ANNUAL REPORT
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[LOGO] Nvest Money Market Funds(SM)
Where The Best Minds Meet(R)
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Nvest Strategic Income Fund
Where
The Best
Minds Meet (R)
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December 31, 1999
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February 2000
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[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
NVEST STRATEGIC INCOME FUND
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Investment Results Through December 31, 1999
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Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
Growth of a $10,000 Investment
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
May 1995 (Inception) through December 1999
Net Asset Maximum Sales Lehman Aggregate Lehman Universal
Value(1) Charge(2) Bond Index(4) Index(5)
-------- --------- ------------- --------
1 2/99 $15,229 $14,542 $13,625 $13,120
6/99 14,830 14,163 13,549 13,601
12/98 13,567 12,957 13,737 12,996
6/98 14,141 13,505 13,136 13,097
12/97 13,806 13,184 12,639 12,662
6/97 13,385 12,783 11,883 12,206
12/96 12,628 12,060 11,527 11,501
6/96 11,380 10,868 10,989 11,120
12/95 11,027 10,530 11,123 10,646
6/95 10,015 9,564 10,463 10,323
5/1/95 10,000 9,550 10,000 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in fees and sales
charges. All index and Fund performance assumes reinvestment of distributions.
1
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NVEST STRATEGIC INCOME FUND
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Average Annual Total Returns -- 12/31/99
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Class A (Inception 5/1/95) 1 Year Since Inception
Net Asset Value(1,8) 12.17% 9.43%
With Maximum Sales Charge(2) 7.08 8.35
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Class B (Inception 5/1/95) 1 Year Since Inception
Net Asset Value(1,8) 11.33% 8.58%
With CDSC(3) 6.33 8.29
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Class C (Inception 5/1/95) 1 Year Since Inception
Net Asset Value(1,8) 11.34% 8.53%
With CDSC(3) 10.34 8.53
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Class Y (Inception 12/1/99) Since Inception
Net Asset Value(1) 2.65%
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Since Fund's Since Fund's
Class A,B, C Class Y
Comparative Performance 1 Year Inception Inception
Lehman Aggregate Bond Index(4) -0.82% 6.85% -0.48%
Lehman Universal Bond Index(5) 0.17% 6.22% -0.70%
Morningstar Multi-Sector Bond Average(6) -2.55 7.26 1.06
Lipper Multi-Sector Income Average(7) 2.58 7.27 1.05
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Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.50% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) Lehman Brothers Aggregate Bond Index is an unmanaged, market-weighted
aggregate 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. 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.
(5) Lehman Brothers Universal Bond Index is an unmanaged index representing 85%
of the return of the Lehman Brothers Aggregate Bond Index, 5% of the Lehman
Brothers High Yield Bond Index, 4% of the Emerging Market Index, 5% of
Eurodollar instruments and 1% of 144A Commercial paper. 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 12/31/99.
(6) Morningstar Multi-Sector Bond Average is an average (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service. 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 an average (calculated on the basis
of net asset value) of funds with similar investment objectives as
calculated by Lipper Inc., an independent mutual fund ranking service.
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
its average annual total return would have been lower had these fees not
been waived.
2
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NVEST STRATEGIC INCOME FUND
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Interview with Your Portfolio Managers
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[PHOTO]
[PHOTO]
Dan Fuss,
Kathleen Gaffney
Loomis, Sayles &
Company, L.P.
Q. How did Strategic Income Fund perform during 1999?
Despite a negative climate for bond prices in general, your Fund delivered a
strongly positive total return and was able to increase the monthly dividend.
For the 12 months ended December 31, 1999, the return for Class A shares of
Strategic Income Fund was 12.17%, based on net asset value and reinvestment of
dividends totaling $1.06 per share. For the same period, the Lehman Aggregate
Bond Index returned -0.82%, and the Lipper Multi-Sector Income group averaged a
return of 2.58%.
Q. Would you describe the investment environment during the year?
In sharp contrast to 1998, the investment climate in 1999 generally favored
high-yield U.S. corporate bonds, as well as bonds issued by companies in other
countries that were experiencing an economic recovery. Because the portfolio
emphasized high-yielding, undervalued bonds issued by foreign and domestic
companies, your Fund benefited from increasing investor demand.
In the U.S., economic growth was strong, inflation remained relatively low and,
while the Federal Reserve Board raised rates by 0.25% on three separate
occasions, these increases were relatively moderate. A healthy U.S. economy,
coupled with strong economic recoveries in several emerging markets, provided a
positive backdrop for high-yield bonds, as the "flight to quality" we witnessed
in 1998 gradually reversed. Economic recoveries in Asia and other countries also
made fixed-income investors more confident, and increased demand for these
securities, boosting their prices.
3
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NVEST STRATEGIC INCOME FUND
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Q. What were the principal strategies that affected the Fund's performance?
In general, we kept about 40% of the Fund's assets in investment-grade bonds and
60% in below investment-grade securities, including high-yield corporate bonds
and emerging market debt. We were rewarded for our early entry into the Asian
and Latin American markets -- regions that a year ago were the focus of market
turmoil. Your Fund's strong presence in Thailand, South Korea and the
Philippines -- where we favored the bonds of top-tier banks, telecommunications
and utility companies -- was a major contributor to its results, as economic
recovery spread through these countries. In Latin America, where economic growth
was less robust, we focused on government bonds, which also performed well.
About a year ago, we began seeking out-of-favor U.S. bonds that we believed had
strong prospects for relatively high current income and long-term capital
appreciation. We found several attractive opportunities in broadband wireless
companies, Internet service providers, and semiconductor companies. Throughout
1999, many of these bonds have also enhanced your Fund's performance. Among
investment-grade bonds, we found opportunity in the U.S. energy, automotive and
aerospace industries. At the end of 1999, the Fund's average credit quality
rating was BAA3, the lowest level in Moody's investment-grade rating range.
Q. How did rising U.S. interest rates affect your investment strategy?
Rising rates cause bond prices to decline, but our value approach to investing
draws us to sectors of the bond market that tend to be less sensitive to price
changes. Our strategy is to seek undervalued, high-yield corporate bonds with
relatively long durations and maturities. These investments can usually overcome
the short-term volatility associated with shifting rates. They also offer
relatively high current yields and the potential for long-term capital
appreciation.
4
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INVEST STRATEGIC INCOME FUND
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Portfolio Composition -- 12/31/99
% of
Net Assets
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1. Yankees* 39.0
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2. Foreign Bonds 28.4
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3. Corporate Bonds 22.1
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4. Common and Preferred Stocks 8.7
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5. Cash and Other 1.8
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Average Portfolio Maturity = 11.1 years
Portfolio holdings and asset allocations will vary.
* Yankees are U.S. dollar-denominated foreign bonds.
Q. What is your outlook for the bond markets?
We believe it's favorable. Near term, we think interest rates may rise, but as
the year 2000 unfolds, we believe a slower economy should allay fears of
inflation and allow rates to decline. If the global economy continues to pick up
steam, foreign bonds should also continue to do well. Yields across the globe
are relatively high, and we believe demand for yield will continue to be
strong. Pricing power is negligible, which is good news for inflation. This
situation should benefit the Fund in the coming year.
The portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in the
managers' opinion may result in strategic and other portfolio changes. Bond
funds fluctuate in value and, when redeemed, may be worth more or less than
their original cost. The Strategic Income Fund invests in high-yielding
securities as well as foreign and emerging market securities which involve
special risks. While high-yield bonds may offer higher current income than
Treasury securities and high-grade corporate bonds, they are also associated
with greater than average risk. These risks may increase share-price volatility.
The principal value and interest on Treasury securities are guaranteed by the
US. government if held to maturity. Government guarantees apply to individual
securities only and not to prices and yields of shares in a managed portfolio.
The Fund also invests in REITs which are subject to changes in underlying real
estate values, rising interest rates and mortgage prepayment risks. These risks
may also increase share price volatility. See the Fund's prospectus for details.
5
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1999
Bonds and Notes -- 89.5% of Total Net Assets
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
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Principal Standard
Amount Description Moody's & Poor's Value (a)
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<S> <C> <C> <C> <C>
Convertible Bonds--13.3%
British Virgin Islands--1.2%
$ 3,700,000 Sappi Finance , 7.500%, 8/01/2002 .............................. -- -- $ 3,487,250
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Canada--0.2%
500,000 Rogers Communications, Inc., 2.000%, 11/26/2005 ................ B2 BB- 431,250
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Hong Kong--0.7%
4,075,000 Bangkok Bank Public Co., Ltd., 4.589%, 3/03/2004 ............... -- -- 2,139,375
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Mauritius--0.7%
1,600,000 App Finance VII Mauritius, 3.500%, 4/30/2003 ................... Caa1 CCC+ 1,178,000
1,350,000 App Finance VII Mauritius, 144A, 3.500%, 4/30/2003 ............. -- CCC+ 993,938
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2,171,938
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Mexico--0.7%
3,325,000 Empresas ICA Sociedad, 5.000%, 3/15/2004 ....................... B3 B 1,928,500
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Netherlands--0.2%
1,000,000 Burns Philp Treasury Co., Ltd., 5.500%, 4/30/2004 .............. -- CCC 550,000
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South Korea--0.3%
250,000 Samsung Display Devices, 0.250%, 3/12/2006 ..................... -- -- 281,250
1,000,000 Ssangyong Oil Refining Co., Ltd., 3.000%, 12/31/2004 ........... -- -- 720,000
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1,001,250
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Thailand--1.2%
2,130,000 Banpu Public Co., Ltd.,, 2.750%, 4/10/2003 ..................... -- -- 2,108,700
2,250,000 Loxley, 144A, 2.500%, 4/04/2001 ................................ -- -- 585,000
1,130,000 Siam Commercial Bank, 3.250%, 1/24/2004 ........................ B2 B- 562,175
200,000 Total Access Communications, 144A, 2.000%, 5/31/2006 ........... B2 -- 196,000
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3,451,875
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United States--8.1%
500,000 Baker Hughes, Inc., Zero Coupon, 5/05/2008 ..................... A2 A 347,500
96,000 Bell Sports Corp., 4.250%, 11/15/2000 .......................... B2 B- 77,760
3,910,000 Broadband Technologies, Inc.,144A, 5.000%, 5/15/2001 ........... -- -- 1,915,900
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 532,500
325,000 Cirrus Logic, Inc., 6.000%, 12/15/2003 ......................... Caa2 CCC+ 271,781
275,000 CML Group, Inc., 144A, 5.500%, 1/15/2003,(e) (g) ............... -- -- 344
827,000 Cray Research, Inc., 6.125%, 2/01/2011 ......................... B2 B- 500,335
287,000 Dixie Group, Inc., 7.000%, 5/15/2012 ........................... B1 B+ 204,129
1,000,000 Dura Pharmaceuticals, Inc., 3.500%, 7/15/2002 .................. B1 B 778,750
1,050,000 Edo Corp., 7.000%, 12/15/2011 .................................. B2 -- 819,000
1,000,000 Einstein/Noah Bagel Corp., 7.250%, 6/01/2004 ................... -- -- 480,000
1,400,000 Exide Corp., 144A, 2.900%, 12/15/2005 .......................... B2 B 735,000
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 .............................. Caa3 -- 474,375
</TABLE>
See accompanying notes to financial statements.
