Inc. ................................. 5,878,050
34,900 Amgen, Inc.(c) ................................. 2,451,725
18,300 Andrx Corp. .................................... 1,169,770
38,700 Bristol-Myers Squibb Co. ....................... 2,254,275
7,900 Cardinal Health, Inc. .......................... 584,600
77,300 IVAX Corp.(c) .................................. 3,207,950
102,300 Jones Pharma, Inc. ............................. 4,085,606
14,700 King Pharmaceuticals, Inc. ..................... 644,963
45,800 Merck & Co. .................................... 3,509,425
197,550 Pfizer, Inc. ................................... 9,482,400
58,400 Schering-Plough Corp. .......................... 2,949,200
-------------
36,217,964
-------------
Electronics -- 9.3%
9,100 ADC Telecommunications, Inc.(c) ................ 763,263
9,400 ADTRAN, Inc.(c) ................................ 562,825
17,300 Advanced Fibre Communications, Inc.(c) ......... 783,906
13,806 Agilent Technologies, Inc.(c) .................. 1,018,193
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Electronics -- continued
34,000 Amphenol Corp. ................................. $ 2,250,375
69,600 AVX Corp. ...................................... 1,596,450
10,600 Broadcom Corp., Class A (c) .................... 2,320,737
3,900 Ciena Corp.(c) ................................. 650,081
19,700 Commscope, Inc.(c) ............................. 807,700
8,800 Comverse Technology, Inc.(c) ................... 818,400
20,300 Copper Mountain Networks, Inc.(c) .............. 1,788,937
4,200 Corning, Inc. .................................. 1,133,475
85,600 KEMET Corp.(c) ................................. 2,145,350
10,600 KLA-Tencor Corp.(c) ............................ 620,763
82,400 Lucent Technologies, Inc. ...................... 4,882,200
13,300 Motorola, Inc. ................................. 386,531
19,000 Solectron Corp. (c) ............................ 795,625
10,500 Teradyne, Inc. ................................. 771,750
40,000 Vishay Intertechnology, Inc. ................... 1,517,500
-------------
25,614,061
-------------
Financial Services -- 2.2%
72,100 Fannie Mae ..................................... 3,762,719
53,300 Federal Home Loan Mortgage Corp. ............... 2,158,650
-------------
5,921,369
-------------
Food & Beverages -- 2.0%
156,300 International Home Foods, Inc.(c) .............. 3,272,531
17,000 PepsiCo, Inc. .................................. 755,438
35,600 Sysco Corp. .................................... 1,499,650
-------------
5,527,619
-------------
Health Care-Products -- 3.9%
23,200 Beckman Coulter, Inc. .......................... 1,354,300
64,200 Johnson & Johnson, Inc. ........................ 6,540,375
36,900 Patterson Dental Co. ........................... 1,881,900
6,800 Waters Corp.(c) ................................ 848,725
-------------
10,625,300
-------------
Health Care-Services -- 1.3%
18,400 First Health Group Corp.(c) .................... 603,750
35,800 UnitedHealth Group, Inc. ....................... 3,069,850
-------------
3,673,600
-------------
Hotels & Restaurants -- 0.5%
43,900 MGM Grand, Inc.(c) 1,410,287
-------------
Industrial Services -- 0.4%
31,200 Manpower, Inc. ................................. 998,400
-------------
Information Services -- 1.7%
50,100 Electronic Data Systems Corp. .................. 2,066,625
63,800 TeleTech Holdings, Inc. (c) .................... 1,981,787
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Information Services -- continued
15,400 True North Communications ...................... $ 677,600
-------------
4,726,012
-------------
Internet -- 3.2%
67,200 America Online, Inc.(c) ........................ 3,544,800
33,200 InfoSpace.com, Inc. ............................ 1,834,300
15,800 Juniper Networks, Inc. ......................... 2,299,887
9,100 Yahoo!, Inc. ................................... 1,127,263
-------------
8,806,250
-------------
Manufacturing - Diversified -- 8.1%
419,300 General Electric Co. ........................... 22,222,900
-------------
Oil-Refining & Distribution -- 0.5%
55,200 USX-Marathon Group, Inc. ....................... 1,383,450
-------------
Oil Services -- 0.5%
31,600 Noble Drilling(c) .............................. 1,301,525
-------------
Property & Casualty Insurance -- 1.0%
54,100 Radian Group, Inc.(c) .......................... 2,799,675
-------------
Railroads & Equipment -- 0.6%
39,100 Florida East Coast Industries, Inc. ............ 1,564,000
-------------
Restaurants -- 0.2%
19,400 Brinker International, Inc.(c) ................. 567,450
-------------
Retail-Clothing -- 0.5%
19,600 Gap, Inc. ...................................... 612,500
39,200 Limited, Inc. .................................. 847,700
-------------
1,460,200
-------------
Retail-Department Store -- 3.1%
50,400 Target Corp. ................................... 2,923,200
96,700 Wal-Mart Stores, Inc. .......................... 5,572,337
-------------
8,495,537
-------------
Retail-Specialty -- 2.6%
96,750 Home Depot, Inc. ............................... 4,831,453
17,400 Lowe's Co., Inc. ............................... 714,488
8,100 Tiffany & Co. .................................. 546,750
25,400 Zale Corp.(c) .................................. 927,100
-------------
7,019,791
-------------
Securities & Asset Management -- 3.3%
11,700 Eaton Vance Corp. .............................. 541,125
41,700 Franklin Resources, Inc. ....................... 1,266,638
20,900 Lehman Brothers Holdings, Inc. ................. 1,976,356
62,700 Morgan Stanley Dean Witter & Co. ............... 5,219,775
-------------
9,003,894
-------------
Semiconductors -- 15.0%
75,000 Applied Materials, Inc.(c) ..................... 6,796,875
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Semiconductors -- continued
9,800 Applied Micro Circuits Corp. (c) ............... $ 967,750
18,700 Burr Brown, (Rights) (c) ....................... 1,621,056
66,000 Dallas Semiconductor Corp. ..................... 2,689,500
122,800 Intel Corp. .................................... 16,416,825
19,600 JDS Uniphase Corp. ............................. 2,349,550
119,800 Texas Instruments, Inc. ........................ 8,228,762
26,700 Xilinx, Inc. (c) ............................... 2,204,419
-------------
41,274,737
-------------
Telecommunications -- 0.3%
25,500 BroadWing, Inc. (c) ............................ 661,406
-------------
Total Common Stock
(Identified Cost $198,311,518) ............ 269,022,785
-------------
Short Term Investment -- 2.0%
<TABLE>
<CAPTION>
Principal
Amount
--------------------------------------------------------------------------------
<S> <C> <C>
$ 5,638,000 Repurchase Agreement with State Street Bank
and Trust Co. dated 6/30/00 at 5.25% to be
repurchased at $5,640,467 on 7/03/00,
collateralized by $5,670,000 U.S. Treasury
Bond, at 5.125%, due 8/31/00 valued at
$5,755,050 ..................................... 5,638,000
-------------
Total Short Term Investment
(Identified Cost $5,638,000) .............. 5,638,000
-------------
Total Investments-- 100.0%
(Identified Cost $203,949,518)(b) ......... 274,660,785
Other assets less liabilities .................. (36,085)
-------------
Total Net Assets-- 100% ........................ $ 274,624,700
=============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized appreciation
on investments based on cost of $203,949,518 for
federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost........................................ $ 77,619,369
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value...................................... (6,908,102)
-------------
Net unrealized appreciation......................... $ 70,711,267
=============
(c) Non-income producing security.
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $203,949,518) ......................... $ 274,660,785
Cash ........................................................................ 660
Receivable for:
Fund shares sold .......................................................... 221,457
Dividends and interest .................................................... 42,686
-------------
274,925,588
LIABILITIES
Payable for:
Fund shares redeemed ...................................................... $ 139,551
Accrued expenses:
Management fees ........................................................... 16,055
Deferred trustees' fees ................................................... 35,120
Accounting and administrative ............................................. 15,208
Transfer agent ............................................................ 50,175
Other ..................................................................... 44,779
-------------
300,888
-------------
NET ASSETS ..................................................................... $ 274,624,700
=============
Net Assets consist of:
Paid-in capital ........................................................... $ 176,806,230
Undistributed net investment income (loss) ................................ (1,372,639)
Accumulated net realized gains (losses) ................................... 28,479,842
Unrealized appreciation (depreciation) on investments ..................... 70,711,267
-------------
NET ASSETS ..................................................................... $ 274,624,700
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($195,684,715 divided by 8,178,246 shares of beneficial interest) ........ $ 23.93
=============
Offering price per share (100/94.25 of $23.93) .............................. $ 25.39*
=============
Net asset value and offering price of Class B shares
($75,675,483 divided by 3,445,125 shares of beneficial interest) ......... $ 21.97**
=============
Net asset value and offering price of Class C shares
($3,264,502 divided by 148,347 shares of beneficial interest) ............ $ 22.01**
=============
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
10 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................................... $ 639,554
Interest .................................................................... 73,659
Securities lending income ................................................... 16,448
------------
729,661
Expenses
Management fees ........................................................... $ 990,060
Service fees - Class A .................................................... 240,692
Service and distribution fees - Class B ................................... 364,993
Service and distribution fees - Class C ................................... 15,458
Trustees' fees and expenses ............................................... 8,818
Accounting and administrative ............................................. 49,370
Custodian and securities lending .......................................... 62,137
Transfer agent ............................................................ 301,292
Audit and tax services .................................................... 15,485
Legal ..................................................................... 5,945
Printing .................................................................. 15,813
Registration .............................................................. 25,925
Miscellaneous ............................................................. 5,668
------------
Total expenses before reductions ............................................ 2,101,656
Less reductions ............................................................. (26,614) 2,075,042
------------ ------------
Net investment income (loss) ................................................ (1,345,381)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments -- net .................................. 24,481,090
Unrealized appreciation (depreciation) on investments -- net ................ (11,008,453)
------------
Net gain (loss) on investment transactions .................................. 13,472,637
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .......................... $ 12,127,256
============
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ........................ $ (2,012,296) $ (1,345,381)
Net realized gain (loss) on investments ............. 35,883,311 24,481,090
Unrealized appreciation (depreciation) on investments 22,175,104 (11,008,453)
------------- -------------
Increase (decrease) in net assets from operations ... 56,046,119 12,127,256
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ........................................... (21,565,434) 0
Class B ........................................... (8,617,664) 0
Class C ........................................... (360,787) 0
Class Y ........................................... (16,088) 0
------------- -------------
(30,559,973) 0
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ............. 18,457,562 (16,361,956)
------------- -------------
Total increase (decrease) in net assets ................ 43,943,708 (4,234,700)
NET ASSETS
Beginning of the period ............................. 234,915,692 278,859,400
------------- -------------
End of the period ................................... $ 278,859,400 $ 274,624,700
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period ................................... $ (27,258) $ (1,372,639)
============= =============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
-------------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
-------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ....................... $ 15.02 $ 18.41 $ 19.27 $ 19.95 $ 20.67 $ 22.86
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ........... (0.11)(b) (0.14)(c) (0.18)(c) (0.13)(c) (0.13)(c) (0.09)
Net Realized and Unrealized Gain (Loss)
on Investments ....................... 4.74 3.22 3.43 5.18 5.05 1.16
-------- -------- -------- -------- -------- --------
Total From Investment Operations ....... 4.63 3.08 3.25 5.05 4.92 1.07
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net Realized
Capital Gains ....................... (1.24) (2.22) (2.57) (4.33) 2.73 0.00
-------- -------- -------- -------- -------- --------
Total Distributions .................... (1.24) (2.22) (2.57) (4.33) (2.73) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period ..... $ 18.41 $ 19.27 $ 19.95 $ 20.67 $ 22.86 $ 23.93
======== ======== ======== ======== ======== ========
Total Return (%)(a) .................... 30.7 17.1 17.2 29.0 24.7 4.7
Ratio of Operating Expenses to Average
Net Assets (%) ....................... 1.61 1.50 1.45 1.46 1.39 1.36(d)
Ratio of Operating Expenses to Average
Net Assets After
Expense Reductions (%) ............... 1.61 1.50 1.45 1.46 1.39 1.34(d)(e)
Ratio of Net Investment Income (loss)
to Average Net Assets (%) ............ (0.67) (0.71) (0.87) (0.62) (0.61) (0.79)(d)
Portfolio Turnover Rate (%) ............ 69 74 48 136 124 56
Net Assets, End of the Period .......... $123,504 $141,326 $ 149,734 $175,511 $200,821 $195,685
</TABLE>
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income (loss) does not reflect the period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(d) Computed on an annualized basis.
(e) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
See accompanying notes to financial statements. 13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
--------------------------------------------------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 14.89 $ 18.09 $ 18.74 $ 19.10 $ 19.37 $ 21.06
-------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ................ (0.16)(b) (0.28)(c) (0.32)(c) (0.27)(c) (0.27)(c) (0.16)
Net Realized and Unrealized Gain (Loss)
on Investments .............................. 4.60 3.15 3.25 4.87 4.69 1.07
-------- ------- ------- ------- ------- -------
Total From Investment Operations ............ 4.44 2.87 2.93 4.60 4.42 0.91
-------- ------- ------- ------- ------- -------
Less Distributions
Distributions From Net Realized
Capital Gains ............................ (1.24) (2.22) (2.57) (4.33) (2.73) 0.00
-------- ------- ------- ------- ------- -------
Total Distributions ......................... (1.24) (2.22) (2.57) (4.33) (2.73) 0.00
-------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period .......... $ 18.09 $ 18.74 $ 19.10 $ 19.37 $ 21.06 $ 21.97
======== ======= ======= ======= ======= =======
Total Return (%)(a) ......................... 29.7 16.2 15.9 28.2 23.8 4.3
Ratio of Operating Expenses to Average
Net Assets (%) ........................... 2.36 2.25 2.20 2.21 2.14 2.11(d)
Ratio of Operating Expenses to Average
Net Assets After Expense Reductions (%) .. 2.36 2.25 2.20 2.21 2.14 2.09(d)(e)
Ratio of Net Investment Income (loss)
to Average Net Assets (%) ................ (1.42) (1.46) (1.62) (1.37) (1.36) 1.54(d)
Portfolio Turnover Rate (%) ................. 69 74 48 136 124 56
Net Assets, End of the Period (000) ......... $26,234 $37,439 $45,546 $57,796 $74,774 $75,675
</TABLE>
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment income (loss) does not reflect the period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(d) Computed on an annualized basis.
(e) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
14 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ........................ $ 14.89 $ 18.08 $ 18.74 $ 19.11 $ 19.37 $ 21.06
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ........... (0.09)(b) (0.28)(c) (0.34)(c) (0.27)(c) (0.27)(c) (0.12)
Net Realized and Unrealized
Gain (Loss) on Investments ......... 4.52 3.16 3.28 4.86 4.69 1.07
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ....... 4.43 2.88 2.94 4.59 4.42 0.95
--------- --------- --------- --------- --------- ---------
Less Distributions
Distributions from Net Realized
Capital Gains ...................... (1.24) (2.22) (2.57) (4.33) (2.73) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions .................... (1.24) (2.22) (2.57) (4.33) (2.73) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ..... $18.08 $18.74 $19.11 $19.37 $21.06 $22.01
========= ========= ========= ========= ========= =========
Total Return(%)(a) ..................... 29.7 16.2 15.9 28.1 23.8 4.5
Ratio of Operating Expenses
to Average Net Assets(%) .......... 2.36 2.25 2.20 2.21 2.14 2.11(d)
Ratio of Operating Expenses to
Average Net Assets After
Expense Reductions(%) ................ 2.36 2.25 2.20 2.21 2.14 2.09(d)(e)
Ratio of Net Investment Income (Loss)
to Average Net Assets(%) ............. (1.42) (1.46) (1.62) (1.37) (1.36) (1.54)(d)
Portfolio Turnover Rate(%) ............. 69 74 48 136 124 56
Net Assets, End of the Period(000) ..... $ 354 $ 504 $ 979 $ 1,609 $ 3,110 $ 3,265
</TABLE>
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment income (loss) does not reflect the period's
reclassification of permanent differences between book and tax basis net
investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(d) Computed on an annualized basis.
(e) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
See accompanying notes to financial statements. 15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks long-term growth of capital. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares is a "Fund").
The Fund offers Class A, Class B, and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay front end sales charges and do not convert
to any class of shares, but they do pay a higher ongoing distribution fee than
Class A shares and may be subject to a contingent deferred sales charge if those
shares are redeemed within one year. Expenses of the Fund are borne pro rata by
the holders of each class of shares, except that each class bears expenses
unique to that class (including the Rule 12b-1 service and distribution fees
applicable to such class), and votes as a class only with respect to its own
Rule 12b-1 plan. Shares of each class would receive their pro rata share of the
net assets of the Fund, if the Fund were liquidated. In addition, the Trustees
approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
b. Security Transactions and Related Income. Security transactions are accounted
for on the trade date. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Interest income is increased
by the accretion of discount. In determining net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
c. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
d. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassification to the capital accounts.
e. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price, including interest. The Fund's subadviser is
responsible for determining that the value of the collateral is at all times at
least equal to the repurchase price. Repurchase agreements could involve certain
risks in the event of default or insolvency of the other party including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$150,353,941 and $172,414,247 respectively.
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million reduced by the payment to Westpeak Investment
Advisers, L.P. ("Westpeak") the Fund's investment subadviser at the rate of
0.40% of the first $200 million of the Fund's average daily net assets, 0.35% of
the next $300 million and 0.30% of such assets in excess of $500 million.
Certain officers and directors of Nvest Management are also officers or Trustees
of the Fund. Nvest Management and Westpeak are wholly owned subsidiaries of
Nvest Companies, L.P. ("Nvest"), which is a subsidiary of Metropolitan Life
Insurance Company (see Note 8). Fees earned by Nvest Management and Westpeak
under the management and subadvisory agreements in effect during the six months
ended June 30, 2000 are as follows:
Fees Earned
-----------
Nvest Management $ 470,167
Westpeak 519,893
---------
$ 990,060
=========
The effective annualized management fee for the six months ended June 30, 2000
was 0.74%.
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $49,370 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative fees for the six months ended June 30, 2000 was 0.034%.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for all classes of shareholder
accounts. NSC and BFDS are also reimbursed for out-of-pocket expenses. For the
six months ended June 30, 2000, the Fund paid NSC $250,562 as compensation for
its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by the Nvest Funds in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts. For
the six months ended June 30, 2000, the Fund paid Nvest Funds $240,692 in fees
under the Class A Plan. If the expenses of Nvest Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at June 30, 2000 is $563,284.
Under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly service
fee at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000, the Fund paid
Nvest Funds $91,248 and $3,865 in service fees under the Class B and Class C
plans, respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $273,745 and $11,593 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $251,869.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
of $6,000 while each committee chairman receives a retainer fee (beyond the
$6,000 fee) at the annual rate of $4,000. These fees are allocated to the
various Nvest Funds based on a formula that takes into account, among other
factors, the relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B,
and Class C. All shares of Class Y were returned during the period. Transactions
in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended, Six Months Ended
December 31, 1999 June 30, 2000
------------------------------ ------------------------------
Class A Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .......................................... 5,621,317 $ 120,686,618 1,589,919 $ 36,431,548
Shares issued in connection with the reinvestment of:
Distributions from net realized gain .............. 976,412 20,905,335 0 0
------------- ------------- ------------- -------------
6,597,729 141,591,953 1,589,919 36,431,548
Shares repurchased ................................... (6,304,823) (135,708,449) (2,197,581) (50,503,827)
------------- ------------- ------------- -------------
Net increase (decrease) .............................. 292,906 $ 5,883,504 (607,662) $ (14,072,279)
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended, Six Months Ended
December 31, 1999 June 30, 2000
------------------------------ ------------------------------
Class B Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .......................................... 727,026 $ 14,638,814 345,507 $ 7,284,352
Shares issued in connection with the reinvestment of:
Distributions from net realized gain .............. 425,766 8,406,124 0 0
------------- ------------- ------------- -------------
1,152,792 23,044,938 345,507 7,284,352
Shares repurchased ................................... (586,477) (11,878,592) (450,806) (9,456,218)
------------- ------------- ------------- -------------
Net increase (decrease) .............................. 566,315 $ 11,166,346 (105,299) $ (2,171,866)
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended, Six Months Ended
December 31, 1999 June 30, 2000
------------------------------ ------------------------------
Class C Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................................... 93,837 $ 1,890,390 62,978 $ 1,340,076
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............... 17,947 354,357 0 0
------------- ------------- ------------- -------------
111,784 2,244,747 62,978 1,340,076
Shares repurchased .................................... (47,180) (981,675) (62,332) (1,313,264)
------------- ------------- ------------- -------------
Net increase (decrease) ............................... 64,604 $ 1,263,072 646 $ 26,812
------------- ------------- ------------- -------------
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
March 16, 1999(a) January 1, 2000
through to
December 31, 1999 May 9, 2000
---------------------------- ----------------------------
Class Y Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold .............................................. 6,148 $ 132,698 0 $ 0
Shares issued in connection with the reinvestment of:
Distributions from net realized gain .................... 751 16,089 0 0
------------ ------------ ------------ ------------
6,899 148,787 0 0
Shares repurchased ....................................... (180) (4,147) (6,719) (144,623)
------------ ------------ ------------ ------------
Net increase (decrease) .................................. 6,719 $ 144,640 (6,719) $ (144,623)
------------ ------------ ------------ ------------
Increase (decrease) derived from capital
shares transactions ................................... 930,544 $ 18,457,562 (719,034) $(16,361,956)
============ ============ ============ ============
</TABLE>
(a) Commencement of operations.
5. Line of Credit. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
6. Security Lending. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities.
7. Expense reductions. The Fund has entered into agreements with brokers whereby
the brokers will rebate a portion of brokerage commissions. Amounts earned by
the Fund under such agreements are presented as a reduction of expenses in the
Statement of Operations. For the six months ended June 30, 2000, the Fund's
expenses were reduced by $26,614 under these agreements.
8. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
20
<PAGE>
================================================================================
NVEST EQUITY INCOME FUND
Supplement dated August 21, 2000 to Nvest Stock Funds Prospectus Class
A, B and C dated May 1, 2000
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the Fund.
21
<PAGE>
REGULAR INVESTING PAYS
================================================================================
Five Good Reasons to Invest Regularly
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you
can invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
The Power of Monthly Investing
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
22
<PAGE>
SAVING FOR RETIREMENT
================================================================================
An Early Start Can Make a Big Difference
--------------------------------------------------------------------------------
With today's life spans, you may be retired for 20 years or more after you
complete your working career. Living these retirement years the way you've
dreamed of will require considerable financial resources. While it's never too
late to start a retirement savings program, it's certainly never too early: The
sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulated the greater retirement nest egg? For
the answer, look at the chart.
Two Hypothetical Investments
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Investor A Investor B
Age 65 $214,295 $157,909
Assumes an 8% fixed rate of return. This illustration does not reflect the
effect of any taxes. Results are not indicative of the past or future results of
any Nvest Fund. The value and returns on Nvest funds will fluctuate with
changing market conditions.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start and the power
of compounding.
Nvest Funds has prepared a number of informative retirement planning guides.
Call your financial representative or Nvest Funds today at 800-225-5478, and ask
for the guide that best fits your personal needs. We will include a prospectus,
which contains more information, including charges and other ongoing expenses.
Please read the prospectus carefully before you invest.
23
<PAGE>
================================================================================
Glossary for Mutual Fund Investors
--------------------------------------------------------------------------------
Total Return - The change in value of a mutual fund investment over a specific
period, assuming all earnings are reinvested in additional shares of the fund.
Expressed as a percentage.
Income Distributions - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
Capital Gains Distributions - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year, when available.
Market Capitalization - The value of a company's issued and outstanding common
stock, as priced by the market:
Number of outstanding shares x current market price of a share = market
capitalization.
Price/Earnings Ratio - Current market price of a stock divided by its earnings
per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different stocks.
Growth Investing - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
Value Investing - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks tend to have a lower
price/earnings ratio than that of growth stocks.
Standard & Poor's 500(R) (S&P 500) - Market value-weighted index showing the
change in aggregate market value of 500 stocks relative to the base period of
1941-1943. It is composed mostly of companies listed on the New York Stock
Exchange. It is not possible to invest directly in an index.
24
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
* Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P, and other firms selling shares of Nvest Funds
are members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
CG58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Balanced Fund
Where
The Best
Minds Meet(R)
-----------------
June 30, 2000
-----------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST BALANCED FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Balanced Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses, even if they could. Your Fund's
benchmark is a blend consisting of 65% S&P 500 Index/35% Lehman Govt./Corp.
Index.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
June 1990 through June 2000
NAV MSC Blend 2
----------------------------------------------------
6/00 25,043 23,607 38,093
6/99 28,805 27,149 40,053
6/98 27,268 25,700 30,537
6/97 23,925 22,549 24,918
6/96 19,455 18,336 19,928
6/95 17,178 16,191 16,802
6/94 14,652 13,810 13,941
6/93 14,136 13,324 13,825
6/92 12,203 11,502 12,291
6/91 10,562 9,955 10,849
6/90 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees, and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST BALANCED FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 11/27/68) 6 Months 1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Net Asset Value(1) -6.40% -13.09% 7.83% 9.61%
With Maximum Sales Charge(2) -11.76 -18.11 6.56 8.97
---------------------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) -6.78% -13.76% 7.02% 7.38%
With CDSC(3) -11.41 -17.67 6.77 7.38
---------------------------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) -6.81% -13.75% 6.99% 9.19%
With CDSC(3) -7.73 -14.53 6.99 9.19
---------------------------------------------------------------------------------------------------------------
Class Y (Inception 3/8/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) -6.19% -12.68% 8.31% 8.64%
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
Class B Class C Class Y
Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept. Incept. Incept.
<S> <C> <C> <C> <C> <C> <C> <C>
S&P/Lehman Gov't./Corp. Blend(4) 1.19% 6.22% 17.51% 14.31% 15.53% 19.31% 17.41%
Morningstar Domestic Hybrid Average(5) 1.55 4.87 12.87 11.31 11.07 13.98 12.31
Lipper Balanced Average(6) 1.34 4.43 13.40 11.79 11.90 15.00 13.29
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) S&P 500/Lehman Gov't./Corp. Blend is an unmanaged index made up of 65% S&P
500 and 35% investment grade bonds. You may not invest directly in an
index. Class B since-inception return is calculated from 9/30/93. Class Y
since inception return is calculated from 3/31/94.
(5) Morningstar Domestic Hybrid Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Morningstar, Inc. Class B since-inception return is calculated from
9/30/93. Class Y since-inception return is calculated from 3/31/94.
(6) Lipper Balanced Average is the average performance without sales charges of
all mutual funds funds with similar investment objectives as calculated by
Lipper Inc. Class B since-inception return is calculated from 9/30/93.
Class Y since-inception return is calculated from 3/31/94.
2
<PAGE>
NVEST BALANCED FUND
================================================================================
Interview with Your Portfolio Managers
--------------------------------------------------------------------------------
[PHOTO] [PHOTO]
[PHOTO] [PHOTO]
[PHOTO] [PHOTO]
Mark Baribeau, Richard Skaggs
Pamela Czekanski Kurt Wagner
John Hyll, Jeff Wardlow
Loomis, Sayles & Loomis, Sayles &
Company, L.P. Company, L.P.
In March of 2000, Nvest Balanced Fund added a growth component to its equity
segment to allow the Fund to participate when growth stocks rally. Joining the
Balanced Fund team were growth managers Pamela Czekanski, Mark Baribeau and
Richard Skaggs of Loomis Sayles. Additionally, Gregg Watkins left the value
equity management team effective May 12, 2000. Jeff Wardlow continues to manage
the value segment. Effective May 22, Kurt Wagner joined John Hyll as co-manager
of the fixed-income segment.
Q. Please tell us about Nvest Balanced Fund's performance during the first
half of 2000.
For the six months ended June 30, 2000, the Fund's Class A shares at net asset
value had a total return of -6.40%. This return includes reinvested
distributions of $0.13. Nvest Balanced Fund invests in a combination of stocks
and bonds. By way of comparison, we use the Standard & Poor's 500 Composite
Stock Index, a widely used index of stock market performance, for 65% of the
portfolio and the Lehman Brothers Government/Corporate Bond Index, which
tracks performance of bonds similar to those the Fund invests in, for 35%. The
combined index returned 1.19%.
Q. There were some changes to the Fund in March. Please describe them and the
impact they had on performance.
The Fund began the period with an allocation of roughly 65% in value stocks --
those whose prices appear not to reflect their potential value -- and 35% in
bonds. As part of a planned change in the Fund's strategy in March, we shifted
about half of the stock portion into large-capitalization growth stocks. We took
this step to allow shareholders to participate more fully in the technology
revolution and other broad trends that hold significant growth potential. The
fixed-income portion of the Fund remains at about 35% of assets.
3
<PAGE>
NVEST BALANCED FUND
================================================================================
--------------------------------------------------------------------------------
Your Fund's Asset Mix -- 6/30/00
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Common Stocks 63.4%
Bonds 35.3%
Other 1.3%
Portfolio holdings and asset allocation will vary.
Much of our initial growth commitment was to technology stocks, the sector that
suffered the most during the market's decline in the second quarter. By the end
of June, however, some of the Fund's technology holdings were regaining ground.
Q. Why the emphasis on technology?
Globally, Internet usage is multiplying rapidly, and companies are demanding
faster access to more information on products and customers. Nortel and Corning
are meeting this demand through innovation in optical transmission over existing
phone lines. In addition, the build-out of the Internet's infrastructure
presents huge opportunities for companies like Cisco and Dell. Media companies
also are beneficiaries of the boom in communications technology as distribution
synergies provide for more profit opportunities. Viacom, the Fund's largest
equity holding, and America Online are positioned to take advantage of increased
discretionary spending by consumers and more targeted advertising by producers
and retailers.
Other growth sectors we added include pharmaceutical companies, which are
benefiting from further consolidation in the industry. In addition, if the U.S.
economy slows, drug stocks may be a haven for investors; people need medication
regardless of the state of the economy.
Q. What were your strategies for value stocks?
Investors have widened their perspective somewhat, reducing their emphasis on
technology and turning to other sectors. This is a favorable development for
value stocks, which performed better in the second quarter than in previous
periods.
Nvest Balanced Fund benefited from its emphasis on in energy relative to the
benchmark index, as higher oil prices drove up many energy stock prices.
4
<PAGE>
NVEST BALANCED FUND
================================================================================
--------------------------------------------------------------------------------
Standout performers included drilling specialist Transocean Sedco and Baker
Hughes, a leader in oilfield services. We also added to financial stocks where
we saw good value. This beleaguered sector has significant recovery potential
once interest rates stop climbing.
Improving fundamentals attracted investors to the healthcare industry. Tenet
Healthcare, a for-profit hospital company, and CIGNA Healthcare, an HMO, helped
boost performance, while Pharmacia & Upjohn was the Fund's most successful
holding. This global pharmaceutical developer invests $2 billion a year in
research and has a robust pipeline of new medicines.
Q. What was the environment for fixed-income securities, and how did you
respond?
Any discussion of fixed-income markets must start with higher interest rates and
the pressure they put on corporate bonds. Corporate issues fell broadly,
reflecting the view that higher short-term rates would inevitably put brakes on
the economy. Lower prices brought the spread, or yield advantage of corporate
bonds over Treasury securities, to its widest point since the recession of 1990.
Among corporate securities, industrial and financial issues made up the bulk of
the Fund's holdings. These cyclical sectors were weak during the period but
stand to benefit if the Federal Reserve Board guides the economy to a
recession-free landing.
Top Portfolio Sectors -- 6/30/00
% of
Company Net Assets
-----------------------------------------------
1. Mortgage-Backed 7.9
-----------------------------------------------
2. Electronics 6.8
-----------------------------------------------
3. Banks & Thrifts 5.5
-----------------------------------------------
4. Health Care - Drugs 4.7
-----------------------------------------------
Portfolio holdings and asset allocations will vary.
Treasury holdings performed better than corporates, as fears of a slowdown led
investors to seek the highest quality available; the government's buyback
program also kept Treasury prices firm. We recently tilted our Treasury
portfolio to securities maturing in 8-10 years, a range where prices may recover
most once interest rates stop rising.
5
<PAGE>
NVEST BALANCED FUND
================================================================================
--------------------------------------------------------------------------------
Q. The Fund did not do as well as its combined index for the six months. What
held it back?
Basic industry stocks -- papers, chemicals and metals -- hurt performance as
investors fled cyclical sectors; fixed-income results suffered because of our
emphasis on corporate bonds; and our shift into technology could have been timed
better.
Q. What is your outlook for the months ahead?
The need for the Federal Reserve Board to continue raising rates appears to be
waning, as signs of a slowing economy -- such as slackening sales of cars and
homes -- begin to appear. If other indicators follow suit, and if inflation
becomes no worse, we believe that this cycle of rising rates is nearing an end.
We have positioned Nvest Balanced Fund for exactly that scenario. And by casting
a wider net, the Fund is better positioned to take advantage of growth or value
opportunities as well as trends in corporate and government bonds.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Balanced Fund generally invests approximately 65% of assets in stocks and
35% in fixed-income securities. The fund's equity securities may include both
growth and value stocks. Growth stocks are generally more sensitive to market
movements because their stock prices are based on future expectations. Value
stocks can fall out of favor with investors and may underperform growth stocks
during certain market conditions. The Fund may also invest in foreign
securities, which have special risks, and in mortgage securities that are
subject to prepayment risk. These risks effect the value of your investment. See
a prospectus for details.