6
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PORTFOLIO COMPOSITION -- continued
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Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States--continued
$ 250,000 Integrated Device Technology, Inc., 5.500%, 6/01/2002 .......... B2 -- $ 263,750
2,500,000 Intermedia Communications, Inc., 8.600%, 6/01/2008 ............. B3 B 2,306,250
525,000 Intevac, Inc., 6.500%, 3/01/2004 ............................... -- -- 286,125
1,375,000 Kent Electronics Corp., 4.500%, 9/01/2004 ...................... -- B 1,144,687
650,000 Lam Research Corp., 5.000%, 9/01/2002 .......................... -- B 889,687
4,250,000 Loews Corp., 3.125%, 9/15/2007 ................................. A2 A+ 3,437,187
407,000 LTX Corp., 144A, 7.250%, 4/15/2011 ............................. B3 -- 506,715
1,464,000 Maxtor Corp., 144A, 5.750%, 3/01/2012 .......................... Caa3 -- 1,024,800
1,098,000 Nabi, Inc., 6.500%, 2/01/2003 .................................. B3 CCC- 816,638
125,000 NorAm Energy Corp., 6.000%, 3/15/2012 .......................... Baa2 BBB- 107,500
750,000 Park Electrochemical Corp., 5.500%, 3/01/2006 .................. B2 B- 671,250
500,000 Phycor, Inc., 4.500%, 2/15/2003 ................................ B1 B+ 228,750
500,000 Preston Corp., 7.000%, 5/01/2011 ............................... Ba2 -- 380,000
1,000,000 Read Rite Corp., 6.500%, 9/01/2004 ............................. Caa1 CCC+ 365,000
155,000 Richardson Electronics, Ltd., 7.250%, 12/15/2006 ............... B3 -- 112,181
450,000 S3, Inc., 5.750%, 10/01/2003 ................................... -- -- 417,938
500,000 Schuler Homes, Inc., 6.500%, 1/15/2003 ......................... B2 B- 407,500
4,445,000 Shoneys, Inc., 144A, Zero Coupon, 4/11/2004 .................... Caa1 -- 711,200
500,000 Sizeler Property Investments, Inc.,
8.000%, 7/15/2003 (REIT) ..................................... -- -- 455,000
600,000 Telxon Corp., 5.750%, 1/01/2003 ................................ -- CCC+ 499,500
150,000 Thermedics Corp., Zero Coupon, 6/01/2003 ....................... Baa3 BBB+ 87,000
350,000 Thermo Electron Corp., 144A, 4.250%, 1/01/2003 ................. Baa3 BBB 295,313
750,000 TPI Enterprises, Inc., 144A, 8.250%, 7/15/2002 ................. Caa1 -- 247,500
3,000,000 Western Digital Corp., Zero Coupon, 2/18/2018 .................. Caa1 B- 416,250
424,000 Worldway Corp., 6.250%, 4/15/2011 .............................. B1 BB- 343,440
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23,772,535
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Total Convertible Bonds (Identified Cost $49,836,508) .......... 38,933,973
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Non-Convertible Bonds--76.2%
Argentina--3.0%
1,800,000 Argentina Republic, 11.750%, 2/12/2007, (ARS) .................. B1 BBB- 1,624,736
3,500,000 Argentina Republic, 8.875%, 3/01/2029 .......................... B1 BBB- 2,516,150
500,000 Buenos Aires City, Argentina, 144A, 10.500%, 5/28/2004 (ARS) ... B1 BB- 415,000
1,000,000 Compania de Alimentos Fargo S.A., 13.250%, 8/01/2008 ........... B1 BB- 862,500
2,000,000 Multicanal S.A., 13.125%, 4/15/2009 ............................ B1 BB+ 1,950,000
1,585,000 Perez Companc S.A., 144A, 8.125%, 7/15/2007 .................... B1 BBB- 1,339,325
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8,707,711
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Brazil--6.5%
2,500,000 Espirito Santo Escelsa, 10.000%, 7/15/2007 ..................... B2 B+ 2,100,000
6,490,680 Federal Republic of Brazil, 8.000%, 4/15/2014 (f) .............. B2 B+ 4,876,448
14,008,000 Federal Republic of Brazil, 10.125%, 5/15/2027 ................. B2 B+ 11,976,840
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18,953,288
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</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
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Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canada--19.3%
$ 2,775,000 Alberta Province, 5.930%, 9/16/2016, (CAD) ..................... Aa1 AA+ $ 1,843,046
18,505,000 British Columbia Province, Zero Coupon, 9/05/2020, (CAD) ....... Aa2 AA- 3,220,472
17,900,000 British Columbia Province, Zero Coupon, 6/09/2022, (CAD) ....... Aa2 AA- 2,769,450
9,775,000 British Columbia Province, Zero Coupon, 8/19/2022, (CAD) ....... Aa2 AA- 1,492,743
35,000,000 British Columbia Province, Zero Coupon, 8/23/2024, (CAD) ....... Aa2 AA- 4,675,874
11,250,000 British Columbia Province, Zero Coupon, 11/19/2027, (CAD) ...... Aa2 AA- 1,220,639
84,475,000 Canada Government, Zero Coupon, 6/01/2025, (CAD) ............... Aa2 AA 12,206,038
3,500,000 Clearnet Communications, Inc.,
0/11.750%, 8/13/2007, (CAD) (d) ............................... B3 -- 1,726,376
1,200,000 Clearnet Communications, Inc., 0/10.750%,
2/15/2009, (CAD) (d) .......................................... B3 -- 483,904
5,000,000 Hydro Quebec, Zero Coupon, 8/15/2020, (CAD) .................... A2 A+ 834,129
7,950,000 Manitoba Province, 6.500%, 9/22/2017, (CAD) .................... Aa3 -- 5,374,849
3,399,000 Manitoba Province, 7.750%, 12/22/2025, (CAD) ................... Aa3 -- 2,641,667
17,135,000 Manitoba Province, Zero Coupon, 3/05/2031, (CAD) ............... Aa3 -- 1,499,861
2,345,000 Microcell Telecommunications,
0/11.125%, 10/15/2007, (CAD) (d) .............................. B3 B- 1,087,677
2,500,000 New Brunswick F M Project, Inc.,
0/6.470%, 11/30/2027, (CAD) (d) ............................... -- A 1,294,981
29,550,000 Ontario Hydro Bank, Zero Coupon, 10/15/2021, (CAD) ............. Aa3 AA- 4,774,846
750,000 Ontario Province, Zero Coupon, 7/13/2022, (CAD) ................ Aa3 AA- 116,568
12,600,000 Ontario Province, Zero Coupon, 6/02/2027, (CAD) ................ Aa3 AA- 1,435,502
8,800,000 Ontario Province, Zero Coupon, 3/08/2029, (CAD) ................ Aa3 AA- 900,165
8,500,000 Saskatchewan Province, Zero Coupon, 4/10/2014, (CAD) ........... -- -- 2,259,841
8,250,000 Saskatchewan Province, Zero Coupon, 2/04/2022, (CAD) ........... -- -- 1,292,529
9,605,000 Saskatchewan Province, Zero Coupon, 5/30/2025, (CAD) ........... -- -- 1,203,468
3,750,000 Saskatchewan Province, 5.750%, 3/05/2029, (CAD) ................ -- -- 2,267,575
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56,622,200
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Cayman Island--0.8%
1,365,000 Enersis S.A., 7.400%, 12/01/2016 ............................... Baa1 A- 1,188,631
1,405,000 Pdvsa Finance Ltd., 7.400%, 8/15/2016 .......................... A3 -- 1,028,514
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2,217,145
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Colombia--0.5%
732,845 Centragas, 144A, 10.650%, 12/01/2010 ........................... -- BB+ 648,568
974,335 Transgas de Occidente S.A., 144A, 9.790%, 11/01/2010 ........... Ba3 BB+ 845,236
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1,493,804
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Costa Rica--0.2%
700,000 Banco Central Costa, 6.250%, 5/21/2010 ......................... -- -- 682,500
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Ecuador--0.2%
2,328,700 Republic of Ecuador, 6.750%, 2/27/2015, (f) (h) ................ Caa3 -- 536,036
500,000 Republic of Ecuador, 4.000%, 2/28/2025 (h) ..................... -- -- 171,250
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707,286
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</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
India--1.8%
$ 1,700,000 Reliance Industries, Ltd., 10.375%, 6/24/2016 .................. Ba2 BB $ 1,704,148
4,000,000 Tata Electric Cos.,144A, 8.500%, 8/19/2017 ..................... Ba2 BB 3,443,880
-------------
5,148,028
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Israel--0.6%
3,000,000 Barak I T C International, 144A,
0/12.500%, 11/15/2007, (d) .................................... B3 CCC+ 1,620,000
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Malaysia--1.8%
1,750,000 Telekom Malaysia Berhad, 7.875%, 8/01/2025 ..................... Baa3 BBB 1,581,702
4,300,000 Tenaga Nasional Berhad, 7.500%, 11/01/2025 ..................... Baa3 BBB 3,626,487
-------------
5,208,189
-------------
Mauritius--4.2%
500,000 Indah Kiat Finance Mauritius, Ltd.,
10.000%, 7/01/2007 ............................................ Caa1 CCC+ 370,000
2,700,000 Pindo Deli Finance Mauritius, Ltd.,
10.750%, 10/01/2007 ........................................... Caa1 CCC+ 1,991,250
2,650,000 Pindo Deli Finance Mauritius, Ltd.,
11.750%, 10/01/2017 ........................................... Caa1 CCC+ 1,881,500
5,000,000 Pindo Deli Finance Mauritius, Ltd.,
10.875%, 10/01/2027 ........................................... Caa1 CCC+ 3,187,500
6,625,000 Tjiwi Kimia Mauritius, Ltd., 10.000%, 8/01/2004 ................ Caa1 CCC+ 4,968,750
-------------
12,399,000
-------------
Mexico--4.5%
1,000,000 Alestra S.A., 12.125%, 5/15/2006 ............................... B2 BB- 1,005,000
1,000,000 Petroleos Mexicanos, 9.250%, 3/30/2018 ......................... Ba1 BB 927,500
4,350,000 Petroleos Mexicanos, 9.500%, 9/15/2027 ......................... Ba1 BB 4,263,000
3,000,000 Petroleos Mexicanos, 144A, 8.625%, 12/01/2023 .................. Ba1 BBB+ 2,602,500
6,960,000 TFM S.A., 0/11.750%, 6/15/2009, (d) ............................ B2 B+ 4,454,400
-------------
13,252,400
-------------
Panama--0.7%
3,426,500 Pycsa Panama S.A., 144A, 10.280%, 12/15/2012 ................... Ba3 B+ 2,021,635
-------------
Peru--0.2%
1,000,000 Republic of Peru, 3.750%, 3/07/2017 (h) ........................ Ba3 BBB+ 618,800
-------------
Philippines--2.9%
5,150,000 Bangko Sentral Ng Philipinas, 8.600%, 6/15/2027 ................ Ba1 BB+ 4,341,321
1,450,000 Bayan Telecommunications, 144A,
13.500%, 7/15/2006 ............................................ B3 B- 1,261,500
1,250,000 Philippine Long Distance Telephone Co.,
8.350%, 3/06/2017 ............................................. Ba2 BB+ 997,250
2,750,000 Quezon Power Philippines Co., 8.860%, 6/15/2017 ................ Ba1 BB+ 2,046,660
-------------
8,646,731
-------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa--2.7%
$ 23,100,000 Republic of South Africa, 12.500%, 12/21/2006, (ZAR) ........... Baa3 BBB+ $ 3,549,077
17,650,000 Republic of South Africa, 13.000%, 8/31/2010, (ZAR) ............ Baa1 BBB+ 2,764,396
9,500,000 Republic of South Africa, 13.500%, 9/15/2015, (ZAR) ............ Baa1 BBB+ 1,521,391
-------------
7,834,864
-------------
South Korea--1.9%
3,555,358 Korea Electric Power Corp., 7.400%, 4/01/2016 .................. Baa3 BBB 3,144,892
500,000 Pohang Iron & Steel, Ltd., 7.125%, 11/01/2006 .................. Baa3 BBB- 471,185
2,500,000 Samsung Electronics, Ltd., 144A, 7.700%, 10/01/2027 ............ Baa3 BB 1,862,500
-------------
5,478,577
-------------
Supranational -- 2.2%
22,300,000 International Bank of Reconstruction & Development,
Zero Coupon, 8/20/2007, (NZD) ................................. Aaa AAA 6,393,985
-------------
Thailand -- 5.7%
8,475,000 Bangkok Bank Public Co., Ltd., 9.025%, 3/15/2029 ............... -- B+ 6,544,790
2,850,000 Siam Commercial Bank Public, Ltd., 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+ 1,669,312
4,525,000 Total Access Communications Public Co., Ltd., 144A,
8.375%, 11/04/2006 ........................................... B2 BB- 3,468,219
3,000,000 Total Access Communications Public Co., Ltd.144A,
7.625%, 11/04/2001 ........................................... B2 BBB+ 2,550,000
-------------
16,597,821
-------------
United Kingdom -- 0.5%
2,875,000 Dolphin Telecom, 0/11.500%, 6/01/2008, (EUR) (d) ............... Caa1 -- 1,419,315
-------------
United States -- 13.9%
2,000,000 Borden, Inc., 7.875%, 2/15/2023 ................................ Ba1 BB+ 1,528,040
32,000 Boston Celtics LP, 6.000%, 6/30/2038 ........................... -- -- 17,280
250,000 CBS, Inc., 7.125%, 11/01/2023 .................................. Baa3 BBB- 214,353
1,000,000 Century Communications Corp., 8.375%, 11/15/2017 ............... B1 BB- 885,000
2,175,000 Chesapeake Energy Corp., 7.875%, 3/15/2004 ..................... B3 B 1,952,063
250,000 Chesapeake Energy Corp., 9.625%, 5/01/2005 ..................... B3 B 237,500
500,000 Columbia/HCA Healthcare Corp., 7.500%, 12/15/2023 .............. Ba2 BB+ 396,250
820,000 Columbia/HCA Healthcare Corp., 7.050%, 12/01/2027 .............. Ba2 BB+ 623,200
250,000 Dillion Read Structured Finance Corp., 8.550%, 8/15/2019 ....... -- BB+ 226,709
776,122 Dillon Read Structured Finance Corp., 6.660%, 8/15/2010 ........ -- BB+ 695,940
100,000 Emc Corp., 6.000%, 5/15/2004 ................................... B3 B 131,000
34,000,000 Federal National Mortgage Association,
Zero Coupon, 10/29/2007, (NZD) ................................ Aaa AAA 9,357,839
1,000,000 First Industrial LP, 7.600%, 7/15/2028 ......................... Baa2 BBB 818,740
3,500,000 Fox Family Worldwide, Inc., 0/10.250, 11/01/2007, (d) .......... B1 B 2,266,250
250,000 Fruit of the Loom, Inc., 7.375%, 11/15/2023 .................... Caa1 D 85,000
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States--continued
$ 800,000 Hvide Marine, Inc., 144A, 8.375%, 2/15/2008 (g) ................ Ca -- $ 320,000
250,000 Kmart Corp., 9.440%, 7/01/2018 ................................. Ba1 BB+ 235,265
3,500,000 Kmart Corp., 7.950%, 2/01/2023 ................................. Ba1 BB+ 3,185,000
1,000,000 Kulicke & Soffa, Inc., 144A, 4.750%, 12/15/2006 ................ B3 -- 1,106,250
66,000 Missouri Pacific Railroad Co., 4.250%, 1/01/2005 ............... Baa1 BBB+ 56,453
5,375,000 Nextel Communications, Inc., 0/9.750, 10/31/2007, (d) .......... B1 B 3,829,688
250,000 Phillips Van Heusen Corp., 7.750%, 11/15/2023 .................. Ba2 BB 188,338
775,000 Pioneer Standard Electronics, Inc., 8.500%, 8/01/2006 .......... Baa3 BB 711,931
2,000,000 RCN Corp., 0/9.800%, 2/15/2008, (d) ............................ B3 B- 1,320,000
2,500,000 Seagate Technology, 7.450%, 3/01/2037 .......................... Ba1 BBB 2,178,425
1,000,000 Security Capital Industrial Trust, 7.625%, 7/01/2017 (REIT) .... Baa2 BBB+ 884,290
3,500,000 Teligent Inc., 144A, 0/11.500%, 3/01/2008 (d) .................. Caa2 CCC 2,056,250
5,000,000 United States Treasury Stripped Bonds,
Zero Coupon, 8/15/2020 ........................................ -- AAA 1,245,850
2,250,000 Westinghouse Electric Corp., 7.875%, 9/01/2023 ................. Baa3 BBB- 2,209,680
1,000,000 Woolworth Corp., 7.000%, 10/15/2002 ............................ B1 BB 915,450
1,000,000 Woolworth Corp., 8.500%, 1/15/2022 ............................. B1 BB 620,000
699,000 Zenith Corp., 8.190%, 11/01/2009 ............................... -- -- 349,500
-------------
40,847,534
-------------
Venezuela--2.1%
500,000 Cerro Negro Finance, Ltd., 7.900%, 12/01/2020 .................. Baa2 -- 331,005
9,000,000 Republic of Venezuela, 9.250%, 9/15/2027 ....................... B2 B+ 5,974,200
-------------
6,305,205
-------------
Total Non-Convertible Bonds (Identified Cost $235,821,501) ..... 223,176,018
-------------
Common Stock -- 5.7%
Shares
- ----------------------------------------------------------------------------------------------------------------------------
British Virgin Islands - 1.9%
589,300 Sappi, Ltd. (ADR) .................................................................... 5,672,012
-------------
Indonesia--0.9%
6,786,500 Indah Kiat Paper (IDR) ............................................................... 2,670,894
-------------
Mexico--0.1%
3,000 Mexico (United Mexican States) Warrants .............................................. 277,875
-------------
Thailand--0.4%
122,000 Siam Commercial Bank PLC (THB) ....................................................... 149,653
122,000 Siam Commercial Bank PLC, Warrants (THB) ............................................. 56,933
260,000 Total Access Communications Public Co., Ltd. ......................................... 1,024,400
-------------
1,230,986
-------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
<TABLE>
<CAPTION>
Shares Description Value (a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States-- 2.4%
245,173 Advantica Restaurant Group, Inc. ..................................................... $ 429,053
162,900 Associated Estates Realty Corp. (REIT) ............................................... 1,272,656
2,308 Bradlees, Inc., Warrants ............................................................. 3,462
192,550 Chesapeake Energy Corp. .............................................................. 457,306
169,100 Developers Diversified Realty Corp. (REIT) ........................................... 2,177,163
111,700 Simon Property Group, Inc. (REIT) .................................................... 2,562,119
150,150 Streamlogic Corp. (e) (g) ............................................................ 150
693 Streamlogic Corp., Warrants (e) (g) .................................................. 0
-------------
6,901,909
-------------
Total Common Stock (Identified Cost $19,322,146) ..................................... 16,753,676
-------------
Preferred Stock -- 3.0%
- ----------------------------------------------------------------------------------------------------------------------------
Philippines--0.4%
25,300 Philippine Long Distance Telephone Co. (GDR) ......................................... 1,204,913
-------------
United States--2.6%
2,400 Adelphia Business Solutions .......................................................... 2,339,585
3,100 Archstone Communities Trust .......................................................... 63,937
38,000 Arkansas Best, $2.875, 12/31/2049 .................................................... 1,520,000
35,000 Bethlehem Steel, $3.500, 12/31/2049 .................................................. 980,000
6,500 Camden Property Trust, $2.250, 12/31/2049 (REIT) ..................................... 145,844
53,850 Chesapeake Energy Corp. .............................................................. 1,393,369
123,000 Meditrust (REIT) ..................................................................... 676,500
10,000 Owens Corning, 6.500%, 5/10/2025 ..................................................... 346,250
5,000 Western Gas Resources, Inc., $2.625, 12/31/2049 ...................................... 133,750
-------------
7,599,235
-------------
Total Preferred Stock (Identified Cost $9,556,150) ................................... 8,804,148
-------------
Short Term Investment -- 0.4%
Principal
Amount
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 1,218,000 Repurchase Agreement with State Street Bank & Trust Co. dated 12/31/99 at 2.500%
to be repurchased at $1,218,254 on 01/03/2000, collateralized by $995,000
U.S. Treasury Bond, at 8.875%, due 02/15/2019 valued at $1,244,994 ................. 1,218,000
-------------
Total Short Term Investment (Identified Cost $1,218,000) ............................. 1,218,000
-------------
Total Investments--98.6% (Identified Cost $315,754,305) (b) .......................... 288,885,815
Other assets less liabilities ........................................................ 3,971,587
-------------
Total Net Assets--100% ............................................................... $ 292,857,402
=============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
- --------------------------------------------------------------------------------
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on
investments based on cost of $316,407,559 for federal income tax
purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost. .................................... $ 16,603,066
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value. .................................... (44,124,810)
-------------
Net unrealized depreciation. .......................................................... $(27,521,744)
=============
</TABLE>
At December 31, 1999 the Fund had a capital loss carryover of
approximately $13,622,951 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 December 31, 1999. 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 December 31, 1999. The Fund's subadviser independently
evaluates the Fund's portfolio securities and in making
investment decisions does not rely solely on the ratings of
agencies.
(d) 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) Variable rate demand note or floating rate security. The rate
disclosed as of December 31, 1999.
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 year end, the value of these
amounted to $35,139,573 or 12.0% 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.
REIT Real Estate Investment Trust.
Principal amount is stated in United States Dollars, unless otherwise noted as
the currency below:
ARS Argentine Peso
EUR Euro Currency
CAD Canadian Dollars
IDR Indonesian Rupiah
NZD New Zealand Dollars
THB Thai Baht
ZAR South African Rand
Ten Largest Concentrations of Investments at December 31, 1999 (unaudited)
Government 29.5% Electric Utilities 4.9%
Finance & Banking 11.2% Canadian 4.2%
Industrials 7.1% Real Estate 2.9%
Industrial Services 6.8% Transportation 2.3%
Telecommunication 5.8% Electronics 2.1%
See accompanying notes to financial statements.
13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $315,754,305) .............................. $ 288,885,815
Cash ............................................................................. 30,850
Investments held as collateral for loaned securities ............................. 3,192,480
Receivable for:
Fund shares sold ............................................................. 310,546
Dividends and interest ....................................................... 5,102,599
Unamortized organization expense ................................................. 4,503
-------------
297,526,793
LIABILITIES
Payable for:
Collateral for securities loaned, at value ................................... $ 3,192,480
Fund shares redeemed ......................................................... 785,164
Withholding taxes ............................................................ 3,907
Dividends declared ........................................................... 391,213
Accrued expenses:
Management fees .............................................................. 157,534
Deferred trustees' fees ...................................................... 22,134
Accounting and administrative ................................................ 14,088
Other ........................................................................ 102,871
-------------
4,669,391
-------------
NET ASSETS ........................................................................... $ 292,857,402
=============
Net assets consist of:
Capital paid in .............................................................. $ 334,505,154
Undistributed (overdistributed) net investment income (loss) ................. (221,256)
Accumulated net realized gains (losses) ...................................... (14,560,298)
Unrealized appreciation (depreciation) on investments and foreign currency ... (26,866,198)
-------------
NET ASSETS ........................................................................... $ 292,857,402
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($124,868,981 / 10,717,956 shares of beneficial interest) .................... $ 11.65
=============
Offering price per share (100 / 95.50 of $11.65) ..................................... $ 12.20*
=============
Net asset value and offering price of Class B shares
($127,722,891 / 10,963,923 shares of beneficial interest) .................... $ 11.65**
=============
Net asset value and offering price of Class C shares
($40,265,355 / 3,459,502 shares of beneficial interest) ...................... $ 11.64**
=============
Net asset value and offering and redemption price of Class Y shares
($174.7 / 15 shares of beneficial interest) .................................. $ 11.65
=============
</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
================================================================================
Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $15,626) ...................................... $ 1,674,836
Interest ......................................................................... 29,311,103
Securities lending income ........................................................ 50,470
------------
31,036,409
Expenses
Management fees .............................................................. $ 1,907,366
Service fees - Class A ....................................................... 318,145
Service and distribution fees - Class B ...................................... 1,313,549
Service and distribution fees - Class C ...................................... 426,145
Trustees' fees and expenses .................................................. 25,717
Accounting and administrative ................................................ 87,873
Custodian .................................................................... 177,273
Transfer agent ............................................................... 505,178
Audit and tax services ....................................................... 44,200
Legal ........................................................................ 13,741
Printing ..................................................................... 45,495
Registration ................................................................. 55,731
Amortization of organization expense ......................................... 13,819
Miscellaneous ................................................................ 17,898
------------
Total expenses ................................................................... 4,952,130
------------
Net investment income ............................................................ 26,084,279
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments -- net ........................................................... (12,180,870)
Foreign currency transactions -- net ......................................... 1,566
------------
Total realized gain (loss) on investments and foreign currency transactions .. (12,179,304)
------------
Unrealized appreciation (depreciation) on:
Investments -- net ........................................................... 19,319,618
Foreign currency transactions -- net ......................................... 6,167
------------
Total unrealized appreciation (depreciation) on investments
and foreign currency transactions ........................................... 19,325,785
------------
Net gain (loss) on investment transactions ....................................... 7,146,481
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................................ $ 33,230,760
============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ............................................................ $ 26,804,258 $ 26,084,279
Net realized gain (loss) on investments and foreign currency transactions ........ 15,729,793 (12,179,304)
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions .............................................. (51,592,775) 19,325,785
------------- -------------
Increase (decrease) in net assets from operations ................................ (9,058,724) 33,230,760
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ...................................................................... (11,535,949) (11,121,336)
Class B ...................................................................... (10,807,568) (10,486,796)
Class C ...................................................................... (3,898,903) (3,403,086)
Class Y ...................................................................... 0 (2)
Net realized gain on investments
Class A ...................................................................... (7,605,426) (389,803)
Class B ...................................................................... (7,994,311) (401,214)
Class C ...................................................................... (2,721,854) (129,518)
In excess of net realized gain on investments
Class A ...................................................................... (535,178) (23,287)
Class B ...................................................................... (562,543) (23,969)
Class C ...................................................................... (191,532) (7,737)
------------- -------------
(45,853,264) (25,986,748)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS .......................................... 14,420,035 (21,198,379)
------------- -------------
Total increase (decrease) in net assets .............................................. (40,491,953) (13,954,367)
NET ASSETS
Beginning of the year ............................................................ 347,303,722 306,811,769
------------- -------------
End of the year .................................................................. $ 306,811,769 $ 292,857,402
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year .................................................................. $ (530,252) $ (221,256)
============= =============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
May 1(a)
through
December 31, Year Ended December 31,
------------ -----------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ............ $ 12.50 $ 12.99 $ 13.36 $ 13.42 $ 11.37
-------- -------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ............................... 0.74 1.05 1.01 1.05 1.03
Net Realized and Unrealized Gain (Loss)
on Investments .................................... 0.49 0.73 0.21 (1.30) 0.31
-------- -------- --------- --------- ---------
Total From Investment Operations .................... 1.23 1.78 1.22 (0.25) 1.34
-------- -------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ................ (0.73) (1.05) (1.01) (1.05) (1.02)
Distributions in Excess of Net
Investment Income ................................. (0.01) 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains ....... 0.00 (0.36) (0.15) (0.70) (0.04)
Distributions in Excess of Net Realized
Capital Gains ..................................... 0.00 0.00 0.00 (0.05) 0.00(c)
-------- -------- --------- --------- ---------
Total Distributions ................................. (0.74) (1.41) (1.16) (1.80) (1.06)
-------- -------- --------- --------- ---------
Net Asset Value, End of the Period .................. $ 12.99 $ 13.36 $ 13.42 $ 11.37 $ 11.65
======== ======== ========= ========= =========
Total Return (%)(b) ................................. 10.3 14.5 9.3 (1.7) 12.2
Ratio of Operating Expenses to Average
Net Assets (%)(d) ................................. 0.93(e) 0.96 1.18 1.19 1.21
Ratio of Net Investment Income to Average
Net Assets (%) .................................... 8.75(e) 8.23 7.36 8.33 9.09
Portfolio Turnover Rate (%) ......................... 22 52 37 33 19
Net Assets, End of the Period (000) ................. $ 36,939 $ 90,729 $ 144,706 $ 127,306 $ 124,869
(a) Commencement of operations.