6
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- 63.4% of Total Net Assets
Shares Description Value (a)
--------------------------------------------------------------------------------
Bank & Thrifts -- 5.5%
33,750 Chase Manhattan Corp............................ $ 1,554,609
54,500 Citigroup, Inc.................................. 3,283,625
48,000 FleetBoston Financial Corp. .................... 1,632,000
20,100 Northern Trust Corp. ........................... 1,307,756
26,500 PNC Bank Corp. ................................. 1,242,188
10,000 State Street Corp. ............................. 1,060,625
25,600 U.S. Bancorp ................................... 492,800
18,900 Wells Fargo Co. ................................ 732,375
------------
11,305,978
------------
Beverages -- 1.2%
20,000 Anheuser-Busch Companies, Inc. ................. 1,493,750
19,500 PepsiCo, Inc. .................................. 866,531
------------
2,360,281
------------
Broadcasting -- 0.6%
47,100 AT&T Corp., Liberty Media Group, Class A (d) ... 1,142,175
------------
Building & Related -- 0.3%
16,000 Black & Decker Corp. ........................... 629,000
------------
Chemicals-Major -- 0.4%
20,700 Praxair, Inc. .................................. 774,956
------------
Communication Equipment -- 4.5%
8,600 Brocade Communications Systems, Inc. (d) ....... 1,577,966
8,700 JDS Uniphase Corp. (d) ......................... 1,042,912
31,600 Lucent Technologies, Inc. ...................... 1,872,300
41,700 Motorola, Inc. ................................. 1,211,906
42,100 Nortel Networks Corp. .......................... 2,873,325
2,100 SDL, Inc. (d) .................................. 598,894
------------
9,177,303
------------
Computer Equipment -- 0.4%
5,000 Juniper Networks, Inc. (d) ..................... 727,813
------------
Computer Hardware -- 4.7%
12,000 Apple Computer, Inc. (d) ....................... 628,500
20,100 Cisco Systems, Inc. (d) ........................ 1,277,606
47,000 Compaq Computer Corp. .......................... 1,201,438
28,300 Dell Computer Corp. (d) ........................ 1,395,544
26,200 EMC Corp. (d) .................................. 2,015,762
15,000 International Business Machines Corp. .......... 1,643,437
11,700 Lexmark International Group, Inc., Class A (d) . 786,825
7,000 Sun Microsystems, Inc. (d) ..................... 636,563
------------
9,585,675
------------
Computer Software & Services -- 2.7%
13,500 Computer Associates International, Inc. ........ 691,031
10,000 Computer Sciences Corp. (d) .................... 746,875
11,700 Microsoft Corp. (d) ............................ 936,000
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Computer Software & Services -- continued
8,100 Oracle Corp. (d) ............................... $ 680,906
7,200 Siebel Systems, Inc. (d) ....................... 1,177,650
11,300 VERITAS Software Corp. (d) ..................... 1,277,077
------------
5,509,539
------------
Electric Companies -- 0.8%
13,400 Constellation Energy Group ..................... 436,338
32,000 Unicom Corp. ................................... 1,238,000
------------
1,674,338
------------
Electrical Equipment -- 0.8%
17,000 Emerson Electric Co. ........................... 1,026,375
12,100 Solectron Corp. (d) ............................ 506,688
------------
1,533,063
------------
Electronics -- 6.0%
3,051 Agilent Technologies, Inc. (d) ................. 225,011
16,500 Analog Devices, Inc. (d) ....................... 1,254,000
7,000 Applied Materials, Inc. (d) .................... 634,375
4,400 Broadcom Corp., Class A (d) .................... 963,325
13,200 Cypress Semiconductor Corp. (d) ................ 557,700
6,100 General Motors Corp., Class H .................. 535,275
17,100 Intel Corp. .................................... 2,286,056
30,000 Koninklijke (Royal) Philips Electronics NV (ADR) 1,425,000
16,000 Litton Industries, Inc. (d) .................... 672,000
6,200 PMC-Sierra, Inc. (d) ........................... 1,101,663
6,000 Texas Instruments, Inc. ........................ 412,125
12,600 Vitesse Semiconductor Corp. (d) ................ 926,888
15,000 Xilinx, Inc. (d) ............................... 1,238,437
------------
12,231,855
------------
Energy -- 0.4%
12,000 Columbia Gas Systems, Inc. ..................... 787,500
------------
Entertainment -- 3.0%
24,800 America Online, Inc. (d) ....................... 1,308,200
46,486 Viacom, Inc., Class B (d) ...................... 3,169,764
41,900 Walt Disney Co. ................................ 1,626,244
------------
6,104,208
------------
Financial-Consumer/Diversified -- 1.0%
5,700 American General Corp. ......................... 347,700
23,000 Federal Home Loan Mortgage Corp. ............... 931,500
18,900 Household International, Inc. .................. 785,531
------------
2,064,731
------------
Foods -- 0.4%
43,200 Sara Lee Corp. ................................. 834,300
------------
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Health Care -- 0.4%
10,900 Amgen, Inc. (d) ................................ $ 765,725
------------
Health Care-Drugs -- 4.7%
22,400 Bristol-Myers Squibb Co. ....................... 1,304,800
10,400 Eli Lilly & Co. ................................ 1,038,700
17,000 Merck & Co. .................................... 1,302,625
51,200 Pfizer, Inc. ................................... 2,457,600
50,100 Pharmacia & Upjohn, Inc. ....................... 2,589,544
20,000 Schering-Plough Corp. .......................... 1,010,000
------------
9,703,269
------------
Health Care-Products -- 1.3%
14,500 Baxter International, Inc. ..................... 1,019,531
31,500 Medtronic, Inc. ................................ 1,569,094
------------
2,588,625
------------
Health Care-Services -- 1.3%
10,300 CIGNA Corp. .................................... 963,050
60,000 Tenet Healthcare Corp. (d) ..................... 1,620,000
------------
2,583,050
------------
Household Products -- 0.5%
19,000 Kimberly-Clark Corp. ........................... 1,090,125
------------
Insurance -- 2.1%
34,500 ACE, Ltd. ...................................... 966,000
9,500 American International Group, Inc. ............. 1,116,250
19,800 Aon Corp. ...................................... 615,038
11,900 Chubb Corp. .................................... 731,850
9,100 Marsh & McLennan Co., Inc. ..................... 950,381
------------
4,379,519
------------
Investment Banking/Broker/Management -- 1.8%
31,100 Charles Schwab Corp. ........................... 1,045,737
11,800 Merrill Lynch & Co., Inc. ...................... 1,357,000
16,000 Morgan Stanley Dean Witter & Co. ............... 1,332,000
------------
3,734,737
------------
Leisure -- 0.3%
48,000 Hasbro, Inc. ................................... 723,000
------------
Manufacturing-Diversified -- 2.3%
5,600 Corning, Inc. .................................. 1,511,300
11,000 Eaton Corp. .................................... 737,000
32,700 General Electric Co. ........................... 1,733,100
9,000 Minnesota Mining & Manufacturing Co. ........... 742,500
------------
4,723,900
------------
Natural Gas -- 1.3%
15,700 Coastal Corp. .................................. 955,737
11,000 El Paso Energy Corp. ........................... 560,313
17,000 Enron Corp. .................................... 1,096,500
------------
2,612,550
------------
See accompanying notes to financial statements. 9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Oil & Gas-Drilling Equipment -- 1.4%
15,000 Nabors Industries, Inc. ........................ $ 623,438
7,900 Schlumberger Ltd. .............................. 589,538
32,600 Transocean Sedco Forex, Inc. ................... 1,742,062
------------
2,955,038
------------
Oil & Gas-Major Integrated -- 2.8%
16,400 BP Amoco PLC (ADR) ............................. 927,625
45,000 Conoco, Inc., Class A .......................... 990,000
24,664 Exxon Mobil Corp. .............................. 1,936,124
16,000 Texaco, Inc. ................................... 852,000
38,000 USX-Marathon Group, Inc. ....................... 952,375
------------
5,658,124
------------
Paper & Forest Products -- 0.5%
17,000 Georgia Pacific Corp., Timber Group ............ 446,250
18,000 Willamette Industries, Inc. .................... 490,500
------------
936,750
------------
Publishing -- 0.7%
12,500 Gannett Co. .................................... 747,656
12,500 McGraw-Hill Co., Inc. .......................... 675,000
------------
1,422,656
------------
Restaurants -- 0.3%
18,500 McDonald's Corp. ............................... 609,344
------------
Retail-General Merchandise -- 1.8%
26,000 Federated Department Stores, Inc. (d) .......... 877,500
15,800 Kohl's Corp. (d) ............................... 878,875
13,800 Target Corp. ................................... 800,400
19,100 Wal-Mart Stores, Inc. .......................... 1,100,637
------------
3,657,412
------------
Retail-Specialty -- 0.2%
23,000 TJX Companies, Inc. ............................ 431,250
------------
Services-Consumer & Commercial-- 0.9%
18,500 Dun & Bradstreet Corp. ......................... 529,563
15,700 Omnicom Group, Inc. ............................ 1,398,281
------------
1,927,844
------------
Services-Data Process -- 0.6%
25,500 First Data Corp. ............................... 1,265,438
------------
Telephone -- 2.9%
16,700 BellSouth Corp. ................................ 711,837
20,000 CenturyTel, Inc. ............................... 575,000
23,000 GTE Corp. ...................................... 1,431,750
37,600 SBC Communications, Inc. ....................... 1,626,200
19,500 U.S. West, Inc. ................................ 1,672,125
------------
6,016,912
------------
10 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Telecommunications-Cellular -- 0.4%
5,000 AT&T Wireless Group (d) ........................ $ 139,375
10,400 Nextel Communications, Inc., Class A (d) ....... 636,350
------------
775,725
------------
Telecommunications-Long Distance -- 1.7%
28,000 AT&T Corp. ..................................... 885,500
14,100 Sprint Corp. ................................... 719,100
41,900 WorldCom, Inc. (d) ............................. 1,922,162
------------
3,526,762
------------
Waste Management -- 0.5%
51,200 Waste Management, Inc. ......................... 972,800
------------
Total Common Stock (Identified Cost $122,523,332) 129,503,270
------------
<TABLE>
<CAPTION>
Bonds and Notes -- 35.3%
Ratings (c)
-----------------
Principal Standard
Amount Moody's & Poor's
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer -- 4.2%
$ 2,505,000 AMERCO, 7.850%, 5/15/2003 ...................... Ba1 BBB 2,353,297
4,790,000 Coca Cola Enterprises, Inc., 6.750%, 1/15/2038 . A2 A 4,011,769
2,500,000 Dillards, Inc., 6.430%, 8/01/2004 .............. Baa1 BBB 2,206,575
60,000 Nabisco, Inc., 7.050%, 7/15/2007 ............... Baa2 BBB 54,638
------------
8,626,279
------------
Electric Utilities -- 1.9%
1,000,000 Calpine Corp., 7.625%, 4/15/2006 ............... Ba1 BB+ 957,520
1,200,000 Consolidated Edison Company
New York, Inc., 8.125%, 5/01/2010 ............ A1 A+ 1,232,712
1,800,000 Duke Capital Corp., 7.500%, 10/01/2009 ......... A3 A 1,773,288
------------
3,963,520
------------
Electronics -- 0.8%
1,790,000 Philips Electronics NV, 7.250%, 8/15/2013 ...... A3 BBB+ 1,618,196
------------
Equipment Trust-- 1.5%
600,000 Delta Air Lines, Inc., 9.200%, 9/23/2014 ....... Baa3 BBB 577,140
2,814,714 Federal Express Equipment Trust,
7.020%, 1/15/2016 ............................ Baa1 BBB+ 2,508,670
------------
3,085,810
------------
Finance -- 2.8%
1,775,000 National Health Investors, Inc.,
7.300%, 7/16/2007 ............................ Ba3 BB 1,531,399
2,425,000 Secured Finance, Inc., 9.050%, 12/15/2004 ...... Aaa AAA 2,540,551
1,660,000 U.S. West Capital Funding, Inc.,
6.250%, 7/15/2005 ............................ A3 A- 1,555,171
------------
5,627,121
------------
Gas Utilities -- 0.5%
1,200,000 Williams Holdings Co., 6.250%, 2/01/2006 ....... Baa2 BBB- 1,117,632
------------
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Bonds and Notes -- continued
Ratings (c)
-----------------
Principal Standard
Amount Moody's & Poor's Value(a)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government -- 4.1%
$ 2,500,000 United States Treasury Bonds, 6.125%, 11/15/2027 Aaa AAA $ 2,494,525
4,000,000 United States Treasury Bonds, 5.500%, 8/15/2028 Aaa AAA 3,668,760
2,350,000 United States Treasury Notes, 5.625%, 5/15/2008 Aaa AAA 2,267,021
------------
8,430,306
------------
Industrials -- 1.9%
4,190,000 Kerr-Mcgee Corp., 6.625%, 10/15/2007 ........... Baa1 BBB 3,896,868
------------
Investment Banking/Broker/Management -- 0.7%
1,500,000 Donaldson Lufkin & Jenrette, Inc.,
6.875%, 11/01/2005 ........................... A3 A- 1,442,745
------------
Leisure -- 1.9%
2,125,000 Carnival Corp., 7.050%, 5/15/2005 .............. A2 A 2,037,471
2,000,000 Royal Caribbean Cruise Line, 8.125%, 7/28/2004 . Baa2 BBB 1,921,720
------------
3,959,191
------------
Manufacturing -- 2.0%
2,400,000 Deere & Co., 6.550%, 7/15/2004 ................. A2 A+ 2,323,248
1,780,000 Raytheon Co., 6.300%, 3/15/2005 ................ Baa2 BBB- 1,679,074
------------
4,002,322
------------
Mobile Homes -- 0.5%
2,650,000 Oakwood Homes Corp., 8.125%, 3/01/2009 ......... B3 B+ 927,500
------------
Mortgage-Backed -- 7.9%
1,000,000 Fannie Mae, 5.625%, 5/14/2004 .................. Aaa AAA 952,660
6,195,889 Federal Home Loan Mortgage Corp.,
7.500%, 5/01/2030- ........................... Aaa AAA 6,112,617
3,137,910 Federal National Mortgage Association,
7.000%, 2/01/2030 ............................ Aaa AAA 3,029,056
3,083,892 Federal National Mortgage Association,
7.500%, 3/01/2030 ............................ Aaa AAA 3,039,546
3,047,770 Federal National Mortgage Association,
8.000%, 5/01/2030 ............................ Aaa AAA 3,060,144
------------
16,194,023
------------
Services -- 1.0%
3,000,000 La Quinta Inns, Inc., 7.400%, 9/15/2005 ........ Ba2 BB- 1,995,000
------------
Telecommunications -- 2.2%
4,600,000 Sprint Spectrum, LP, 0/12.5%, 8/15/2006 (e) .... Baa2 BBB+ 4,430,812
------------
Transportation -- 1.4%
3,000,000 Northwest Airlines Corp., 8.375%, 3/15/2004 .... Ba2 BB 2,835,810
------------
Total Bonds and Notes
(Identified Cost $77,501,074) ................ 72,153,135
------------
Short Term Investment -- 0.2%
-------------------------------------------------------------------------------------------------
500,886 Associates Corp. of North America,
6.800%, 7/03/2000 ............................ 500,886
------------
Total Short Term Investment
(Identified Cost $500,886) ................... 500,886
------------
Total Investments -- 98.9% (Identified
Cost $200,525,292) (b) ....................... 202,157,291
Other assets less liabilities .................. 2,203,529
------------
Total Net Assets -- 100% ....................... $204,360,820
============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
--------------------------------------------------------------------------------
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000, the net unrealized appreciation on
investments based on cost of $200,525,292 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost. $ 13,564,836
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value. (11,932,837)
------------
Net unrealized appreciation. $ 1,631,999
============
(c) The ratings shown are believed to be the most recent ratings available at
June 30, 2000. Securities are generally rated at the time of issuance. The
rating agencies may revise their rating from time to time. As a result,
there can be no assurance that the same ratings would be assigned if the
securities were rated at June 30, 2000. The Fund's subadviser independently
evaluates the Fund's portfolio securities and in making investment
decisions does not rely solely on the ratings of agencies.
(d) Non-income producing security.
(e) Step Bond: Coupon rate is zero or below market for an initial period and
then increases to a higher coupon rate at a specificed date and rate.
ADR An American Depositary Receipt (ADR) is a certificate issued by a custodian
bank representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States.
See accompanying notes to financial statements. 13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $200,525,292) .............................. $ 202,157,291
Cash ............................................................................. 678
Receivable for:
Fund shares sold .............................................................. 306,698
Securities sold ............................................................... 1,768,849
Dividends and interest ........................................................ 1,424,918
-------------
205,658,434
LIABILITIES
Payable for:
Securities purchased .......................................................... $ 227,936
Fund shares redeemed .......................................................... 856,929
Accrued expenses:
Management fees ............................................................... 12,552
Deferred trustees' fees ....................................................... 73,402
Accounting and administrative ................................................. 6,634
Transfer agent ................................................................ 64,903
Other expenses ................................................................ 55,258
-------------
1,297,614
-------------
NET ASSETS .......................................................................... $ 204,360,820
=============
Net assets consist of:
Paid in capital ............................................................... $ 217,322,752
Undistributed (overdistributed) net investment income ......................... (25,412)
Accumulated net realized gains (losses) ....................................... (14,568,519)
Unrealized appreciation (depreciation) on investments ......................... 1,631,999
-------------
NET ASSETS .......................................................................... $ 204,360,820
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($120,376,877 / 11,136,292 shares of beneficial interest) ..................... $ 10.81
=============
Offering price per share (100 / 94.25 of 10.81) .................................. $ 11.47*
=============
Net asset value and offering price of Class B shares
($45,816,034 / 4,269,040 shares of beneficial interest) ........................ $ 10.73**
=============
Net asset value and offering price of Class C shares
($2,328,947 / 218,059 shares of beneficial interest) ........................... $ 10.68**
=============
Net asset value, offering and redemption price of Class Y shares
($35,838,962 / 3,316,644 shares of beneficial interest) ........................ $ 10.81
=============
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
14 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $3,087) .................. $ 987,434
Interest ................................................... 3,239,251
------------
4,226,685
Expenses
Management fees ......................................... $ 855,074
Service fees - Class A .................................. 169,888
Service and distribution fees - Class B ................. 260,553
Service and distribution fees - Class C ................. 15,415
Trustees' fees and expenses ............................. 7,752
Accounting and administrative ........................... 41,016
Custodian ............................................... 58,616
Transfer agent - Class A, Class B, Class C .............. 339,757
Transfer agent - Class Y ................................ 19,497
Audit and tax services .................................. 18,210
Legal ................................................... 7,480
Printing ................................................ 29,360
Registration ............................................ 25,303
Miscellaneous ........................................... 5,645
------------
Total expenses before reductions ........................... 1,853,566
Less reductions ............................................ (89,456) 1,764,110
------------ ------------
Net investment income ...................................... 2,462,575
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments-- net .................. (14,587,913)
Unrealized appreciation (depreciation) on investments -- net (5,597,145)
------------
Net gain (loss) on investment transactions ................. (20,185,058)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......... $(17,722,483)
============
</TABLE>
See accompanying notes to financial statements. 15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 7,553,382 $ 2,462,575
Net realized gain (loss) on investments ................. 21,528,018 (14,587,913)
Net unrealized appreciation (depreciation) on investments (41,558,788) (5,597,145)
------------- -------------
Increase (decrease) in net assets from operations ....... (12,477,388) (17,722,483)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .............................................. (4,639,384) (1,586,656)
Class B .............................................. (1,264,308) (309,395)
Class C .............................................. (85,562) (17,806)
Class Y .............................................. (1,639,492) (605,764)
Net realized gain on investments
Class A .............................................. (13,844,100) 0
Class B .............................................. (5,598,800) 0
Class C .............................................. (372,784) 0
Class Y .............................................. (3,811,458) 0
------------- -------------
(31,255,888) (2,519,621)
------------- -------------
Increase (decrease) in net assets
derived from capital share transactions ................. (56,609,069) (60,866,705)
------------- -------------
Total increase (decrease) in net assets .................... (100,342,345) (81,108,809)
NET ASSETS
Beginning of the period ................................. 385,811,974 285,469,629
------------- -------------
End of the period ....................................... $ 285,469,629 $ 204,360,820
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period ....................................... $ 31,634 $ (25,412)
============= =============
</TABLE>
16 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 11.27 $ 13.14 $ 13.94 $ 14.25 $ 13.52 $ 11.69
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.42 0.38 0.33 0.33 0.32 0.14
Net Realized and Unrealized Gain (Loss)
on Investments ............................ 2.49 1.76 2.05 0.74 (0.82) (0.89)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.91 2.14 2.38 1.07 (0.50) (0.75)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.40) (0.39) (0.33) (0.32) (0.32) (0.13)
Distributions From Net Realized Capital Gains (0.64) (0.95) (1.74) (1.48) (1.01) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (1.04) (1.34) (2.07) (1.80) (1.33) (0.13)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.14 $ 13.94 $ 14.25 $ 13.52 $ 11.69 $ 10.81
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................ 26.3 17.1 17.5 8.2 (3.8) (6.4)
Ratio of Operating Expenses to Average
Net Assets (%) ............................ 1.36 1.33 1.29 1.30 1.33 1.52(b)
Ratio of Operating Expenses to Average
Net Assets After Expense Reductions (%) ... 1.36 1.33 1.29 1.30 1.33 1.44(b)(c)
Ratio of Net Investment Income to
Average Net Assets (%) .................... 3.37 2.79 2.25 2.25 2.30 2.23(b)
Portfolio Turnover Rate (%) ................. 54 70 69 81 61 72
Net Assets, End of the Period (000) ......... $ 196,514 $ 219,626 $ 233,421 $ 222,866 $ 167,943 $ 120,377
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) Computed on an annualized basis.
(c) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
See accompanying notes to financial statements. 17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 11.24 $ 13.08 $ 13.86 $ 14.15 $ 13.40 $ 11.58
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.34 0.29 0.23 0.21 0.21 0.09
Net Realized and Unrealized Gain (Loss) on
Investments ............................... 2.46 1.74 2.03 0.74 (0.80) (0.87)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.80 2.03 2.26 0.95 (0.59) (0.78)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.32) (0.30) (0.23) (0.22) (0.22) (0.07)
Distributions From Net Realized Capital Gains (0.64) (0.95) (1.74) (1.48) (1.01) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.96) (1.25) (1.97) (1.70) (1.23) (0.07)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.08 $ 13.86 $ 14.15 $ 13.40 $ 11.58 $ 10.73
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................ 25.3 16.3 16.7 7.3 (4.4) (6.8)
Ratio of Operating Expenses to Average Net
Assets (%) ................................ 2.11 2.08 2.04 2.05 2.08 2.27(b)
Ratio of Operating Expenses to Average Net
Assets After Expense Reductions (%) ....... 2.11 2.08 2.04 2.05 2.08 2.19(b)(c)
Ratio of Net Investment Income to Average
Net Assets (%) ............................ 2.62 2.04 1.50 1.50 1.55 1.48(b)
Portfolio Turnover Rate (%) ................. 54 70 69 81 61 72
Net Assets, End of the Period (000) ......... $ 40,361 $ 58,367 $ 76,558 $ 84,255 $ 65,492 $ 45,816
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Computed on an annualized basis.
(c) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
18 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 11.24 $ 13.05 $ 13.82 $ 14.10 $ 13.35 $ 11.53
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.35 0.29 0.23 0.21 0.21 0.10
Net Realized and Unrealized
Gain (Loss) on Investments ................ 2.44 1.73 2.02 0.74 (0.80) (0.88)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.79 2.02 2.25 0.95 (0.59) (0.78)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.34) (0.30) (0.23) (0.22) (0.22) (0.07)
Distributions From Net Realized Capital Gains (0.64) (0.95) (1.74) (1.48) (1.01) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.98) (1.25) (1.97) (1.70) (1.23) (0.07)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.05 $ 13.82 $ 14.10 $ 13.35 $ 11.53 $ 10.68
========= ========= ========= ========= ========= =========
Total Return (%) (a) ........................ 25.2 16.2 16.6 7.3 (4.5) (6.8)
Ratio of Operating Expenses to
Average Net Assets (%) .................... 2.11 2.08 2.04 2.05 2.08 2.27(b)
Ratio of Operating Expenses to Average Net
Assets After Expense Reductions (%) ....... 2.11 2.08 2.04 2.05 2.08 2.19(b)(c)
Ratio of Net Investment Income
to Average Net Assets (%) ................. 2.62 2.04 1.50 1.50 1.55 1.48(b)
Portfolio Turnover Rate (%) ................. 54 70 69 81 61 72
Net Assets, End of the Period (000) ......... $ 718 $ 2,538 $ 4,596 $ 5,480 $ 4,454 $ 2,329
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Computed on an annualized basis.
(c) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
See accompanying notes to financial statements. 19
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class Y
---------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 11.27 $ 13.15 $ 13.95 $ 14.27 $ 13.54 $ 11.71
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.46 0.44 0.40 0.39 0.36 0.16
Net Realized and Unrealized Gain (Loss)
on Investments ............................ 2.51 1.76 2.06 0.74 (0.81) (0.88)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 2.97 2.20 2.46 1.13 (0.45) (0.72)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.45) (0.45) (0.40) (0.38) (0.37) (0.18)
Distributions From Net Realized Capital Gains (0.64) (0.95) (1.74) (1.48) (1.01) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (1.09) (1.40) (2.14) (1.86) (1.38) (0.18)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.15 $ 13.95 $ 14.27 $ 13.54 $ 11.71 $ 10.81
========= ========= ========= ========= ========= =========
Total Return (%) ............................ 26.8 17.6 18.1 8.6 (3.3) (6.2)
Ratio of Operating Expenses to
Average Net Assets (%) ................... 1.11 0.88 0.88 0.90 0.93 1.01(a)
Ratio of Operating Expenses to Average Net
Assets After Expense Reductions (%) ..... 1.11 0.88 0.88 0.90 0.93 0.93(a)(b)
Ratio of Net Investment Income to
Average Net Assets (%) ...................... 3.62 3.24 2.66 2.65 2.68 2.74(a)
Portfolio Turnover Rate (%) ................. 54 70 69 81 61 72
Net Assets, End of the Period (000) ......... $ 59,411 $ 77,665 $ 85,620 $ 73,212 $ 47,130 $ 35,839
</TABLE>
(a) Computed on an annualized basis.
(b) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions are used
to reduce operating expenses of the Fund.
20 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks a reasonable long-term investment
return from a combination of long-term capital appreciation and moderate current
income. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each such series is a "Fund").
On February 25, 2000, the Board of Trustees approved changes to the investment
strategies of the Fund to add a growth-style component to the equity portfolio
of the Fund. The Fund liquidated a portion of its existing value-based equity
portfolio in order to purchase securities that are considered by the Fund's
subadviser to have growth characteristics.
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased prior to
May 1, 1997). Class C shares do not pay a front end sales charge and do not
convert to any other class of shares, but they do pay a higher ongoing
distribution fee than Class A shares and may be subject to a contingent deferred
sales charge if those shares are redeemed within one year. Class Y shares do not
pay a front end sales charge, a contingent deferred sales charge or distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro rata by the holders of each class
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees and transfer agent fees applicable
to such class), and votes as a class only with respect to its own Rule 12b-1
plan. Shares of each class would receive their pro rata share of the net assets
of the Fund, if the Fund were liquidated. In addition, the Trustees approve
separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service as authorized by the Board of
Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Interest
income for the Fund is increased by the accretion of discount. In determining
net gain or loss on securities sold, the cost of securities has been determined
on the identified cost basis.
c. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
d. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage backed
securities and wash sales. Permanent book and tax differences will result in
reclassifications to capital accounts.
e. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements including
interest. It is the Fund's policy that the market value of the collateral be at
least equal to 100% of the repurchase price including interest. The Fund's
subadviser is responsible for determining that the value of the collateral is at
all times at least equal to the repurchase price. Repurchase agreements could
involve certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to dispose of
the underlying securities.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000,
purchases and sales of securities (excluding short-term investments) were as
follows:
Purchases Sales
-------------------------------- ---------------------------------
U.S. Government Other U.S. Government Other
--------------- ------------ --------------- ------------
$ 22,857,842 $143,874,229 $ 24,318,903 $204,947,327
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P., ("Nvest
Management") at the annual rate of 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million reduced by the payment to the Fund's investment
subadviser, Loomis Sayles & Company, L.P. ("Loomis Sayles") at the rate of
0.535% of the first $200 million of the Fund's average daily net assets, 0.350%
of the next $300 million and 0.300% of such assets in excess of $500 million.
Certain officers and directors of Nvest Management are also officers or Trustees
of the Fund. Nvest Management and Loomis Sayles are wholly owned subsidiaries of
Nvest Companies, L.P. ("Nvest") which is a subsidiary of Metropolitan Life
Insurance Company (Note 7). Fees earned by Nvest Management and Loomis Sayles
under the management and subadvisory agreements in effect during the six months
ended June 30, 2000 are as follows:
Fees Earned
-----------
Nvest Management $ 268,411
Loomis Sayles 586,663
-------------
$ 855,074
=============
The effective annualized management fee for the six months ended June 30, 2000
was 0.74%.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $41,016 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative fee for the six months ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
out-of-pocket expenses. Class Y shares bear a transfer agent fee of 0.10% of
average daily net assets. For the six months ended June 30, 2000, the Fund paid
NSC $288,504 as compensation for its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A Shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by the Nvest Funds in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts. For
the six months ended June 30, 2000, the Fund paid Nvest Funds $169,888 in fees
under the Class A Plan. If the expenses of Nvest Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at June 30, 2000, is $2,041,399.
Under the Class B and Class C Plans, the Fund pays Nvest Funds monthly service
fees at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000, the Fund paid
Nvest Funds $65,138 and $3,854 in service fees under the Class B and Class C
plans, respectively.
Also under the Class B and Class C Plan, the Fund pays Nvest Funds a monthly
distribution fee at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $195,415 and $11,561 in
distribution fees under the Class B and Class C plans, respectively.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000, amounted to $196,162.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. Capital Shares. At June 30, 2000, there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
--------------------------- ----------------------------
Class A Shares Amount Shares Amount
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 1,265,090 $ 16,907,083 321,105 $ 3,536,150
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 341,407 4,400,684 136,551 1,496,756
Distributions from net realized gain .............. 1,139,027 13,348,732 0 0
------------ ------------ ------------ ------------
2,745,524 34,656,499 457,656 5,032,906
Shares repurchased .................................. (4,870,716) (63,915,765) (3,683,326) (40,648,715)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. (2,125,192) $(29,259,266) (3,225,670) $(35,615,809)
------------ ------------ ------------ ------------
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
--------------------------- ----------------------------
Class B Shares Amount Shares Amount
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 860,330 $ 11,357,242 207,649 $ 2,261,796
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 94,655 1,206,918 27,537 298,691
Distributions from net realized gain .............. 467,733 5,429,353 0 0
------------ ------------ ------------ ------------
1,422,718 17,993,513 235,186 2,560,487
Shares repurchased .................................. (2,015,881) (26,014,153) (1,658,863) (18,128,876)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. (593,163) $ (8,020,640) (1,423,677) $(15,568,389)
------------ ------------ ------------ ------------
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
--------------------------- ----------------------------
Class C Shares Amount Shares Amount
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 89,239 $ 1,163,532 13,076 $ 144,876
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 6,531 83,083 1,537 16,597
Distributions from net realized gain .............. 31,247 361,197 0 0
------------ ------------ ------------ ------------
127,017 1,607,812 14,613 161,473
Shares repurchased .................................. (151,265) (1,959,487) (182,811) (1,989,049)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. (24,248) $ (351,675) (168,198) $ (1,827,576)
------------ ------------ ------------ ------------
<CAPTION>
Year Ended Six Months
December 31, 1999 Ended June 30, 2000
--------------------------- ----------------------------
Class Y Shares Amount Shares Amount
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 405,924 $ 5,372,675 95,993 $ 1,041,148
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 126,531 1,639,492 55,228 605,764
Distributions from net realized gain .............. 324,920 3,811,458 0 0
------------ ------------ ------------ ------------
857,375 10,823,625 151,221 1,646,912
Shares repurchased .................................. (2,239,982) (29,801,113) (860,566) (9,501,843)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. (1,382,607) $(18,977,488) (709,345) $ (7,854,931)
------------ ------------ ------------ ------------
Increase (decrease) derived from capital
shares transactions ............................... (4,125,210) $(56,609,069) (5,526,890) $(60,866,705)
============ ============ ============ ============
</TABLE>
5. Line of Credit. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
6. Expense Reductions. The Fund has entered into agreements with brokers whereby
the brokers will rebate a portion of brokerage commissions. Amounts earned by
the Fund under such agreements are presented as a reduction of expenses in the
Statement of Operations. For the six months ended June 30, 2000, the Fund's
expenses were reduced by $89,456 under these agreements.
7. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
26
<PAGE>
================================================================================
NVEST EQUITY INCOME FUND
Supplement dated August 21, 2000 to Nvest Stock Funds Prospectus Class A, B
and C dated May 1, 2000
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the Fund.
27
<PAGE>
REGULAR INVESTING PAYS
================================================================================
Five Good Reasons to Invest Regularly
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you can
invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
The Power of Monthly Investing
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
28
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
*Investments in the money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P, and other firms selling shares of Nvest Funds
are members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
BL58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
[NVEST FUNDS LOGO GOES HERE]
NVEST STAR ADVISERS FUND
[WHERE THE BEST MINDS MEET ARTWORK GOES HERE]
Please read the prospectus
supplement on page 28.
June 30, 2000
<PAGE>
PRESIDENTS MESSAGE
================================================================================
AUGUST 2000
--------------------------------------------------------------------------------
[PICTURE OF JOHN HAILER GOES HERE]
John
T. Hailer President and
Chief Executive Officer
Nvest Funds
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months - three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
YOUR CHOICE OF INVESTMENT TOOLS
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions. No matter how you react to
shifting markets, don't let short-term events derail your long-range program.
Consult your financial representative before you make any changes.
NVEST IS POISED FOR GLOBAL GROWTH
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
[JOHN HAILERS SIGNATURE APPEARS HERE]
"No matter how you react to shifting markets, don't let short-term events derail
your long- range program. Consult your financial representative before you make
any changes."