(b) A sales charge is not reflected in total return calculations. Period less than one year is not computed
on an annualized 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 accompanying notes to financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------
May 1(a)
through
December 31, Year Ended December 31,
------------ -------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ............ $ 12.50 $ 12.99 $ 13.36 $ 13.42 $ 11.37
---------- ---------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............................... 0.68 0.95 0.91 0.95 0.94
Net Realized and Unrealized Gain (Loss)
on Investments .................................... 0.49 0.73 0.21 (1.30) 0.31
---------- ---------- ----------- ----------- -----------
Total From Investment Operations .................... 1.17 1.68 1.12 (0.35) 1.25
---------- ---------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ................ (0.67) (0.95) (0.91) (0.95) (0.93)
Distributions in Excess of Net
Investment Income ................................. (0.01) 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains ....... 0.00 (0.36) (0.15) (0.70) (0.04)
Distributions in Excess of Net Realized
Capital Gains ..................................... 0.00 0.00 0.00 (0.05) 0.00(b)
---------- ---------- ----------- ----------- -----------
Total Distributions ................................. (0.68) (1.31) (1.06) (1.70) (0.97)
---------- ---------- ----------- ----------- -----------
Net Asset Value, End of the Period .................. $ 12.99 $ 13.36 $ 13.42 $ 11.37 $ 11.65
========== ========== =========== =========== ===========
Total Return (%)(c) ................................. 9.7 13.7 8.5 (2.5) 11.3
Ratio of Operating Expenses to Average
Net Assets (%)(d) ................................. 1.68(e) 1.71 1.93 1.94 1.96
Ratio of Net Investment Income to Average
Net Assets (%) .................................... 8.00(e) 7.48 6.61 7.58 8.34
Portfolio Turnover Rate (%) ......................... 22 52 37 33 19
Net Assets, End of the Period (000) ................. $ 38,767 $ 93,408 $ 146,083 $ 134,049 $ 127,723
(a) Commencement of operations.
(b) Amount is less than $0.01.
(c) A contingent deferred sales charge is not reflected in total return calculations. Period less than one year
is 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.
18
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C Class Y
--------------------------------------------------------------------- ------------
May 1(a) December 1(a)
through through
December 31, Year Ended December 31, December 31
--------------------------------------------------------------------- ------------
1995 1996 1997 1998 1999 1999
--------------------------------------------------------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .. $ 12.50 $ 12.99 $ 13.35 $ 13.41 $ 11.36 $11.45
---------- ---------- ---------- ---------- ---------- ------
Income From Investment Operations
Net Investment Income ..................... 0.67 0.95 0.91 0.95 0.94 0.86
Net Realized and Unrealized Gain (Loss)
on Investments .......................... 0.49 0.72 0.21 (1.30) 0.31 (0.56)
---------- ---------- ---------- ---------- ---------- ------
Total From Investment Operations .......... 1.16 1.67 1.12 (0.35) 1.25 0.30
---------- ---------- ---------- ---------- ---------- ------
Less Distributions
Dividends From Net Investment Income ...... (0.66) (0.95) (0.91) (0.95) (0.93) (0.10)
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(b)
---------- ---------- ---------- ---------- ---------- ------
Total Distributions ....................... (0.67) (1.31) (1.06) (1.70) (0.97) (0.10)
---------- ---------- ---------- ---------- ---------- ------
Net Asset Value, End of the Period ........ $ 12.99 $ 13.35 $ 13.41 $ 11.36 $ 11.64 $11.65
========== ========== ========== ========== ========== ======
Total Return (%)(c) ....................... 9.7 13.6 8.5 (2.5) 11.3 2.7
Ratio of Operating Expenses to Average
Net Assets (%)(d) ....................... 1.68(e) 1.71 1.93 1.94 1.96 0.96(e)
Ratio of Net Investment Income to
Average Net Assets (%) .................. 8.00(e) 7.48 6.61 7.58 8.34 9.34(e)
Portfolio Turnover Rate (%) ............... 22 52 37 33 19 19
Net Assets, End of the Period (000) ....... $ 12,252 $ 31,746 $ 56,515 $ 45,457 $ 40,265 $ 0.2
(a) Commencement of operations.
(b) Amount is less than $0.01.
(c) A contingent deferred sales charge is not reflected in Class C 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>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly New England 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 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 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 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.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
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 are being amortized over 60 months beginning May 1, 1995.
2. Purchases and Sales of Securities. For the year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were
$56,165,692 and $87,202,539, respectively.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
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. Fees earned by Nvest Management and Loomis
Sayles under the management and subadvisory agreements in effect during the year
ended December 31, 1999 are as follows
Fees Earned
-----------
Nvest Management $ 903,681
Loomis Sayles 1,003,685
The effective management fee for the year ended December 31, 1999 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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999 these
expenses amounted to $87,873 and are shown separately in the financial
statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $376,458 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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $318,145 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
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
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 year ended December 31, 1999 the Fund paid Nvest
Funds $328,387 and $106,536 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
year ended December 31, 1999 the Fund paid Nvest Funds $985,162 and $319,609 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 year ended December
31, 1999 amounted to $811,139.
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.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
4. Capital Shares. At December 31, 1999 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 December 31,
----------------------------------------------------------------
1998 1999
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 2,527,016 $ 33,012,617 1,785,154 $ 20,839,875
Shares issued in connection with the reinvestment of:
Dividends from net investment income .................... 703,147 8,857,133 736,089 8,549,347
Distributions from net realized gain .................... 612,878 6,901,830 31,800 362,837
---------- ------------ ---------- ------------
3,843,041 48,771,580 2,553,043 29,752,059
Shares repurchased ......................................... (3,427,400) (43,428,129) (3,031,274) (35,226,587)
---------- ------------ ---------- ------------
Net increase (decrease) .................................... 415,641 $ 5,343,451 (478,231) $ (5,474,528)
---------- ------------ ---------- ------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
---------------------------- ----------------------------
Class B Shares Amount Shares Amount
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 2,527,458 $ 33,025,825 1,466,960 $ 17,085,174
Shares issued in connection with the reinvestment of:
Dividends from net investment income .................... 548,291 6,885,038 587,333 6,820,440
Distributions from net realized gain .................... 559,975 6,306,064 28,144 321,125
---------- ------------ ---------- ------------
3,635,724 46,216,927 2,082,437 24,226,739
Shares repurchased ......................................... (2,729,921) (34,472,473) (2,909,430) (33,741,391)
---------- ------------ ---------- ------------
Net increase (decrease) .................................... 905,803 $ 11,744,454 (826,993) $ (9,514,652)
---------- ------------ ---------- ------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
---------------------------- ----------------------------
Class C Shares Amount Shares Amount
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 923,901 $ 12,215,377 505,563 $ 5,852,124
Shares issued in connection with the reinvestment of:
Dividends from net investment income .................... 239,281 3,016,047 220,279 2,555,812
Distributions from net realized gain .................... 214,637 2,414,955 9,937 113,282
---------- ------------ ---------- ------------
1,377,819 17,646,379 735,779 8,521,218
Shares repurchased ......................................... (1,589,737) (20,314,249) (1,278,107) (14,730,584)
---------- ------------ ---------- ------------
Net increase (decrease) .................................... (211,918) $ (2,667,870) (542,328) $ (6,209,366)
---------- ------------ ---------- ------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
---------------------------- ----------------------------
Class Y Shares Amount Shares Amount
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 0 0 15 $ 167
---------- ------------ ---------- ------------
Net increase (decrease) .................................... 0 0 15 $ 167
---------- ------------ ---------- ------------
Increase (decrease) derived from capital shares transactions 1,109,526 $ 14,420,035 (1,847,537) $(21,198,379)
========== ============ ========== ============
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
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 4, 1999. 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 year ended December 31,
1999.
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
December 31, 1999, the Fund loaned securities having a market value of
$3,018,619 and collateralized by cash in the amount of $3,192,480 which was
invested in a short-term investment.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds I and the Shareholders of the Nvest Strategic
Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition (except for bond ratings), and the related statements
of operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Nvest Strategic
Income Fund (formerly the New England Strategic Income Fund) (the "Fund"), a
series of Nvest Funds Trust I, at December 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods indicated, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
26
<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 FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
$100 $200 $500
25 Years $91,236 $182,472 $456,181
The Power of Monthly Investing
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.
<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 TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Invester 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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
ST56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Bond Income Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST BOND INCOME FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. 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.]
December 1989 through December 1999
Net Maximum Lehman
Asset Sales Aggregate
Value(1) Charge(2) Bond Index(4)
-------- --------- -------------
12/99 $22,084 $21,090 $20,988
12/98 22,168 21,170 21,162
12/97 20,530 19,606 19,470
12/96 18,489 17,657 17,757
12/95 17,675 16,880 17,135
12/94 14,636 13,977 14,463
12/93 15,284 14,596 14,898
12/92 13,641 13,027 13,575
12/91 12,697 12,125 12,639
12/90 10,748 10,264 10,896
12/89 10,000 9,550 10,000
- --------------------------------------------------------------------------------
This illustration represents past performance of Class A shares and cannot
predict future results. Class B, C and Y share performance will differ from that
shown based on differences in inception dates, fees and sales charges.
Investment return and principal value may vary, resulting in a gain or loss on
the sale of shares. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST BOND INCOME FUND
================================================================================
Average Annual Total Returns-- 12/31/99
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 11/7/73) 1 Year 5 Years 10 Years
Net Asset Value(1) -0.34% 8.60% 8.26%
With Maximum Sales Charge(2) -4.81 7.59 7.74
- --------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1) -1.09% 7.79% 5.15%
With CDSC(3) -5.74 7.49 5.15
- --------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -1.09% 7.49% 7.49%
With CDSC(3) -2.02 7.49 7.49
- --------------------------------------------------------------------------------------------
Class Y (Inception 12/30/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -0.01% 8.77% 8.76%
- --------------------------------------------------------------------------------------------
Since Since
Fund's Fund's
Class B Class C and Y
Comparative Performance 1 Year 5 Years 10 Years Incept. Incept.
Lehman Aggregate Bond Index(4) -0.82% 7.73% 7.70% 5.65% 7.73%
Morningstar Int. Bond Average(5) -1.38 6.82 7.21 4.79 6.84
Lipper Int. Investment Grade Debt Avg.(6) -1.31 6.79 7.09 4.81 6.79
- --------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.50% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) Lehman Brothers Aggregate Bond Index is an unmanaged, market-weighted
aggregate 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. The performance of the index has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments. It is not possible
to invest directly in an index. Class B since inception return is
calculated from 9/30/93.
(5) Morningstar Intermediate Bond Average is an average (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class B since inception return is calculated from 9/30/93.
(6) Lipper Intermediate Investment Grade Debt Average is an average (calculated
on the basis of net asset value) of funds with similar investment
objectives as calculated by Lipper Inc., an independent mutual fund
ranking service. Class B since inception return is calculated from 9/30/93.
2
<PAGE>
NVEST BOND INCOME FUND
================================================================================
Interview with Your Portfolio Manager
- --------------------------------------------------------------------------------
[PHOTO]
[PHOTO]
Peter Palfrey
Richard Raczkowski
Back Bay Advisors, L.P.
Q. How did Bond Income Fund perform in 1999?
The Bond Income Fund's flexibility and focus on quality corporate and other
bonds provided a combination of current income with some protection to principal
during a difficult market period. For the 12 months ended December 31, 1999, the
return on the Fund's Class A shares was -0.34% based on net asset value and
reinvestment of dividends totaling $0.80 per share paid during the year. For the
same period, the return on Lehman Brothers Aggregate Bond Index was -0.82%.
Q. What was the investment environment like?
Early in 1999, investors began to move back out of Treasuries, into assets that
involved higher risk but greater potential rewards. The Fund's emphasis on
corporate bonds, mortgage-backed securities and Yankee bonds (dollar-denominated
bonds issued by foreign countries) benefited the Fund early in the year, even
though the average duration* of portfolio securities made it more sensitive to
rising interest rates than funds with shorter maturities.
Unfortunately, conditions deteriorated as the year progressed. Commodity prices
rose, U.S. labor markets remained tight, consumer spending was strong and stock
prices soared. Concerned about prospects for inflation, the Federal Reserve
Board responded by increasing interest rates by 0.25% three times in an effort
to slow economic activity. Meanwhile, a record flow of new bond issues came to
market. Firms raced to bring offerings to market before year-end 1999,
increasing supply at a time when demand was diminished, as many investors were
reluctant to buy bonds in advance of Y2K. It was not until the fourth quarter
was drawing to a close that the tide of new issues began to ebb and investor
demand began to return.
* Duration is a measure of interest rate sensitivity.
3
<PAGE>
NVEST BOND INCOME FUND
================================================================================
- --------------------------------------------------------------------------------
Q. How did you respond to that environment?
As 1999 began, we were maintaining the Fund's relatively full commitment to
bonds of high-quality, non-cyclical companies, taking advantage of attractive
yields and acceptable liquidity. We also added selectively to more economically
sensitive industries, including energy, manufacturing and forest products, which
stood to benefit from firmer world prices. To further expand diversification, we
added to the Fund's holdings in Canadian dollar-denominated issues, allowing it
to benefit from the strengthening Canadian dollar as commodity prices improved.
During the second and third quarters, we also expanded into European and
Australian holdings for additional diversification and to participate more fully
in the global economic rebound. And during the fourth quarter we increased the
Fund's exposure to the mortgage and Treasury markets and pared back on corporate
bonds. Even so, corporate bonds and Yankee securities with longer durations are
still a primary focus of the portfolio because we believe they offer
considerable promise as liquidity returns to the market in the new year.
Q. What factors or investments were most positive for the Fund, and which were
the most negative?
The Fund's energy-related holdings were a positive, as improving economic
conditions worldwide increased energy prices. In addition to carefully selected
Yankee issuers that are large exporters of energy products, the Fund had several
direct holdings in the energy sector, including Occidental Petroleum, Gulf
Canada, and YPF (an Argentine oil producer). Other positives included the Fund's
holdings in forest products companies -- notably Abitibi, and a Dutch packaging
company, Jefferson Smurfit and Kappa. This industry is enjoying stronger demand
as a result of reduced global capacity, which is helping to stabilize prices and
improve profits.
Our bias toward corporate bonds was the biggest negative through mid year, as
Treasuries and other top-quality securities outperformed other sectors. The
duration of the Fund's non-Treasury holdings hurt performance during the summer,
but its longer duration helped the Fund recover late in the year.
Q. What is your outlook for next year and beyond?
We believe economic activity in the U.S. will be stronger in the first half of
2000 than in the second half, and we expect the Fed to raise rates again early
in the
4
<PAGE>
NVEST BOND INCOME FUND
================================================================================
- --------------------------------------------------------------------------------
year. As higher interest rates work their way gradually through the economy, a
slowdown in U.S. economic activity is unlikely to be felt until later in the
year. As the year progresses, higher rates in the U.S. and overseas should
eventually dampen consumer confidence, restrain spending, and hold back
corporate profit-growth estimates. Earnings expectations have been the key to
the long bull market in stocks. Any shift by investors from equities to
fixed-income products would also be a significant boost to bond market
performance.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Credit Quality Composition -- 12/31/99
AAA 22.2%
AA 2.1%
A 15.5%
BBB 35.0%
BB 15.7%
B 9.5%
Average Portfolio Quality: A
Portfolio holdings and asset allocation will vary.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio's Management Team
This September Catherine Bunting left Back Bay Advisors after more than 10
years as manager of Bond Income Fund. In its November commentary, Morningstar's
analyst applauded the smooth transition of fund managers, noting that Peter
Palfrey, who replaced her as lead manager, is maintaining a consistent
investment approach, continuing to focus on credit research. The Morningstar
report says, "Its large corporate stake has been a boon in the decade's long run
of strong economic growth," adding that the Fund, "held up better than most of
its peers this year as well." Mr. Palfrey joined Back Bay Advisors in 1993.
Richard Raczkowski became co-portfolio manager in May 1999.
Morningstar is an independent mutual fund rating organization, which issues
reports on individual funds at least semiannually.
- --------------------------------------------------------------------------------
The portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in the
managers' opinion may result in strategic and other portfolio changes. Bond
funds fluctuate in value and, when redeemed, may be worth more or less than
their original cost.
The Bond Income Fund invests in high-yielding, lower rated bonds as well as
foreign securities which may involve special risks. While high-yield bonds may
offer higher current income than Treasury securities and high-grade corporate
bonds, they are also associated with greater than average risk. These risks may
increase share-price volatility. The principal value and interest on Treasury
securities are guaranteed by the US. government if held to maturity. Government
guarantees apply to individual securities only and not to prices and yields of
shares in a managed portfolio. These risks may increase share price volatility.
See the Fund's prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- 98.4% of Total Net Assets
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aerospace--0.7%
$ 1,305,000 Lockheed Martin Corp., 8.200%, 12/01/2009.......................... Baa3 BBB- $ 1,302,218
1,045,000 Lockheed Martin Corp., 8.500%, 12/01/2029.......................... Baa3 BBB- 1,045,988
---------------
2,348,206
---------------
Business Services--1.5%
2,000,000 Ceridian Corp., 7.250%, 6/01/2004.................................. Baa3 BBB 1,934,970
3,500,000 Equifax, Inc., 6.900%, 7/01/2028................................... A3 A- 3,077,239
---------------
5,012,209
---------------
Electric Utilities--6.4%
9,905,000 Arizona Public Service Corp., 8.000%, 12/30/2015................... Baa3 BBB 9,659,574
5,000,000 BVPS II Funding Corp., 8.890%, 6/01/2017........................... Ba1 BB- 5,103,327
3,743,000 New Mexico Public Service Corp., 10.250%, 10/01/2012............... Ba2 BBB- 4,160,031
2,000,000 Ohio Edison Corp., 8.680%, 6/01/2017............................... Ba1 BB- 2,020,407
---------------
20,943,339
---------------
Federal Agencies--8.0%
50,450 Federal Home Loan Mortgage Corp., 9.000%, 5/1/2001................. Aaa AAA 49,963
325,516 Federal National Mortgage Association, 7.500%, 12/1/2024........... Aaa AAA 323,075
3,396,238 Government National Mortgage Association, 6.500%, 11/15/2028....... Aaa AAA 3,187,132
11,399,269 Government National Mortgage Association, 7.000%,
with various maturities to 2025 (d)............................... Aaa AAA 11,047,059
6,238,466 Government National Mortgage Association, 7.500%,
with various maturities to 2025 (d)............................... Aaa AAA 6,193,019
3,397,841 Government National Mortgage Association, 8.000%, 11/15/2029....... Aaa AAA 3,431,820
1,730,151 Government National Mortgage Association, 8.500%,
with various maturities to 2023 (d)............................... Aaa AAA 1,787,535
125,898 Government National Mortgage Association, 9.000%,
with various maturities to 2016 (d)............................... Aaa AAA 132,821
166,241 Government National Mortgage Association, 11.500%,
with various maturities to 2018 (d)............................... Aaa AAA 184,381
---------------
26,336,805
---------------
Finance & Banking--8.3%
4,075,000 American General Finance Corp., 8.450%, 10/15/2009................. A2 A+ 4,287,220
2,000,000 Associates Corp. of North America, 7.950%, 2/15/2010............... Aa3 AA- 2,048,523
850,000 Associates Corp. of North America, 8.550%, 7/15/2009............... Aa3 AA- 904,606
2,200,000 BankAmerica Corp., 5.875%, 2/15/2009............................... Aa2 A+ 1,962,832
5,700,000 BB&T Corp., 6.375%, 6/30/2005...................................... A3 BBB+ 5,369,500
1,500,000 BB&T Corp., 7.250%, 6/15/2007...................................... A3 BBB+ 1,467,976
4,500,000 Ford Motor Credit Co., 6.446%, 7/16/2002........................... A1 A+ 4,508,435
6,073,000 NCNB Corp., 9.375%, 9/15/2009...................................... A3 A 6,775,333
---------------
27,324,425
---------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food & Beverages--1.3%
$ 4,600,000 Aramark Services, Inc., 7.000%, 7/15/2006.......................... Baa3 BBB- $ 4,342,891
---------------
Foreign Issues-7.9%
17,100,000 Government of Canada, 7.250%, 6/01/2007 (CAD)...................... Aa1 AAA 12,528,549
4,000,000 Government of Canada, 7.500%, 12/01/2003 (CAD)..................... Aa1 AAA 2,891,583
1,100,000 Kappa Beheer BV, 144A, 10.625%, 7/15/2009 (EUR).................... B2 B 1,166,259
1,500,000 Manitoba Province, Canada, 5.650%, 7/15/2004 (CAD)................. Aa3 AA- 1,009,047
7,000,000 Province of British Columbia, Canada, 7.750%, 6/16/2003 (CAD)...... -- AA- 5,048,195
5,000,000 World Bank, 5.500%, 5/14/2003 (AUD)................................ Aaa AAA 3,154,483
---------------
25,798,116
---------------
Insurance--0.6%
1,810,000 Conseco, Inc., 9.000%, 10/15/2006.................................. Ba3 BBB+ 1,856,424
---------------
Media & Entertainment--16.6%
12,300,000 Continental Cablevision, Inc., 9.500%, 8/01/2013................... Baa3 BBB 13,616,556
2,000,000 CSC Holdings, Inc., 7.625%, 7/15/2018.............................. Ba2 BB+ 1,859,098
3,500,000 CSC Holdings, Inc., 7.875%, 12/15/2007............................. Ba2 BB+ 3,458,260
3,000,000 News America Holdings, Inc., 7.750%, 2/01/2024..................... Baa3 BBB- 2,826,018
2,245,000 News America Holdings, Inc., 8.250%, 8/10/2018..................... Baa3 BBB- 2,248,944
2,000,000 TCI Communications, Inc., 8.750%, 8/01/2015........................ A2 AA- 2,176,978
9,342,000 Tele-Communications, Inc., 9.250%, 1/15/2023....................... A2 AA- 9,725,103
2,027,000 Tele-Communications, Inc., 9.800%, 2/01/2012....................... A2 AA- 2,373,326
2,000,000 Time Warner, Inc., 9.125%, 1/15/2013............................... Baa3 BBB 2,195,294
3,000,000 Time Warner, Inc., 9.150%, 2/01/2023............................... Baa3 BBB 3,360,327
3,150,000 Turner Broadcasting Systems, Inc., 8.375%, 7/01/2013............... Baa3 BBB 3,291,394
7,800,000 USA Networks, Inc., 6.750%, 11/15/2005............................. Ba1 BBB- 7,461,752
---------------
54,593,050
---------------
Oil & Gas--1.5%
500,000 Coastal Corp., 9.750%, 8/01/2003................................... Baa2 BBB 532,870
5,100,000 Pioneer Natural Resources Co., 6.500%, 1/15/2008................... Ba2 BB+ 4,335,245
---------------
4,868,115
---------------
Paper--0.5%
2,000,000 Pope & Talbot, Inc., 8.375%, 6/01/2013............................. Ba2 BB 1,751,914
---------------
Retail - Food & Drug--0.5%
1,370,000 Rite Aid Corp., 7.125%, 1/15/2007.................................. B1 BB 1,013,800
750,000 Rite Aid Corp., 7.700%, 2/15/2027.................................. B1 BB 540,000
---------------
1,553,800
---------------
Telecommunication--12.6%
1,900,000 AT&T Corp., 8.350%, 1/15/2025...................................... A1 AA- 1,884,165
5,700,000 AT&T Corp., 8.625%, 12/01/2031..................................... A1 AA- 5,758,281
2,540,000 Global Crossings Holdings, Ltd., 9.625%, 5/15/2008................. Ba2 BB 2,533,650
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunication -- continued
$ 6,150,000 GTE Corp., 7.900%, 2/01/2027....................................... Baa1 A $ 5,937,018
1,055,000 GTE Corp., 9.100%, 6/01/2003....................................... Baa1 A 1,113,820
8,000,000 LCI International, Inc., 7.250%, 6/15/2007......................... Ba1 BB+ 7,706,607
1,500,000 McLeodUSA, Inc., 8.125%, 2/15/2009................................. B1 B+ 1,402,500
2,000,000 McLeodUSA, Inc., 8.375%, 3/15/2008................................. B1 B+ 1,887,500
500,000 McLeodUSA, Inc., 9.500%, 11/01/2008................................ B1 B+ 507,500
795,000 Metromedia Fiber Network, Inc., 10.000%, 12/15/2009................ B2 B+ 818,850
3,000,000 Qwest Communications International, Inc., 7.500%, 11/01/2008....... Ba1 BB+ 2,922,435
2,650,000 Worldcom, Inc., 6.400%, 8/15/2005.................................. A3 A- 2,542,693
6,061,000 Worldcom, Inc., 8.875%, 1/15/2006.................................. A3 A- 6,320,311
---------------
41,335,330
---------------
U.S. Government--7.2%
1,300,000 United States Treasury Bonds, 5.250%, 2/15/2029.................... Aaa AAA 1,077,028
6,200,000 United States Treasury Notes, 5.625%, 5/15/2008.................... Aaa AAA 5,831,844
3,000,000 United States Treasury Notes, 5.750%,..............................