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
NVEST STAR ADVISERS FUND
================================================================================
INVESTMENT RESULTS THROUGH JUNE 30, 2000
--------------------------------------------------------------------------------
PUTTING PERFORMANCE IN PERSPECTIVE
The charts comparing Nvest Star Advisers Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged; there are no expenses that affect the results. In
addition, few investors could purchase all of the securities necessary to match
the index. And, if they could, they would incur transaction costs and other
expenses. The Standard & Poor's 400 Index4 is the primary benchmark and the S&P
500 Stock Index5 is the secondary benchmark for Star Advisers Fund.
[GROWTH OF A $10,000 CHART GOES HERE]
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
July 1994 (Inception) through June 2000
NAV MSC S&P 500 S&P 400
----------------------------------------------------------------
6/00 33,423 31,501 35,455 30,941
6/99 27,871 26,269 33,062 26,429
6/98 23,017 21,694 26,941 22,562
6/97 18,552 17,486 20,710 17,750
6/96 15,907 14,993 15,382 14,398
6/95 12,107 11,411 12,215 11,846
6/94 10,000 9,425 10,000 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST STAR ADVISERS FUND
================================================================================
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/00
--------------------------------------------------------------------------------
Since
Class A (Inception 7/7/94) 6 Months 1 Year 5 Years Inception
--------------------------------------------------------------------------------
Net Asset Value(1) -5.23% 19.92% 22.52% 22.60%
With Maximum Sales Charge(2) -10.66 13.04 21.08 21.39
Since
Class B (Inception 7/7/94) 6 Months 1 Year 5 Years Inception
--------------------------------------------------------------------------------
Net Asset Value(1) -5.58% 19.06% 21.61% 21.70%
With CDSC(3) -10.30 14.13 21.43 21.64
Since
Class C (Inception 7/7/94) 6 Months 1 Year 5 Years Inception
--------------------------------------------------------------------------------
Net Asset Value(1) -5.57% 19.04% 21.63% 21.71%
With CDSC(3) -6.51 18.05 21.63 21.71
Since
Class Y (Inception 11/15/94) 6 Months 1 Year 5 Years Inception
--------------------------------------------------------------------------------
Net Asset Value(1) -5.06% 20.27% 22.91% 22.77%
<TABLE>
<CAPTION>
SINCE
SINCE FUND'S FUND'S
INCEPTION CLASS Y
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS (CLASS A, B AND C) INCEPTION
<S> <C> <C> <C> <C> <C>
S&P 400 Index(4) 9.06% 17.07% 21.20% 21.24% 21.89%
S&P 500 Index(5) -0.42 7.24 23.80 24.06 24.82
Morningstar Large Cap Growth Avg.(6) 3.07 27.19 24.93 25.65 26.99
Lipper Multi-Cap Growth Average(7) 6.47 45.76 26.00 25.78 26.25
</TABLE>
These returns represent past performance and do not guarantee future results.
Share price and return will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Class Y
shares are available to certain institutional investors only.
1 These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
2 These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
3 Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
4 S&P 400 is an unmanaged index of U.S. mid-sized company stocks. You may not
invest directly in an index.
5 S&P 500 is an unmanaged index of U.S. common stock performance. You may not
invest directly in an index.
6 Morningstar Large Cap Growth Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Morningstar, Inc. Class A, B and C since inception returns are calculated
from 7/31/94. Class Y since inception return is calculated from 11/30/94.
7 Lipper Multi-Cap Growth Average is the average performance without sales
charges of funds with similar investment objectives as calculated by Lipper
Inc. Class Y since inception return is calculated from 11/30/94.
2
<PAGE>
NVEST STAR ADVISERS FUND
================================================================================
OVERVIEW: HOW THE FUND PERFORMED
--------------------------------------------------------------------------------
The first six months of 2000 were turbulent for most stock investors. Rising
interest rates and concerns about the high valuations of technology stocks led
to a broad-based sell-off in the market. While individual market sectors
rebounded, the market failed to return to the high levels it had attained
earlier in the period.
For the six-months ended June 30, 2000, Nvest Star Advisers Fund's Class A
shares returned -5.23% at net asset value. For the same period, the Fund's
primary benchmark, Standard & Poor's 400 Index of mid-sized stocks returned
9.06%, and its broader secondary benchmark, Standard & Poor's 500 Stock Index,
returned -0.42%. The difference between the results of the Fund and its
benchmarks in part reflects the value orientation of the segment managed by
Harris/Oakmark, which began a long-overdue but tentative price rally in the
second quarter. It also reflects the Fund's overall emphasis on technology
companies; not even the strongest of these escaped the intense volatility during
the second quarter.
Nvest Star Advisers Fund is composed of four separate portfolio segments, each
managed by a different investment management firm. This multi-manager approach
is the foundation of the Nvest Funds Star concept. It provides a means to
diversify among individual securities as well as the investment styles of
several established management firms. The extra diversification is designed to
balance out market swings over time, seeking superior long-term performance
results relative to funds that employ only one strategy.
The chart below shows the proportion of assets under the management of each
subadviser. The proportions grow and shrink relative to one another depending on
the relative returns of each subadviser and the markets in which they invest.
THE FED ATTEMPTS TO SLOW THE ECONOMY
During the first six months of 2000, the Federal Reserve Board's monetary policy
continued to preoccupy investors, as higher wages and robust consumer spending
generated concerns about the prospects for accelerating inflation.
[PIE CHART OF FUND MIX GOES HERE]
PORTFOLIO MIX 6-30-00
---------------------
40.9% JANUS
17.9% LOOMIS SAYLES
12.4% HARRIS/OARMARK
28.8% KOBRICK
3
<PAGE>
NVEST STAR ADVISERS FUND
================================================================================
As a result, the Fed continued the policy it began last year of taking
pre-emptive strikes against inflation by raising short-term interest rates. By
the end of June, slight declines in retail sales, mortgage demand, housing
starts and construction, plus a modest increase in unemployment, indicated that
U.S. economic growth might have cooled to a more desirable pace, calming
inflationary pressures.
A TUG-OF-WAR BETWEEN NEW ECONOMY AND OLD ECONOMY STOCKS
As the year 2000 unfolded, the stock market was driven largely by what had come
to be known as "new economy" stocks. These are the technology,
telecommunications and "dot.com" companies that had dominated the market for
more than a year. During January and February, these new economy stocks
continued to soar, while many "old economy" stocks -- companies unrelated to
technology -- were largely overlooked by investors. In March, investor sentiment
changed dramatically. Rising interest rates and questions about the
sustainability of the bull market in new economy stocks triggered a sell-off.
While some non-technology stocks rallied briefly, volatility prevailed, as
investors rotated among different market sectors. No one sector maintained
leadership for long.
THE FUND'S SEGMENTS USE SEPARATE STRATEGIES
The four segments of Nvest Star Advisers Fund each reacted to the volatility in
the market in different ways.
During the opening quarter of 2000, the Kobrick segment maintained its
commitment to the fastest growing segments of the market, technology stocks, and
then broadened its investment focus to other areas, including the financial
sector, during the second quarter.
Throughout the first half of the year, the Janus segment continued to seek
companies with strong earnings growth in all areas of the market. Janus focused
on companies that the managers believe have the potential to benefit from what
they call "reinventing the global economy." These are companies that have
products and services designed to bring the efficiency of the Internet to
smokestack industries.
The Harris/Oakmark segment sought companies priced at discounts to their
business value. While this strategy held back performance during the first two
months of the period, it began to contribute to returns in subsequent months.
The Loomis Sayles segment invested in companies with earnings improvements,
reasonable prices and catalysts that should boost their stock prices. During the
4
<PAGE>
NVEST STAR ADVISERS FUND
================================================================================
first quarter of 2000, technology and energy stocks benefited the Loomis Sayles
segment. In the second quarter, financial, utility and health-care stocks were
the strongest contributors in this segment.
OUR OUTLOOK IS FOR A HEALTHY BUSINESS ENVIRONMENT
We believe the market will be volatile as long as interest rates continue to
rise and until a balance is achieved between price and value. Provided the
economy remains strong enough to support a healthy business environment, we
believe that both high-growth technology companies and undervalued, established
companies with solid earnings prospects are likely to do well.
Portfolio holdings and asset allocation
will vary.
TOP 10 PORTFOLIO SECTORS -- 6/30/00
% OF
SECTOR NET ASSETS
-------------------------------------------------
1 Computer Software & Services 12.2
2 Telecommunications-Equipment 7.4
3 Telecommunications 6.4
4 Electronics 4.9
5 Broadcasting 4.8
6 Communications-Equipment 3.9
7 Computers & Business Equipment 3.3
8 Consumer Goods & Services 3.2
9 Computer Networking 2.9
10 Semiconductors 2.8
Portfolio holdings and asset allocations will vary.
TOP 10 PORTFOLIO HOLDINGS-- 6/30/00
% OF
COMPANY NET ASSETS
-------------------------------------------------------
1 Nokia Corp. (ADR) 4.3
2 Enron Corp. 2.0
3 AT&T Corp. - Liberty Media Group 1.7
4 Time Warner, Inc. 1.4
5 Software.com, Inc. 1.3
6 E-Tek Dynamics, Inc. 1.1
7 Portal Software, Inc. 1.0
8 Integrated Device Technology, Inc. 1.0
9 Extreme Networks, Inc. 1.0
10 Brocade Communications Systems, Inc. 0.9
Portfolio holdings and asset allocations will vary.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Star Advisers Fund invests in foreign and emerging market securities,
which have special risks; small-cap and emerging growth companies, which are
more volatile than the overall market; lower-rated bonds, which offer higher
yields in return for more risk; real estate investment trusts (REITs), which
change in price with underlying real estate values and have other
mortgage-related risks; derivative securities, whose value is based on other
securities or indices; and initial public offerings (IPOs), which may have
significant risk, impact the Fund's performance and increase tax liability.
Frequent portfolio turnover may increase your risk of tax liability and lower
your total return from this Fund. These risks affect your investment's value.
See a prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK-- 91.2% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
AEROSPACE & DEFENSE-- 1.4%
23,400 Alliant Techsystems, Inc. $ 1,578,038
199,000 Boeing Co. 8,320,687
370,000 Lockheed Martin Corp. 9,180,625
65,600 Newport News Shipbuilding, Inc. 2,410,800
---------
21,490,150
---------
APPAREL & TEXTILES-- 0.8%
59,800 Liz Claiborne, Inc. 2,107,950
235,000 NIKE, Inc., Class B 9,355,937
55,600 Russell Corp. 1,112,000
---------
12,575,887
---------
AUTOMOTIVE-- 0.5%
260,000 Lear Corp. (c) 5,200,000
70,200 Oshkosh Truck Corp. 2,509,650
---------
7,709,650
---------
BANKS & THRIFTS-- 2.7%
77,400 Astoria Financial 1,993,050
278,000 Bank One Corp. 7,384,375
42,400 City National Corp. 1,473,400
112,800 Colonial BancGroup, Inc. 1,085,700
36,955 Commerce Bancorp, Inc. 1,699,930
75,037 Commercial Federal Corp. 1,167,763
122,590 Fifth Third Bancorp 7,753,818
65,500 First Midwest Bancorp, Inc. 1,522,875
184,594 Firstar Corp. 3,888,011
68,869 Hudson United Bancorp 1,545,248
372,500 Washington Mutual, Inc. 10,755,938
45,700 Wilmington Trust Corp. 1,953,675
---------
42,223,783
---------
BIOTECHNOLOGY-- 0.2%
39,000 Medicis Pharmaceutical Corp. 2,223,000
10,200 Myriad Genetics, Inc. 1,510,397
---------
3,733,397
---------
BROADCASTING-- 4.8%
43,900 Adelphia Communications Corp. 2,057,812
30,040 AT&T Corp. 950,015
1,130,290 AT&T Corp., Liberty Media Group,
Class A (c) 27,409,532
89,660 Cablevision Systems Corp. (c) 6,085,672
241,005 Charter Communications, Inc. 3,961,520
253,660 Comcast Corp., Special Class A 10,273,230
111,185 Cox Communications, Inc. (c) 5,065,867
34,200 E. W. Scripps Co. 1,684,350
229,167 Infinity Broadcasting Corp. 8,350,273
BROADCASTING -- CONTINUED
18,230 Liberty Digital, Inc. $ 546,900
154,400 Regent Communications, Inc. 1,326,875
87,465 UnitedGlobalCom, Inc. 4,088,989
124,400 Wink Communications, Inc. (c) 3,794,200
---------
75,595,235
---------
BUILDING & RELATED-- 1.6%
250,000 Black & Decker Corp. 9,828,125
108,500 D.R. Horton, Inc. 1,471,531
375,000 Masco Corp. 6,773,438
300,000 Stanley Works 7,125,000
---------
25,198,094
---------
BUSINESS SERVICES-- 1.1%
68,700 ADVO, Inc. 2,885,400
141,100 Burns International Services Corp. 1,763,750
50,900 Manpower, Inc. 1,628,800
81,550 Tetra Tech, Inc. (c) 1,865,456
96,465 TMP Worldwide, Inc. (c) 7,120,323
55,900 United Stationers, Inc. 1,809,763
---------
17,073,492
---------
CHEMICALS-- 1.0%
29,900 Cabot Microelectronics Corp. 1,367,925
78,800 CUNO, Inc. 1,822,250
52,100 Cytec Industries, Inc. 1,286,219
16,000 Dexter Corp. 768,000
45,900 Dionex Corp. 1,227,825
81,300 Ferro Corp. 1,707,300
59,200 Great Lakes Chemical Corp. 1,864,800
89,700 IMC Global, Inc. (c) 1,166,100
54,900 Olin Corp. 905,850
24,900 OM Group, Inc. 1,095,600
44,400 Scotts Co. 1,620,600
64,800 Spartech Corp. 1,749,600
---------
16,582,069
---------
COMMUNICATION EQUIPMENT-- 3.9%
85,500 CIENA Corp. 14,251,781
71,100 E-Tek Dynamics, Inc. 18,757,069
540,180 Ericsson LM Telephone Co. (ADR) (c) 10,803,600
147,200 iBasis, Inc. 6,338,800
99,715 JDS Uniphase Corp. 11,953,336
---------
62,104,586
---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK-- CONTINUED
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
COMPUTER HARDWARE-- 1.9%
80,900 Brocade Communications Systems, Inc. $ 14,843,886
148,000 Extreme Networks, Inc. 15,614,000
---------
30,457,886
---------
COMPUTER NETWORKING-- 2.9%
166,265 3Com Corp. (c) 9,581,021
101,800 Foundry Networks, Inc. 11,248,900
88,400 Juniper Networks, Inc. 12,867,725
71,300 Redback Networks, Inc. 12,691,400
---------
46,389,046
---------
COMPUTER SOFTWARE
& SERVICES-- 12.2%
82,800 Adobe Systems, Inc. 10,764,000
291,800 BEA Systems, Inc. 14,425,862
210,505 Cisco Systems, Inc. (c) 13,380,224
69,600 Cognos, Inc. 2,879,700
80,100 Complete Busines Solutions, Inc. 1,406,756
25,300 DSP Group (c) 1,416,800
168,655 Electronic Arts, Inc. (c) 12,301,274
126,850 Exodus Communications, Inc. 5,843,028
28,000 Great Plains Software, Inc. (c) 549,500
34,600 Hyperion Solutions Corp. 1,122,338
77,840 Igate Capital Corp. 1,070,300
13,800 Interwoven, Inc. 1,517,784
116,616 Marchfirst, Inc. 2,128,242
145,500 Mercury Interactive Corp. (c) 14,077,125
71,580 Microsoft Corp. (c) 5,726,400
32,100 National Instruments Corp. (c) 1,400,363
36,890 NetZero, Inc. 192,520
74,035 Phone.com., Inc. 4,821,529
265,000 Portal Software, Inc. 16,926,875
9,600 Precise Software Solutions, Ltd. 230,400
74,500 Progress Software Corp 1,336,344
185,600 RealNetworks, Inc. 9,384,400
62,445 Sapient Corp. 6,677,712
157,220 Software.com, Inc. (c) 20,418,947
10,100 Storagenetworks, Inc. 911,525
71,100 SunGard Data Systems, Inc. 2,204,100
47,300 Sybase, Inc. 1,087,900
48,040 Verio, Inc. 2,665,469
49,655 VeriSign, Inc. (c) 8,764,108
112,083 VERITAS Software Corp. (c) 12,667,130
137,400 Vignette Corp. 7,146,947
140,900 Vitria Technology, Inc. 8,612,513
17,600 Xircom, Inc. 836,000
---------
194,894,115
---------
COMPUTERS &
BUSINESS EQUIPMENT -- 3.3%
187,905 ASM Lithography Holding NV (c) $8,291,308
173,370 EMC Corp. (c) 13,338,654
126,040 i2 Technologies, Inc. (c) 13,141,639
110,200 Micron Technology, Inc. 9,704,488
107,700 Network Appliance, Inc. (c) 8,669,850
---------
53,145,939
---------
CONSUMER GOODS
& SERVICES-- 3.2%
438,200 American Greetings Corp. 8,325,800
400,000 Brunswick Corp. 6,625,000
338,000 Fortune Brands, Inc. 7,795,125
115,600 Fossil, Inc. 2,246,975
430,000 Galileo International, Inc. 8,976,250
230,000 H & R Block, In 7,446,250
780,000 Mattel, Inc. 10,286,250
---------
51,701,650
---------
DRUGS & HEALTHCARE-- 1.1%
73,300 Amerisource Health Corp. (c) 2,272,300
56,700 IDEC Pharmaceuticals Corp. (c) 6,651,619
51,900 Millennium Pharmaceuticals, Inc. (c) 5,806,312
82,200 PathoGensis Corp. 2,137,200
---------
16,867,431
---------
ELECTRIC UTILITIES-- 0.5%
57,900 Alliant Energy Corp. 1,505,400
80,000 Energy East Corp. 1,525,000
32,200 MDU Resources Group, Inc. 696,325
55,700 NSTAR 2,266,294
120,272 Vectren Corp. 2,074,692
---------
8,067,711
---------
ELECTRICAL EQUIPMENT-- 0.9%
70,000 Avnet, Inc. 4,147,500
240,200 SCI Systems, Inc. (c) 9,412,838
38,500 Sensormatic Electronics Corp. 608,781
---------
14,169,119
---------
ELECTRONIC COMPONENTS-- 1.5%
38,100 Amphenol Corp. 2,521,744
96,115 Analog Devices, Inc. 7,304,740
49,300 C Cube Microsystems, Inc. 967,512
45,800 CTS Corp. 2,061,000
67,900 Kent Electronics Corp. 2,024,269
41,940 Maxim Integrated Products, Inc. (c) 2,849,299
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
PORTFOLIO COMPOSITION-CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK-- CONTINUED
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
ELECTRONIC COMPONENTS-- CONTINUED
19,740 Sanmina Corp. (c) $ 1,687,770
56,680 Vishay Intertechnology, Inc. 2,150,297
41,200 Vitesse Semiconductor Corp. (c) 3,030,775
---------
24,597,406
---------
ELECTRONICS-- 4.9%
53,500 Actel Corp. (c) 2,440,938
36,700 Beckman Coulter, Inc. 2,142,363
25,000 C-COR.net Corp. 675,000
46,700 Dallas Semiconductor Corp. 1,903,025
26,200 DuPont Photomasks, Inc. 1,794,700
34,000 International Rectifier Corp. (c) 1,904,000
189,600 KLA-Tencor Corp. (c) 11,103,450
233,200 Lam Research Corp. (c) 8,745,000
40,700 New Focus, Inc. 3,342,487
82,200 PE Corp. 7,685,700
105,375 PE Corp.-PE Biosystems Group 6,941,578
60,700 PMC-Sierra, Inc. (c) 10,785,631
24,500 Remec, Inc. 1,025,938
15,800 SDL, Inc. (c) 4,644,212
63,800 Sony Corp. 5,952,783
28,100 Tektronix, Inc. 2,079,400
34,100 Varian Medical Systems, Inc. 1,334,163
53,400 Varian Semiconductor
Equipment Associates, Inc. 3,354,187
---------
77,854,555
---------
ENTERTAINMENT-- 0.7%
157,900 Viacom, Inc., Class B (c) 10,766,806
102,200 YouthStream Media
Networks, Inc. (c) 574,875
---------
11,341,681
---------
FINANCIAL SERVICES-- 0.8%
142,740 American Express Co. 7,440,322
90,100 AmeriCredit Corp. 1,531,700
90,300 GATX Corp. 3,070,200
75,600 Heller Financial, Inc. 1,549,800
---------
13,592,022
---------
FOOD & BEVERAGES-- 1.3%
110,200 Corn Products International, Inc. 2,920,300
44,800 International Multifoods Corp. 775,600
137,800 Michael Foods, Inc. 3,376,100
77,500 Pepsi Bottling Group, Inc. 2,262,031
397,000 Philip Morris Companies, Inc. 10,545,313
---------
19,879,344
---------
HEALTH CARE-
MEDICAL TECHNOLOGY-- 1.8%
89,150 Conmed Corp. (c) $2,306,756
198,800 EndoSonics Corp. 1,118,250
97,100 IDEXX Laboratories, Inc. (c) 2,221,163
274,856 Medtronic, Inc. 13,691,264
33,910 MiniMed, Inc. (c) 4,001,380
139,500 Respironics, Inc. 2,511,000
162,100 Steris Corp. 1,438,638
87,600 Sybron International Corp. 1,735,575
---------
29,024,026
---------
HEALTH CARE-SERVICES-- 0.4%
92,400 Acuson Corp. 1,247,400
119,500 Health Management Associates, Inc. (c) 1,560,969
144,933 Per-Se Technologies, Inc. 1,358,747
95,400 Renal Care Group 2,332,828
---------
6,499,944
---------
HOTELS & RESTAURANTS-- 0.3%
80,700 Ruby Tuesday, Inc. 1,013,794
171,700 Wendy's International, Inc. 3,058,406
---------
4,072,200
---------
HOUSEHOLD PRODUCTS-- 0.4%
600,000 Dial Corp. 6,225,000
---------
INFORMATION SERVICES-- 0.6%
78,800 ACNielsen Corp. (c) 1,733,600
300,000 Dun & Bradstreet Corp. 8,587,500
---------
10,321,100
---------
INSURANCE-- 1.0%
82,200 Annuity & Life Re Holdings 2,013,900
55,900 Arthur J. Gallagher & Co. 2,347,800
42,600 CNA Surety Corp. 508,538
51,600 HSB Group Inc. 1,606,050
158,600 Old Republic International Co. 2,616,900
95,500 Protective Life Corp. 2,542,687
49,500 Radian Group, Inc. (c) 2,561,625
17,700 Trigon Healthcare, Inc. 912,656
---------
15,110,156
---------
INTERNET CONTENT-- 1.8%
114,480 DoubleClick, Inc. 4,364,550
260,405 E*TRADE Group, Inc. 4,296,682
115,535 InfoSpace.com, Inc. 6,383,309
26,205 Inktomi Corp. (c) 3,098,741
73,955 Lycos, Inc. (c) 3,993,570
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK-- CONTINUED
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
INTERNET CONTENT-- CONTINUED
18,800 NetRatings, Inc. $ 481,750
12,540 Scient Corp. 553,328
48,400 Yahoo!, Inc. 5,995,550
---------
29,167,480
---------
INVESTMENT COMPANIES-- 0.7%
32,700 Affiliated Managers Group, Inc. 1,487,850
51,200 Federated Investors, Inc., Class B 1,795,200
49,900 Investment Technology Group 1,971,050
137,800 Paine Webber Group, Inc. 6,269,900
---------
11,524,000
---------
LEISURE -- 0.1%
30,800 Harman International Industries, Inc. 1,878,800
---------
MACHINERY-- 1.9%
111,065 Applied Materials, Inc. (c) 10,065,266
44,500 Astec Industry, Inc. 1,129,187
250,000 Cooper Industries, Inc. 8,140,625
130,000 Eaton Corp. 8,710,000
96,100 Milacron, Inc. 1,393,450
---------
29,438,528
---------
MANUFACTURING-- 0.7%
85,800 Commscope, Inc. 3,517,800
42,100 Crane Co. 1,023,556
47,200 Diebold, Inc. 1,315,700
35,200 National Service Industries, Inc. 686,400
50,900 Pentair, Inc. 1,806,950
20,000 SPX Corp. (c) 2,418,750
---------
10,769,156
---------
METALS & MINING-- 0.3%
70,000 Allegheny Technologies, Inc. 1,260,000
65,400 Harsco Corp. 1,667,700
57,000 Newmont Mining Corp. 1,232,625
93,700 Worthington Industries, Inc. 983,850
---------
5,144,175
---------
NATURAL GAS-- 0.2%
52,700 AGL Resources, Inc. 839,906
20,800 New Jersey Resources Corp. 791,700
46,200 Washington Gas Light Co. 1,111,688
---------
2,743,294
---------
OFFICE EQUIPMENT
& SUPPLIES-- 0.2%
37,200 HON Industries, Inc. $ 874,200
34,600 National Computer Systems, Inc. 1,704,050
---------
2,578,250
---------
OIL & GAS-EXPLORATION
& PRODUCTION-- 2.1%
498,305 Enron Corp. 32,140,672
157,500 Santa Fe Snyder Corp. 1,791,563
---------
33,932,235
---------
PAPER & FOREST PRODUCTS -- 0.0%
16,400 Chesapeake Corp. (Rights) 485,850
---------
PETROLEUM SERVICES-- 0.6%
65,500 Maverick Tube Corp. 1,907,688
48,600 Patterson Energy, Inc. (c) 1,385,100
60,300 Santa Fe International Corp. 2,106,731
51,900 Tidewater, Inc. 1,868,400
66,200 Veritas DGC, Inc. 1,721,200
---------
8,989,119
---------
PUBLISHING-- 2.5%
27,000 Harcourt General, Inc. 1,468,125
21,400 Houghton Mifflin Co. 999,112
150,000 Knight-Ridder, Inc. 7,978,125
32,800 Lamar Advertising Co. (c) 1,420,650
248,200 R. H. Donnelley Corp. (c) 4,808,875
291,414 Time Warner, Inc. 22,147,464
39,800 Wiley John & Son, Inc. 895,500
---------
39,717,851
---------
REAL ESTATE INVESTMENT TRUSTS -- 0.8%
63,500 Avalonbay Communities, Inc. (REIT) 2,651,125
74,700 Liberty Property Trust (REIT) 1,937,531
137,001 MeriStar Hospitality Corp. (REIT) 2,877,021
85,400 Pacific Gulf Properties, Inc. (REIT) 2,140,338
40,900 Prentiss Properties Trust (REIT) 981,600
119,800 Reckson Associates
Realty Corp. (REIT) 2,845,250
---------
13,432,865
---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK-- CONTINUED
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
RETAIL-- 0.6%
145,900 Charming Shoppes, Inc. (c) $ 743,178
93,800 Family Dollar Stores, Inc. 1,834,962
121,760 Home Depot, Inc. 6,080,390
53,500 The Men's Wearhouse, Inc. (c) 1,193,719
---------
9,852,249
---------
RETAIL-FOOD & DRUG-- 0.1%
69,800 Sonic Corp. 2,050,375
---------
RETAIL-SPECIALTY-- 2.2%
276,950 Amazon.com, Inc. (c) 10,056,747
934,800 AutoNation, Inc. (c) 6,602,025
93,710 eBay, Inc. 5,089,624
32,030 GoTo.com, Inc. 490,459
49,900 Kohl's Corp. (c) 2,775,688
607,800 Pier 1 Imports, Inc. 5,926,050
105,530 Priceline.com, Inc. 4,008,491
7,785 Ticketmaster Online-CitySearch 124,074
---------
35,073,158
---------
SEMICONDUCTORS-- 2.8%
28,000 Globespan Semiconductor, Inc. 3,418,188
263,900 Integrated Device Technology, Inc. (c) 15,801,012
87,200 Lattice Semiconductor Corp. 6,027,700
19,900 Microchip Technology, Inc. 1,159,486
131,790 Texas Instruments, Inc. 9,052,326
102,000 Xilinx, Inc. (c) 8,421,375
---------
43,880,087
---------
SERVICES-- 0.7%
172,800 First Data Corp. 8,575,200
15,800 Information Resources, Inc. (Rights) 62,212
67,400 Viad Corp. 1,836,650
---------
10,474,062
---------
SPECIALTY PRINTING-- 0.3%
23,800 Deluxe Corp. 560,787
90,100 Harte-Hanks, Inc. 2,252,500
49,000 Valassis Communications, Inc. 1,868,125
---------
4,681,412
---------
TELECOMMUNICATIONS-- 6.4%
41,800 Alamosa PCS Holdings, Inc. 872,575
50,000 CenturyTel, Inc. 1,437,500
1,100,000 China Telecom Ltd., (ADR) (c) 9,701,110
448,865 China Unicom 9,538,381
30,600 Corning, Inc. 8,258,175
58,500 Handspring, Inc. 1,579,500
95,300 ITC DeltaCom, Inc. (c) 2,126,381
TELECOMMUNICATIONS -- CONTINUED
125,370 Level 3 Communications, Inc. $11,032,560
58,760 NTL, Inc. 3,518,255
186 NTT Mobile Communications
Network, Inc. 5,031,055
115,790 Sprint Corp. (PCS Group) (c) 6,889,505
274,732 Telefonica SA (ADR) 5,901,452
162,625 Telefonos de Mexico SA
de CV (ADR) 144A 9,289,953
84,985 Vodafone AirTouch PLC (ADR) (c) 3,521,566
3,112,669 Vodafone Group PLC 12,575,107
65,190 VoiceStream Wireless Corp. 7,581,393
86,527 Winstar Communications, Inc. (c) 2,931,102
---------
101,785,570
---------
TELECOMMUNICATIONS
-- EQUIPMENT-- 7.4%
31,519 ADC Telecommunications, Inc. (c) 2,643,656
94,700 Comverse Technology, Inc. (c) 8,807,100
53,700 Davox Corp. 694,744
197,220 Ericsson (L.M.) Telefoniaktiebolag AB
Series B 3,901,915
3,900 Exfo Electro-Optical Engineering, Inc. 171,112
45,300 Harris Corp. 1,483,575
204,500 MRV Communications, Inc. (c) 13,752,625
1,365,045 Nokia Corp. (ADR) 68,166,934
10,188 Nokia OYJ 519,881
107,615 QUALCOMM, Inc. (c) 6,456,900
179,300 Qwest Communications
International, Inc. (c) 8,908,969
44,100 Tekelec, Inc. 2,125,069
---------
117,632,480
---------
TRUCKING &
FREIGHT FORWARDING-- 0.1%
37,800 Atlas Air, Inc. (c) 1,356,075
41,200 USFreightways Corp. 1,011,975
---------
2,368,050
---------
UTILITIES-- 0.9%
49,400 American States Water Co. 1,469,650
192,500 Calpine Corp. 12,656,875
---------
14,126,525
---------
WASTE MANAGEMENT-- 0.1%
72,800 Republic Services, Inc. (c) 1,164,800
---------
Total Common Stock
(Identified Cost $1,322,229,568) 1,451,387,045
-------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK-- CONTINUED
PRINCIPAL
AMOUNT DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
$ 28,009,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 6.25% to be repurchased at
$28,023,588 on 7/03/2000,
collaterized by $25,090,000
U.S. Treasury Bond 7.125% due
2/15/2023 with a value of $28,571,238 $ 28,009,000
25,000,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$25,010,938 on 7/03/2000,
collaterized by $25,665,000
U.S. Treasury Bond 5.750% due
4/30/2003 with a value of $25,504,594 25,000,000
25,000,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$25,010,938 on 7/03/2000,
collaterized by $26,190,000
U.S. Treasury Bond 5.375% due
6/30/2003 with a value of $25,502,513 25,000,000
25,000,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$25,010,938 on 7/03/2000,
collaterized by $23,890,000
U.S. Treasury Bond 7.000% due
7/15/2006 with a value of $25,502,575 25,000,000
25,000,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$25,010,938 on 7/03/2000,
collaterized by $25,730,000
U.S. Treasury Bond 5.500% due
3/31/2003 with a value of $25,504,863 25,000,000
25,000,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$25,010,938 on 7/03/2000,
collaterized by $22,345,000
U.S. Treasury Bond 10.750% due
2/15/2003 with a value of $25,501,231 $ 25,000,000
702,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$702,307 on 7/03/2000,
collaterized by $540,000
U.S. Treasury Bond 9.250% due
2/15/2016 with a value of $718,875 702,000
12,954,502 Associates Corp. of North America,
6.800%, 7/03/2000 12,954,502
4,600,000 CIT Group Holdings,Inc.,
6.840%, 7/03/2000 4,598,252
20,000,000 Federal Home Loan Bank
Consolidated Discount Note,
5.900%, 8/01/2000 19,898,389
10,000,000 Federal Home Loan Bank
Consolidated Discount Note,
6.530%, 8/15/2000 9,919,625
9,000,000 Federal Home Loan
Mortgage Discount Notes,
5.980%, 9/14/2000 8,887,875
10,000,000 Federal National Mortgage Association
Discount Notes,
6.480%, 8/21/2000 9,909,192
30,000,000 Prudential Funding Corp.,
6.850%, 7/03/2000 29,988,583
----------
Total Short Term Investments
(Identified Cost $249,867,418) 249,867,418
----------
Total Investments-- 106.9%
(Identified Cost $1,572,096,986) (b) 1,701,254,463
Other assets less liabilities (109,140,728)
----------
Total Net Assets-- 100% $1,592,113,735
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
FORWARD CURRENCY CONTRACTS OUTSTANDING
AT JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Local Aggregate Unrealized
Delivery Currency Face Total Appreciation/
Date Amount Value Value Depreciation
-------- -------- -------- -------- ----------
Euro Currency (bought) 9/8/2000 2,500,000 $(2,424,600) $2,396,939 $ (27,661)
Euro Currency (bought) 9/8/2000 500,000 (483,545) 479,388 (4,157)
Euro Currency (bought) 9/8/2000 1,500,000 (1,450,635) 1,438,164 (12,471)
Euro Currency (bought) 9/8/2000 3,000,000 (2,731,890) 2,876,327 144,437
Euro Currency (bought) 9/8/2000 500,000 (453,605) 479,388 25,783
Euro Currency (bought) 9/8/2000 2,100,000 (1,905,141) 2,013,429 108,288
Euro Currency (bought) 9/8/2000 1,000,000 (964,540) 958,776 (5,764)
Euro Currency (bought) 9/8/2000 900,000 (868,086) 862,898 (5,188)
Euro Currency (bought) 9/8/2000 1,100,000 (1,060,994) 1,054,653 (6,341)
Euro Currency (bought) 9/8/2000 2,800,000 (2,656,220) 2,684,572 28,352
Euro Currency (bought) 9/8/2000 1,400,000 (1,342,593) 1,342,286 (307)
Euro Currency (bought) 9/8/2000 4,100,000 (3,931,880) 3,930,981 (899)
Euro Currency (sold) 9/8/2000 4,000,000 3,901,400 (3,835,103) 66,297
Euro Currency (sold) 9/8/2000 4,000,000 3,889,280 (3,835,103) 54,177
Euro Currency (sold) 9/8/2000 3,000,000 2,929,860 (2,876,327) 53,533
Euro Currency (sold) 9/8/2000 1,000,000 971,150 (958,776) 12,374
Euro Currency (sold) 9/8/2000 8,000,000 7,774,800 (7,670,206) 104,594
Euro Currency (sold) 9/8/2000 6,900,000 6,526,227 (6,615,553) (89,326)
Euro Currency (sold) 9/8/2000 7,000,000 6,341,160 (6,711,430) (370,270)
Euro Currency (sold) 9/8/2000 2,000,000 1,819,520 (1,917,552) (98,032)
Euro Currency (sold) 9/22/2000 18,700,000 18,045,687 (17,944,684) 101,003
Euro Currency (sold) 10/5/2000 2,700,000 2,594,700 (2,592,970) 1,730
Euro Currency (bought) 1/26/2001 2,700,000 (2,560,748) 2,609,503 48,755
Euro Currency (bought) 1/26/2001 1,100,000 (1,047,541) 1,063,131 15,590
Euro Currency (sold) 1/26/2001 5,000,000 4,752,925 (4,832,412) (79,487)
Euro Currency (sold) 1/26/2001 5,000,000 4,859,050 (4,832,412) 26,638
Hong Kong Dollar (sold) 3/16/2001 14,000,000 1,797,319 (1,797,072) 247
Hong Kong Dollar (sold) 6/27/2001 50,000,000 6,420,974 (6,417,434) 3,540
Hong Kong Dollar (sold) 6/27/2001 7,000,000 898,876 (898,440) 436
Japanese Yen (bought) 9/8/2000 40,000,000 (381,978) 381,729 (249)
Japanese Yen (bought) 9/8/2000 7,000,000 (66,846) 66,802 (44)
Japanese Yen (sold) 9/8/2000 40,000,000 400,086 (381,729) 18,357
Japanese Yen (sold) 9/8/2000 145,000,000 1,423,285 (1,383,769) 39,516
Japanese Yen (sold) 9/8/2000 145,000,000 1,411,604 (1,383,769) 27,835
Japanese Yen (sold) 9/8/2000 60,000,000 576,048 (572,594) 3,454
Japanese Yen (bought) 9/14/2000 31,000,000 (293,909) 296,158 2,249
Japanese Yen (sold) 9/14/2000 60,000,000 563,446 (573,208) (9,762)
Japanese Yen (sold) 9/14/2000 36,000,000 353,635 (343,925) 9,710
Japanese Yen (sold) 9/14/2000 30,000,000 288,417 (286,604) 1,813
Japanese Yen (bought) 9/22/2000 94,000,000 (879,754) 899,313 19,559
Japanese Yen (sold) 9/22/2000 94,000,000 920,143 (899,313) 20,830
Japanese Yen (bought) 10/5/2000 126,000,000 (1,181,712) 1,208,301 26,589
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
FORWARD CURRENCY CONTRACTS OUTSTANDING-- CONTINUED
at June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE DEPRECIATION
-------- -------- -------- ------- -----------
Japanese Yen (bought) 10/5/2000 60,000,000 $ (576,596) $ 575,381 $ (1,215)
Japanese Yen (bought) 10/5/2000 34,000,000 (324,861) 326,048 1,187
Japanese Yen (sold) 10/5/2000 220,000,000 2,173,913 (2,109,733) 64,180
----------- ------------- ---------
$54,045,831 $ (53,725,951) $319,880
=========== ============= ========
</TABLE>
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: at June 30, 2000 the net unrealized
appreciation on investments based on cost of $1,572,096,986
for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost. $ 262,240,842
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value. (133,083,365)
------------
Net unrealized appreciation $ 129,157,477
=============
(c) Non-income producing security.