with various maturities to 2003 (d).............................. Aaa AAA 2,941,876
14,100,000 United States Treasury Notes, 6.000%, 8/15/2009 (e)................ Aaa AAA 13,659,375
---------------
23,510,123
---------------
Yankee--24.8%
5,000,000 Abitibi-Consolidated, Inc., 6.950%, 4/01/2008...................... Baa3 BBB- 4,565,871
4,100,000 Bridas Co., 12.500%, 6/10/2003..................................... B1 -- 4,366,500
3,890,000 British Sky Broadcsting Group, 144A 8.200%, 7/15/2009.............. Baa2 BBB- 3,755,857
1,000,000 CE Generation LLC, 144A, 7.416%, 12/15/2018........................ Baa3 BBB- 921,529
2,500,000 Cemex SA, 144A, 9.625%, 10/01/2009................................. Ba2 BB+ 2,525,000
2,900,000 Empresa Nacional de Electric, 8.500%, 4/01/2009.................... -- A- 2,873,868
1,150,000 Endesa-Chile Overseas, 7.200%, 4/01/2006........................... Baa1 A- 1,083,174
4,300,000 Freeport Term Malta PLC, 144A, 7.250%, 5/15/2028................... A3 A 3,714,474
1,340,000 Gulf Canada Resources, Ltd., 8.250%, 3/15/2017..................... Ba1 BB+ 1,222,234
1,000,000 Gulf Canada Resources, Ltd., 8.350%, 8/01/2006..................... Ba1 BB+ 971,515
5,500,000 Hydro Quebec, 8.050%, 7/07/2024.................................... A2 A+ 5,741,849
900,000 Kappa Beheer BV, 144A, 10.625%, 7/15/2009.......................... B2 B 941,625
4,500,000 Merita Bank, Ltd., 144A 7.150%, 12/29/2049 (f)..................... A3 BBB+ 4,401,136
3,390,000 Multicanal SA, 9.250%, 2/01/2002................................... B1 BB+ 3,169,650
1,250,000 Multicanal SA, 10.500%, 4/15/2018.................................. B1 BB+ 987,500
3,800,000 Multicanal SA, 13.125%, 4/15/2009.................................. B1 BB+ 3,762,000
4,000,000 Orange PLC, 8.750%, 6/01/2006...................................... Ba3 BBB 4,265,000
500,000 PDVSA Finance, Ltd., 144A, 8.750%, 2/15/2004....................... A3 -- 487,884
6,535,000 Pemex Finance, Ltd, 8.020%, 5/15/2007.............................. Baa1 BBB 6,273,600
3,000,000 Pemex Finance, Ltd, 9.150%, 11/15/2018............................. Baa1 BBB 2,970,000
1,500,000 Petroleos Mexicanos Medium Term Note, 8.625%, 12/01/2023........... Ba2 -- 1,312,500
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Yankee--continued
$ 1,000,000 Republic of Colombia, 8.375%, 2/15/2027............................ Ba2 BB+ $ 773,750
1,900,000 Republic of Colombia, 9.750%, 4/23/2009............................ Ba2 BB+ 1,814,500
1,850,000 Republic of Colombia, 144A, 8.660%, 10/07/2016..................... Baa3 BBB- 1,665,000
2,500,000 Republic of Korea, 8.875%, 4/15/2008............................... Baa3 BBB 2,631,600
2,700,000 SK Telecom Company, Ltd, 7.750%, 4/29/2004......................... Ba1 BBB 2,652,258
6,100,000 YPF SA, 7.250%, 3/15/2003.......................................... Baa1 BBB- 5,924,034
5,700,000 YPF SA, 7.750%, 8/27/2007.......................................... Baa1 BBB- 5,456,133
---------------
81,230,041
---------------
Total Bonds and Notes (Identified Cost $335,867,997)............... 322,804,788
---------------
Short Term Investment--1.6%
540,000 Household Finance Corp. 4.000%, 1/03/2000.......................... 539,880
4,600,000 Household Finance Corp. 6.300%, 1/25/2000.......................... 4,580,680
---------------
Total Short Term Investment (Identified Cost $5,120,560)........... 5,120,560
---------------
Total Investments--100% (Identified Cost $340,988,557) (b)......... 327,925,348
Other assets less liabilities...................................... 248,525
===============
Total Net Assets--100%............................................. $ 328,173,873
===============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999 the net unrealized depreciation on investments based
on cost of $340,988,557 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 ........................................ $ 1,178,148
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ........................................ (14,241,357)
---------------
Net unrealized depreciation. ............................................... $ (13,063,209)
===============
</TABLE>
At December 31, 1999 the Fund had a capital loss carryover 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
December 31, 1999. 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 December 31, 1999. The Fund's subadviser
independently evaluates the Fund's portfolio securities and in making
investment decisions does not rely solely on the ratings of agencies.
(d) The Fund's investments in Government National Mortgage Association
Securities and U.S. Treasury Bonds and Notes, which have the same coupon
rate, have been aggregated for the purpose of presentation in the schedule
of investments inclusive of an open TBA at the end of the period.
(e) A portion of these securities has been segregated as collateral for a GNMA
TBA open at December 31, 1999.
(f) Multi Coupon: coupon rate is as stated for an initial period and then
increases to a higher coupon rate at a specified rate and date.
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 year end,
the value of these securities amounted to $19,578,764 or 5.97% of net
assets.
AUD Australian Dollars
CAD Canadian Dollars
EUR Euro
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value (Identified cost $340,988,557) ............ $ 327,925,348
Cash ......................................................... 1,500
Investments held as collateral for loaned securities ......... 18,437,925
Receivable for:
Fund shares sold ............................................. 332,650
Interest ..................................................... 6,151,030
-------------
352,848,453
LIABILITIES
Payable for:
Collateral on securities loaned, at value .................... $ 18,437,925
Securities purchased ......................................... 4,610,469
Fund shares redeemed ......................................... 930,459
Dividends declared ........................................... 374,430
Accrued expenses:
Management fees .............................................. 116,276
Deferred Trustees' fees ...................................... 87,577
Accounting and administrative ................................ 13,988
Other ........................................................ 103,456
-------------
24,674,580
-------------
NET ASSETS ....................................................... $ 328,173,873
=============
Net Assets consist of:
Capital paid in .............................................. 344,373,436
Undistributed net investment income .......................... 103,946
Accumulated net realized gains (losses) ...................... (3,241,675)
Unrealized appreciation (depreciation) on investments
and foreign currency ......................................... (13,061,834)
-------------
NET ASSETS ....................................................... $ 328,173,873
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($213,768,574/18,565,260 shares of beneficial interest) ........ $11.51
======
Offering price per share (100 / 95.50 of $11.51) ............... $12.05*
======
Net asset value and offering price of Class B shares
($89,213,412/7,751,000 shares of beneficial interest) ........ 11.51**
======
Net asset value and offering price of Class C shares
($14,871,675/1,290,706 shares of beneficial interest) ......... $11.52**
======
Net asset value, offering and redemption price of Class Y shares
($10,320,212/894,603 shares of beneficial interest) ........... $11.54
======
</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.
10
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest................................... $ 25,647,457
Securities lending income.................. 54,930
-------------
25,702,387
-------------
Expenses
Management fees ....................... $ 1,354,356
Service fees - Class A ................ 560,299
Service and distribution fees - Class B 804,437
Service and distribution fees - Class C 124,521
Trustees' fees and expenses ........... 17,913
Accounting and administrative ......... 93,528
Custodian ............................. 147,595
Transfer agent ........................ 566,356
Audit and tax services ................ 38,602
Legal ................................. 13,278
Printing .............................. 51,542
Registration .......................... 60,080
Miscellaneous ......................... 18,671
-----------
Total expenses ........................ 3,851,178
-------------
Net investment income ................. 21,851,209
REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS
and FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ............................... (2,776,873)
Foreign currency transactions - net ............. (3,982)
----------
Total realized gain (loss) on investments
and foreign currency transactions ............... (2,780,855)
----------
Unrealized appreciation (depreciation) on:
Investments - net ...............................(20,965,594)
Foreign currency transactions - net ............. 519
----------
Total unrealized appreciation (depreciation)
on investments and foreign currency transactions (20,965,075)
----------
Net gain (loss) on investment transactions ........... (23,745,930)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .... $ (1,894,721)
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ............................. $ 16,657,649 $ 21,851,209
Net realized gain (loss) on investments
and foreign currency transactions ................ 3,775,580 (2,780,855)
Unrealized appreciation (depreciation) on
investments and foreign currency transactions .... (341,168) (20,965,075)
------------- -------------
Increase (decrease) in net assets from operations . 20,092,061 (1,894,721)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ......................................... (12,764,206) (14,939,750)
Class B ......................................... (2,619,197) (4,785,260)
Class C ......................................... (386,635) (741,180)
Class Y ......................................... (418,719) (747,853)
In excess of net investment income
Class A ......................................... (433,807) 0
Class B ......................................... (89,016) 0
Class C ......................................... (13,140) 0
Class Y ......................................... (14,231) 0
Net realized gain on investments
Class A ......................................... (3,058,786) (187,042)
Class B ......................................... (872,515) (72,950)
Class C ......................................... (123,069) (11,768)
Class Y ......................................... (128,785) (8,834)
In excess of net realized gain
Class A ......................................... (162,071) (42,382)
Class B ......................................... (46,231) (16,530)
Class C ......................................... (6,521) (2,666)
Class Y ......................................... (6,824) (2,002)
------------- -------------
(21,143,753) (21,558,217)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ......... 64,849,024 47,329,080
------------- -------------
Total increase (decrease) in net assets ............. 63,797,332 23,876,142
NET ASSETS
Beginning of the year ............................ 240,500,399 304,297,731
------------- -------------
End of the year .................................. $ 304,297,731 $ 328,173,873
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year .................................. $ (344,433) $ 103,946
============= =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ................. $ 10.95 $ 12.36 $ 12.05 $ 12.39 $ 12.36
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .................................. 0.81 0.84 0.83 0.81 0.81
Net Realized and Unrealized Gain
(Loss) on Investments ................................. 1.40 (0.31) 0.45 0.15 (0.86)
--------- --------- --------- --------- ---------
Total From Investment Operations ....................... 2.21 0.53 1.28 0.96 (0.05)
--------- --------- --------- --------- ---------
Less Distributions
Distributions From Net Investment Income ............... (0.80) (0.84) (0.81) (0.78) (0.79)
Distributions in Excess of Net
Investment Income .................................... 0.00 0.00 (0.01) (0.03) 0.00
Distributions From Net Realized
Capital Gains ........................................ 0.00 0.00 (0.12) (0.17) (0.01)
Distributions in Excess of Net Realized Gains .......... 0.00 0.00 0.00 (0.01) 0.00(b)
--------- --------- --------- --------- ---------
Total Distributions .................................... (0.80) (0.84) (0.94) (0.99) (0.80)
--------- --------- --------- --------- ---------
Net Asset Value, End of the Year ....................... $ 12.36 $ 12.05 $ 12.39 $ 12.36 $ 11.51
========= ========= ========= ========= =========
Total Return (%) (a) ................................... 20.8 4.6 11.0 8.0 (0.3)
Ratio of Operating Expenses to
Average Net Assets (%) ............................... 1.14 1.05 1.05 1.01 0.97
Ratio of Net Investment Income to
Average Net Assets (%) ............................... 6.81 7.00 6.73 6.44 6.87
Portfolio Turnover Rate (%) ............................ 81 104 54 65 63
Net Assets, End of the Year (000) ...................... $ 200,285 $ 189,685 $ 193,513 $ 221,799 $ 213,769
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) Amount is less than $0.01.
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
----------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 10.95 $ 12.36 $ 12.04 $ 12.39 $ 12.36
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ....................... 0.72 0.75 0.74 0.71 0.72
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 1.40 (0.32) 0.46 0.15 (0.86)
-------- -------- -------- -------- --------
Total From Investment Operations ............ 2.12 0.43 1.20 0.86 (0.14)
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net Investment Income .... (0.71) (0.75) (0.72) (0.69) (0.70)
Distributions in Excess of Net
Investment Income ......................... 0.00 0.00 (0.01) (0.02) 0.00
Distributions From Net Realized Capital Gains 0.00 0.00 (0.12) (0.17) (0.01)
Distributions in Excess of
Net Realized Capital Gains ................ 0.00 0.00 0.00 (0.01) 0.00(b)
-------- -------- -------- -------- --------
Total Distributions ......................... (0.71) (0.75) (0.85) (0.89) (0.71)
-------- -------- -------- -------- --------
Net Asset Value, End of the Year ............ $ 12.36 $ 12.04 $ 12.39 $ 12.36 $ 11.51
======== ======== ======== ======== ========
Total Return (%) (a) ........................ 19.9 3.7 10.3 7.2 (1.1)
Ratio of Operating Expenses to
Average Net Assets (%) .................... 1.89 1.80 1.80 1.76 1.72
Ratio of Net Investment Income to
Average Net Assets (%) .................... 6.06 6.25 5.98 5.69 6.12
Portfolio Turnover Rate (%) ................. 81 104 54 65 63
Net Assets, End of the Year (000) ......... $ 23,398 $ 31,191 $ 37,559 $ 64,240 $ 89,213
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Amount is less than $0.01.
See accompanying notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ......... $ 10.95 $ 12.36 $ 12.06 $ 12.40 $ 12.37
--------- --------- --------- --------- ----------
Income From Investment Operations
Net Investment Income .......................... 0.56 0.75 0.74 0.71 0.72
Net Realized and Unrealized Gain (Loss) on
Investments .................................. 1.40 (0.30) 0.45 0.15 (0.86)
--------- --------- --------- --------- ----------
Total From Investment Operations ............... 1.96 0.45 1.19 0.86 (0.14)
--------- --------- --------- --------- ----------
Less Distributions
Distributions From Net Investment Income ....... (0.55) (0.75) (0.72) (0.69) (0.70)
Distributions in Excess of Net Investment Income 0.00 0.00 (0.01) (0.02) 0.00
Distributions from Net Realized Capital Gains .. 0.00 0.00 (0.12) (0.17) (0.01)
Distributions in Excess of Net Realized Gains .. 0.00 0.00 0.00 (0.01) 0.00(b)
--------- --------- --------- --------- ----------
Total Distributions ............................ (0.55) (0.75) (0.85) (0.89) (0.71)
--------- --------- --------- --------- ----------
Net Asset Value, End of the Year ............... $ 12.36 $ 12.06 $ 12.40 $ 12.37 $ 11.52
========= ========= ========= ========= ==========
Total Return (%) (a) ........................... 18.1 3.9 10.2 7.2 (1.1)
Ratio of Operating Expenses
to Average Net Assets(%) ..................... 1.89 1.80 1.80 1.76 1.72
Ratio of Net Investment Income
to Average Net Assets(%) ..................... 6.06 6.25 5.98 5.69 6.12
Portfolio Turnover Rate (%) .................... 81 104 54 65 63
Net Assets, End of the Year (000) .............. $ 1,009 $ 2,391 $ 5,276 $ 8,969 $ 14,872
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
(b) Amount is less than $0.01.
See accompanying notes to financial statements.
15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class Y
-----------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ......... $ 10.95 $ 12.40 $ 12.06 $ 12.41 $ 12.38
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .......................... 0.80 0.87 0.86 0.84 0.85
Net Realized and Unrealized Gain (Loss) on
Investments .................................. 1.44 (0.34) 0.46 0.15 (0.86)
-------- -------- -------- -------- --------
Total From Investment Operations ............... 2.24 0.53 1.32 0.99 (0.01)
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net Investment Income ....... (0.79) (0.87) (0.84) (0.81) (0.82)
Distributions in Excess of Net Investment Income 0.00 0.00 (0.01) (0.03) 0.00
Distributions from Net Realized Capital Gain ... 0.00 0.00 (0.12) (0.17) (0.01)
Distributions in Excess of Net Realized Gains .. 0.00 0.00 0.00 (0.01) 0.00(a)
-------- -------- -------- -------- --------
Total Distributions ............................ (0.79) (0.87) (0.97) (1.02) (0.83)
-------- -------- -------- -------- --------
Net Asset Value, End of the Year ............... $ 12.40 $ 12.06 $ 12.41 $ 12.38 $ 11.54
======== ======== ======== ======== ========
Total Return (%) ............................... 21.0 4.6 11.4 8.2 (0.0)(b)
Ratio of Operating Expenses
to Average Net Assets(%) ..................... 0.89 0.80 0.80 0.76 0.72
Ratio of Net Investment Income
to Average Net Assets(%) ..................... 7.06 7.25 6.98 6.69 7.12
Portfolio Turnover Rate (%) .................... 81 104 54 65 63
Net Assets, End of the Year (000) .............. $ 2,241 $ 1,844 $ 4,153 $ 9,289 $ 10,320
</TABLE>
(a) Amount is less than $0.01.
(b) Amount is less than one tenth of one percent.
See accompanying notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds
(formerly known as New England 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 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
year. 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 Year Ended December 31, 1999
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 the year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were as
follows:
Purchases Sales
----------------------------- ------------------------------
U.S. Government Other U.S. Government Other
--------------- ------------ --------------- ------------
$42,983,896 $207,176,273 $37,155,438 $164,907,292
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
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. Fees earned by Nvest Management and Back Bay under the
management and subadvisory agreements in effect during the year ended December
31, 1999 are as follows:
Fees Earned
-----------
Nvest Management $ 677,178
Back Bay 677,178
The effective management fee for the year ended December 31, 1999 was 0.41%.
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999, these
expenses amounted to $93,528 and are shown separately in the financial
statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $407,698 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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $560,299 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 reim-
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
bursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at December 31, 1999 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 the year ended December 31, 1999, the Fund paid Nvest
Funds $201,109 and $31,130 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
year ended December 31, 1999, the Fund paid Nvest Funds $603,328 and $93,391 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 year ended December
31, 1999 amounted to $1,672,675.
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 Year Ended December 31, 1999
4. Capital Shares. At December 31, 1999 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
----------------------------------------------------------------
December 31,1998 December 31, 1999
--------------------------- -----------------------------
Shares Amount Shares Amount
Class A ------------ ------------ ------------ ------------
- -------
<S> <C> <C> <C> <C>
Shares sold ......................................... 4,823,890 $ 60,173,527 7,081,566 $ 84,892,202
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 889,608 11,074,340 1,008,210 11,946,031
Distributions from net realized gain ............. 234,050 2,865,135 16,733 193,774
------------ ------------ ------------ ------------
5,947,548 74,113,002 8,106,509 97,032,007
Shares repurchased .................................. (3,622,763) (45,122,889) (7,480,202) (88,965,876)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. 2,324,785 $ 28,990,113 626,307 $ 8,066,131
------------ ------------ ------------ ------------
<CAPTION>
Year Ended
----------------------------------------------------------------
December 31,1998 December 31, 1999
--------------------------- -----------------------------
Shares Amount Shares Amount
Class B ------------ ------------ ------------ ------------
- -------
<S> <C> <C> <C> <C>
Shares sold ......................................... 2,590,136 $ 32,257,877 3,874,628 $ 46,282,836
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 176,613 2,197,414 304,344 3,596,122
Distributions from net realized gain ............. 63,252 774,289 6,223 72,058
------------ ------------ ------------ ------------
2,830,001 35,229,580 4,185,195 49,951,016
Shares repurchased .................................. (664,491) (8,275,880) (1,631,207) (19,265,518)
------------ ------------ ------------ ------------
Net increase ........................................ 2,165,510 $ 26,953,700 2,553,988 $ 30,685,498
------------ ------------ ------------ ------------
<CAPTION>
Year Ended
----------------------------------------------------------------
December 31,1998 December 31, 1999
--------------------------- -----------------------------
Shares Amount Shares Amount
Class C ------------ ------------ ------------ ------------
- -------
<S> <C> <C> <C> <C>
Shares sold ......................................... 409,143 $ 5,101,777 863,321 $ 10,317,158
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 28,295 352,497 44,159 522,256
Distributions from net realized gain ............. 9,255 113,392 912 10,568
------------ ------------ ------------ ------------
446,693 5,567,666 908,392 10,849,982
Shares repurchased .................................. (147,208) (1,839,368) (342,543) (4,058,281)
------------ ------------ ------------ ------------
Net increase ........................................ 299,485 $ 3,728,298 565,849 $ 6,791,701
------------ ------------ ------------ ------------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------------
December 31,1998 December 31, 1999
--------------------------- -----------------------------
Shares Amount Shares Amount
Class Y ------------ ------------ ------------ ------------
- -------
<S> <C> <C> <C> <C>
Shares sold ......................................... 481,405 $ 5,998,876 411,333 $ 5,002,384
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 30,138 375,690 52,565 624,421
Distributions from net realized gain ............. 11,060 135,609 882 10,266
------------ ------------ ------------ ------------
522,603 6,510,175 464,780 5,637,030
Shares repurchased .................................. (107,132) (1,333,262) (320,208) (3,851,280)
------------ ------------ ------------ ------------
Net increase ........................................ 415,471 $ 5,176,913 144,572 $ 1,785,750
------------ ------------ ------------ ------------
Increase derived from capital shares transactions ... 5,205,251 $ 64,849,024 3,890,716 $ 47,329,080
============ ============ ============ ============
</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
December 31, 1999, the Fund had loaned securities having a market value of
$18,059,348 and collateralized by cash in the amount of $18,437,925 which was
invested in a short-term investment.
22
<PAGE>
REPORTS OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I and the Shareholders of the Nvest Bond
Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition (except for bond ratings), and the related statements
of operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Nvest Bond
Income Fund (formerly the New England Bond Income Fund) (the "Fund"), a series
of Nvest Funds Trust I, at December 31, 1999, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
BI56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Municipal Income Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
December 1989 through December 1999
Lehman
Net Asset Maximum Sales Municipal
Value(1) Charge(2) Bond Index(4)
-------- --------- ---------------
12/99 $18,017 $17,214 $19,472
12/98 $18,626 $17,788 $19,881
12/97 $17,689 $16,893 $18,671
12/96 $16,293 $15,559 $17,100
12/95 $15,572 $14,871 $16,373
12/94 $13,283 $12,685 $13,939
12/93 $14,449 $13,799 $14,699
12/92 $12,826 $12,249 $13,091
12/91 $11,774 $11,244 $12,032
12/90 $10,551 $10,076 $10,729
12/89 $10,000 $ 9,550 $10,000
$10,000 $ 9,550 $10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B share performance
will differ from that shown based on differences in inception dates, fees and
sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Average Annual Total Returns -- 12/31/99
- ---------------------------------------------------------------------------------------------
Class A (Inception 5/9/77) 1 Year 5 Years 10 Years
<S> <C> <C> <C>
Net Asset Value(1) -2.75% 6.41% 6.06%
With Maximum Sales Charge(2) -7.17 5.44 5.58
- ---------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1) -3.48% 5.61% 3.09%
With CDSC(3) -8.10 5.28 3.09
- ---------------------------------------------------------------------------------------------
<CAPTION>
Since
Fund's
Class B
Comparative Performance 1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C>
Lehman Muncipal Bond Index(4) -2.06% 6.91% 6.89% 4.83%
Morningstar Muni National Long Average(5) -4.81 5.81 6.16 3.66
Lipper General Municipal Debt Average(6) -4.46 5.76 6.18 3.73
- ---------------------------------------------------------------------------------------------
</TABLE>
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
Yields as of 12/31/99
- --------------------------------------------------------------------------------
Class A Class B
SEC 30-day Yield(7) 5.14% 4.65%
Taxable Equivalent Yield(8) 8.51% 7.70
- --------------------------------------------------------------------------------
Notes to Charts
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.5% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares.
(4) Lehman Municipal Bond Index is an unmanaged index of bonds issued by
states, municipalities and other government entities having maturities of
more than one year. The performance of the index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. It is not possible to invest
directly in an index. Class B since inception return is calculated from
9/30/93.
(5) Morningstar Muni National Long Average is an average (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class B since inception return is calculated from 9/30/93.
(6) Lipper General Municipal Debt Average is an average (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Inc., an independent mutual fund ranking service.
Class 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 Municipal Income Fund perform over the past year?
Municipal Income Fund posted a total return of -2.75% for Class A shares at net
asset value for the 12 months ended December 31, 1999, including $0.39 per share
in reinvested dividends. Your Fund held up better than the average -4.46% return
of its peer group of 264 General Municipal Debt Funds, as tracked by Lipper.
At year-end, your Fund's 30-day SEC yield for Class A shares was 5.14%. This
translates into a taxable equivalent yield of 8.51%, based on the maximum
federal income tax rate of 39.6%.
Q. What was the investment environment for municipal bonds during the period?
Although the first half of the year proved generally more benign than the second
half, the fixed-income markets, for the most part, faced a challenging
investment climate in 1999.
Concerns about the strong economy and the direction of short-term interest
rates were the primary causes of the bond markets' struggles. As interest rates
rose, bond prices fell. Despite this negative backdrop, however, municipal bonds
continued to provide investors with attractive yields during the period. On an
after-tax basis, AAA-rated municipal bonds delivered higher yields than U.S.
Treasuries. There were even times when municipal bond yields exceeded Treasury
yields on an absolute, before-tax basis.
Q. Did supply and demand impact the tax-exempt market?
Supply of municipal bonds generally exceeded demand, especially during the last
six months of the period. Y2K concerns led many suppliers to accelerate
municipal offerings -- bringing bond issues to market in 1999 rather than in the
year 2000 to avoid possible Y2K disruptions. Meanwhile, demand was lackluster.
* James Welch replaced Nathan Wentworth as Portfolio Manager in May of 1999.
3
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
- --------------------------------------------------------------------------------
This imbalance of supply and demand compounded the decline in bond prices
resulting from a generally rising interest-rate environment. It's important to
point out, however, that municipal bonds suffered less than high-grade taxable
securities, which were impacted to a greater degree by rising rates over the
past year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Credit Quality Composition -- 12/31/99
AAA 28.7%
AA 4.5%
A 24.6%
BBB 32.4%
BB 6.1%
B 3.7%
Average Credit Quality = AA
Average Portfolio Maturity = 15.7 Years
Quality is based on ratings provided by Standard & Poor's.
Portfolio holdings and asset allocation will vary.
Q. What strategies did you use in managing the Fund?
Throughout the period, we remained committed to three strategies. First, we
sought to improve the yield profile of the portfolio. As interest rates
gradually rose over the past 12 months, we sold lower yielding bonds in favor of
higher yielding issues. This strategy served two purposes. First, it allowed us
to boost the Fund's income level. Second it allowed us to realize losses, which
can be used to offset possible future taxable capital gains.
Improving credit quality was also a major strategy. As we added new positions to
the portfolio, we emphasized higher quality bonds, while sacrificing only
minimal yield advantage.