ADR An American Depositary Receipt (ADR) is a cetificate issued by a
custodian bank representing the right to receive securities of the
foreign issuer described. The values of ADRs are significantly
influenced by trading on exchanges not located in the United States.
REIT Real Estate Investment Trust. 144A Securities exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At period end, the value
of these securities amounted to $9,289,953 or 0.6% of net assets.
TEN LARGEST CONCENTRATIONS OF INVESTMENTS AT JUNE 30, 2000:
-----------------------------------------------------------
1. United States 85.02%
2. Finland 4.31
3. United Kingdom 1.01
4. Sweden 0.92
5. Japan 0.69
6. Hong Kong 0.61
7. Mexico 0.58
8. Netherlands 0.52
9. Spain 0.37
10. Canada 0.18
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $1,572,096,986) ..................... $ 1,701,254,463
Cash ...................................................................... 28,054
Receivable for:
Fund shares sold ..................................................... 3,446,678
Securities sold ...................................................... 38,896,305
Open forward currency contracts - net ................................ 319,880
Dividends and interest ............................................... 1,146,433
Tax reclaims ......................................................... 5,367
-----------------------
1,745,097,180
LIABILITIES
Payable for:
Securities purchased ................................................. $ 149,692,667
Fund shares redeemed ................................................. 2,480,927
Withholding Taxes .................................................... 6,163
Accrued expenses:
Management fees ...................................................... 132,842
Deferred trustees' fees .............................................. 76,731
Accounting and administrative ........................................ 94,600
Transfer agent ....................................................... 350,316
Other ................................................................ 149,199
-------
152,983,445
-----------
NET ASSETS ........................................................................ $ 1,592,113,735
===============
Net Assets consist of:
Paid-in capital $ 1,223,904,809
Undistributed (overdistributed) net investment income (loss) (7,168,316)
Accumulated net realized gains (losses) 245,900,385
Unrealized appreciation (depreciation) on investments, forward currency contracts
foreign currency transactions 129,476,857
-----------
NET ASSETS $1,592,113,735
==============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($615,806,201 / 26,518,770 shares of beneficial interest) $ 23.22
============
Offering price per share (100/94.25 of $23.22) $ 24.64 *
============
Net asset value and offering price of Class B shares
($752,315,850 / 34,429,604 shares of beneficial interest) $ 21.85**
============
Net asset value and offering price of Class C shares
($142,860,643 / 6,531,777 shares of beneficial interest) $ 21.87**
============
Net asset value, offering and redemption price of Class Y shares
($81,131,041 / 3,406,861 shares of beneficial interest) $ 23.81
============
</TABLE>
* Based upon single purchases of less than $50,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $58,120) .............................. $ 5,497,337
Interest ................................................................. 4,650,893
Securities lending income ................................................ 936,000
-------
11,084,230
Expenses
Management fees ..................................................... $ 8,516,106
Service fees - Class A .............................................. 805,113
Service and distribution fees - Class B ............................. 3,877,544
Service and distribution fees - Class C ............................. 741,686
Trustees' fees and expenses ......................................... 39,363
Accounting and administrative ....................................... 315,320
Custodian ........................................................... 324,235
Transfer agent - Class A, Class B, Class C .......................... 1,564,840
Transfer agent - Class Y ............................................ 42,779
Audit and tax services .............................................. 21,533
Legal ............................................................... 29,816
Printing ............................................................ 108,038
Registration ........................................................ 112,166
Miscellaneous ....................................................... 34,304
------
Total expenses before reductions 16,532,843
Less reductions (7,962) 16,524,881
------ ----------
Net investment income (loss) (5,440,651)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD CURRENCY
CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net 134,569,907
Foreign currency contracts and foreign currency transactions - net 5,136,011
---------
Total realized gain (loss) on investments, forward currency
contracts and foreign currency transactions 139,705,918
-----------
Unrealized appreciation (depreciation) on:
Investments - net (227,866,808)
Forward currency contracts - net $ 319,380
---------------
Total unrealized appreciation (depreciation) on investments,
forward currency contracts and foreign currency transactions (227,547,428)
------------
Net gain (loss) on investment transactions (87,841,510)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (93,282,161)
==============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1999 2000
-------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss ..................................................... $ (11,419,599) $ (5,440,651)
Net realized gain (loss) on investments, forward currency
contracts and foreign currency transactions ........................ 310,796,147 139,705,918
Unrealized appreciation (depreciation) on investments,
forward currency contracts and foreign currency transactions ....... 194,563,711 (227,547,428)
----------- ------------
Increase (decrease) in net assets from operations ....................... 493,940,259 (93,282,161)
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ............................................................ (95,026,426) 0
Class B ............................................................ (118,089,760) 0
Class C ............................................................ (22,415,981) 0
Class Y ............................................................ (10,913,709) 0
----------- -
(246,445,876) 0
------------ -
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................................. 236,852,491 108,580,483
----------- -----------
Total increase (decrease) in net assets ......................................... 484,346,874 15,298,322
NET ASSETS
Beginning of the Period ................................................. 1,092,468,539 1,576,815,413
------------- -------------
End of the Period ....................................................... $ 1,576,815,413 $ 1,592,113,735
=============== ===============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the Period $ (1,727,665) $ (7,168,316)
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Net Asset Value, Beginning of the Period $13.25 $16.78 $18.18 $18.17 $ 20.02 $ 24.50
------ ------ ------ ------ ------- -------
Income From Investment Operations
Net Investment Income (Loss) 0.00 (0.06)(b) (0.02)(b) (0.05)(b) (0.12)(b) (0.03)
Net Realized and Unrealized Gain
(Loss) on Investments 4.52 3.17 3.62 3.28 8.91 (1.25)
---- ---- ---- ---- ---- -----
Total From Investment Operations 4.52 3.11 3.60 3.23 8.79 (1.28)
---- ---- ---- ---- ---- -----
Less Distributions
Dividends From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Total Distributions (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Net Asset Value, End of the Period $ 16.78 $ 18.18 $18.17 $20.02 $24.50 $ 23.22
======== ======= ====== ====== ====== =======
Total Return (%)(a) 34.4 19.0 20.2 19.3 46.4 (5.2)
Ratio of Operating Expenses to
Average Net Assets (%) 1.82 1.68 1.66 1.62 1.62 1.60(c)
Ratio of Operating Expenses to Average
Net Assets After Expense Reductions (%) 1.82 1.68 1.66 1.62 1.62 1.60(c)(d)
Ratio of Net Investment Income to
Average Net Assets (%) (0.33) (0.36) (0.14) (0.24) (0.54) (0.26)(c)
Portfolio Turnover Rate (%) 142 127 168 101 186 300
Net Assets, End of the Period (000) $223,596 $348,573 $416,938 $443,165 $619,184 $615,806
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c) Computed on an annualized basis.
(d) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Net Asset Value, Beginning of the Period $ 13.23 $ 16.63 $ 17.86 $ 17.63 $ 19.23 $ 23.14
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) 0.00 (0.20)(b) (0.17)(b (0.18)(b) (0.27)(b) (0.11)
Net Realized and Unrealized Gain
(Loss) on Investments 4.39 3.14 3.55 3.16 8.49 (1.18)
---- ---- ---- ---- ---- -----
Total From Investment Operations 4.39 2.94 3.38 2.98 8.22 (1.29)
---- ---- ---- ---- ---- -----
Less Distributions
Dividends From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Total Distributions (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Net Asset Value, End of the Period $ 16.63 $ 17.86 $ 17.63 $ 19.23 $ 23.14 $ 21.85
======== ======== ======== ======== ======== ========
Total Return (%)(a) 33.4 18.1 19.3 18.4 45.4 (5.6)
Ratio of Operating Expenses to
Average Net Assets (%) 2.57 2.43 2.41 2.37 2.37 2.35(c)
Ratio of Operating Expenses to
Average Net Assets After Expense Reductions (%) 2.57 2.43 2.41 2.37 2.37 2.35(c)
Ratio of Net Investment Income to
Average Net Assets (%)(b) (1.08) (1.11) (0.89) (0.99) (1.29) (1.01)(c)(d)
Portfolio Turnover Rate (%) 142 127 168 101 186 300
Net Assets, End of the Period (000) $220,017 $366,314 $462,034 $508,937 $742,908 $752,316
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c) Computed on an annualized basis.
(d) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Net Asset Value, Beginning of the Period $ 13.24 $ 16.65 $ 17.87 $ 17.64 $ 19.25 $ 23.16
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) 0.00 (0.20)(b) (0.17)(b (0.18)(b) (0.27)(b) (0.11)
Net Realized and Unrealized Gain
(Loss) on Investments 4.40 3.13 3.55 3.17 8.49(b) (1.18)
---- ---- ---- ---- ---- -----
Total From Investment Operations 4.40 2.93 3.38 2.99 8.22 (1.29)
---- ---- ---- ---- ---- -----
Less Distributions
Dividends From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Total Distributions (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Net Asset Value, End of the Period $ 16.65 $ 17.87 $ 17.64 $ 19.25 $ 23.16 $ 21.87
======== ======== ======== ======== ======== ========
Total Return (%)(a) 33.4 18.0 19.3 18.5 45.3 (5.6)
Ratio of Operating Expenses to
Average Net Assets (%) 2.57 2.43 2.41 2.37 2.37 2.35(c)
Ratio of Operating Expenses to
Average Net Assets After Expense Reduction (%) 2.57 2.43 2.41 2.37 2.37 2.35(c)
Ratio of Net Investment Income to
Average Net Assets (%) (1.08) (1.11) (0.89) (0.99) (1.29) (1.01)(c)(d)
Portfolio Turnover Rate (%) 142 127 168 101 186 300
Net Assets, End of the Period (000) $ 45,672 $ 80,312 $ 94,412 $ 97,849 $139,710 $142,861
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c) Computed on an annualized basis.
(d) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Net Asset Value, Beginning of the Period $ 13.24 $ 16.83 $ 18.33 $ 18.41 $ 20.37 $ 25.08
----- ----- ----- ----- ----- ----
Income From Investment Operations
Net Investment Income (Loss) 0.00 (0.02)(a) (0.03)(a (0.00)(a) (0.07)(a) 0.01
Net Realized and Unrealized Gain
(Loss) on Investments 4.58 3.23 3.66 3.34 9.09 (1.28)
----- ----- ----- ----- ----- ----
Total From Investment Operations 4.58 3.21 3.69 3.34 9.02 (1.27)
----- ----- ----- ----- ----- ----
Less Distributions
Dividends From Net Investment Income 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Total Distributions (0.99) (1.71) (3.61) (1.38) (4.31) 0.00
----- ----- ----- ----- ----- ----
Net Asset Value, End of the Period $ 16.83 $ 18.33 $ 18.41 $ 20.37 $ 25.08 $ 23.81
======== ======== ======== ======== ======== ========
Total Return (%) 34.8 19.6 20.5 19.6 46.8 (5.1)
Ratio of Operating Expenses to
Average Net Assets (%) 1.57 1.43 1.41 1.37 1.37 1.25(b)
Ratio of Operating Expenses to
Average Net Assets After Expense Reduction (%) 1.57 1.43 1.41 1.37 1.37 1.25(b)(c)
Ratio of Net Investment Income to
Average Net Assets (%)(b) (0.08) (0.11) 0.11 0.01 (0.29) 0.08(b)
Portfolio Turnover Rate (%) 142 127 168 101 186 300
Net Assets, End of the Period (000) $ 5,569 $ 18,649 $ 37,006 $ 42,517 $ 75,013 $ 81,131
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(b) Computed on an annualized basis.
(c) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Period Ended June 30, 2000
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end
management investment company. The Fund seeks long term growth of capital. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay front end sales charges and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and may be subject to a contingent deferred sales charge if
those shares are redeemed within one year. Class Y shares do not pay a front end
sales charge, a contingent deferred sales charge or service and distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro rata by the holders of each class
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the Trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service as authorized by the Board of
Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadvisers,
under the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date or when the Fund learns of the dividend and inter-
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
================================================================================
For the Period Ended June 30, 2000
(unaudited)
est income is recorded on the accrual basis. Interest income for the Fund is
increased by the accretion of discount. In determining net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. Dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. Dollars are translated
into U.S. Dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. Dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities at the end of the fiscal periods, resulting from
changes in exchange rates.
D. FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Fund's investments against currency fluctuation. Also, a contract to buy or sell
can offset a previous contract. These contracts involve market risk in excess of
the unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The U.S. Dollar value of the currencies the Fund has committed to
buy or sell (if any) is shown in the portfolio composition under the caption
"Forward Currency Contracts Outstanding." This amount represents the aggregate
exposure to each currency the Fund has acquired or hedged through currency
contracts outstanding at period end.
All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for organization
costs, distributions from real estate investment trusts and foreign currency
transactions for book and tax purposes. Permanent book and tax basis differences
will result in reclas-
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
================================================================================
For the Period Ended June 30, 2000
(unaudited)
sification to capital accounts.
G. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. Each subadviser is responsible for
determining that the value of the collateral is at all times at least equal to
the repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$4,490,941,849 and $4,432,569,406, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its adviser, Nvest Funds Management, L.P. ("Nvest
Management"), at the annual rate of 1.05% on the first $1 billion of the Fund's
average daily net assets and 1.00% of such assets in excess of $1 billion
reduced by the amount of any subadvisers fees paid by the Fund to its
subadvisers at the following rates: Harris Associates, Janus Capital
Corporation, Kobrick Funds LLC and Loomis, Sayles & Company, L.P. (the
"Subadvisers") as follows: Janus Capital Corporation at the annual rate of 0.55%
of the first $50 million of the average daily net assets of the segment of the
Fund that the subadviser manages and 0.50% of such assets in excess of $50
million; Kobrick Funds LLC, and Loomis, Sayles & Company, L.P. at the annual
rate of 0.55% of the first $50 million of the average daily net assets of the
segment of the Fund that the subadviser manages, 0.50% of the next $200 million
and 0.475% of such assets in excess of $250 million. Nvest Management pays
Harris Associates at the annual rate of 0.65% of the first $50 million of the
average daily net assets of the segment of the Fund that the subadviser manages,
0.60% of the next $50 million and 0.55% of such assets in excess of $100
million. Certain officers and directors of the Adviser are also officers or
Trustees of the Fund. Nvest Management, Harris Associates, Kobrick Funds LLC and
Loomis, Sayles & Company, L.P. are wholly owned subsidiaries of Nvest Companies,
L.P. ("Nvest"), which is a subsidiary of Metropolitan Life Insurance Company
(Note 8).
Fees retained by Nvest Management and paid to each subadviser under the
management agreement and subadvisory agreements in effect during the six months
ended June 30, 2000 are as follows:
Fees Earned
-----------
Nvest Management $4,296,131
Harris Associates 564,441
Kobrick Funds LLC 1,294,537
Janus Capital Corporation 1,695,182
Loomis, Sayles & Company, L.P. 665,815
-------------
$8,516,106
=============
The effective annualized management fee for the six months ended June 30, 2000
was 1.03%.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Period Ended June 30, 2000
(unaudited)
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $315,320 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative expense was 0.034%.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services ("BFDS") serves as a sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
out-of-pocket expenses. Class Y shares bear a transfer agent fee of 0.10% of
average daily net assets. For the six months ended June 30, 2000, the Fund paid
NSC $1,175,551 as compensation for its services in that capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $805,113 fees under the
Class A Plan.
Under the Class B and Class C Plans, the Fund pays Nvest Funds monthly service
fees at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000 the Fund paid Nvest
Funds $969,386 and $185,422 in service fees under the Class B and Class C Plans,
respectively.
Also under the Class B and Class C Plan, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $2,908,158 and $556,264 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $2,261,401.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Period Ended June 30, 2000
(unaudited)
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Fund until distributed in accordance with the Plan.
4. CAPITAL SHARES. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
CLASS A SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ........................................................ 20,850,711 $457,332,948 3,917,381 $ 98,432,774
Shares issued in connection with the reinvestment of:
Dividends from net realized gain ................................ 4,061,647 92,120,558 0 0
--------- ---------- - -
24,912,358 549,453,506 3,917,381 98,432,774
Shares repurchased ................................................. (21,767,243) (476,769,565) (2,675,472) (67,122,787)
----------- ------------ ---------- -----------
Net increase (decrease) ............................................ 3,145,115 $ 72,683,941 1,241,909 $ 31,309,987
--------- ------------ --------- ------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
CLASS B SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------------
Shares sold 5,090,595 $108,536,607 4,691,813 $110,342,510
Shares issued in connection with the reinvestment of:
Distributions from net realized gain 5,228,880 112,295,911 0 0
--------- ----------- - -
10,319,475 220,832,518 4,691,813 110,342,510
Shares repurchased (4,670,208) (98,109,169) (2,371,458) (56,018,608)
---------- ----------- ---------- -----------
Net increase (decrease) 5,649,267 $122,723,349 2,320,355 $ 54,323,902
--------- ------------ --------- ------------
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Period Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
CLASS C SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,357,862 $ 28,638,765 1,039,345 $ 24,642,515
Shares issued in connection with the reinvestment of:
Distributions from net realized gain 971,714 20,885,267 0 0
------- ---------- - -
2,329,576 49,524,032 1,039,345 24,642,515
Shares repurchased (1,380,274) (28,904,111) (540,322) (12,696,132)
---------- ----------- -------- -----------
Net increase (decrease) (949,302) $ 20,619,921 499,023 $ 11,946,383
-------- ------------ ------- -----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
CLASS Y SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------------------
Shares sold 848,485 $ 19,170,997 756,202 $ 19,591,980
Shares issued in connection with the reinvestment of:
Dividends from net realized gain 470,250 10,913,701 0 0
------- ---------- - -
1,318,735 30,084,698 756,202 19,591,980
Shares repurchased (415,165) (9,259,418) (340,336) (8,591,769)
-------- ---------- -------- ----------
Net increase (decrease) 903,570 $ 20,825,280 415,866 $ 11,000,211
------- ------------ ------- ------------
Increase (decrease) derived from capital shares transactions 10,647,254 $236,852,491 4,477,153 $108,580,483
========== ============ ========= ============
</TABLE>
5. LINE OF CREDIT. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A., under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
6. EXPENSE REDUCTIONS. The Fund has entered into agreements with brokers whereby
the brokers will rebate a portion of brokerage commissions. Amounts earned by
the Fund under such agreements are presented as a reduction of expenses in the
Statement of Operations. For the six months ended June 30, 2000, the Fund's
expenses were reduced by $ 7,962 under these agreements.
7. SECURITY LENDING. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 2000, the Fund had no securities on loan.
8. SUBSEQUENT EVENT. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Period Ended June 30, 2000
(unaudited)
company structure. Nvest affiliates will retain their investment independence,
brand names, management and operating autonomy. The transaction will not affect
daily operations of the Nvest Funds or the investment management activities of
the Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
27
<PAGE>
NVEST STAR SMALL CAP FUND
NVEST STAR VALUE FUND
NVEST STAR ADVISERS FUND
SUPPLEMENT DATED AUGUST 21, 2000 TO NVEST STAR FUNDS PROSPECTUSES CLASSES
A, B AND C AND CLASS Y EACH DATED MAY 1, 2000
NVEST STAR SMALL CAP FUND
Clyde S. McGregor, C.F.A., has become co-portfolio manager of the Harris
Associates segment of Nvest Star Small Cap Fund, joining James P. Benson, who
has managed the segment since November 1999. Mr. McGregor, who has replaced
Steven J. Reid, joined Harris Associates as an analyst in 1981 and began
managing portfolios in 1986. He holds an M.B.A. in Finance from the University
of Wisconsin-Madison (1977) and a B.A. in Economics and Religion from Oberlin
College (1974).
The investment approach of the Harris Associates segment of the Fund remains the
same.
NVEST STAR VALUE FUND
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the segment of the Fund managed by Vaughan, Nelson, Scarborough & McCullough.
NVEST STAR ADVISERS FUND
Effective August 1, 2000, Joseph Gatz remains the lead portfolio manager and
Daniel Thelen remains a co-portfolio manager for the segment of the Fund managed
by Loomis Sayles.
28
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund
Bullseye Fund GOVERNMENT INCOME FUNDS
Equity Income Fund Limited Term U.S. Government Fund
Government Securities Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund MONEY MARKET FUNDS*
Kobrick Emerging Growth Fund Cash Management Trust
Tax Exempt Money Market Trust
*Investments in the money market
funds are not insured or
gauranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
VISIT OUR WEB SITE AT WWW.NVESTFUNDS.COM
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when it
is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest Funds are
members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[Nvest Funds Logo appears here]
SA58-0600
Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Star Worldwide Fund
Where
The Best
Minds Meet(R)
-----------------
June 30, 2000
-----------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months - three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Star Worldwide Fund's performance to a benchmark
index provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index, and if it were possible, in
addition, few investors could purchase all of the securities necessary to match
the index and would incur transaction costs and other expenses.
The MSCI World Index serves as the primary benchmark for the Fund and as an
additional point of reference, the MSCI EAFE Index serves as the secondary
benchmark. While no one benchmark is a perfect match for a managed fund, the
World Index contains a higher proportion of the markets that could be
represented in the Fund than does the EAFE Index, including U.S. and major
foreign markets. However, the Fund can invest in emerging markets, which are not
represented in the World Index but are represented in the EAFE Index.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
December 1995 (Inception) through June 2000
NAV MSC MSCI World EAFE
6/00 17,598 14,878 20,162 14,878
6/99 18,819 16,310 20,691 16,606
6/99 15,817 14,045 17,971 13,598
6/98 13,674 12,488 16,534 13,061
6/98 14,056 13,248 15,481 12,600
6/97 13,147 12,391 13,249 10,855
6/97 13,628 12,844 13,180 11,845
6/96 11,667 10,996 11,400 10,637
6/96 11,176 10,533 10,733 10,467
6/95 10,000 9,425 10,000 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A (Inception 12/29/95) 6 Months 1 Year Since Inception
Net Asset Value(1) -6.48% 11.27% 13.37%
With Maximum Sales Charge(2) -11.84 4.90 11.89
--------------------------------------------------------------------------------
Class B (Inception 12/29/95) 6 Months 1 Year Since Inception
Net Asset Value(1) -6.80% 10.47% 12.57%
With CDSC(3) -11.46 5.52 12.27
--------------------------------------------------------------------------------
Class C (Inception 12/29/95) 6 Months 1 Year Since Inception
Net Asset Value(1) -6.80% 10.46% 12.58%
With CDSC(3) -7.73 9.47 12.58
--------------------------------------------------------------------------------
Since
Comparative Performance 6 Months 1 Year Inception
MSCI~World Index(4) -2.56% 12.19% 16.50%
MSCI~EAFE~Index(5) -4.06 17.16 10.66
Morningstar World Stock Average(6) -0.49 24.06 16.42
Lipper Global Average(7) -1.19 21.96 17.35
--------------------------------------------------------------------------------
Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and return will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) Morgan Stanley Capital International World Index (MSCI) is an unmanaged
index of common stocks from the MSCI developed market countries. You may
not invest directly in an index.
(5) Morgan Stanley Capital International-Europe Australasia and Far East Index
(MSCI EAFE) is an unmanaged index of common stocks traded outside the U.S.
You may not invest directly in an index.
(6) Morningstar World Stock Average is the average performance without sales
charges of funds with similar investment objectives as calculated by
Morningstar, Inc.
(7) Lipper Global Average is the average performance without sales charges of
all mutual funds with a similar current investment style or objective as
determined by Lipper Inc.
2
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
Overview: How Your Fund Performed
--------------------------------------------------------------------------------
During the first six months of 2000, global markets were affected by a worldwide
sell-off in stocks. As a result, for the six-month period that ended June 30,
2000, Nvest Star Worldwide Fund's Class A shares provided a return of -6.48%
based on net asset value. For the same period, the Fund's benchmarks, MSCI World
Index returned and the MSCI EAFE Index returned -2.56% and -4.06%, respectively.
The difference between the performance of the Fund relative to its benchmarks
primarily reflects the value orientation of the two segments managed by
Harris/Oakmark teams. While value stocks staged a long-overdue comeback during
the second quarter, year-to-date results were stronger for other market sectors.
Nvest Star Worldwide Fund is composed of four portfolio segments, each managed
by a different investment management team with special expertise in specific
markets. Nvest Star Worldwide Fund's four management teams are: Montgomery Asset
Management, Loomis Sayles (added to the Fund in February 2000), and
Harris/Oakmark, which manages both a domestic segment and an international
segment. This multi-manager approach is the essence of the Nvest Funds Star
concept. It provides a means to diversify among individual securities as well as
investment styles and strategies of several established management firms. The
extra diversification is designed to balance out market swings over time,
seeking superior long-term performance results relative to funds that employ a
single strategy.
The chart below shows the proportion of assets under the management of each
portfolio manager. The proportions grow and shrink relative to one another as a
result of the returns of each Fund segment and the markets in which they invest.
Portfolio Segments -- 6/30/00
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Harris/Oakmark International 23.5%
Harris/Oakmark Domestic 18.1%
Loomis 35.8%
Montgomery 22.6%
Portfolio holdings and asset allocation will vary.
3
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
--------------------------------------------------------------------------------
Country Diversification -- 6/30/00
% of
Country Net Assets
--------------------------------------------------
1. United States 28.3
--------------------------------------------------
2. United Kingdom 13.2
--------------------------------------------------
3. Japan 10.4
--------------------------------------------------
4. France 7.5
--------------------------------------------------
5. Netherlands 5.0
--------------------------------------------------
6. Finland 4.2
--------------------------------------------------
7. Germany 4.0
--------------------------------------------------
8. Sweden 3.6
--------------------------------------------------
9. Canada 3.3
--------------------------------------------------
10. Hong Kong 2.6
--------------------------------------------------
Portfolio holdings and asset allocations will vary.
Concerns about U.S. economic growth affected European markets
The possibility of slower economic growth in the U.S. had a significant effect
on the world's financial markets. As a result, there were striking parallels in
the performance of most major markets. In Europe, investors bid up the prices of
technology, media and telecommunications stocks early in the period. In March,
however, European markets participated in the worldwide sell-off in technology
stocks that was triggered by rising U.S. interest rates and concerns about the
high valuations of technology stocks. While market volatility persisted
throughout the period, investors returned to the technology sector in the
closing quarter. By June 30, 2000, technology stock prices were once again on
the rise in most European markets. In particular, markets in Finland and Sweden
benefited from their high-quality technology companies.
Positive economic indicators did little to boost Japanese stocks
In Japan, strong gross domestic product and a pickup in consumer spending
signaled that the Japanese economy was continuing to recover from recession.
Normally, these positive indicators would have been advantageous for stocks in
the more traditional, non-technology areas of the Japanese market. However,
investor disappointment with the pace of corporate restructuring overshadowed
much of this good economic news. Investment activity in Japan mirrored that in
other areas of the world. A rapid rise in technology shares during the first
three months of the period led to widespread market volatility and short-term
investor interest in non-technology companies. As the six-month period drew to a
close, however, investors once again began to favor the technology area of the
Japanese market.
4
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
--------------------------------------------------------------------------------
Emerging markets struggled
Most emerging markets in both Asia and Latin America were hard hit by the
uncertainty in the U.S. Not only do these fledgling economies view the U.S. as
an important export market, but many of them also depend on foreign capital to
finance their growth. A weaker U.S. economy could significantly affect their
ability to sustain economic growth and could result in lower earnings for their
companies.
In the United States, interest rates dominated market sentiment
The U.S. market was characterized by rising interest rates and broad-based
market volatility. At the beginning of the period, rapidly rising prices of
technology stocks boosted all of the major stock indexes. When technology stocks
declined sharply in March, however, investors sought opportunities in other
market sectors. The broadening of the U.S. market into non-technology areas was
generally viewed as positive. Nevertheless, by the end of the period all of the
major U.S. stock indexes registered losses.
Top 10 Portfolio Holdings -- 6/30/00
% of
Company Net Assets
---------------------------------------------------------------------
1. Nokia OYJ 1.5
---------------------------------------------------------------------
2. Diageo PLC 1.2
---------------------------------------------------------------------
3. Samsung Electronics 1.2
---------------------------------------------------------------------
4. Somerfield PLC 1.2
---------------------------------------------------------------------
5. Ericsson (L.M.) Telefoniaktiebolag AB Series B 1.1
---------------------------------------------------------------------
6. Galileo International, Inc. 1.1
---------------------------------------------------------------------
7. Fortune Brands, Inc. 1.1
---------------------------------------------------------------------
8. Hunter Douglas 1.0
---------------------------------------------------------------------
9. Total Fina SA Class B 1.0
---------------------------------------------------------------------
10. Washington Mutual, Inc. 1.0
---------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
5
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
--------------------------------------------------------------------------------
The Fund's subadvisers use different strategies
Nvest Star Worldwide Fund's subadvisers use a variety of investment styles and
their expertise in various regions to seek long-term growth of capital. The
Montgomery Asset Management's segment benefited from investments in
telecommunications, financial services and energy companies. Loomis Sayles
reaped rewards in Japan in the first quarter of 2000, but turned mostly to
Europe for more attractive opportunities in the second quarter. When some of the
Loomis Sayles' European holdings declined in value during the sell-off, the
manager added to the portfolio's best-performing European holdings at attractive
prices. The two Harris/Oakmark teams employed a value style of investing in both
the Fund's U.S. and overseas segments. While this investment approach was out of
favor early in the period, it began to contribute to performance during the
market correction in the second quarter, a time when investors moved away from
volatile technology companies toward more traditional value companies.
Our overall outlook is for a healthy worldwide business climate
The many business, economic and technological developments that are taking place
around the world bode well for worldwide investing. Free-trade policies and
steady economic growth should allow the best companies in the world to achieve
long-term growth. In addition, advances in technology are providing overseas
countries with the tools they need to upgrade their infrastructure and
restructure their businesses. We believe these trends may continue for years to
come.
We also expect the renewed interest in value investing to continue, as investors
seek to diversify their portfolios to reduce volatility. These positive trends,
along with steady economic growth and relatively low inflation, should be
positive for Nvest Star Worldwide Fund.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Star Worldwide Fund invests in foreign and emerging market securities,
which have special risks. These may include political, regulatory and currency
risks. Emerging markets may be more subject to these risks than developed
markets. The Fund may invest in small-cap companies, which are more volatile
than the overall market, lower-rated bonds, which offer higher yield in return
for greater risk and price fluctuations; real estate investment trusts (REITs),
which change in price with underlying real estate values and have other
mortgage-related risks; derivative securities, whose value is based on other
securities or indices; which may have significant risk; impact the Fund's
performance and increase tax liability. These risks affect your investment's
value. Share price and return will vary and you may have a gain or loss when you
sell your shares.
6
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- 94.4% of Total Net Assets
Shares Description Value (a)
--------------------------------------------------------------------------------
Australia -- 1.7%
429,300 Cable & Wireless Optus, Ltd. ..................... $ 1,278,580
20,000 National Australia Bank, Ltd. .................... 333,688
104,100 News Corp., 144A ................................. 1,431,911
40 News Corp., Ltd. (ADR) ........................... 2,180
858,532 Nufarm ........................................... 1,668,696
------------
4,715,055
------------
Austria -- 0.1%
7,000 Flughafen Wien AG ................................ 249,205
------------
Brazil -- 1.0%
33,100,000 Tele Centro Sul Participacoes SA (c) ............. 335,864
187,200,000 Telemig Celular Participacoes SA (c) ............. 602,029
86 Telesp Celular Participacoes SA .................. 1
1 Tele Norte Leste Participacoes SA
(ADR) 144A ..................................... 24
1,600,000 Telesp Participacoes SA .......................... 17,477
55,900 Uniao de Bancos Brasileiros SA
(GDR) .......................................... 1,607,125
3,300,000 Unibanco - Uniao de Bancos
Brasileiros SA (c) ............................. 192,108
------------
2,754,628
------------
Canada -- 3.3%
4,600 Ballard Power Systems, Inc. ...................... 413,137
17,400 Bank Montreal Quebec ............................. 734,797
40,200 Canadian Imperial
Bank of Commerce ............................... 1,104,142
30,500 Canadian Natural Resources Ltd. .................. 886,149
40,500 Canadian Pacific Limited ......................... 1,050,811
18,800 Nortel Networks Corp. ............................ 1,283,100
32,580 Nortel Networks Corp. ............................ 2,260,788
40,300 Precision Drilling Corp. ......................... 1,557,541
------------
9,290,465
------------
Denmark -- 1.7%
15,900 Den Danske Bank Group ............................ 1,912,305
14,000 ISS AS ........................................... 1,065,804
44,770 Vestas Wind Systems AS ........................... 1,643,997
------------
4,622,106
------------
Finland -- 4.2%
50,450 Comptel .......................................... 1,016,274
10,372 Helsingin Puhelin OYJ ............................ 1,015,961
26,500 Kone Corp. ....................................... 1,593,873
86,440 Nokia OYJ ........................................ 4,410,924
26,100 Sonera OYJ ....................................... 1,189,819
207,703 Valmet-Rauma OYJ ................................. 2,498,506
------------
11,725,357
------------
France -- 7.5%
26,300 Alcatel SA ....................................... 1,724,962
23,552 Alcatel SA (ADR) ................................. 1,566,208
13,800 Aventis SA ....................................... 1,007,219
10,400 Axa .............................................. 1,638,266
8,300 Banque Nationale de Paris ........................ 798,741
2,330 Canal Plus ....................................... 391,504
2,360 Castorama Dubois Investissement SA ............... 583,551
37,345 Chargeurs SA ..................................... 2,139,197
12,500 Coflexip SA ...................................... 1,515,587
16,850 ISIS ............................................. 1,198,459
34,000 Michelin Compagnie Generale B .................... 1,090,974
5,200 Societe Television Francaise 1 ................... 362,404
22,700 Societe Television Francaise 1 ................... 1,582,034
10,900 Stmicroelectronics ............................... 686,812
18,035 Total Fina SA Class B ............................ 2,765,214
19,316 Vivendi SA ....................................... 1,704,870
------------
20,756,002
------------
Germany -- 3.5%
2,730 ADVA AG Optical Networking ....................... 1,550,768
13,200 Bayerisch Hypo-Und
Vereinsbank AG ................................. 852,654
21,880 Buderus AG ....................................... 347,799
9,060 Consors Discount Broker AG ....................... 808,736
24,334 Em.TV Ampersand Merchandising AG ................. 1,433,395
14,800 EPCOS AG ......................................... 1,476,398
5,340 Infineon Technologies AG ......................... 420,848
6,240 SAP AG ........................................... 1,153,935
39,000 Senator Entertainment AG ......................... 774,453
7,000 Siemens AG ....................................... 1,055,899
------------
9,874,885
------------
Hong Kong -- 2.6%
178,700 China Telecom Ltd., (ADR) (c) .................... 1,575,989
2,317,611 First Pacific Company, Ltd. ...................... 787,848
1,380,000 Giordano International, Ltd. ..................... 2,097,749
50,000 Hutchison Whampoa, Ltd. .......................... 628,568
526,000 Legend Holdings, Ltd. ............................ 509,435
280,000 Li & Fung, Ltd. .................................. 1,400,808
47,000 Television Broadcast ............................. 313,514
------------
7,313,911
------------
Ireland -- 1.3%
125,000 Bank Of Ireland .................................. 782,258
1 Bank of Ireland .................................. 8
36,000 Elan Corp. PLC (ADR) (c) ......................... 1,743,750
60,000 Independent News & Media PLC ..................... 217,977
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
Ireland -- continued
23,000 Ryanair Holdings PLC (ADR) (c) ................... $ 839,500
------------
3,583,493
------------
Israel -- 0.5%
5,980 Check Point Software
Technolgies, Ltd. .............................. 1,266,265
1 Makhteshim-Agam Industries, Ltd. (c) ............. 1
------------
1,266,266
------------
Italy -- 1.8%
10,000 Fiat SpA ......................................... 259,488
215,000 Fila Holdings SpA (ADR) .......................... 2,270,937
81,500 San Paolo-IMI SpA ................................ 1,446,452
104,540 Telecom Italia Mobile SpA ........................ 1,067,907
------------
5,044,784
------------
Japan -- 10.4%
175,000 Citizen Watch Co. ................................ 1,688,893
47,100 Credit Saison Co., Ltd., 144A .................... 1,091,994
99,000 Daiwa Securities Group, Inc. ..................... 1,306,253
55 Fuji Television Network, Inc. .................... 860,469
2,100 Funai Electric Co., Ltd. ......................... 349,522
4,200 Funai Electric Co., Ltd. ......................... 656,293
36,000 Hitachi Chemical Co., Ltd. ....................... 832,949
24 Japan Telecom Co., Ltd. .......................... 1,040,479
118,000 Komatsu, Ltd. .................................... 829,631
6,000 Kyocera Corp. .................................... 1,017,294
18,700 Meitec Corp. ..................................... 740,210
112,000 Mitsui Fudosan Co., Ltd. ......................... 1,213,892
6,000 Murata Manufacturing Co. ......................... 860,657
57,000 NEC Corp. ........................................ 1,788,888
27,000 Nikon Corp. ...................................... 1,000,047
29 Nippon Telegraph & Telephone Corp. ............... 385,373
126,000 Nissan Motor Co., Ltd. ........................... 742,189
80 NTT Mobile Communications
Network, Inc. .................................. 2,163,894
6,900 Orix Corp. ....................................... 1,017,718
26,000 Pioneer Corp. .................................... 1,012,017
3,700 Rohm Co. ......................................... 1,081,005
118,000 Sanyo Electric Co. ............................... 1,060,949
52,000 Sharp Corp. ...................................... 918,901
11,000 SHIMANO, Inc. .................................... 264,361
800 Softbank Corp. ................................... 108,572
13,000 Taiyo Yuden Co. .................................. 813,534
7,500 Toys R Us-Japan, Ltd. ............................ 1,272,325
2 Yahoo Japan Corp. ................................ 792,611
12,000 Yamada Denki Co. ................................. 1,075,538
18,000 Yamanouchi Pharmaceutical
Company, Ltd. .................................. 982,235
------------
28,968,693
------------
Mexico -- 0.9%
19,385 Grupo Televisa SA (ADR) .......................... 1,336,354
18,435 Telefonos de Mexico
SA de CV (ADR) 144A ............................ 1,053,099
------------
2,389,453
------------
Netherlands -- 5.0%
29,052 Asm Lithography Hl ............................... 1,248,673
28,210 ASM Lithography Holding NV (c) ................... 1,244,766
24,100 Heineken NV ...................................... 1,466,778
102,196 Hunter Douglas ................................... 2,766,016
10,500 Koninklijke (Royal)
Philips Electronic NV .......................... 495,203
39,808 KPN NV ........................................... 1,780,521
16,550 Kpnqwest ......................................... 650,972
23,200 Royal Dutch Petroleum Co. ........................ 1,441,903
22,690 STMicroelectronics NV ............................ 1,456,414
9,000 Versatel Telecom ................................. 378,061
16,300 VNU NV ........................................... 841,884
------------
13,771,191
------------
New Zealand -- 0.1%
158,224 Fletcher Challenge Building ...................... 167,744
------------
Panama -- 0.9%
95,300 Banco Latinoamericano de
Exportaciones SA, Class E ...................... 2,638,619
------------
Russia -- 0.2%
12,500 OAO LukOil Holdings (ADR) ........................ 643,750
------------
Singapore -- 0.6%
147,472 Datacraft Asia ................................... 1,297,754
53,616 United Overseas Bank, Ltd. ....................... 350,817
------------
1,648,571
------------
South Africa -- 0.0%
1 Barlow, Ltd. ..................................... 6
23 BOE, Ltd. ........................................ 13
114 JCI Gold, Ltd. ................................... 74
2 RMB Holdings ..................................... 2
------------
95
------------
South Korea -- 2.4%
17,920 Dongah Tire Industry Co. ......................... 353,570
31,240 Keumkang, Ltd. ................................... 1,085,671
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
South Korea -- continued
20,000 Kook Min Bank (c) ................................ $ 254,703
6,980 Lotte Chilsung Beverage Co. ...................... 529,592
2,300 Lotte Confect .................................... 266,092
3,170 Sk Telecom ....................................... 1,037,690
9,700 Samsung Electronics .............................. 3,210,062
------------
6,737,380
------------
Spain -- 1.0%
109,300 Banco Bilbao Vizcaya SA .......................... 1,633,058
48,200 Telefonica SA (ADR) .............................. 1,035,373
------------
2,668,431
------------
Sweden -- 3.6%
49,000 Autoliv AB (c) ................................... 1,200,000
137,500 Enea Date AB ..................................... 935,374
160,852 Ericsson (L.M.) Telefoniaktiebolag
AB Series B .................................... 3,182,389
247,221 Nordic Baltic Hldg ............................... 1,802,986
50,000 Skandia Forsakring AB ............................ 1,320,862
34,000 Svenska Handelsbanken Series A ................... 493,424
32,000 Tele1 Europe Holdings AB ......................... 391,837
64,700 Telia ............................................ 608,855
------------
9,935,727
------------
Switzerland -- 1.8%
5,620 ABB, Ltd. ........................................ 672,657
1,135 Ares Serono SA ................................... 946,239
4,700 Credit Suisse Group .............................. 934,929
280 Julius Baer Holding, Ltd. ........................ 1,107,092
690 Schweizerische Ruckversicherungs ................. 1,406,394
------------
5,067,311
------------
Taiwan -- 0.0%
1 Synnex Technology
International Corp. 144A (GDR) ................. 21
------------
Turkey -- 0.2%
41,800,000 Yapi Ve Kredi Bankasi ............................ 464,882
------------
United Kingdom -- 13.2%
101,000 Arm Holdings PLC ................................. 1,081,987
229,000 Berisford PLC .................................... 1,124,392
5,800 Bookham Technology ............................... 337,524
115,200 Cable & Wireless PLC ............................. 1,950,519
38,107 Capita Group PLC ................................. 932,357
60,000 Celltech Group PLC ............................... 1,162,061
27,740 COLT Telecom Group PLC ........................... 923,414
5,000 COLT Telecom Group PLC (ADR) ..................... 678,125
368,500 Diageo PLC ....................................... 3,264,615
138,900 Dixons Group (New) ............................... 565,356
132,600 Enterprise Oil PLC ............................... 1,105,510
86,100 Freeserve PLC .................................... 423,403
38,500 Glaxo Wellcome PLC ............................... 1,122,561
65,300 HSBC Holdings PLC ................................ 747,614
381,000 IMI PLC .......................................... 1,556,526
60,000 Independent News & Media PLC ..................... 208,808
23,400 Jazztel PLC ...................................... 614,250
32,348 Logica PLC ....................................... 765,512
329,422 Morgan Crucible Co. .............................. 1,084,125
102,300 Next PLC ......................................... 894,687
73,500 Pearson PLC ...................................... 2,335,469
183,825 Reckitt & Colman PLC ............................. 2,058,277
473,074 Rolls-Royce PLC .................................. 1,678,570
94,400 Scottish Power ................................... 799,885
71,000 Shire Pharma Group PLC ........................... 1,235,446
3,570,300 Somerfield PLC ................................... 3,205,315
151,600 Spirent PLC ...................................... 1,019,620
829,387 Tomkins PLC ...................................... 2,694,995
308,009 Vodafone Group PLC ............................... 1,244,348
------------
36,815,271
------------
United States -- 24.9%
100,366 ACNielsen Corp. (c) .............................. 2,208,052
135,000 American Greetings Corp. ......................... 2,565,000
31,500 Atmel Corp. (c) .................................. 1,161,562
64,052 Bank One Corp. ................................... 1,701,381
61,300 Black & Decker Corp. ............................. 2,409,856
52,000 Boeing Co. ....................................... 2,174,250
157,000 Brunswick Corp. .................................. 2,600,312
15,000 Carrier Access Corp. (c) ......................... 793,125
12,500 Chartered Semiconductor
Manufacturing .................................. 1,125,000
22,000 Cisco Systems, Inc. (c) .......................... 1,398,375
6,600 Cognex Corp. (c) ................................. 341,550
15,980 Comverse Technology, Inc. (c) .................... 1,486,140
25,000 Cooper Industries, Inc. .......................... 814,063
3,900 Corning, Inc. .................................... 1,052,513
14,500 Covad Communications Group, Inc. ................. 233,813
40,000 Dial Corp. ....................................... 415,000
49,100 Dun & Bradstreet Corp. ........................... 1,405,487
35,000 Eaton Corp. ...................................... 2,345,000
15,400 EMC Corp. (c) .................................... 1,184,837
10,500 Enron Corp. ...................................... 677,250
42,100 FLAG Telecom Holdings, Ltd. ...................... 626,238
4,500 Flextronics International, Ltd. (c) .............. 309,094
132,500 Fortune Brands, Inc. ............................. 3,055,781
See accompanying notes to financial statements. 9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
--------------------------------------------------------------------------------
United States -- continued
146,600 Galileo International, Inc. ...................... $ 3,060,275
45,960 Global Crossing, Ltd. (c) ........................ 1,209,322
58,000 H & R Block, Inc. ................................ 1,877,750
8,900 JDS Uniphase Corp. ............................... 1,066,888
40,400 Knight-Ridder, Inc. .............................. 2,148,775
100,000 Lockheed Martin Corp. ............................ 2,481,250
2,852,000 Mandarin Oriental International, Ltd. ............ 1,896,580
50,000 Masco Corp. ...................................... 903,125
200,000 Mattel, Inc. ..................................... 2,637,500
39,900 McLeodUSA, Inc. .................................. 825,431
5,400 Netease.com, Inc. ................................ 65,475
59,000 NIKE, Inc., Class B .............................. 2,348,937
16,000 NTL, Inc. ........................................ 958,000
134,625 Old Republic International Co. ................... 2,221,312
11,700 Oracle Corp. (c) ................................. 983,531
93,000 Philip Morris Companies, Inc. .................... 2,470,312
3,200 PMC-Sierra, Inc. (c) ............................. 568,600
26,200 Sprint Corp. (PCS Group) (c) ..................... 1,558,900
90,000 Stanley Works .................................... 2,137,500
13,000 Texas Instruments, Inc. .......................... 892,938
11,900 Time Warner Telecom, Inc. ........................ 766,063
16,700 VersaTel Telecom International NV ................ 720,188
4,600 VoiceStream Wireless Corp. ....................... 534,966
95,000 Washington Mutual, Inc. .......................... 2,743,125
------------
69,160,422
------------
Total Common Stock
(Identified Cost $259,750,564) ................. 262,273,718
------------
Preferred Stock -- 1.2%
--------------------------------------------------------------------------------
Argentina -- 0.7%
170,000 Quilmes Industrial SA (ADR) ...................... 1,891,250
------------
Germany -- 0.5%
2,580 Marschollek
Lautenschlaeger und
Partner AG ..................................... 1,276,146
------------
Total Preferred Stock
(Identified Cost $3,062,960) ................... 3,167,396
------------
Short Term Investments -- 3.3%
Principal
Amount Description Value (a)
--------------------------------------------------------------------------------
$ 1,439,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 6.25% to be repurchased at
$1,439,749 on 7/03/2000,
collaterized by $1,290,000
U.S. Treasury Bond 7.125% due
2/15/2023 with a value of
$1,468,988 ..................................... $ 1,439,000
3,885,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 6.25% to be repurchased at
$3,887,023 on 7/03/2000,
collaterized by $3,480,000
U.S. Treasury Bond 7.125% due
2/15/2023 with a value of
$3,962,850 ..................................... 3,885,000
3,873,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$3,874,694 on 7/03/2000,
collaterized by $3,470,000
U.S. Treasury Bond 7.125% due
2/15/2023 with a value of
$3,951,463 ..................................... 3,873,000
------------
Total Short Term Investments
(Identified Cost $9,197,000) ................... 9,197,000
------------
Total Investments -- 98.9%
(Identified Cost $272,010,524) (b) ............. 274,638,114
Other assets less liabilities .................. 3,137,107
------------
Total Net Assets -- 100% ......................... $277,775,221
============
10 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Forward Currency Contracts Outstanding
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Local Aggregate Unrealized
Delivery Currency Face Total Appreciation/
Date Amount Value Value (Depreciation)
---------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
British Pounds (sold) 10/10/2000 $ 6,000,000 $ 9,486,600 $ (9,096,061) $ 390,539
Hong Kong Dollar (bought) 5/7/2001 20,800,000 (2,668,206) 2,669,793 1,587
Hong Kong Dollar (sold) 5/7/2001 800,000 102,199 (102,684) (485)
Hong Kong Dollar (sold) 5/7/2001 1,400,000 178,877 (179,698) (821)
Hong Kong Dollar (sold) 5/7/2001 600,000 76,692 (77,013) (321)
Hong Kong Dollar (sold) 5/7/2001 1,000,000 128,212 (128,355) (143)
Hong Kong Dollar (bought) 5/7/2001 1,200,000 (150,659) 154,026 3,367
Hong Kong Dollar (bought) 5/7/2001 500,000 (62,814) 64,178 1,364
Hong Kong Dollar (sold) 5/7/2001 1,600,000 201,081 (205,369) (4,288)
Hong Kong Dollar (sold) 5/7/2001 1,600,000 200,716 (205,369) (4,653)
Hong Kong Dollar (sold) 5/7/2001 400,000 50,180 (51,342) (1,162)
Hong Kong Dollar (sold) 5/7/2001 1,000,000 125,448 (128,355) (2,907)
Hong Kong Dollar (sold) 5/7/2001 900,000 112,880 (115,520) (2,640)
Hong Kong Dollar (sold) 5/7/2001 100,000 12,554 (12,835) (281)
Hong Kong Dollar (sold) 5/7/2001 800,000 100,527 (102,684) (2,157)
Hong Kong Dollar (sold) 5/7/2001 800,000 100,597 (102,684) (2,087)
Hong Kong Dollar (sold) 5/7/2001 300,000 37,819 (38,507) (688)
Hong Kong Dollar (sold) 5/7/2001 150,000 18,890 (19,253) (363)
Hong Kong Dollar (sold) 5/7/2001 150,000 18,889 (19,253) (364)
Hong Kong Dollar (sold) 5/7/2001 400,000 50,434 (51,342) (908)
Hong Kong Dollar (sold) 5/7/2001 200,000 25,326 (25,671) (345)
Hong Kong Dollar (sold) 5/7/2001 1,000,000 126,831 (128,355) (1,524)
Hong Kong Dollar (sold) 5/7/2001 1,600,000 202,899 (205,369) (2,470)
Hong Kong Dollar (sold) 5/7/2001 1,700,000 215,611 (218,204) (2,593)
Hong Kong Dollar (sold) 5/7/2001 300,000 38,051 (38,506) (455)
Hong Kong Dollar (sold) 5/7/2001 1,700,000 216,345 (218,204) (1,859)
Hong Kong Dollar (sold) 5/7/2001 4,000,000 509,554 (513,422) (3,868)
Hong Kong Dollar (bought) 5/7/2001 14,500,000 (1,860,716) 1,861,148 432
Hong Kong Dollar (sold) 5/7/2001 2,000,000 256,575 (256,710) (135)
Hong Kong Dollar (sold) 5/7/2001 6,000,000 769,346 (770,130) (784)
Hong Kong Dollar (sold) 5/7/2001 1,000,000 127,071 (128,355) (1,284)
Hong Kong Dollar (sold) 5/7/2001 800,000 101,611 (102,684) (1,073)
Hong Kong Dollar (sold) 5/7/2001 1,400,000 177,895 (179,697) (1,802)
Hong Kong Dollar (sold) 5/7/2001 1,300,000 165,241 (166,862) (1,621)
Hong Kong Dollar (sold) 5/7/2001 2,000,000 254,761 (256,710) (1,949)
Japanese Yen (bought) 9/14/2000 20,000,000 (190,458) 191,069 611
Japanese Yen (sold) 9/14/2000 20,000,000 190,422 (191,069) (647)
Japanese Yen (sold) 9/18/2000 152,280,000 1,487,981 (1,455,844) 32,137
----------- ------------ ---------
$10,935,262 $(10,551,902) $ 383,360
=========== ============ =========
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
--------------------------------------------------------------------------------
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: at June 30, 2000 the net
unrealized appreciation on investments based on
cost of $272,010,524 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ...................................... $ 30,324,821
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .................................... (27,697,231)
------------
Net unrealized appreciation .......................... $ 2,627,590
=============
(c) Non-income producing security.
144A Securities exempt from registration under Rule
144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers. At period end, the value of
these securities amounted to $3,577,049 or 1.3% of
net assets.
ADR/GDR An American Depositary Receipt (ADR) or Global
Depositary Receipt (GDR) is a certificate issued
by a Custodian Bank representing the right to
receive securities of the foreign issuer
described. The values of ADRs and GDRs are
significantly influenced by trading on exchanges
not located in the United States.
Ten Largest Industry Holdings at June 30, 2000 (unaudited)
Telecommunication 8.5% Diversified Conglomerates 3.3%
Banks & Thrifts 7.2% Machinery 3.1%
Telecommunication Equipment 6.9% Electronics 2.5%
Consumer Goods & Services 5.2% Petroleum Services 2.5%
Food & Beverages 3.6% Financial Services 2.5%
12 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $272,010,524) .................. $ 274,638,114
Cash ................................................................. 388,739
Foreign cash at value (Identified cost $1,097,746) ................... 1,094,109
Receivable for:
Fund shares sold ................................................... 1,386,953
Securities sold .................................................... 5,709,871
Open forward currency contracts - net .............................. 383,360
Dividends and interest ............................................. 386,506
Tax reclaims ....................................................... 172,887
Unamortized organization expense ..................................... 7,027
-------------
284,167,566
LIABILITIES
Payable for:
Securities purchased ............................................... $ 5,602,083
Fund shares redeemed ............................................... 372,733
Foreign withholding taxes .......................................... 40,479
Accrued expenses:
Management fees .................................................... 23,544
Deferred trustees' fees ............................................ 24,742
Accounting and administrative ...................................... 16,500
Transfer agent ..................................................... 172,361
Other .............................................................. 139,903
-------------
6,392,345
-------------
NET ASSETS ............................................................. $ 277,775,221
=============
Net Assets consist of:
Paid in capital .................................................... $ 212,996,004
Undistributed (over distributed) net investment income (loss) ...... (695,510)
Accumulated net realized gain (loss) ............................... 62,461,670
Unrealized appreciation (depreciation) on investments,
forward currency contracts and foreign currency transactions - net 3,013,057
-------------
NET ASSETS ............................................................. $ 277,775,221
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($117,664,053/6,321,368 shares of beneficial interest) ............. $ 18.61
=============
Offering price per share (100/94.25 of $18.61) ....................... $ 19.75*
=============
Net asset value and offering price of Class B shares
($131,921,120/7,349,246 shares of beneficial interest) ............. $ 17.95**
=============
Net asset value and offering price of Class C shares
($28,190,048/1,569,299 shares of beneficial interest) .............. $ 17.96**
=============
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements. 13
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $261,663) ......................... $ 2,645,681
Interest ............................................................. 408,894
Securities lending income ............................................ 97,083
-------------
3,151,658
Expenses
Management fees .................................................... $ 1,524,326
Service fees - Class A ............................................. 155,491
Service and distribution fees - Class B ............................ 686,687
Service and distribution fees - Class C ............................ 143,089
Trustees' fees and expenses ........................................ 9,464
Accounting and administrative ...................................... 54,109
Custodian and securities lending ................................... 340,008
Transfer agent ..................................................... 533,515
Audit and tax services ............................................. 24,821
Legal .............................................................. 17,239
Printing ........................................................... 70,760
Registration ....................................................... 20,475
Amortization of organization expenses .............................. 6,496
Miscellaneous ...................................................... 12,420
-------------
Total expenses ....................................................... 3,598,900
-------------
Net investment income (loss) ......................................... (447,242)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments - net .................................................. 49,510,498
Forward currency contracts and foreign currency transactions - net 644,782
-------------
Net realized gain (loss) on investments, forward currency
contracts and foreign currency transactions .................... 50,155,280
-------------
Unrealized appreciation (depreciation) on:
Investments - net .................................................. (68,513,137)
Forward currency contracts and foreign currency transactions - net 193,299
-------------
Net unrealized appreciation (depreciation) on investments,
forward currency contracts and foreign currency transactions ... (68,319,838)
-------------
Net gain (loss) on investment transactions, forward currency
contracts and foreign currency transactions ........................ (18,164,558)
-------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................. $ (18,611,800)
=============
</TABLE>
14 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ................................. $ (2,118,569) $ (447,242)
Net realized gain (loss) on investments, forward currency
contracts and foreign currency transactions ................ 45,115,560 50,155,280
Unrealized appreciation (depreciation) on investments,
forward currency contracts and foreign currency transactions 40,444,136 (68,319,838)
------------- -------------
Increase (decrease) in net assets from operations ............ 83,441,127 (18,611,800)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A .................................................... (12,083,293) 0
Class B .................................................... (13,730,866) 0
Class C .................................................... (2,796,280) 0
------------- -------------
(28,610,439) 0
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ...................... (4,457,284) (69,303)
------------- -------------
Total increase (decrease) in net assets .................... 50,373,404 (18,681,103)
NET ASSETS
Beginning of the period ...................................... 246,082,920 296,456,324
------------- -------------
End of the period ............................................ $ 296,456,324 $ 277,775,221
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the period ............................................ $ (248,268) $ (695,510)
============= =============
</TABLE>
See accompanying notes to financial statements. 15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
---------------------------------------------------- June 30,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period (a) ............ $ 12.50 $ 14.40 $ 15.46 $ 16.08 $ 19.90
-------- -------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income (Loss) ........................ (0.03)(b) (0.02)(b) 0.01(b) (0.07)(b) 0.01
Net Realized and Unrealized Gain (Loss) on
Investments ....................................... 2.11 1.88 0.61 5.98 (1.30)
-------- -------- -------- -------- --------
Total From Investment Operations .................... 2.08 1.86 0.62 5.91 (1.29)
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net Realized Capital Gains ....... (0.18) (0.76) 0.00 (2.09) 0.00
Distributions From Paid-in Capital .................. 0.00 (0.04) 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions ................................. (0.18) (0.80) 0.00 (2.09) 0.00
-------- -------- -------- -------- --------
Net Asset Value, End of Period ...................... $ 14.40 $ 15.46 $ 16.08 $ 19.90 $ 18.61
======== ======== ======== ======== ========
Total Return (%)(c) ................................. 16.7 12.7 4.0 37.6 (6.5)
Ratio of Operating Expenses to Average Net Assets (%) 2.58 2.07 2.09 2.06 2.05(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ......................... (0.21) (0.12) 0.03 (0.42) 0.12(d)
Portfolio Turnover Rate (%) ......................... 57 80 84 91 96
Net Assets, End of Period (000) ..................... $ 68,509 $118,381 $106,763 $126,415 $117,664
<CAPTION>
Class B
--------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
---------------------------------------------------- June 30,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period (a) ............ $ 12.50 $ 14.30 $ 15.23 $ 15.73 $ 19.26
-------- -------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income ............................... (0.12)(b) (0.14)(b) (0.11)(b) (0.20)(b) (0.06)
Net Realized and Unrealized Gain (Loss) on
Investments ....................................... 2.10 1.87 0.61 5.82 (1.25)
-------- -------- -------- -------- --------
Total From Investment Operations .................... 1.98 1.73 0.50 5.62 (1.31)
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net Realized Capital Gains ....... (0.18) (0.76) 0.00 (2.09) 0.00
Distributions From Paid-in Capital .................. 0.00 (0.04) 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions ................................. (0.18) (0.80) 0.00 (2.09) 0.00
-------- -------- -------- -------- --------
Net Asset Value, End of Period ...................... $ 14.30 $ 15.23 $ 15.73 $ 19.26 $ 17.95
======== ======== ======== ======== ========
Total Return (%)(c) ................................. 15.9 11.9 3.3 36.6 (6.8)
Ratio of Operating Expenses to Average Net Assets (%) 3.33 2.82 2.84 2.81 2.80(d)
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) ............................ (0.96) (0.87) (0.72) (1.17) (0.63)(d)
Portfolio Turnover Rate (%) ......................... 57 80 84 91 96
Net Assets, End of Period (000) ..................... $ 65,367 $123,467 $116,305 $141,338 $131,921
</TABLE>
(a) Fund commenced operations December 29, 1995.
(b) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(c) A sales charge for Class A shares and a contingent deferred sales charge
for Class B shares is not reflected in total return calculations.
(d) Computed on an annualized basis.
16 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
---------------------------------------------------- June 30,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period (a) ............ $ 12.50 $ 14.31 $ 15.24 $ 15.75 $ 19.27
-------- -------- -------- -------- --------
Income (Loss) From Investment Operations
Net Investment Income (Loss) ........................ (0.12)(b) (0.13)(b) (0.11)(b) (0.21)(b) (0.06)
Net Realized and Unrealized Gain (Loss) on
Investments ....................................... 2.11 1.86 0.62 5.82 (1.25)
-------- -------- -------- -------- --------
Total From Investment Operations .................... 1.99 1.73 0.51 5.61 (1.31)
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net Realized Capital Gains ....... (0.18) (0.76) 0.00 (2.09) 0.00
Distributions From Paid-in Capital .................. 0.00 (0.04) 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions ................................. (0.18) (0.80) 0.00 (2.09) 0.00
-------- -------- -------- -------- --------
Net Asset Value, End of Period ...................... $ 14.31 $ 15.24 $ 15.75 $ 19.27 $ 17.96
======== ======== ======== ======== ========
Total Return (%) (c) ................................ 15.9 11.8 3.3 36.5 (6.8)
Ratio of Operating Expenses to Average Net Assets (%) 3.33 2.82 2.84 2.81 2.80(d)
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) ............................ (0.96) (0.87) (0.72) (1.17) (0.63)(d)
Portfolio Turnover Rate (%) ......................... 57 80 84 91 96
Net Assets, End of Period (000) ..................... $ 17,980 $ 26,137 $ 23,016 $ 28,703 $ 28,190
</TABLE>
(a) Fund commenced operations on December 29, 1995.
(b) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(c) A contingent deferred sales charge is not reflected in total return
calculations.
(d) Computed on an annualized basis.
See accompanying notes to financial statements. 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a series of Nvest Funds Trust I,
(the "Trust"), a Massachusetts business trust, registered under the Investment
Company Act of 1940, as amended, (the "1940 Act"), as an open-end management
investment company. The Fund seeks long-term growth of capital. The Declaration
of Trust permits the Trustees to issue an unlimited number of shares of the
Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B, and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay front end sales charges and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and are subject to a contingent deferred sales charge if
those shares are redeemed within one year. Expenses of the Fund are borne pro
rata by the holders of each class of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
Trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
provides the last reported sale price for securities listed on an applicable
securities exchange or on the NASDAQ national market system, or, if no sale was
reported and in the case of over-the-counter securities not so listed, the last
reported bid price, except for certain British equities which are valued at the
mean between the last bid and last ask prices on the London Stock Exchange.
Short-term obligations with a remaining maturity of less than sixty days are
stated at amortized cost, which approximates market value. All other securities
and assets are valued at their fair value as determined in good faith by the
Fund's adviser and the relevant subadviser under the supervision of the Fund's
Trustees.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date except certain dividends from foreign securities where
ex-dividend date may have passed are booked as soon as the fund is informed of
the dividend, and interest income is recorded on the accrual basis. Interest
income is increased by the accretion of original issue discount and/or market
discount. Investment income is recorded net of foreign taxes withheld where
recovery of some taxes is avaiable. In determining net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
c. Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities resulting from changes in the exchange rate.
d. Forward Foreign Currency Contracts. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Fund's investments against currency fluctuation. Also, a contract to buy or sell
can offset a previous contract. These contracts involve market risk in excess of
the unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The U.S. dollar value of the currencies the Fund has committed to
buy or sell (if any) is shown in the portfolio composition under the caption
"Forward Currency Contracts Outstanding." These amounts represent the aggregate
exposure to each currency the Fund has acquired or hedged through currency
contracts outstanding at period end.
All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
e. Federal and Foreign Income Taxes. The Fund intends to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made. The Fund may be subject to foreign taxes on income and gains on
investments which are accrued based upon the Funds understanding of the tax
rules and regulations that exist in the countries in which the Fund invests.
Foreign governments may also impose taxes or other payments on investments with
respect to foreign securities. The Fund accrues such taxes as applicable.
f. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
primarily due to differing treatments for organization costs, net operating
losses, Passive Foreign investment Companies ("PFIC") and foreign currency
transactions for book and tax purposes. Permanent book and tax basis differences
will result in reclassification to capital accounts.
g. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Each subadviser is responsible for determining that the
value of the collateral is at all times at least equal to the repurchase price.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon the
portfolio's ability to dispose of the underlying securities.
h. Organization Expense. Costs incurred in connection with the Fund's
organization and initial registration, amounting to approximately $64,900 in the
aggregate, were paid by the Fund and are being amortized by the Fund over 60
months.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000
purchase and sales of securities (excluding short-term investments) were
$264,788,257 and $261,328,502 respectively.
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 1.05% of the Fund's average daily net assets
reduced by the amount of any subadvisers fees paid by the Fund to its
subadvisers as follows: Harris Associates, L.P. and Loomis, Sayles & Company,
L.P. at the annual rate of 0.65% of the first $50 million of the average daily
net assets of the segment of the Fund which that subadviser manages, 0.60% of
the next $50 million of such assets and 0.55% of such assets in excess of $100
million and Montgomery Asset Management, L.P. at the annual rate of 0.85% of the
first $25 million of the average daily net assets of the segment of the Fund
that Montgomery Asset Management, L.P. manages, 0.65% of the next $25 million of
such assets and 0.55% of such assets in excess of $50 million. Certain officers
and directors of Nvest Management are also officers or Trustees of the Fund.
Nvest Management, Loomis, Sayles & Company, L.P., and Harris Associates, L.P.
are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest"), which is a
subsidiary of Metropolitan Life Insurance Company (Note 8). Fees earned by Nvest
Management and the subadvisers under the management and subadvisory agreements
in effect during the six months ended June 30, 2000, are as follows:
Fees Earned
-----------
Nvest Management $ 586,821
Harris Associates, L.P. 357,054
Loomis, Sayles & Company, L.P. 223,754
Montgomery Asset Management, L.P. 240,864
Janus 115,833
-----------
$ 1,524,326
===========
The effective annualized management fee for the six months ended June 30, 2000
was 1.05%.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $54,109 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative expense for the six months ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for all classes shareholder
accounts. NSC and BFDS are also reimbursed for out-of-pocket expenses. For the
six months ended June 30, 2000, the Fund paid NSC $369,949 as compensation for
its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by the Nvest Funds in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts. For
the six months ended June 30, 2000, the Fund paid Nvest Funds $155,491 in fees
under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays Nvest Funds monthly service
fees at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000 the Fund paid Nvest
Funds $171,672 and $35,772 in service fees under the Class B and Class C Plans,
respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $515,015 and $107,317 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $362,000.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. Capital Shares. At June 30,2000 there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B and
Class C. Transactions in capital shares were as follows
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31,1999 June 30, 2000
------------------------------ ------------------------------
Class A Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 17,418,778 $ 308,405,361 7,004,428 $ 132,249,746
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 625,286 11,630,312 0 0
------------- ------------- ------------- -------------
18,044,064 320,035,673 7,004,428 132,249,746
Shares repurchased ......................................... (18,330,936) (325,330,531) (7,034,944) (133,990,321)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (286,872) $ (5,294,858) (30,516) $ (1,740,575)
------------- ------------- ------------- -------------
<CAPTION>
Year Ended Six Months Ended
December 31,1999 June 30, 2000
------------------------------ ------------------------------
Class B Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 938,431 $ 16,521,040 672,920 $ 12,676,068
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 706,524 12,724,497 0 0
------------- ------------- ------------- -------------
1,644,955 29,245,537 672,920 12,676,068
Shares repurchased ......................................... (1,700,021) (29,067,473) (661,646) (12,466,913)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (55,066) $ 178,064 11,274 $ 209,155
------------- ------------- ------------- -------------
<CAPTION>
Year Ended Six Months Ended
December 31,1999 June 30, 2000
------------------------------ ------------------------------
Class C Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 1,341,499 $ 23,365,742 426,569 $ 8,011,741
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 150,031 2,703,557 0 0
------------- ------------- ------------- -------------
1,491,530 26,069,299 426,569 8,011,741
Shares repurchased ......................................... (1,463,990) (25,409,789) (346,464) (6,549,624)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 27,540 $ 659,510 80,105 $ 1,462,117
------------- ------------- ------------- -------------
Increase (decrease) derived from capital shares transactions (314,398) $ (4,457,284) 60,863 $ (69,303)
============= ============= ============= =============
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
5. Line of Credit. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
6. Security Lending. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 2000, no securities were on loan.
7. Concentration of Risk. The Fund had the following geographic concentration in
excess of 10% of its total net assets at June 30, 2000: Japan 10.4%, United
Kingdom 13.2% and United States 28.2%. The Fund pursues its objectives by
investing in foreign securities. There are certain risks involved in investing
in foreign securities which are in addition to the usual risks inherent in
domestic investments. These risks include those resulting from future adverse
political or economic developments and the possible imposition of currency
exchange blockages or other foreign governmental laws or restrictions.
8. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
ADDITIONAL INFORMATION
Shareholder Meeting. At a special shareholders' meeting held on April 14, 2000,
shareholders of the Fund voted for the following proposal:
1. Subadvisory agreement relating to the Fund between Nvest Funds Management,
L.P. and Loomis, Sayles & Company, L.P.
Voted For Voted Against Abstained Votes Total Votes
------------- ------------- --------------- -------------
8,923,936.724 97,006.886 310,175.694 9,331,119.304
23
<PAGE>
================================================================================
NVEST STAR SMALL CAP FUND
NVEST STAR VALUE FUND
NVEST STAR ADVISERS FUND
Supplement dated August 21, 2000 to Nvest Star Funds Prospectuses
Classes A, B and C and Class Y each dated May 1, 2000
Nvest Star Small Cap Fund
Clyde S. McGregor, C.F.A., has become co-portfolio manager of the Harris
Associates segment of Nvest Star Small Cap Fund, joining James P. Benson, who
has managed the segment since November 1999. Mr. McGregor, who has replaced
Steven J. Reid, joined Harris Associates as an analyst in 1981 and began
managing portfolios in 1986. He holds an M.B.A. in Finance from the University
of Wisconsin-Madison (1977) and a B.A. in Economics and Religion from Oberlin
College (1974).
The investment approach of the Harris Associates segment of the Fund remains the
same.
Nvest Star Value Fund
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the segment of the Fund managed by Vaughan, Nelson, Scarborough & McCullough.
Nvest Star Advisers Fund
Effective August 1, 2000, Joseph Gatz remains the lead portfolio manager and
Daniel Thelen remains a co-portfolio manager for the segment of the Fund managed
by Loomis Sayles.
24
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
*Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest
Funds are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you of the
availability of a brochure on its Public Disclosure Program. The program
provides access to information about securities firms and their representatives.
Investors may obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
SW58-0600
[LOGO Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Star
Small Cap Fund
Where
The Best
Minds Meet(R)
-----------------
June 30, 2000
-----------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Star Small Cap Fund's performance to a benchmark
index provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged; there are no expenses that affect the results. In
addition, few investors could purchase all of the securities necessary to match
the index. And, if they could, they would incur transaction costs and other
expenses.
Growth of a $10,000 Investment in Class A shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
December 1996 (Inception) through June 2000
NAV MSC R2000
-------------------------------------------------
6/00 22,503 21,213 14,894
6/99 21,429 20,197 14,460
6/99 14,968 14,107 13,032
6/98 12,956 12,211 11,924
6/98 13,341 12,574 12,839
6/97 12,697 11,966 12,236
6/97 11,040 10,405 11,020
6/96 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
Average Annual Total Returns -- 6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 12/31/96) 6 Months 1 Year Since Inception
<S> <C> <C> <C>
Net Asset Value(1) 5.04% 50.37% 26.12%
With Maximum Sales Charge(2) -1.01 41.76 24.01
----------------------------------------------------------------------------------------
Class B (Inception 12/31/96) 6 Months 1 Year Since Inception
Net Asset Value(1) 4.60% 49.25% 25.18%
With CDSC(3) -0.40 44.25 24.68
----------------------------------------------------------------------------------------
Class C (Inception 12/31/96) 6 Months 1 Year Since Inception
Net Asset Value(1) 4.60% 49.25% 25.18%
With CDSC(3) 3.60 48.25 25.18
----------------------------------------------------------------------------------------
Since Fund's
Class A, B, C
Comparative Performance 6 Months 1 Year Inception
Russell 2000 Index(4) 3.04% 14.32% 12.06%
Morningstar Small-Cap Growth Average(5) 10.09 55.14 24.89
Lipper Small Cap Growth Average(6) 9.45 57.71 24.48
----------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and returns will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) Russell 2000 Index is an unmanaged index measuring the stock price
performance of the 2,000 smallest companies within the Russell 3000 Index.
The performance of the index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual
fund investments. You may not invest directly in an index.
(5) Morningstar Small-Cap Growth Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Morningstar, Inc.
(6) Lipper Small-Cap Growth Average is the average performance without sales
charges of mutual funds with a similar investment style or objective as
determined by Lipper Inc.
2
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
Overview: How the Fund Performed
--------------------------------------------------------------------------------
Rising interest rates and a broad-based market sell-off created a turbulent
investment environment for small-cap stocks, especially during the last three
months of the period, although the overall trend in the small-cap area was up.
For the six-months ended June 30, 2000, Nvest Star Small Cap Fund produced solid
performance. Class A shares returned 5.04%, at net asset value, outperforming
the Fund's benchmark, the Russell 2000 Index, which returned 3.04% for the same
period.
Nvest Star Small Cap Fund is comprised of four separate portfolio segments, each
managed by a different investment management firm with special expertise in
specific markets. This multi-manager approach is the essence of the Star
concept. It provides a means to diversify among individual securities as well as
investment styles and strategies of several established management firms. The
extra diversification provided by employing different investment styles is
designed to balance out market swings over time, in an effort to seek superior
long-term performance results relative to funds that employ a single strategy.
The chart below shows the proportion of assets under the management of each
subadviser. The proportions grow and shrink relative to one another as a result
of the returns of each Fund segment and the markets in which they invest.
Small-cap stocks weathered a volatile period
The effect of rising interest rates on small-cap companies continued to concern
investors during the first six months of 2000. Because higher rates can increase
the cost of doing business, they often have the effect of eroding corporate
profits. Even a relatively small decline in a company's profits can lead to a
pullback in its stock price. The upward trend in interest rates began more than
a year ago when the Federal Reserve Board adopted a tight monetary policy
designed to slow the pace
Portfolio Segments -- 6/30/00
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
RS Investment Management 36.5%
Montgomery 19.1%
Loomis Sayles 30.4%
Harris/Oakmark 14.0%
Portfolio holdings and asset allocation will vary.
3
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
--------------------------------------------------------------------------------
of economic growth and contain inflation. By the end of June 2000, investors
were hopeful that the Fed's actions were having the desired effect and that the
Fed was at the end of its interest-rate raising cycle.
The January to June 2000 period started out on a high note for small-cap growth
stocks. At the beginning of the year, the technology stock euphoria that had
characterized the market for more than a year remained a dominant force.
Small-cap growth stocks benefited from this high-tech emphasis because many
small companies are in the business of creating promising products and services
that will be used for expanding the Internet and improving telecommunications
and cable services. However, in March there was a dramatic shift in investor
sentiment. Concerns about rising interest rates and the relatively high
valuations of some growth stocks triggered a sell-off in the small-cap
technology area. This led to a broadening of the market, and investors began to
favor value stocks over growth stocks. The emphasis on value stocks was
short-lived, however. While value stocks maintained their short-term gains, by
the end of the period investors had returned to the growth area of the small-cap
market.
Top 10 Portfolio Holdings -- 6/30/00
% of
Company Net Assets
----------------------------------------------------------
1. Westwood One, Inc. 1.3
----------------------------------------------------------
2. Motient Corp. 1.3
----------------------------------------------------------
3. Digital Lightwave, Inc. 1.3
----------------------------------------------------------
4. Golden State Bancorp, Inc. 1.2
----------------------------------------------------------
5. billserv. com, Inc. 1.2
----------------------------------------------------------
6. Mercury Interactive Corp. 1.1
----------------------------------------------------------
7. Macromedia, Inc. 1.1
----------------------------------------------------------
8. Oak Technology, Inc. 1.1
----------------------------------------------------------
9. R&B Falcon Corp. 1.1
----------------------------------------------------------
10. SDL, Inc. 1.0
----------------------------------------------------------
Portfolio holdings and asset allocation will vary.
The Fund's subadvisers use different strategies
Each of the four portfolio segments of Nvest Star Small Cap Fund was managed to
take advantage of the changing nature of the market.
Market volatility took its toll on the RS Investment Management segment. For the
six-month period, the segment's holdings in technology, media and utilities held
back performance. However its investments in oil field services added to
returns.
4
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
--------------------------------------------------------------------------------
The Loomis Sayles segment invested aggressively in high-growth technology
companies, and used the market correction to purchase some high-quality
companies at low prices. This segment's holdings in financial stocks defrayed
some of the negative pressure on high-tech stocks during the second quarter.
For the Montgomery Asset Management portfolio segment, stock selection in
technology, health care, energy and financial services was positive for
performance. However, investments in basic materials and durables (industrial
machinery) dampened the segment's returns.
The Harris/Oakmark segment maintained its value-based strategy. This segment
held relatively small positions in technology, health-care and utilities, while
it emphasized financial services, automobiles and non-cyclicals. This strategy
benefited the Harris/Oakmark segment, as capital moved out of speculative
technology companies and into more traditional value sectors during the second
quarter.
Our overall outlook is supportive for small-cap stocks
We expect the small-cap market to remain highly volatile until investors are
certain that the Fed has finished raising interest rates. Over the long term,
however, we are optimistic about the prospects for small-cap stocks. Technology
is rapidly changing the way we live, and many of the small-cap companies in
Nvest Star Small Cap Fund's four portfolio segments are creating the products
that are responsible for sweeping technological advances. Such companies are
likely to benefit investors for years to come.
We also expect to see renewed interest in the value area of the market, as
investors seek opportunities in more traditional companies. While we believe the
Fed may be successful in slowing the pace of economic growth, we do not
anticipate a recession. Relatively strong economic growth should be positive for
the small-cap stocks in which the Fund invests.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Star Small Cap Fund invests in small-cap and emerging growth companies,
which are more volatile than the overall market. It may also invest in foreign
and emerging market securities, which have special risks; lower-rated bonds,
which offer higher yields in return for more risk; real estate investment trusts
(REITs), which change in price with underlying real estate values and have other
mortgage-related risks; and derivative securities, whose value is based on other
securities or indices, which may have significant risk, impact the Fund's
performance and increase tax liability. Frequent portfolio turnover may increase
your risk of tax liability and lower your total return from this Fund. These
risks affect your investment's value. See a prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- 95.2% of Total Net Assets
<TABLE>
<CAPTION>
Shares Description Value (a)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Automotive -- 1.0%
30,000 Dollar Thrifty
Automotive Group, Inc. (c)............................ $ 553,125
125,000 Fleetwood Enterprises, Inc............................ 1,781,250
25,000 Standard Motor Products, Inc.......................... 212,500
------------
2,546,875
------------
Banks & Thrifts -- 3.2%
70,000 BankAtlantic Bancorp, Inc............................. 262,500
10,600 Commerce Bancorp, Inc................................. 487,600
170,000 Golden State Bancorp, Inc. (c)........................ 3,060,000
30,000 People's Bank......................................... 551,250
37,800 Silicon Valley Bancshares............................. 1,611,225
75,000 U.S. Bancorp.......................................... 1,443,750
35,000 Washington Mutual, Inc................................ 1,010,625
------------
8,426,950
------------
Biotechnology -- 0.4%
1,700 Affymetrix, Inc....................................... 280,712
13,150 Aurora Bioscience Corp................................ 896,666
------------
1,177,378
------------
Broadcasting -- 3.1%
21,000 Imax Corp. (c)........................................ 477,750
75,000 LodgeNet Entertainment Corp. (c)...................... 1,818,750
18,550 Radio One, Inc. Class A (c)........................... 548,384
37,100 Radio One, Inc. Class B (c)........................... 818,519
101,600 Westwood One, Inc. (c)................................ 3,467,100
108,800 Ziff-Davis, Inc....................................... 979,200
------------
8,109,703
------------
Building & Related -- 0.4%
20,500 Elcor Corp............................................ 471,500
21,100 Manitowoc Co.......................................... 564,425
------------
1,035,925
------------
Business Services -- 3.1%
24,300 Administaff, Inc. (c)................................. 1,543,050
2,600 Catalina Marketing Corp. (c).......................... 265,200
9,100 Diamond Technology Partners, Inc.(c).................. 800,800
35,200 Macrovision Corp...................................... 2,250,050
56,925 Metris Co............................................. 1,430,241
38,400 On Assignment, Inc. (c)............................... 1,171,200
142,200 SITEL Corp. (c)....................................... 702,112
------------
8,162,653
------------
Chemicals -- 0.2%
30,000 Ferro Corp............................................ 630,000
------------
Communication Equipment -- 1.5%
155,000 AVT Corp.............................................. 1,143,125
50,000 CapRock Communications Corp. (c)...................... 975,000
16,600 iBasis, Inc. (c)...................................... 714,837
9,650 JDS Uniphase Corp..................................... 1,156,794
------------
3,989,756
------------
Communication Services -- 0.3%
17,300 Powerwave Technologies, Inc. (c)...................... 761,200
------------
Computer Hardware -- 0.9%
125,000 Micron Electronics, Inc. (c).......................... 1,562,500
11,500 SanDisk Corp. (c)..................................... 703,656
------------
2,266,156
------------
Computer Networking -- 0.8%
109,400 Auspex Systems, Inc. (c).............................. 540,163
10,200 Juniper Networks, Inc................................. 1,484,737
------------
2,024,900
------------
Computer Software & Services -- 13.5%
65,300 Acxiom Corp. (c)...................................... 1,779,425
15,150 Allaire Corp.......................................... 556,763
9,900 Bisys Group, Inc. (c)................................. 608,850
22,800 Blue Wave Systems, Inc. (c)........................... 235,125
15,900 Business Objects SA (ADR) (c)......................... 1,401,187
24,000 Cadence Design Systems, Inc. (c)...................... 489,000
28,500 Caminus Corp. (c)..................................... 698,250
13,000 CheckFree Holdings Corp. (c).......................... 670,312
17,500 ChoicePoint, Inc. (c)................................. 778,750
25,000 Exchange Applications, Inc. (c)....................... 665,625
148,400 Informix Corp. (c).................................... 1,103,725
5,000 Interwoven, Inc....................................... 549,922
77,000 iXL Enterprises, Inc. (c)............................. 1,116,500
30,100 Macromedia, Inc. (c).................................. 2,910,294
40,000 Maxtor Corp. (c)...................................... 422,500
40,000 Mentor Graphics Corp. (c)............................. 795,000
30,200 Mercury Interactive Corp. (c)......................... 2,921,850
116,600 MetaCreations Software, Inc. (c)...................... 1,399,200
2,500 Micromuse, Inc........................................ 413,711
100,000 MSC.Software Corp..................................... 931,250
75,000 National Data Corp.................................... 1,725,000
14,500 Natural Microsystems Corp. (c)........................ 1,630,344
21,000 Optimal Robotics Corp. (c)............................ 805,875
29,500 PeopleSoft, Inc. (c).................................. 494,125
47,850 Peregrine Systems, Inc................................ 1,659,797
</TABLE>
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software & Services -- continued
75,000 Pilot Network Services, Inc. (c)...................... $ 1,115,625
10,800 Precise Software Solutions, Ltd. (c).................. 259,200
9,200 Retek, Inc. (c)....................................... 294,400
21,100 Serena Software, Inc. (c)............................. 958,072
13,000 Silicon Storage Technology, Inc. (c).................. 1,148,062
115,100 Stamps.com, Inc. (c).................................. 841,669
5,800 Sybase, Inc. (c)...................................... 133,400
10,000 Symantec Corp. (c).................................... 539,375
270,000 The 3DO Co. (c)....................................... 2,117,812
1,400 VeriSign, Inc. (c).................................... 247,100
14,000 WatchGuard Technologies, Inc. (c)..................... 769,125
1,800 Witness Systems, Inc. (c)............................. 43,875
------------
35,230,095
------------
Computers & Business Equipment -- 1.0%
42,200 Concurrent Computer Corp. (c)......................... 553,875
22,000 Pinnacle Systems, Inc. (c)............................ 494,656
190,000 United Shipping and Technology, Inc................... 1,520,000
25,000 United Shipping and
Technology, Inc., 144A (d)............................ 180,000
------------
2,748,531
------------
Consumer Goods & Services -- 0.9%
6,700 Bausch & Lomb, Inc.................................... 518,413
31,700 Playtex Products, Inc. (c)............................ 358,606
50,000 R.G. Barry Corp. (c).................................. 193,750
50,900 ValueVision International, Inc. (c)................... 1,221,600
------------
2,292,369
------------
Drugs & Healthcare -- 4.2%
10,000 Abgenix, Inc.......................................... 1,198,594
13,700 Alkermes, Inc......................................... 645,612
160,000 Caremark Rx, Inc. (c)................................. 1,090,000
32,000 Catalytica, Inc. (c).................................. 352,000
36,000 Covance, Inc. (c)..................................... 317,250
35,800 Duane Reade, Inc. (c)................................. 921,850
100,000 Dura Pharmaceuticals, Inc. (c)........................ 1,437,500
2,300 Gilead Sciences, Inc. (c)............................. 163,588
12,200 Invitrogen Corp. (c).................................. 917,478
20,200 MedImmune, Inc. (c)................................... 1,494,800
7,000 Millennium Pharmaceuticals, Inc. (c).................. 783,125
22,300 Priority Healthcare Corp. (c)......................... 1,657,169
------------
10,978,966
------------
Electric Utilities -- 0.7%
17,300 American Power
Conversion Corp. (c).................................. 706,056
35,000 Montana Power Co...................................... 1,235,938
------------
1,941,994
------------
Electronic Components -- 3.0%
12,000 C Cube Microsystems, Inc. (c)......................... 235,500
17,700 California Amplifier, Inc. (c)........................ 809,775
14,100 Emcore Corp. (c)...................................... 1,692,000
35,800 Integrated Silicon Solution, Inc. (c)................. 1,360,400
17,200 Kopin Corp............................................ 1,191,100
18,100 Plexus Corp. (c)...................................... 2,045,300
5,600 Zygo Corp. (c)........................................ 508,550
------------
7,842,625
------------
Electronics -- 7.3%
17,700 Actel Corp. (c)....................................... 807,563
60,000 Adaptec, Inc. (c)..................................... 1,365,000
15,600 Advanced Energy Industries, Inc. (c).................. 919,425
13,850 Applied Micro Circuits Corp. (c)...................... 1,367,687
14,200 Capstone Turbine Corp. (c)............................ 639,888
27,200 Credence Systems Corp. (c)............................ 1,501,100
13,800 Cree Research, Inc. (c)............................... 1,842,300
8,900 Cymer, Inc. (c)....................................... 424,975
11,600 Lam Research Corp. (c)................................ 435,000
2,800 Molecular Devices Corp. (c)........................... 193,725
4,200 Nanometrics, Inc. (c)................................. 172,988
6,000 Newport Corp.......................................... 644,250
8,000 PE Corp............................................... 748,000
16,000 Photon Dynamics, Inc. (c)............................. 1,195,000
21,000 PRI Automation, Inc. (c).............................. 1,373,203
9,500 SDL, Inc. (c)......................................... 2,709,281
20,300 SpeedFam-IPEC, Inc. (c)............................... 369,206
23,900 TranSwitch Corp. (c).................................. 1,844,781
50,000 U.S. Industries, Inc. (c)............................. 606,250
------------
19,159,622
------------
Entertainment -- 0.4%
19,400 CEC Entertainment, Inc. (c)........................... 497,125
10,000 Viacom, Inc., Class B (c)............................. 667,500
------------
1,164,625
------------
Financial Services -- 0.7%
60,600 AmeriCredit Corp. (c)................................. 1,030,200
27,300 Imperial Bancorp...................................... 426,562
18,100 Profit Recovery Group
International, Inc. (c)............................... 300,913
------------
1,757,675
------------
</TABLE>
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Food & Beverages -- 1.1%
150,000 Del Monte Foods Co.................................... $ 1,021,875
20,000 International Multifoods Corp......................... 346,250
52,000 M&F Worldwide Corp.................................... 292,500
100,000 Ralcorp Holdings, Inc. (c)............................ 1,225,000
------------
2,885,625
------------
Health Care-Medical Technology -- 2.8%
6,800 Aclara Biosciences, Inc. (c).......................... 346,375
17,200 Cerus Corp. (c)....................................... 880,425
18,900 Curagen Corp.......................................... 719,381
32,500 Cytyc Corp. (c)....................................... 1,734,687
62,500 Endocardial Solutions, Inc. (c)....................... 531,250
20,650 Exelixis, Inc......................................... 689,194
150,000 Hanger Orthopedic Group, Inc.......................... 740,625
7,700 MiniMed, Inc. (c)..................................... 908,600
8,400 Oratec Interventions, Inc............................. 280,350
5,400 Trimeris, Inc......................................... 377,663
------------
7,208,550
------------
Health Care-Services -- 1.7%
50,000 Community Health Systems, Inc......................... 809,375
38,600 First Health Group Corp. (c).......................... 1,266,562
75,000 Omnicare, Inc......................................... 679,688
49,900 Oxford Health Plans, Inc. (c)......................... 1,188,244
40,000 Veterinary Centers of
America, Inc.......................................... 550,000
------------
4,493,869
------------
Hotels & Restaurants -- 0.3%
60,000 Prime Hospitality Corp. (c)........................... 566,250
95,600 Steakhouse Partners, Inc.............................. 286,800
------------
853,050
------------
Industrial Goods & Services -- 1.9%
14,900 C&D Technologies...................................... 841,850
50,000 Columbus McKinnon Corp................................ 693,750
15,000 HB Fuller Co.......................................... 683,438
60,000 MagneTek, Inc. (c).................................... 480,000
32,700 PerkinElmer, Inc...................................... 2,162,287
------------
4,861,325
------------
Insurance -- 1.3%
17,500 PMI Group, Inc........................................ 831,250
22,492 Radian Group, Inc. (c)................................ 1,163,961
19,600 StanCorp Financial Group, Inc. (c).................... 629,650
20,000 The MONY Group, Inc................................... 676,250
------------
3,301,111
------------
Internet Content -- 2.6%
330,000 billserv. com, Inc. (c)............................... 3,031,875
8,900 BroadVision, Inc...................................... 452,231
16,500 Digital Insight Corp. (c)............................. 561,000
26,100 HomeStore.com, Inc. (c)............................... 761,794
4,100 Inktomi Corp. (c)..................................... 484,825
10,600 Lycos, Inc. (c)....................................... 572,400
14,300 MP3.com, Inc. (c)..................................... 193,944
15,000 Scient Corp. (c)...................................... 661,875
------------
6,719,944
------------
Investment Companies -- 0.3%
22,350 Waddell & Reed Financial, Inc......................... 733,359
------------
Machinery -- 0.9%
15,500 Applied Power, Inc.................................... 519,250
40,000 Jore Corp. (c)........................................ 217,500
110,000 McDermott International, Inc.......................... 969,375
47,300 Sames Corp............................................ 744,975
------------
2,451,100
------------
Manufacturing -- 0.9%
28,100 Diebold, Inc.......................................... 783,288
14,800 Kulicke & Soffa Industries, Inc. (c).................. 878,750
10,000 Linear Technology Corp................................ 639,375
------------
2,301,413
------------
Network Systems -- 0.6%
8,750 Black Box Corp. (c)................................... 692,754
47,500 Legato Systems, Inc. (c).............................. 718,437
4,400 Stratos Lightwave, Inc. (c)........................... 122,650
------------
1,533,841
------------
Oil & Gas-Drilling
Equipment -- 4.0%
17,350 Atwood Oceanics, Inc. (c)............................. 769,906
90,000 Global Marine, Inc. (c)............................... 2,536,875
52,600 Hanover Compressor Co................................. 1,998,800
57,300 Marine Drilling Companies, Inc. (c)................... 1,604,400
20,000 Nabors Industries, Inc. (c)........................... 831,250
35,000 National-Oilwell, Inc. (c)............................ 1,150,625
25,200 Universal Compression Holdings........................ 844,200
35,482 Varco International, Inc. (c)......................... 824,957
------------
10,561,013
------------
</TABLE>
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil & Gas-
Exploration & Production -- 2.6%
25,000 Barrett Resources Corp................................ $ 760,937
45,000 EOG Resources, Inc.................................... 1,507,500
15,500 Newfield Exploration Co............................... 606,438
57,500 Ocean Energy, Inc..................................... 815,781
54,300 Santa Fe Snyder Corp.................................. 617,663
30,000 Triton Energy, Ltd.................................... 1,179,375
41,900 Valero Energy Corp.................................... 1,330,325
------------
6,818,019
------------
Petroleum Services -- 4.2%
280,000 Bonus Resource Services Corp.......................... 690,541
25,000 ENSCO International, Inc.............................. 895,313
48,000 Global Industries, Inc................................ 906,000
28,800 Maverick Tube Corp.................................... 838,800
50,000 Newpark Resources, Inc................................ 471,875
62,400 Pride International, Inc. (c)......................... 1,544,400
117,400 R&B Falcon Corp. (c).................................. 2,766,237
27,500 Teekay Shipping Corp.................................. 904,062
48,400 UTI Energy Corp....................................... 1,942,050
------------
10,959,278
------------
Real Estate -- 0.7%
100,000 Catellus Development
Corp. (c) (REIT)...................................... 1,500,000
35,000 Trammell Crow Co. (REIT).............................. 376,250
------------
1,876,250
------------
Retail -- 2.8%
150,000 Department 56, Inc.................................... 1,650,000
144,200 Krause's Furniture, Inc. (c).......................... 162,225
18,300 Linens'n Things, Inc. (c)............................. 496,388
55,000 Ross Stores, Inc...................................... 938,437
31,950 Talbots, Inc.......................................... 1,755,253
150,000 Ugly Duckling Corp. (c)............................... 1,059,375
20,300 Ultimate Electronics, Inc............................. 543,977
19,100 Williams-Sonoma, Inc.................................. 619,556
------------
7,225,211
------------
Retail-Food & Drug -- 0.6%
60,000 Great Atlantic & Pacific Tea Co....................... 997,500
11,800 Whole Foods Market, Inc. (c).......................... 487,488
------------
1,484,988
------------
Retail-Specialty -- 0.8%
120,000 Cyberian Outpost, Inc................................. 577,500
24,100 Pacific Sunwear of
California, Inc. (c).................................. 451,875
20,000 Pier 1 Imports, Inc................................... 195,000
172,500 Shop At Home, Inc..................................... 805,898
80,000 SkyMall, Inc.......................................... 190,000
------------
2,220,273
------------
Semiconductors -- 3.6%
40,700 Alliance Semiconductor Corp........................... 999,694
1,200 Broadcom Corp., Class A............................... 262,725
29,200 Conductus, Inc........................................ 576,700
8,800 Diodes, Inc........................................... 377,300
5,500 Elantec Semiconductor, Inc............................ 382,938
6,650 Marvell Technology Group, Ltd......................... 379,050
17,500 Novellus Systems, Inc................................. 989,844
130,000 Oak Technology, Inc................................... 2,803,125
18,200 PLX Technology, Inc................................... 755,300
8,600 Silicon Laboratories, Inc............................. 456,875
15,000 STMicroelectronics NV................................. 962,812
15,000 Superconductor Technologies, Inc...................... 589,687
------------
9,536,050
------------
Services -- 3.4%
19,800 American Superconductor Corp.......................... 955,350
100,000 Checkpoint Systems, Inc............................... 750,000
15,300 Corporate Executive Board Co.......................... 916,087
55,650 DeVry, Inc (c)........................................ 1,471,247
29,750 Forrester Research, Inc............................... 2,166,172
100,000 ITT Educational Services, Inc......................... 1,756,250
44,200 Kforce.com, Inc....................................... 306,638
30,000 United Rentals, Inc................................... 513,750
------------
8,835,494
------------
Telecommunications -- 6.4%
7,000 Adaptive Broadband Corp............................... 287,875
37,500 Dobson Communications Corp............................ 721,875
225,300 E Spire Communications, Inc........................... 1,520,775
100,000 GST Telecommunications, Inc. (c)(e)................... 0
45,000 ICG Communications, Inc............................... 992,812
72,400 Latitude Communications, Inc.......................... 809,975
34,800 Metromedia Fiber Network (c).......................... 1,381,125
212,100 Motient Corp.......................................... 3,327,319
4,500 Netro Corp............................................ 254,250
21,400 Polycom, Inc.......................................... 2,013,606
102,600 Primus Telecomm Group, Inc............................ 2,552,175
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications -- continued
62,200 Spectralink Corp...................................... $ 909,675
146,300 Startec Global
Communications Corp. (c).............................. 1,563,581
50,700 Worldquest Networks, Inc. (c)......................... 361,238
------------
16,696,281
------------
Telecommunications-Equipment -- 4.4%
9,600 Carrier Access Corp. (c).............................. 507,600
24,750 Comtech Telecommunications............................ 408,375
21,500 Comverse Technology, Inc. (c)......................... 1,999,500
32,750 Digital Lightwave, Inc................................ 3,291,375
15,500 Ditech Communications Corp............................ 1,465,719
5,300 Exfo Electro-Optical Engineering, Inc................. 232,537
30,000 Finisar Corp.......................................... 785,625
22,400 Pinnacle Holdings, Inc................................ 1,209,600
5,000 Plantronics, Inc...................................... 577,500
20,400 Sawtek, Inc. (c)...................................... 1,174,275
------------
11,652,106
------------
Transportation -- 0.7%
25,800 Landstar Systems, Inc................................. 1,536,713
50,000 OMI Corp.............................................. 271,875
------------
1,808,588
------------
Total Common Stock
(Identified Cost $212,102,525)........................ 249,264,736
------------
Short Term Investments -- 5.9%
Principal
Amount
----------------------------------------------------------------------------------------------------
$ 160,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$160,070 on 7/03/2000,
collaterized by $145,000
U.S. Treasury Bond 7.125% due
02/15/2023 valued at
$165,119.............................................. 160,000
6,293,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$6,295,753 on 7/03/2000,
collaterized by $5,640,000
U.S. Treasury Bond 7.125% due
02/15/2023 valued at
$6,422,550............................................ 6,293,000
2,127,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$2,127,931 on 7/03/2000,
collaterized by $1,910,000
U.S. Treasury Bond 7.125% due
02/15/2023 valued at
$2,175,013............................................ 2,127,000
6,820,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 6.25% to be repurchased at
$6,823,552 on 7/03/2000,
collaterized by $6,110,000
U.S. Treasury Bond 7.125% due
02/15/2023 valued at
$6,957,763............................................ 6,820,000
------------
Total Short Term Investments
(Identified Cost $15,400,000) ........................ 15,400,000
------------
Total Investments -- 101.1%
(Identified Cost $227,502,525) (b).................... 264,664,736
Other assets less liabilities......................... (2,565,661)
------------
Total Net Assets -- 100%.............................. $262,099,075
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized appreciation on
investments based on cost of $227,502,525 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess of
value over tax cost............................................... $ 58,282,229
Aggregate gross unrealized depreciation for
all investments in which there is an excess of
tax cost over value............................................... (21,120,018)
------------
Net unrealized appreciation....................................... $ 37,162,211
============
(c) Non-income producing security.
(d) Security valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
(e) Issuer filed petition under Chapter 11 of the Federal Bankruptcy
Code.
ADR An American Depositary Receipt is a cetificate issued by a U.S.
bank representing the right to receive securities of the foreign
issuer described. The values of ADRs are significantly influenced
by trading on exchanges not located in the United States.
REIT Real Estate Investment Trust
144A Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At June 30, 2000, the value of those
securities amounted to $180,000 or 0.1% of net assets.
</TABLE>
10 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
========================================================================
June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $227,502,525) .................. $ 264,664,736
Receivable for:
Fund shares sold .................................................. 1,378,889
Securities sold ................................................... 5,495,017
Dividends and interest ............................................ 35,919
Unamortized organization expense ..................................... 12,666
-------------
271,587,227
LIABILITIES
Payable for:
Securities purchased ................................................. $ 8,568,104
Fund shares redeemed ................................................. 576,844
Custodial bank ....................................................... 137,512
Accrued expenses:
Management fees ...................................................... 21,654
Deferred trustees' fees .............................................. 30,002
Accounting and administrative ........................................ 14,105
Transfer agent ....................................................... 68,101
Other expenses ....................................................... 71,830
-------------
9,488,152
-------------
NET ASSETS .............................................................. $ 262,099,075
=============
Net Assets consist of:
Paid-in capital ................................................... $ 171,280,896
Undistributed (overdistributed) net investment income (loss) ...... (2,025,691)
Accumulated net realized gains (losses) ........................... 55,681,659
Unrealized appreciation (depreciation) on investments ............. 37,162,211
-------------
NET ASSETS .............................................................. $ 262,099,075
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares ($104,451,329/
4,246,250 shares of beneficial interest) ........................... $ 24.60
=============
Offering price per share (100/94.25 of $ 24.60) ...................... $ 26.10*
=============
Net asset value and offering price of Class B shares
($124,221,373/5,196,723 shares of beneficial interest) ............. $ 23.90**
=============
Net asset value and offering price of Class C shares
($33,426,373/1,398,556 shares of beneficial interest) .............. $ 23.90**
=============
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements. 11
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $746) ................... $ 236,673
Interest ................................................... 504,108
Securities lending income .................................. 90,286
------------
831,067
Expenses
Management fees ........................................... $ 1,312,775
Service fees - Class A .................................. 125,005
Service and distribution fees - Class B ................. 592,657
Service and distribution fees - Class C ................. 157,588
Trustees' fees and expenses ............................. 8,735
Accounting and administrative ........................... 46,283
Custodian and securities lending ........................ 158,554
Transfer agent .......................................... 340,012
Audit and tax services .................................. 23,331
Legal ................................................... 5,392
Printing ................................................ 24,221
Registration ............................................ 24,056
Amortization of organization expense .................... 4,441
Miscellaneous ........................................... 7,949
------------
Total expenses .......................................... 2,830,999
------------
Net investment loss ....................................... (1,999,932)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments -- net ................ 36,497,270
Unrealized appreciation (depreciation) on investments -- net (26,416,166)
------------
Net gain (loss) on investment transactions .................... 10,081,104
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......... $ 8,081,172
============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ............................ $ (2,815,368) $ (1,999,932)
Net realized gain (loss) on investments ................. 40,096,152 36,497,270
Unrealized appreciation (depreciation) on investments ... 45,299,689 (26,416,166)
------------- -------------
Increase (decrease) in net assets from operations ....... 82,580,473 8,081,172
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A .............................................. (7,389,591) 0
Class B .............................................. (8,795,407) 0
Class C .............................................. (2,189,940) 0
------------- -------------
(18,374,938) 0
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................. 15,593,441 41,236,869
------------- -------------
Total increase (decrease) in net assets .................... 79,798,976 49,318,041
NET ASSETS
Beginning of the period ................................. 132,982,058 212,781,034
------------- -------------
End of the period ....................................... $ 212,781,034 $ 262,099,075
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the Period ....................................... $ (25,759) $ (2,025,691)
============= =============
</TABLE>
See accompanying notes to financial statements. 13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------
Year Ended December 31, Six Months Ended
--------------------------------------------------- June 30,
1997 1998 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (c) .......... $ 12.50 $ 15.37 $ 15.66 $ 23.42
----------- ----------- ----------- -----------
Income (loss) from investment operations
Net investment income (loss) ...................... (0.20)(a) (0.23)(a) (0.27)(a) (0.14)
Net realized and unrealized gain on
investments ..................................... 3.55 0.54 10.22 1.32
----------- ----------- ----------- -----------
Total from investment operations .................. 3.35 0.31 9.95 1.18
----------- ----------- ----------- -----------
Less distributions
Distributions from net realized
capital gains ................................... (0.48) (0.02) (2.19) 0.00
----------- ----------- ----------- -----------
Total distributions ............................... (0.48) (0.02) (2.19) 0.00
----------- ----------- ----------- -----------
Net asset value, end of period .................... $ 15.37 $ 15.66 $ 23.42 $ 24.60
=========== =========== =========== ===========
Total return (%) (b) .............................. 27.0 2.1 65.4 5.0
Ratio of operating expenses to average
net assets (%) .................................. 2.20 2.07 2.06 1.81(d)
Ratio of net investment income (loss)
to average net assets (%) ....................... (1.44) (1.52) (1.54) (1.15)(d)
Portfolio turnover rate (%) ....................... 140 182 263 122
Net assets, end of period (000) ................... $ 52,066 $ 56,161 $ 84,725 $ 104,451
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the period.
(b) A sales charge is not reflected in total return calculations.
(c) Fund commenced operations on December 31, 1996.
(d) Computed on an annualized basis.
14 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------
Year Ended December 31, Six Months Ended
--------------------------------------------------- June 30,
1997 1998 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (c) .......... $ 12.50 $ 15.26 $ 15.43 $ 22.85
----------- ----------- ----------- -----------
Income (loss) from investment operations
Net investment income (loss) ...................... (0.30)(a) (0.33)(a) (0.39)(a) (0.22)
Net realized and unrealized gain on
investments ..................................... 3.54 0.52 10.00 1.27
----------- ----------- ----------- -----------
Total from investment operations .................. 3.24 0.19 9.61 1.05
----------- ----------- ----------- -----------
Less distributions
Distributions from net realized
capital gains ................................... (0.48) (0.02) (2.19) 0.00
----------- ----------- ----------- -----------
Total distributions ............................... (0.48) (0.02) (2.19) 0.00
----------- ----------- ----------- -----------
Net asset value, end of period .................... $ 15.26 $ 15.43 $ 22.85 $ 23.90
=========== =========== =========== ===========
Total return (%) (b) .............................. 26.1 1.3 64.1 4.6
Ratio of operating expenses to average
net assets (%) .................................. 2.95 2.82 2.81 2.56(d)
Ratio of net investment income (loss)
to average net assets (%) ....................... (2.19) (2.27) (2.29) (1.90)(d)
Portfolio turnover rate (%) ....................... 140 182 263 122
Net assets, end of period (000) ................... $ 52,616 $ 61,409 $ 102,029 $ 124,221
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the period.
(b) A contingent deferred sales charge is not reflected in total return
calculations.
(c) Fund commenced operations on December 31, 1996.
(d) Computed on an annualized basis.
See accompanying notes to financial statements. 15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------------
Year Ended December 31, Six Months Ended
--------------------------------------------------- June 30,
1997 1998 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period (c) .......... $ 12.50 $ 15.26 $ 15.43 $ 22.85
----------- ----------- ----------- -----------
Income (loss) from investment operations
Net investment income (loss) ...................... (0.30)(a) (0.33)(a) (0.39)(a) (0.21)
Net realized and unrealized gain on
investments ..................................... 3.54 0.52 10.00 1.26
----------- ----------- ----------- -----------
Total from investment operations .................. 3.24 0.19 9.61 1.05
----------- ----------- ----------- -----------
Less distributions
Distributions from net realized
capital gains ................................... (0.48) (0.02) (2.19) 0.00
----------- ----------- ----------- -----------
Total distributions ............................... (0.48) (0.02) (2.19) 0.00
----------- ----------- ----------- -----------
Net asset value, end of period .................... $ 15.26 $ 15.43 $ 22.85 $ 23.90
=========== =========== =========== ===========
Total return (%) (b) .............................. 26.1 1.3 64.1 4.6
Ratio of operating expenses to average
net assets (%) .................................. 2.95 2.82 2.81 2.56(d)
Ratio of net investment income (loss)
to average net assets (%) ....................... (2.19) (2.27) (2.29) (1.90)(d)
Portfolio turnover rate (%) ....................... 140 182 263 122
Net assets, end of period (000) ................... $ 13,970 $ 15,412 $ 26,027 $ 33,426
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the period.
(b) A contingent deferred sales charge is not reflected in total return
calculations.
(c) Fund commenced operations on December 31, 1996.
(d) Computed on an annualized basis.
16 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a series of Nvest Funds Trust I,
a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end
management investment company. The Fund seeks capital appreciation. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B, and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay a front end sales charge and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and may be subject to a contingent deferred sales charge if
those shares are redeemed within one year. Expenses of the Fund are borne pro
rata by the holders of each class of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
Trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and the relevant
subadvisers under the supervision of the Fund's Trustees.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date or when the Fund first learns of the dividend, and interest
income is recorded on the accrual basis. In determining net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
c. Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities resulting from changes in the exchange rate.
d. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
e. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for organization
costs, wash sales, and net investment loss. Permanent book and tax basis
differences will result in reclassification to capital accounts.
f. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. Each subadviser is responsible for
determining that the value of the collateral is at all times at least equal to
the repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
g. Organization Expense. Costs incurred in connection with the Fund's
organization and initial registration, amounting to approximately $41,674 in the
aggregate, were paid by the Fund and are being amortized over 60 months.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000,
purchases and sales of securities (excluding short-term investments) were
$294,759,626 and $255,884,730 respectively.
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 1.05% of the Fund's average daily net assets
reduced by the amount of any subadviser fees paid by the Fund to its subadvisers
as follows: Harris Associates, L.P., at the annual rate of 0.70% of the average
daily net assets of its segment of the Fund, Loomis, Sayles & Company, L.P. and
RS Investment Management, L.P. at the annual rate of 0.55% of the first $50
million of the average daily net assets of the segment of the Fund which that
sub-adviser manages, and 0.50% of such assets in excess of $50 million, and
Montgomery Asset Management, LLC at the annual rate of 0.65% of the
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
first $50 million of the average daily net assets of the segment of the Fund
which that subadviser manages, and 0.50% of such assets in excess of $50
million.
Certain officers and directors of Nvest Management are also officers or Trustees
of the Fund. Nvest Management, Harris Associates, L.P. and Loomis, Sayles &
Company, L.P. are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest"),
which is a subsidiary of Metropolitan Life Insurance Company (see Note 7). Fees
earned by Nvest Management and the subadvisers under the management and
subadvisory agreements in effect during the six months ended June 30, 2000, are
as follows:
Fees Earned
-----------
Nvest Management $ 600,428
Harris Associates, L.P. 108,763
Loomis, Sayles & Company, L.P. 206,075
Montgomery Asset Management, LLC 135,539
RS Investment Management, L.P. 261,970
------------
$ 1,312,775
============
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $46,283 and are shown separately in the financial
statements as accounting and administrative. The effective accounting and
administrative fees for the six months ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for all classes of shareholder
accounts. NSC and BFDS are also reimbursed for out-of-pocket expenses. For the
six months ended June 30, 2000, the Fund paid NSC $267,739 as compensation for
its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest), a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $125,005 in fees under the
Class A Plan.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Under the Class B and Class C Plans, the Fund pays Nvest Funds monthly service
fees at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000 the Fund paid Nvest
Funds $148,164 and $39,397 in service fees under the Class B and Class C Plans,
respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $444,493 and $118,191 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $386,400.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B and
Class C. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended, Six Months Ended
December 31, 1999 June 30, 2000
------------------------------ ------------------------------
Class A Shares Amount Shares Amount
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 12,987,079 $ 223,593,397 2,228,668 $ 56,275,571
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............. 338,833 7,092,084 0 0
------------- ------------- ------------- -------------
13,325,912 230,685,481 2,228,668 56,275,571
Shares repurchased .................................. (13,293,729) (229,357,906) (1,600,060) (39,772,375)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. 32,183 $ 1,327,575 628,608 $ 16,503,196
------------- ------------- ------------- -------------
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Year Ended, Six Months Ended
December 31, 1999 June 30, 2000
------------------------------ ------------------------------
Class B Shares Amount Shares Amount
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 997,712 $ 17,773,867 1,021,767 $ 25,502,380
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............. 395,509 8,078,038 0 0
------------- ------------- ------------- -------------
1,393,221 25,851,905 1,021,767 25,502,380
Shares repurchased .................................. (908,070) (14,947,215) (289,797) (7,098,239)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. 485,151 $ 10,904,690 731,970 $ 18,404,141
------------- ------------- ------------- -------------
<CAPTION>
Year Ended, Six Months Ended
December 31, 1999 June 30, 2000
------------------------------ ------------------------------
Class C Shares Amount Shares Amount
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 432,575 $ 7,736,382 458,059 $ 11,449,221
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............. 94,832 1,937,150 0 0
------------- ------------- ------------- -------------
527,407 9,673,532 458,059 11,449,221
Shares repurchased .................................. (386,906) (6,312,356) (198,568) (5,119,689)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. 140,501 $ 3,361,176 259,491 $ 6,329,532
------------- ------------- ------------- -------------
Increase derived from capital shares transactions ... 657,835 $ 15,593,441 1,620,069 $ 41,236,869
============= ============= ============= =============
</TABLE>
5. Line of Credit. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
6. Security Lending. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. There
were no securities on loan at June 30, 2000.
7. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
22
<PAGE>
================================================================================
NVEST STAR SMALL CAP FUND
NVEST STAR VALUE FUND
NVEST STAR ADVISERS FUND
Supplement dated August 21, 2000 to Nvest Star Funds Prospectuses Classes A, B
and C and Class Y each dated May 1, 2000
Nvest Star Small Cap Fund
Clyde S. McGregor, C.F.A., has become co-portfolio manager of the Harris
Associates segment of Nvest Star Small Cap Fund, joining James P. Benson, who
has managed the segment since November 1999. Mr. McGregor, who has replaced
Steven J. Reid, joined Harris Associates as an analyst in 1981 and began
managing portfolios in 1986. He holds an M.B.A. in Finance from the University
of Wisconsin-Madison (1977) and a B.A. in Economics and Religion from Oberlin
College (1974).
The investment approach of the Harris Associates segment of the Fund remains the
same.
Nvest Star Value Fund
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the segment of the Fund managed by Vaughan, Nelson, Scarborough & McCullough.
Nvest Star Advisers Fund
Effective August 1, 2000, Joseph Gatz remains the lead portfolio manager and
Daniel Thelen remains a co-portfolio manager for the segment of the Fund managed
by Loomis Sayles.
23
<PAGE>
REGULAR INVESTING PAYS
================================================================================
Five Good Reasons to Invest Regularly
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you can
invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
The Power of Monthly Investing
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
24
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
* Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P, and other firms selling shares of Nvest Funds
are members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
SC58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Star Value Fund
Where
The Best
Minds Meet(R)
----------------- Please read the prospectus
June 30, 2000 supplement on page 24.
-----------------
<PAGE>
PRESIDENT'S MESSAGE
================================================================================
August 2000
--------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
NVEST STAR VALUE FUND
================================================================================
Investment Results Through June 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Star Value Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged, and has no expenses that affect the results. It is
not possible to invest directly in an index. In addition, few investors could
purchase all of the securities necessary to match the index and would incur
transaction costs and other expenses even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
June 1990 through June 2000*
NAV MSC Russell 1000 Value
--------------------------------------------------------
6/00 27,983 26,368 41,314
6/99 33,480 31,554 45,360
6/98 31,870 30,038 38,979
6/97 27,703 26,111 30,254
6/96 21,016 19,808 22,715
6/95 17,465 16,461 18,226
6/94 14,456 13,625 15,135
6/93 13,538 12,759 14,894
6/92 11,644 10,975 12,213
6/91 10,193 9,607 10,534
6/90 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
* Restructured as an Nvest Star fund in February 2000.
1
<PAGE>
NVEST STAR VALUE FUND
================================================================================
Average Annual Total Returns--6/30/00
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 6/5/70) 6 Months 1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Net Asset Value(1) -5.37% -16.33% 9.89% 10.84%
With Maximum Sales Charge(2) -10.76 -21.13 8.59 10.18
---------------------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) -5.75% -16.99% 9.08% 9.95%
With CDSC(3) -10.46 -20.41 8.85 9.95
---------------------------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) -5.88% -17.10% 9.07% 11.59%
With CDSC(3) -6.82 -17.78 9.07 11.59
---------------------------------------------------------------------------------------------------------------
Class Y (Inception 3/31/94) 6 Months 1 Year 5 Years Since Inception
Net Asset Value(1) -5.12% -16.03% 10.20% 11.56%
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
Class B Class C Class Y
Comparative Performance 6 Months 1 Year 5 Years 10 Years Incept. Incept. Incept.
<S> <C> <C> <C> <C> <C> <C> <C>
Russell 1000 Value(4) -4.23% -8.92% 17.78% 15.24% 12.23% 16.78% 14.39%
Morningstar Large Cap Value Average(5) -1.92 -5.21 15.56 13.36 14.02 17.23 15.46
Lipper Multi-Cap Value Average(6) -0.47 -3.99 14.20 12.90 12.90 13.35 16.21
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and return will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. Loomis
Sayles, the Fund's manager since July 1, 1996, was joined by Harris
Associates/Oakmark Funds; Vaughan, Nelson and Westpeak with the restructuring of
the Fund to a multi-manager Star fund in February 2000. Results for earlier
periods reflect performances under previous subadvisers. Class Y shares are
available to certain institutional investors only.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results reinvestment of any dividends and capital gains. Performance
for Class B shares assumes a maximum 5.00% contingent deferred sales charge
(CDSC) applied when you sell shares. Class C share performance assumes a
1.00% CDSC when you sell shares within one year of purchase.
(4) Russell 1000 Value is an unmanaged index of the largest 1000 U.S. companies
within the Russell 3000, selected for their value orientation. You may not
invest directly in an index. Class B since inception return is calculated
from 9/30/93.
(5) Morningstar Large Cap Value Average is the average performance without
sales charges of funds with similar investment objectives as calculated by
Morningstar, Inc.. Class B since inception return is calculated from
9/30/93.
(6) Lipper Multi-Cap Value Average is the average performance at net asset
value of all mutual funds with a similar current investment style or
objective as determined by Lipper Inc. Class B since inception return is
calculated from 9/30/93.
2
<PAGE>
NVEST STAR VALUE FUND
================================================================================
Overview: How the Fund Performed
--------------------------------------------------------------------------------
During the first six months of 2000, broad-based stock market volatility led to
renewed investor interest in value stocks. While growth stocks outperformed
value stocks for the six-month period, returns on value stocks finally emerged
from more than a year in the doldrums. For the six months ended June 30, 2000,
Nvest Star Value Fund Class A shares returned -5.37% at net asset value,
compared with a return of -4.23% on its benchmark, the Russell 1000 Value Index.
This Fund was restructured as an Nvest Star fund in February, and changed its
name to Nvest Star Value Fund. The foundation of the Nvest Funds Star concept is
a multi-manager investment approach, which offers shareholders an opportunity to
diversify among individual securities as well as the investment styles and
strategies of several established management firms. Nvest Star Value Fund is now
composed of four separate portfolio segments, each managed by a different
investment management firm. The extra diversification provided by employing
different investment styles is designed to balance out market swings over time,
seeking superior long-term performance relative to conventional funds that
employ only one strategy.
The chart below shows the proportion of assets under the management of each
subadviser. The proportions grow and shrink relative to one another depending on
the relative returns of each subadviser and the markets in which they invest.
Portfolio Mix -- 6/30/00
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Harris/Oakmark 22.5%
Vaughan, Nelson 25.2%
Westpeak 25.6%
Loomis Sayles 26.7%
Portfolio holdings and asset allocations will vary.
A challenging market led to renewed interest in value stocks
The Federal Reserve Board's commitment to containing inflation by slowing the
pace of economic growth led to a series of interest rate hikes during the
period. While the Fed's inflation-fighting policy triggered a sell-off in the
stock market, it also had the effect of refocusing investors' attention on value
stocks. The selling price of a value stock does not appear to adequately reflect
the full value of a company's assets or growth potential. Value stocks may be
bargains because the market has not yet perceived a positive change within the
company, or they may be in a market sector that is out of favor with investors.
Value-oriented investors
3
<PAGE>
NVEST STAR VALUE FUND
================================================================================
--------------------------------------------------------------------------------
emphasize the price of a company's stock at least as much as its earnings or
sales growth. During the January to June 2000 period, many investors gradually
became concerned about the relatively high prices of growth stocks, some of
which had soared in value despite the fact that they had yet to turn a profit.
As a result, they sought opportunities in value areas of the market -- sectors
they had largely ignored for more than a year.
Top 10 Portfolio Sectors--6/30/00
% of
Sector Net Assets
-------------------------------------------
1. Banks 10.0
-------------------------------------------
2. Telecommunications 6.0
-------------------------------------------
3. Domestic Oil 4.5
-------------------------------------------
4. Computer Software & Services 4.1
-------------------------------------------
5. Drugs & Healthcare 3.9
-------------------------------------------
6. Financial Services 3.4
-------------------------------------------
7. Machinery 3.3
-------------------------------------------
8. Computer Hardware 3.3
-------------------------------------------
9. Insurance 3.0
-------------------------------------------
10. Foods 2.8
-------------------------------------------
Portfolio holdings and asset allocation will vary.
Value investors benefited from a return to "old economy" stocks
The first half of 2000 encompassed two contrasting periods for value investors.
For most of the first three months, investors continued to disregard the
potential that could be found in value stocks. Instead, they focused on rapidly
growing "new economy" stocks in the technology, media and telecommunications
areas of the market. In late March, however, market sentiment changed. Concerns
about higher interest rates and rising valuations on growth stocks led to a
sell-off in the equity markets, and for several weeks there were broad swings in
stock prices. As a result, investors sought the relative safety of more
traditional companies, or what have come to be known as "old economy" stocks.
Investors who had kept their faith in value stocks benefited from this shift in
sentiment, as increased market interest improved valuations. The renewed
emphasis on value stocks was a short-term event, however. While value stocks
retained their gains, by the end of the period investors once again turned their
attention to the growth area of the market.
Nvest Star Value Fund's subadvisers use separate strategies
While all of the Fund's subadvisers focus on price when selecting stocks for
their segments, each adviser brings its own expertise and style to the investing
process. Companies of virtually every size and in a variety of industries are
represented in Nvest Star Value Fund's four portfolio segments.
4
<PAGE>
NVEST STAR VALUE FUND
================================================================================
--------------------------------------------------------------------------------
Top 10 Portfolio Holdings--6/30/00
% of
Sector Net Assets
-------------------------------------------
1. Exxon Mobil Corp. 3.5
-------------------------------------------
2. Citigroup, Inc. 3.3
-------------------------------------------
3. American International
Group, Inc. 2.0
-------------------------------------------
4. Chase Manhattan Corp. 1.7
-------------------------------------------
5. Ceridian Corp. 1.7
-------------------------------------------
6. Hewlett-Packard Co. 1.7
-------------------------------------------
7. Toys R Us, Inc. 1.6
-------------------------------------------
8. Bell Atlantic Corp. 1.5
-------------------------------------------
9. Eaton Corp. 1.5
-------------------------------------------
10. Washington Mutual, Inc. 1.5
-------------------------------------------
Portfolio holdings and asset allocation will vary.
For example, although the Loomis Sayles segment was well diversified among
several industries, its largest commitment was to financial and utility stocks.
This strategy detracted from performance in the first quarter of 2000 but led to
solid gains in the second quarter. The Harris/Oakmark segment invested in stocks
that were selling at significant discounts to the business value of the
underlying companies. Vaughan, Nelson, Scarborough and McCullough looked to
financial and energy companies to prosper in an environment of higher interest
rates and moderating economic growth. Westpeak attempted to strike a balance
between stocks with growth and value characteristics.
Our outlook is for continued value orientation
The re-emergence of interest in value stocks that began in March is encouraging.
We believe investors will continue to seek opportunities in a wide spectrum of
companies--not just hot technology stocks--and place greater emphasis on quality
and value. In the months ahead, we think value stocks should become a larger
part of investors' portfolios. We expect the market volatility of the past six
months to continue at least until investors are sure that the Fed has finished
raising interest rates. While we expect the Fed to be successful in slowing the
pace of economic growth, we do not anticipate a recession. We look forward to an
environment of relatively strong economic growth and relatively low inflation.
Such an economic backdrop should be positive for value stocks.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Star Value Fund may invest in foreign securities, which have special
risks. Value stocks can fall out of favor with investors and may underperform
growth stocks during certain market conditions. These risks affect your
investment's value. Share price and return will vary and you may have a gain or
loss when you sell your shares.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock-- 96.1% of Total Net Assets
<TABLE>
<CAPTION>
Shares Description Value (a)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace -- 0.5%
10,100 Boeing Co. .................................................... $ 422,306
10,000 Honeywell International, Inc. ................................. 336,875
5,000 United Technologies Corp. ..................................... 294,375
-------------
1,053,556
-------------
Aerospace & Defense -- 0.4%
14,500 Northrop Grumman Corp. ........................................ 960,625
-------------
Airlines -- 0.7%
8,100 Delta Air Lines, Inc. ......................................... 409,556
17,800 UAL Corp. (c).................................................. 1,035,738
-------------
1,445,294
-------------
Aluminum -- 0.1%
4,600 Alcan Aluminium Ltd. .......................................... 142,600
-------------
Apparel & Textiles -- 1.1%
100,000 Jones Apparel Group, Inc. (c).................................. 2,350,000
-------------
Auto & Related -- 0.8%
12,200 Ford Motor Co. ................................................ 524,600
18,800 General Motors Corp. .......................................... 1,091,575
3,700 Lear Corp. (c)................................................. 74,000
1,597 Visteon Corp. ................................................. 19,368
-------------
1,709,543
-------------
Banks -- 10.0%
45,000 Bank of New York Co., Inc. .................................... 2,092,500
20,000 Bank One Corp. ................................................ 531,250
80,100 Chase Manhattan Corp. ......................................... 3,689,606
116,600 Citigroup, Inc. ............................................... 7,025,150
24,200 Golden State Bancorp, Inc. (c)................................. 435,600
23,000 PNC Bancorp, Inc. ............................................. 1,078,125
30,000 U.S. Bancorp................................................... 577,500
4,600 UnionBanCal Corp. ............................................. 85,387
110,000 Washington Mutual, Inc. ....................................... 3,176,250
73,000 Wells Fargo Co. ............................................... 2,828,750
-------------
21,520,118
-------------
Broadcasting -- 1.3%
65,000 AT&T Corp., Liberty Media Group, Class A (c)................... 1,576,250
5,700 Cabletron Systems, Inc. (c).................................... 143,925
12,000 New York Times Co. ............................................ 474,000
7,500 Viacom, Inc. .................................................. 512,813
-------------
2,706,988
-------------
Building & Related -- 0.8%
12,000 Black & Decker Corp. .......................................... 471,750
25,000 Martin Marietta Materials, Inc. ............................... 1,010,938
2,400 Nucor Corp..................................................... 79,650
2,500 Southdown, Inc................................................. 152,500
-------------
1,714,838
-------------
Business Services -- 1.7%
6,000 Computer Sciences Corp. ....................................... 448,125
120,000 Equifax, Inc. ................................................. 3,150,000
3,200 Manpower, Inc. ................................................ 102,400
-------------
3,700,525
-------------
Chemicals-Major -- 1.3%
21,000 Dow Chemical Co. .............................................. 633,938
10,300 E.l. du Pont de Nemours & Co. ................................. 450,625
21,280 Pharmacia & Upjohn, Inc. ...................................... 1,099,910
15,500 Praxair, Inc. ................................................. 580,281
-------------
2,764,754
-------------
Communication Services -- 0.9%
57,000 Motorola, Inc. ................................................ 1,656,563
3,200 Omnicom Group, Inc. ........................................... 285,000
-------------
1,941,563
-------------
Computer Hardware -- 3.3%
42,400 Apple Computer, Inc. .......................................... 2,220,700
51,250 Compaq Computer Corp. ......................................... 1,310,078
25,450 International Business Machines Corp. ......................... 2,788,366
1,600 SanDisk Corp. ................................................. 97,900
6,800 Sun Microsystems, Inc. (c)..................................... 618,375
-------------
7,035,419
-------------
Computer Software -- 2.7%
150,000 Ceridian Corp. (c)............................................. 3,609,375
15,200 Cisco Systems, Inc. (c)........................................ 966,150
10,000 Computer Associates International, Inc. ....................... 511,875
8,100 Oracle Corp. (c)............................................... 680,906
-------------
5,768,306
-------------
Computer Software & Services -- 4.1%
1,200 Ariba, Inc. ................................................... 117,656
28,750 Hewlett-Packard Co. ........................................... 3,590,156
26,200 Microsoft Corp. (c)............................................ 2,096,000
106,500 NOVA Corp. (c)................................................. 2,975,344
-------------
8,779,156
-------------
Construction Equipment -- 1.2%
85,000 USG Corp. ..................................................... 2,581,875
-------------
Consumer Goods & Services -- 2.4%
1,900 Bausch & Lomb, Inc. ........................................... 147,012
23,200 Colgate-Palmolive.............................................. 1,389,100
37,500 Hasbro, Inc. .................................................. 564,844
240,000 Mattel, Inc. .................................................. 3,165,000
-------------
5,265,956
-------------
</TABLE>
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Products -- 1.6%
10,000 Avery Dennison Corp. .......................................... $ 671,250
120,000 Fort James Corp. .............................................. 2,775,000
-------------
3,446,250
-------------
Domestic Oil -- 4.5%
6,250 Chevron Corp. ................................................. 530,078
95,800 Exxon Mobil Corp. ............................................. 7,520,300
16,900 Texaco, Inc. .................................................. 899,925
30,500 USX-Marathon Group, Inc. ...................................... 764,406
-------------
9,714,709
-------------
Drugs & Healthcare -- 3.9%
33,600 Bristol-Myers Squibb Co. ...................................... 1,957,200
66,800 HCA-The Healthcare Co. ........................................ 2,029,050
7,300 Johnson & Johnson, Inc. ....................................... 743,688
35,100 Merck & Co. ................................................... 2,689,537
13,500 Schering-Plough Corp. ......................................... 681,750
3,400 UnitedHealth Group, Inc. ...................................... 291,550
-------------
8,392,775
-------------
Electric Utilities -- 2.2%
11,000 Constellation Energy Group..................................... 358,187
10,000 Duke Power Co. ................................................ 563,750
36,000 General Electric Co. .......................................... 1,908,000
6,250 Northeast Utilities............................................ 135,938
23,000 PECO Energy Co. ............................................... 927,187
5,800 PPL Corp. ..................................................... 127,238
11,200 Public Service Enterprise Group................................ 387,800
8,100 Reliant Energy, Inc. .......................................... 239,456
-------------
4,647,556
-------------
Electronics -- 1.8%
2,097 Agilent Technologies, Inc. .................................... 154,654
2,800 AVX Corp. ..................................................... 64,225
1,400 Corning, Inc. ................................................. 377,825
13,750 Emerson Electric Co. .......................................... 830,156
9,000 Koninklijke (Royal) Philips Electronics NV (ADR)............... 427,500
7,500 Litton Industries, Inc. ....................................... 315,000
1,700 LSI Logic Corp. (c)............................................ 92,013
3,100 Parker-Hannifin Corp .......................................... 106,175
1,500 Teradyne, Inc. ................................................ 110,250
118,300 U.S. Industries, Inc. (c)...................................... 1,434,387
-------------
3,912,185
-------------
Financial Services -- 3.4%
4,300 Ambac Financial Group, Inc. ................................... 235,694
24,600 American General Corp. ........................................ 1,500,600
7,200 AXA Financial, Inc. ........................................... 244,800
49,900 Fannie Mae..................................................... 2,604,156
52,300 FleetBoston Financial Corp. ................................... 1,778,200
7,500 Household International, Inc. ................................. 311,719
3,200 J.P. Morgan & Co., Inc. ....................................... 352,400
7,000 Lincoln National Corp., Inc. .................................. 252,875
3,000 SLM Holding Corp. ............................................. 112,313
-------------
7,392,757
-------------
Foods -- 2.8%
46,300 PepsiCo, Inc. ................................................. 2,057,456
16,250 Philip Morris Companies, Inc. ................................. 431,641
31,700 Quaker Oats Co. ............................................... 2,381,462
13,800 Ralston-Purina Group. ......................................... 275,138
35,000 Sara Lee Corp. ................................................ 675,937
6,300 Sysco Corp. ................................................... 265,388
-------------
6,087,022
-------------
Forest Products -- 0.2%
10,000 Weyerhaeuser Co. .............................................. 430,000
-------------
Gas & Pipeline Utilities -- 0.8%
17,400 Columbia Gas Systems, Inc. .................................... 1,141,875
11,250 El Paso Energy Corp. .......................................... 573,047
-------------
1,714,922
-------------
Health Care-Services -- 2.0%
10,900 CIGNA Corp. ................................................... 1,019,150
33,900 Pfizer, Inc. .................................................. 1,627,200
59,100 Tenet Healthcare Corp. ........................................ 1,595,700
1,600 Wellpoint Health Networks, Inc. ............................... 115,900
-------------
4,357,950
-------------
Household Products -- 1.2%
160,000 Dial Corp. .................................................... 1,660,000
13,750 Kimberly-Clark Corp. .......................................... 788,906
2,400 Whirlpool Corp. ............................................... 111,900
-------------
2,560,806
-------------
Industrial Services -- 0.0%
2,800 Rockwell International Corp. .................................. 88,200
-------------
Industrials -- 1.0%
43,000 Sprint Corp. .................................................. 2,193,000
-------------
Information Services -- 0.3%
19,000 Dun & Bradstreet Corp. ........................................ 543,875
-------------
Insurance -- 3.0%
36,250 American International Group, Inc. ............................ 4,259,375
16,000 Aon Corp. ..................................................... 497,000
4,000 Chubb Corp. ................................................... 246,000
60,000 Conseco, Inc. ................................................. 585,000
</TABLE>
See accompanying notes to financial statements. 7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance -- continued
3,000 Marsh & McLennan Co., Inc. .................................... $ 313,312
5,600 MGIC Investment Corp. ......................................... 254,800
2,500 PMI Group, Inc. ............................................... 118,750
3,600 Radian Group, Inc. (c)......................................... 186,300
-------------
6,460,537
-------------
Investment Banking/Broker/Management -- 1.6%
3,600 Bear Stearns Cos., Inc. ....................................... 149,850
22,800 E*TRADE Group, Inc. ........................................... 376,200
19,800 Merrill Lynch & Co., Inc. ..................................... 2,277,000
7,500 The Goldman Sachs Group, Inc. ................................. 711,562
-------------
3,514,612
-------------
Investment Companies -- 1.6%
14,400 Lehman Brothers Holdings, Inc. ................................ 1,361,700
19,300 Morgan Stanley Dean Witter & Co. .............................. 1,606,725
10,000 Paine Webber Group, Inc. ...................................... 455,000
-------------
3,423,425
-------------
Leisure -- 2.5%
240,000 Toys R Us, Inc. (c)............................................ 3,495,000
49,850 Walt Disney Co. ............................................... 1,934,803
-------------
5,429,803
-------------
Liquor -- 0.5%
15,000 Anheuser-Busch Companies, Inc. ................................ 1,120,313
-------------
Machinery -- 3.3%
5,000 Applied Materials, Inc. (c).................................... 453,125
5,000 Caterpillar, Inc. ............................................. 169,375
80,000 Cooper Industries, Inc. ....................................... 2,605,000
4,500 Deere & Co. ................................................... 166,500
5,100 Dover Corp. ................................................... 206,869
49,000 Eaton Corp. ................................................... 3,283,000
4,100 Ingersoll-Rand Co. ............................................ 165,025
-------------
7,048,894
-------------
Manufacturing -- 0.7%
17,000 Minnesota Mining & Manufacturing Co. .......................... 1,402,500
-------------
Medical Services -- 1.7%
2,600 Allergan, Inc. ................................................ 193,700
43,250 Baxter International, Inc. .................................... 3,041,016
4,700 Cardinal Health, Inc. ......................................... 347,800
3,000 Stryker Corp. (c).............................................. 131,250
-------------
3,713,766
-------------
Metals & Mining -- 0.1%
7,400 Alcoa, Inc. ................................................... 214,600
-------------
Natural Gas -- 0.9%
30,000 Enron Corp. ................................................... 1,935,000
-------------
Oil & Gas-Drilling Equipment -- 0.7%
17,000 Baker Hughes, Inc. ............................................ 544,000
20,000 Transocean Sedco Forex, Inc. .................................. 1,068,750
-------------
1,612,750
-------------
Oil & Gas-Major Integrated -- 1.5%
8,200 BP Amoco PLC (ADR)............................................. 463,812
22,800 Coastal Corp. ................................................. 1,387,950
63,000 Conoco, Inc., Class A.......................................... 1,386,000
-------------
3,237,762
-------------
Paper & Forest Products -- 0.5%
23,300 Georgia Pacific Corp., Timber Group............................ 611,625
18,800 Willamette Industries, Inc. ................................... 512,300
-------------
1,123,925
-------------
Photography-Imaging -- 0.3%
9,500 Lexmark International Group, Inc., Class A (c)................. 638,875
-------------
Pollution Control -- 0.8%
86,600 Waste Management, Inc. ........................................ 1,645,400
-------------
Property & Casualty Insurance -- 1.1%
88,000 ACE, Ltd. ..................................................... 2,464,000
-------------
Publishing -- 1.0%
23,600 Gannett Co. ................................................... 1,411,575
11,900 McGraw-Hill Co., Inc. ......................................... 642,600
-------------
2,054,175
-------------
Restaurants -- 1.6%
16,250 McDonald's Corp. .............................................. 535,234
100,000 Tricon Global Restaurants, Inc. (c)............................ 2,825,000
-------------
3,360,234
-------------
Retail -- 0.5%
22,900 Home Depot, Inc. .............................................. 1,143,569
-------------
Retail-General Merchandise -- 0.4%
10,600 Limited, Inc. ................................................. 229,225
12,800 Wal-Mart Stores, Inc. ......................................... 737,600
-------------
966,825
-------------
</TABLE>
8 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail-Specialty -- 1.2%
2,200 Circuit City Stores............................................ $ 73,012
30,900 Federated Department Stores, Inc. ............................. 1,042,875
3,100 Lowe's Co., Inc. .............................................. 127,294
10,000 Sears, Roebuck & Co. .......................................... 326,250
13,500 Target Corp. .................................................. 783,000
12,000 TJX Companies, Inc. ........................................... 225,000
-------------
2,577,431
-------------
Semiconductors -- 1.8%
600 Broadcom Corp., Class A........................................ 131,362
10,700 Cypress Semiconductor Corp. ................................... 452,075
20,100 Intel Corp. ................................................... 2,687,119
10,000 Texas Instruments, Inc. ....................................... 686,875
-------------
3,957,431
-------------
Services-Consumer & Commercial -- 2.6%
180,000 Cendant Corp. (c).............................................. 2,520,000
73,000 Electronic Data Systems Corp. ................................. 3,011,250
-------------
5,531,250
-------------
Services-Data Process -- 0.4%
17,000 First Data Corp. .............................................. 843,625
-------------
Telecommunications -- 6.0%
65,400 Bell Atlantic Corp. ........................................... 3,323,137
43,700 BellSouth Corp. ............................................... 1,862,713
12,000 CenturyTel, Inc. .............................................. 345,000
160,000 Citizens Communications Co. ................................... 2,760,000
5,500 GTE Corp. ..................................................... 342,375
4,100 Nortel Networks Corp. ......................................... 279,825
47,100 SBC Communications, Inc. ...................................... 2,037,075
44,000 WorldCom, Inc. ................................................ 2,018,500
-------------
12,968,625
-------------
Telecommunications-Long Distance -- 0.7%
49,600 AT&T Corp. .................................................... 1,568,600
-------------
Transportation -- 0.1%
11,300 Burlington Northern Santa Fe................................... 259,194
-------------
Total Common Stock (Identified Cost $188,730,306).............. 207,140,244
-------------
</TABLE>
<TABLE>
<CAPTION>
Short Term Investments -- 3.7%
Principal
Amount Description Value(a)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 6,030,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 6.25% to be repurchased at
$6,033,141 on 7/03/2000,
collaterized by $5,405,000
U.S. Treasury Bond 7.125% due
2/15/2023 valued at
$6,154,944..................................................... $ 6,030,000
178,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$178,078 on 7/03/2000,
collaterized by $185,000
U.S. Treasury Bond 5.625% due
12/31/2002 valued at $181,763.................................. 178,000
960,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/2000
at 5.25% to be repurchased at
$960,420 on 7/03/2000,
collaterized by $790,000
U.S. Treasury Bond 10.375% due
11/15/2012 valued at
$981,575....................................................... 960,000
864,863 Associates Corp. of North America, 6.800%, 7/03/2000........... 864,863
-------------
Total Short Term Investments (Identified Cost $8,032,863)...... 8,032,863
-------------
Total Investments-- 99.7% (Identified Cost
$196,763,169)(b) ........................................... 215,173,107
Other assets less liabilities.................................. 388,251
-------------
Total Net Assets-- 100%........................................ $ 215,561,358
=============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 2000 the net unrealized appreciation
on investments based on cost of $196,763,169 for
federal income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost........................................ $29,544,676
Aggregate gross unrealized depreciation
for all investments in which there is
an excess of tax cost over value .................................... (11,134,738)
-------------
Net unrealized appreciation........................................... $18,409,938
=============
(c) Non-income producing security.
ADR An American Depositary Receipt is a certificate issued by a
U.S. bank representing the right to receive securities of
the foreign issuer described. The values of ADR's are
significantly influenced by trading on exchanges not
located in the United States.
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value (Identified cost $196,763,169) .......... $ 215,173,107
Cash ......................................................... 6,094
Receivable for:
Fund shares sold .......................................... 556,430
Securities sold ........................................... 909,430
Dividends and interest .................................... 233,128
-------------
216,878,189
LIABILITIES
Payable for:
Securities purchased ...................................... $ 817,900
Fund shares redeemed ...................................... 255,014
Accrued expenses:
Management fees ........................................... 10,655
Deferred trustees' fees ................................... 85,525
Accounting and administrative ............................. 13,727
Transfer agent ............................................ 66,370
Other ..................................................... 67,640
-------------
1,316,831
-------------
NET ASSETS ...................................................... $ 215,561,358
=============
Net Assets consist of:
Paid-in capital ........................................... $ 215,761,293
Undistributed net investment income ....................... 245,240
Accumulated net realized gains (losses) ................... (18,855,113)
Unrealized appreciation (depreciation)
on investments ............................................ 18,409,938
-------------
NET ASSETS ...................................................... $ 215,561,358
=============
Net asset value and redemption price of Class A shares
($161,333,493/22,893,393 shares of beneficial interest) ...... $ 7.05
=============
Offering price per share (100/94.25 of $7.05) ................... $ 7.48*
=============
Net asset value and offering price of Class B shares
($43,106,873/6,415,615 shares of beneficial interest) ........ $ 6.72**
=============
Net asset value and offering price of Class C shares
($2,438,884/by 362,699 shares of beneficial interest) ........ $ 6.72**
=============
Net asset value, offering and redemption price of Class Y shares
($8,682,108/1,233,140 shares of beneficial interest) ......... $ 7.04
=============
</TABLE>
* Based upon single purchases of less than $50,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
10 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends (net of foreign taxes of $463) .................. $ 1,972,253
Interest .................................................. 293,032
------------
2,265,285
Expenses
Management fees ......................................... $ 885,060
Service fees - Class A .................................. 224,962
Service and distribution fees - Class B ................. 239,103
Service and distribution fees - Class C ................. 13,525
Trustees' fees and expenses ............................. 7,952
Accounting and administrative ........................... 41,877
Custodian ............................................... 91,297
Transfer agent - Class A, Class B, Class C .............. 400,050
Transfer agent - Class Y ................................ 15,999
Audit and tax services .................................. 19,423
Legal ................................................... 77,280
Printing ................................................ 23,743
Miscellaneous ........................................... 6,576
------------
Total expenses before reductions ........................ 2,046,847
Less reductions ......................................... (42,879) 2,003,968
------------ ------------
Net investment income ................................... 261,317
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on Investments - net ................. (13,518,354)
Unrealized appreciation (depreciation) on
Investments - net ...................................... (2,407,282)
------------
Net gain (loss) on investment transactions ................ (15,925,636)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ........ $(15,664,319)
============
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1999 2000
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 605,873 $ 261,317
Net realized gain (loss) on investments ................. 40,961,789 (13,518,354)
Unrealized appreciation (depreciation) on investments ... (67,081,156) (2,407,282)
------------- -------------
Increase (decrease) in net assets from operations ....... (25,513,494) (15,664,319)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (604,075) 0
Class Y ............................................... (53,329) 0
Net realized gain (loss) on investments
Class A ............................................... (35,285,726) 0
Class B ............................................... (10,111,504) 0
Class C ............................................... (584,148) 0
Class Y ............................................... (1,629,464) 0
In excess of net realized gain
Class A ............................................... (3,757,859) 0
Class B ............................................... (1,076,855) 0
Class C ............................................... (62,211) 0
Class Y ............................................... (173,535) 0
------------- -------------
(53,338,706) 0
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................. (59,686,617) (58,614,438)
------------- -------------
Total increase (decrease) in net assets .................... (138,538,817) (74,278,757)
NET ASSETS
Beginning of the period .................................. 428,378,932 289,840,115
------------- -------------
End of the period ........................................ $ 289,840,115 $ 215,561,358
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the period ........................................ $ (16,077) $ 245,240
============= =============
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
----------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ............ $ 7.27 $ 8.78 $ 9.60 $ 10.14 $ 9.68 $ 7.45
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ........................ 0.10 0.06 0.03 0.03(b) 0.03 0.01
Net Realized and Unrealized Gain
(Loss) on Investments ............................. 2.21 2.12 1.96 0.59 (0.71) (0.41)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations .................... 2.31 2.18 1.99 0.62 (0.68) (0.40)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ................ (0.09) (0.06) (0.02) (0.02) (0.02) 0.00
Distributions From Net Realized Capital Gains ....... (0.71) (1.30) (1.43) (1.06) (1.38) 0.00
Distributions In Excess of Net Realized Gains ....... 0.00 0.00 0.00 0.00 (0.15) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ................................. (0.80) (1.36) (1.45) (1.08) (1.55) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .................. $ 8.78 $ 9.60 $ 10.14 $ 9.68 $ 7.45 $ 7.05
========= ========= ========= ========= ========= =========
Total Return (%) (a) (d) ............................ 32.3 26.3 21.0 7.1 (6.9) (5.4)
Ratio of Operating Expenses to
Average Net Assets (%) ............................ 1.37 1.31 1.25 1.26 1.33 1.57(c)
Ratio of Operating Expenses to
Average Net Assets After Expense Reductions (%) ... 1.37 1.31 1.25 1.26 1.33 1.54(c)(e)
Ratio of Net Investment Income to Average
Net Assets (%) .................................... 1.22 0.78 0.28 0.29 0.32 0.35(c)
Portfolio Turnover Rate (%) ......................... 52 64 55 75 70 94
Net Assets, End of the Period (000) ................. $ 241,038 $ 297,581 $ 348,988 $ 317,902 $ 216,740 $ 161,333
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the year.
(c) Computed on an annualized basis.
(d) Effective February 28, 2000, the Fund's investment advisor entered into
subadvisory agreements with four subadvisors to restructure the Fund as a
Star multimanager fund. Prior to this date the Fund's investment adviser
had entered into a subadvisory agreement with a single subadviser.
(e) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
See accompanying notes to financial statements. 13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------------
Six Months
Year Ended December 31, Ended
--------------------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 7.23 $ 8.70 $ 9.47 $ 9.91 $ 9.38 $ 7.13
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.05 0.01 (0.05) (0.05)(b) (0.04) (0.01)
Net Realized and Unrealized Gain (Loss)
on Investments ............................ 2.18 2.07 1.92 0.58 (0.68) (0.40)
-------- -------- -------- -------- -------- --------
Total From Investment Operations ............ 2.23 2.08 1.87 0.53 (0.72) (0.41)
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ........ (0.05) (0.01) 0.00 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ............................. (0.71) (1.30) (1.43) (1.06) (1.38) 0.00
Distributions In Excess of Net
Realized Gains ............................ 0.00 0.00 0.00 0.00 (0.15) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions ......................... (0.76) (1.31) (1.43) (1.06) (1.53) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period .......... $ 8.70 $ 9.47 $ 9.91 $ 9.38 $ 7.13 $ 6.72
======== ======== ======== ======== ======== ========
Total Return (%) (a) (d) .................... 31.3 25.4 20.0 6.3 (7.6) (5.8)
Ratio of Operating Expenses to Average
Net Assets (%) ............................ 2.12 2.06 2.00 2.01 2.08 2.32(c)
Ratio of Operating Expenses to Average
Net Assets After Expense Reductions (%) ... 2.12 2.06 2.00 2.01 2.08 2.29(c)(e)
Ratio of Net Investment Income to Average
Net Assets (%) ............................ 0.47 0.03 (0.47) (0.46) (0.43) (0.40)(c)
Portfolio Turnover Rate (%) ................. 52 64 55 75 70 94
Net Assets, End of the Period (000) ......... $ 27,941 $ 48,210 $ 80,008 $ 86,243 $ 59,497 $ 43,107
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c) Computed on an annualized basis.
(d) Effective February 28, 2000, the Fund's investment advisor entered into
subadvisory agreements with four subadvisors to restructure the Fund as a
Star multimanager fund. Prior to this date the Fund's investment adviser
had entered into a subadvisory agreement with a single adviser.
(e) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
14 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
Six Months
Year Ended December 31, Ended
-------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ............... $ 7.23 $ 8.70 $ 9.46 $ 9.92 $ 9.39 $ 7.14
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ........................... 0.05 0.01 (0.05)(b) (0.05)(b) (0.04) (0.01)
Net Realized and Unrealized Gain (loss) on Investments . 2.18 2.06 1.94 0.58 (0.68) (0.41)
------- ------- ------- ------- ------- -------
Total From Investment Operations ....................... 2.23 2.07 1.89 0.53 (0.72) (0.42)
------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income ................... (0.05) (0.01) 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains .......... (0.71) (1.30) (1.43) (1.06) (1.38) 0.00
Distributions In Excess of Net Realized Gains .......... 0.00 0.00 0.00 0.00 (0.15) 0.00
------- ------- ------- ------- ------- -------
Total Distributions .................................... (0.76) (1.31) (1.43) (1.06) (1.53) 0.00
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period ..................... $ 8.70 $ 9.46 $ 9.92 $ 9.39 $ 7.14 $ 6.72
======= ======= ======= ======= ======= =======
Total Return (%) (a)(d) ................................ 31.3 25.2 20.2 6.3 (7.6) (5.9)
Ratio of Operating Expenses to Average Net Assets (%) .. 2.12 2.06 2.00 2.01 2.08 2.32(c)
Ratio of Operating Expenses to Average Net
Assets After Expense Reductions (%) .................. 2.12 2.06 2.00 2.01 2.08 2.29(c)(e)
Ratio of Net Investment Income to Average Net Assets (%) 0.47 0.03 (0.47) (0.46) (0.43) (0.40)(c)
Portfolio Turnover Rate (%) ............................ 52 64 55 75 70 94
Net Assets, End of the Period (000) .................... $ 1,224 $ 3,735 $ 6,527 $ 6,445 $ 3,398 $ 2,439
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c) Computed on an annualized basis.
(d) Effective February 28, 2000, the Fund's investment advisor entered into
subadvisory agreements with four subadvisors to restructure the Fund as a
Star multimanager fund. Prior to this date the Fund's investment adviser
had entered into a subadvisory agreement with a single subadviser.
(e) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
See accompanying notes to financial statements. 15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
(unaudited)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class Y
---------------------------------------------------------------
Six Months
Year Ended December 31, Ended
-------------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ............... $ 7.24 $ 8.75 $ 9.55 $ 10.10 $ 9.65 $ 7.42
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income .................................. 0.12 0.08 0.06(a) 0.06(a) 0.06 0.03
Net Realized and Unrealized Gain (loss)
on Investments ....................................... 2.21 2.10 1.95 0.59 (0.71) (0.41)
------- ------- ------- ------- ------- -------
Total From Investment Operations ....................... 2.33 2.18 2.01 0.65 (0.65) (0.38)
------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income ................... (0.11) (0.08) (0.03) (0.04) (0.05) 0.00
Distributions From Net Realized Capital Gains .......... (0.71) (1.30) (1.43) (1.06) (1.38) 0.00
Distributions In Excess of Net Realized Gains .......... 0.00 0.00 0.00 0.00 (0.15) 0.00
------- ------- ------- ------- ------- -------
Total Distributions .................................... (0.82) (1.38) (1.46) (1.10) (1.58) 0.00
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period ..................... $ 8.75 $ 9.55 $ 10.10 $ 9.65 $ 7.42 $ 7.04
======= ======= ======= ======= ======= =======
Total Return (%) (c) ................................... 32.8 26.4 21.3 7.4 (6.7) (5.1)
Ratio of Operating Expenses to
Average Net Assets (%) ............................... 1.12 1.06 1.00 1.01 1.08 1.08(b)
Ratio of Operating Expenses to
Average Net Assets After Expense Reductions (%) ...... 1.12 1.06 1.00 1.01 1.08 1.05(b)(d)
Ratio of Net Investment Income to Average
Net Assets (%) ....................................... 1.47 1.03 0.53 0.54 0.57 1.04(b)
Portfolio Turnover Rate (%) ............................ 52 64 55 75 70 94
Net Assets, End of the Period .......................... $ 6,738 $12,716 $24,164 $17,789 $10,205 $ 8,682
</TABLE>
(a) Per share net investment income has been calculated using the average
shares outstanding during the year.
(b) Computed on an annualized basis.
(c) Effective February 28, 2000, the Fund's investment advisor entered into
subadvisory agreements with four subadvisors to restructure the Fund as a
Star multimanager fund. Prior to this date the Fund's investment adviser
had entered into a subadvisory agreement with a single advisor.
(d) The Fund has entered into agreements with brokers whereby the brokers will
rebate a portion of brokerage commissions. The rebates are used to reduce
operating expenses of the Fund.
16 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Period Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds Trust I,
(the "Trust"), a Massachusetts business trust, registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. The Fund seeks a reasonable long-term investment return from
a combination of market appreciation and dividend income from equity securities.
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of the Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares, for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay front end sales charges and do not convert
to any class of shares, but they do pay a higher ongoing distribution fee than
Class A shares and may be subject to a contingent deferred sales charge if those
shares are redeemed within one year. Class Y shares do not pay a front end sales
charge, a contingent deferred sales charge or service and distribution fees.
They are intended for institutional investors with a minimum of $1,000,000 to
invest. Expenses of the Fund are borne pro rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class and
certain transfer agent fees), and votes as a class only with respect to its own
Rule 12b-1 plan. Shares of each class would receive their pro rata share of the
net assets of the Fund, if the Fund were liquidated. In addition, the Trustees
approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Interest
income for the Fund is increased by the accretion of discount. In determining
net gain or loss on securities sold, the cost of securities has been determined
on the identified cost basis.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Period Ended June 30, 2000
(unaudited)
c. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
d. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences may result in reclassification to the
capital accounts.
e. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price, including interest. The subadviser is responsible for
determining that the value of the collateral is at all times at least equal to
the repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$215,982,531 and $279,766,413 respectively.
3a. Management Fees and Other Transactions with Affiliates. Effective February
28, 2000, the Fund's investment advisor entered into subadvisory agreements with
four subadvisors to restructure the Fund as a Star multimanager fund. Prior to
this date the Fund's investment adviser had entered into a subadvisory agreement
with a single subadviser. The Fund pays gross management fees to its adviser,
Nvest Funds Management, L.P. ("Nvest Management"), at the annual rate of 0.75%
of the first $200 million of the Fund's average daily net assets, 0.70% of the
next $300 million of the Fund's average daily net assets, and 0.65% of such
assets in excess of $500 million reduced by amount of any subadvisers fees paid
by the Fund to its subadvisers as follows: Loomis, Sayles & Company, L.P. at the
annual rate of 0.535% of the first $200 million of the average daily net assets
of the segment of the Fund that the subadviser manages, 0.35% of the next $300
million and 0.30% of such assets in excess of $500 million; Vaughan, Nelson
Scarborough & McCullough, L.P. at the annual rate of 0.50% of the first $25
million of the average daily net assets of the segment of the Fund that the
subadviser manages, 0.40% of the next $175 million and 0.0325% of such assets in
excess of $300 million and 0.275% of such assets in excess of $500 million;
Harris Associates, L.P. at the annual rate of 0.50% of the first $100 million of
the average daily net assets of the segment of the Fund that the subadviser
manages and 0.475% of such assets in excess of $100 million; Westpeak Investment
Advisors, L.P. at the annual rate of 0.50% of the first $25 million of the
average daily net assets of the segment of the Fund that the subadviser manages,
0.40% of the next $75 million and 0.35% of the next $100 million and 0.30% of
such assets in excess of $200 million. Certain officers and directors of the
Adviser are also officers or trustees of the Fund. Nvest Management, Loomis,
Sayles & Company, L.P., Harris Associates, L.P., Vaughan Nelson Scarborough &
McCullough L.P., and Westpeak Investment Advisors, L.P. are wholly owned
subsidiaries of Nvest Companies, L.P. ("Nvest"), which is a subsidiary of
Metropolitan Life Insurance Company (Note 7).
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Period Ended June 30, 2000
(unaudited)
Fees retained by Nvest Management and paid to each Subadviser under the
management agreement and subadvisory agreements in effect during the six months
ended June 30, 2000 are as follows:
Fees Earned
-----------
Nvest Management $ 304,109
Loomis Sayles 317,366
Harris Associates 96,534
Vaughan Nelson 83,534
Westpeak 83,517
------------
$ 885,060
============
The effective annualized management fee for the period ended June 30, 2000 was
0.74%.
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $41,877 and are shown separately in the financial
statements as accounting and administrative. The effective annualized accounting
and administrative expense for the period ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for Class A, Class B and Class C
shareholder accounts. NSC and BFDS are also reimbursed by the Fund for
our-of-pocket expenses. Class Y shares bear a transfer agent fee of 0.10% of
average daily net assets. For the six months ended June 30, 2000, the Fund paid
NSC $324,272 as compensation for its services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by Nvest Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $224,962 in fees under the
Class A Plan. If the expenses of Nvest Funds that are otherwise reimbursable
under the Class A Plan incurred in any year exceed the amounts payable by the
Fund under the Class A Plan, the unreimbursed amount (together with unreimbursed
amounts from prior years) may be carried forward for
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Period Ended June 30, 2000
(unaudited)
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at June 30, 2000 is $1,651,994.
Under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly service
fee at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000 the Fund paid Nvest
Funds $59,776 and $3,381 in service fees under the Class B and Class C plans,
respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000 the Fund paid Nvest Funds $179,327 and $10,144 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $131,022.
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Period Ended June 30, 2000
(unaudited)
4. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
------------------------------- -------------------------------
Class A Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 2,346,397 $ 22,300,459 1,353,566 $ 9,682,603
Shares issued in connection with the reinvestment of:
Dividends from net investment income .................... 75,122 577,581 0 0
Distributions from net realized gain .................... 5,074,919 38,315,721 0 0
------------- ------------- ------------- -------------
7,496,438 61,193,761 1,353,566 9,682,603
Shares repurchased ......................................... (11,234,478) (104,215,629) (7,553,772) (53,413,182)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (3,738,040) $ (43,021,868) (6,200,206) $ (43,730,579)
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
------------------------------- -------------------------------
Class B Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 1,053,267 $ 9,458,092 439,164 $ 2,994,970
Shares issued in connection with the reinvestment of:
Distributions from net realized gain .................... 1,475,509 10,666,215 0 0
------------- ------------- ------------- -------------
2,528,776 20,124,307 439,164 2,994,970
Shares repurchased ......................................... (3,374,257) (29,996,708) (2,369,121) (16,048,754)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (845,481) $ (9,872,401) $ (1,929,957) $ (13,053,784)
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
------------------------------- -------------------------------
Class C Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 100,723 $ 920,756 28,069 $ 190,885
Shares issued in connection with the reinvestment of:
Distributions from net realized gain .................... 85,269 618,538 0 0
------------- ------------- ------------- -------------
185,992 1,539,294 28,069 190,885
------------- ------------- ------------- -------------
Shares repurchased ......................................... (395,961) (3,583,052) (141,443) (963,522)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (209,969) $ (2,043,758) $ (113,374) $ (772,637)
------------- ------------- ------------- -------------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Period Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
------------------------------- -------------------------------
Class Y Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 365,082 $ 3,446,134 155,662 $ 1,067,540
Shares issued in connection with the reinvestment of:
Dividends from net investment income .................... 6,962 53,329 0 0
Distributions from net realized gain .................... 239,879 1,802,999 0 0
------------- ------------- ------------- -------------
611,923 5,302,462 155,662 1,067,540
Shares repurchased ......................................... (1,079,849) (10,051,052) (297,877) (2,124,978)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (467,926) $ (4,748,590) (142,215) $ (1,057,438)
------------- ------------- ------------- -------------
Increase (decrease) derived from
capital shares transactions .............................. (5,261,416) $ (59,686,617) (8,385,752) $ (58,614,438)
------------- ------------- ------------- -------------
</TABLE>
5. Line of Credit. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six month ended June 30,
2000.
6. Expense reductions. The Fund has entered into agreements with brokers whereby
the brokers will rebate a portion of brokerage commissions. Amounts earned by
the Fund under such agreements are presented as a reduction of expenses in the
Statement of Operations. For the six months ended June 30, 2000, the Fund's
expenses were reduced by $42,879 under these agreements.
7. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
22
<PAGE>
================================================================================
ADDITIONAL INFORMATION
Shareholder Meeting (Unaudited). At a special shareholder's meeting held on
April 19, 2000, shareholders of the Fund voted for the following proposals:
1. Subadvisory agreement relating to the Fund between Nvest Funds Management,
L.P., and Loomis, Sayles & Company, L.P.
Voted For Voted Against Abstained Votes Total Votes
--------- ------------- --------------- -----------
18,971,412.353 403,597.630 1,031,638.528 20,406,648.511
2. Subadvisory agreement relating to the Fund between Nvest Funds Management,
L.P., and Vaughan, Nelson, Scarborough & McCullough, L.P.
Voted For Voted Against Abstained Votes Total Votes
--------- ------------- --------------- -----------
18,888,205.797 430,357.705 1,088,085.009 20,406,648.511
3. Subadvisory agreement relating to the Fund between Nvest Funds Management,
L.P., and Harris Associates, L.P.
Voted For Voted Against Abstained Votes Total Votes
--------- ------------- --------------- -----------
18,901,761.133 445,167.157 1,059,720.221 20,406,648.511
4. Subadvisory agreement relating to the Fund between Nvest Funds Management,
L.P., and Westpeak Investment Advisors, L.P.
Voted For Voted Against Abstained Votes Total Votes
--------- ------------- --------------- -----------
18,900,958.432 423,225.776 1,082,464.303 20,406,648.511
23
<PAGE>
NVEST STAR SMALL CAP FUND
NVEST STAR VALUE FUND
NVEST STAR ADVISERS FUND
Supplement dated August 21, 2000 to Nvest Star Funds Prospectuses Classes
A, B and C and Class Y each dated May 1, 2000
Nvest Star Small Cap Fund
Clyde S. McGregor, C.F.A., has become co-portfolio manager of the Harris
Associates segment of Nvest Star Small Cap Fund, joining James P. Benson, who
has managed the segment since November 1999. Mr. McGregor, who has replaced
Steven J. Reid, joined Harris Associates as an analyst in 1981 and began
managing portfolios in 1986. He holds an M.B.A. in Finance from the University
of Wisconsin-Madison (1977) and a B.A. in Economics and Religion from Oberlin
College (1974).
The investment approach of the Harris Associates segment of the Fund remains the
same.
Nvest Star Value Fund
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the segment of the Fund managed by Vaughan, Nelson, Scarborough & McCullough.
Nvest Star Advisers Fund
Effective August 1, 2000, Joseph Gatz remains the lead portfolio manager and
Daniel Thelen remains a co-portfolio manager for the segment of the Fund managed
by Loomis Sayles.
24
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund
Balanced Fund
Star Value Fund CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
ALL-CAP EQUITY FUNDS Bond Income Fund
Star Advisers Fund High Income Fund
Kobrick Capital Fund Strategic Income Fund
Bullseye Fund
Equity Income Fund GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
SMALL-CAP EQUITY FUNDS Government Securities Fund
Star Small Cap Fund
Kobrick Emerging Growth Fund MONEY MARKET FUNDS*
Cash Management Trust
Tax Exempt Money Market Trust
*Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P, and other firms selling shares of Nvest Funds
are members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
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