We also sought to improve the overall call protection of the portfolio. Most
municipal securities are "callable" 10 years from issuance. In other words,
issuers can "call" a municipal bond 10 years from the date it is first offered,
paying back the principal to bond owners. As their call date approaches, bonds
tend to lose favor in the market. To boost the Fund's performance potential, we
sold bonds that were nearing their call dates and invested the proceeds in bonds
with more distant call dates.
4
<PAGE>
NVEST MUNICIPAL INCOME FUND
================================================================================
- --------------------------------------------------------------------------------
Q. What is your outlook for municipal bonds over the next few months?
Going forward, we expect the investment environment for municipal bonds to
continue to be mixed. Should inflation fears heat up, the Federal Reserve Board
may raise interest rates again, continuing negative pressure on all types of
bonds, including municipals.
However, we do not expect a full cycle of tightening from the Fed throughout the
year. Rather, any rate hikes would likely be limited to the first half. In fact,
our longer-term outlook is favorable for municipal issues.
After-tax yields of municipal bonds remain high compared to taxable bonds.
Investors who are looking for attractive income free of federal income taxes
should continue to benefit from this outperformance. In addition, we expect
solid economic growth to continue, helping maintain the fiscal health and
creditworthiness of many municipalities.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period. A shift in the manager's opinion many result in
strategic and other portfolio changes. Bond funds fluctuate in value and, when
redeemed, may be worth more or less than their original cost.
The Municipal Income Fund invests in higher-yielding securities, general
obligation bonds and revenue bonds across a variety of municipal sectors. While
higher yielding bonds may offer higher current income than Treasury securities
and high-grade corporate bonds, they are also associated with greater than
average risk. These risks may increase share-price volatility. The principal
value and interest on Treasury securities are guaranteed by the U.S. government
if held to maturity. Government guarantees apply to individual securities only
and not to prices and yields of shares in a managed portfolio. A portion of
income may be subject to federal, state and /or alternative minimum tax. Capital
gains, if any, are subject to capital gains tax. See the Fund's prospectus for
details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Tax Exempt Obligations -- 99.5% of Total Net Assets
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alaska--0.3%
$ 585,000 Alaska State Housing Finance Corp. Revenue Bond,
6.500%, 6/01/2034 ............................................... Aaa AAA $ 591,967
-------------------
Arizona--3.6%
2,765,000 Maricopa County Arizona Industrial Development Authority
Revenue Bond, 5.500%, 1/01/2018 ................................. Aaa AAA 2,614,114
1,000,000 Navajo County Pollution Control Revenue Bond, 5.875%, 8/15/2028 . Baa1 A- 942,640
2,300,000 University of Arizona Revenue Bond, 6.350%, 6/01/2014 ........... A1 AA 2,480,113
-------------------
6,036,867
-------------------
California--9.9%
2,000,000 California Pollution Control Finance Authority Revenue
Bond, 7.150%, 2/01/2011 ......................................... Ba1 BBB 2,008,220
1,500,000 Foothill/Eastern Transportation Corridor Agency Revenue
Bond, 5.800%, 1/15/2020, (e) .................................... Baa3 BBB- 769,905
4,300,000 Foothill/Eastern Transportation Corridor Agency Revenue
Bond, 6.500%, 1/01/2032 ......................................... Aaa BBB- 4,697,664
2,000,000 Los Angeles Convention & Exhibition Center Authority
Pre-Refunded Certificate of Participation, 9.000%, 12/01/2020 ... Aaa AAA 2,425,080
2,000,000 Los Angeles Regional Airport Revenue Bond,
6.350%, 11/01/2025, ............................................. Baa3 BBB- 1,895,580
2,000,000 Sacramento Co-generation Authority Pre-Refunded
Revenue Bond, 6.500%, 7/01/2021 ................................. -- -- 2,186,080
3,000,000 Sacramento Power Authority Revenue Bond, 6.000%, 7/01/2022 ...... -- BBB- 2,787,240
-------------------
16,769,769
-------------------
Colorado--6.2%
1,500,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/2006 ... Baa1 AAA 1,640,745
1,500,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/2012 ... Baa1 AAA 1,640,745
1,655,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/2023 ... Baa1 BBB+ 1,782,998
3,960,000 Denver City & County Airport Revenue Bond, 7.750%, 11/15/2021 ... Baa1 BBB+ 4,186,789
1,040,000 Denver City & County Airport Revenue Pre-Refunded
Bond, 7.750%, 11/15/2021 ........................................ Aaa BBB+ 1,116,429
-------------------
10,367,706
-------------------
Florida--2.7%
3,000,000 Escambia County Pollution Control, 6.900%, 8/01/2022 ............ Baa1 BBB 3,047,160
10,500,000 Housing Finance Corp., Zero Coupon, 7/01/2030 ................... Aaa AAA 1,511,265
-------------------
4,558,425
-------------------
Georgia--1.5%
2,500,000 Atlanta Special Purpose Facilities Revenue
Bond, 7.900%, 12/01/2018 ........................................ Ba2 BBB- 2,550,250
-------------------
Illinois--4.2%
2,000,000 Chicago, Illinois Park District Parking Facility Revenue
Bond, 6.000%, 1/01/2019 ......................................... Baa1 A 1,931,920
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Tax Exempt Obligations -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois--continued
$ 2,500,000 Illinois Development Finance Authority Pollution Control
Revenue Bond, 7.375%, 7/01/2021 ................................. Baa1 BBB $ 2,680,275
2,250,000 O'Hare International Airport Revenue
Bond, 8.200%, 12/01/2024 ........................................ Baa1 BBB- 2,511,495
-------------------
7,123,690
-------------------
Indiana--4.7%
3,500,000 Indiana Development Finance Authority Pollution Control
Revenue Bond, 6.850%, 12/01/2012 ................................ B1 BB 3,308,095
4,500,000 Indianapolis Independent Airport Authority Revenue
Bond, 7.100%, 1/15/2017 ......................................... Baa2 BBB 4,644,045
-------------------
7,952,140
-------------------
Kansas--0.8%
1,350,000 Kansas City Utility Systems Revenue Bond, 6.375%, 9/01/2023 ..... Aaa AAA 1,371,398
-------------------
Kentucky--2.1%
1,500,000 Kenton County Airport Board Revenue Bond, 6.125%, 2/01/2022 ..... Baa3 BBB- 1,388,250
2,000,000 Kenton County Airport Board Revenue Bond, 7.500%, 2/01/2012 ..... Baa3 BBB- 2,107,320
-------------------
3,495,570
-------------------
Massachusetts--5.2%
2,500,000 Massachusetts State Housing Finance Agency Revenue
Bond, 6.300%, 10/01/2013 (d) .................................... A1 A+ 2,575,950
2,315,000 Massachusetts State Housing Finance Agency Revenue
Bond, 6.375%, 4/01/2021 ......................................... A1 A+ 2,343,937
4,000,000 Massachusetts State Water Pollution Abatement Trust
Revenue Bond, 5.750%, 8/01/2029 ................................. Aa1 AA 3,798,640
-------------------
8,718,527
-------------------
Missouri--1.8%
3,100,000 Kansas City Industrial Development Authority Revenue
Bond, 4.700%, 10/15/2015 (f) .................................... Aaa AAA 3,100,000
-------------------
Nebraska--1.7%
2,970,000 Nebraska Investment Finance Authority Revenue
Bond, 5.850%, 9/01/2028 ......................................... -- AAA 2,816,006
-------------------
New Jersey--4.2%
2,000,000 Delaware River Port Authority, Pennsylvania & New Jersey
Revenue Bond, 5.700%, 1/01/2021 (g) ............................. Aaa AAA 1,945,160
5,000,000 New Jersey Economic Development Authority Revenue
Bond, 6.625%, 9/15/2012 ......................................... Ba2 BB 5,062,300
-------------------
7,007,460
-------------------
New Mexico--1.1%
2,000,000 Farmington Pollution Control Revenue Bond, 6.600%, 10/01/2029 ... Baa3 BBB- 1,869,560
-------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Tax Exempt Obligations -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York--23.3%
$ 1,900,000 New York City General Obligation Bond, 7.500%, 2/01/2005 ........ A3 A- $ 2,032,791
3,000,000 New York City Transitional Finance Authority Revenue
Bond, 5.500%, 5/01/2025 ......................................... Aa3 AA 2,754,630
4,585,000 New York City, Pre-refunded General Obligation
Bond, 7.000%, 10/01/2013 ........................................ A3 A- 4,916,862
2,040,000 New York State Dormitory Authority Revenue
Bond, 5.375%, 5/15/2016 ......................................... A3 A- 1,904,095
4,000,000 New York State Dormitory Authority Revenue
Bond, 5.500%, 5/15/2013 ......................................... A3 A 3,947,640
5,000,000 New York State Dormitory Authority Revenue
Bond, 5.500%, 5/15/2023 ......................................... A3 A- 4,480,050
1,350,000 New York State Dormitory Authority Revenue
Bond, 5.625%, 5/15/2013 ......................................... A3 A- 1,329,359
2,740,000 New York State Dormitory Authority Revenue
Bond, 5.750%, 7/01/2013 ......................................... Baa1 A- 2,770,770
1,880,000 New York State Dormitory Authority Revenue
Bond, 7.500%, 5/15/2013 ......................................... A3 A 2,206,857
4,150,000 New York State Medical Care Facilities Finance Agency
Pre-Refunded Revenue Bond, 5.250%, 8/15/2014 .................... A3 A 3,911,292
1,655,000 New York State Medical Care Facilities Finance Agency
Pre-Refunded Revenue Bond, 6.500%, 8/15/2012 .................... Aaa AAA 1,759,993
2,500,000 New York State Medical Care Facilities Finance Agency
Revenue Bond, 5.375%, 2/15/2014 ................................. A3 A 2,400,725
1,500,000 New York State Thruway Authority Revenue
Bond, 5.750%, 4/01/2016 ......................................... Baa1 A- 1,465,830
1,000,000 Onondaga County Industrial Development Agency
Revenue Bond, 9.000%, 10/01/2007 ................................ -- A 1,226,550
2,000,000 Port Authority New York & New Jersey Special Obligation
Revenue Bond, 7.000%, 10/01/2007 ................................ -- -- 2,110,740
-------------------
39,218,184
-------------------
Ohio--2.0%
3,000,000 Cleveland Public Power Systems Revenue Bond, 7.000%, 11/15/2024 . Aaa AAA 3,331,920
-------------------
Oregon--2.5%
4,000,000 Western Generation Agency Revenue Bond, 7.400%, 1/01/2016 ....... -- -- 4,153,880
-------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Tax Exempt Obligations -- continued
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania--10.9%
$ 3,000,000 Delaware County Industrial Development Authority
Revenue Bond, 7.375%, 4/01/2021 ................................. Baa1 A $ 3,167,940
2,725,000 Pennsylvania Convention Center Revenue Bond, 6.700%, 9/01/2014 .. Baa2 BBB 2,798,084
2,000,000 Pennsylvania Convention Center Revenue Bond, 6.750%, 9/01/2019 .. Baa2 BBB 2,053,560
3,000,000 Pennsylvania Economic Development Financing Authority
Revenue Bond, 6.600%, 1/01/2019 ................................. -- BBB- 2,958,510
4,000,000 Pennsylvania Economic Development Financing Authority
Revenue Bond, 7.150%, 12/01/2018 ................................ -- BBB- 4,102,280
3,000,000 Pennsylvania Economic Development Financing Authority
Revenue Bond, 7.600%, 12/01/2024 ................................ Baa3 BBB 3,235,410
-------------------
18,315,784
-------------------
Puerto Rico--1.8%
2,845,000 Commonwealth Highway & Transporation Authority Pre-Refunded
Revenue Bond, 6.625%, 7/01/2018 ................................. Aaa AAA 3,029,584
-------------------
Tennessee--1.5%
2,500,000 Maury County Industrial Development Board
Revenue Bond, 6.500%, 9/01/2024 ................................. A2 A 2,551,050
-------------------
Texas--4.0%
2,000,000 Alliance Airport Authority Revenue Bond, 6.375%, 4/01/2021 ...... Baa2 BBB 1,926,660
2,825,000 Dallas-Fort Worth International Airport Facility
Revenue Bond, 7.250%, 11/01/2030 ................................ Baa2 BBB- 2,974,217
2,000,000 Houston Airport Systems Revenue Bond, 6.125%, 7/15/2027 ......... Ba1 BB 1,798,740
-------------------
6,699,617
-------------------
US Virgin Islands--2.9%
4,500,000 US Virgin Islands Public Finance Authority Pre-Refunded
Revenue Bond, 7.250%, 10/01/2018, (d) ........................... -- AAA 4,904,550
-------------------
Washington--0.6%
1,000,000 Washington State Public Power Supply
Revenue Bond, 6.800%, 7/01/2007 ................................. Aaa AA 1,051,180
-------------------
Total Tax Exempt Obligations ....................................
(Identified Cost $161,497,263) .................................. 167,585,084
-------------------
Options--0.0%
Contracts
- -----------------------------------------------------------------------------------------------------------------------------------
150 U.S. Treasury Note, 99 Call, February 2000 ...................... 21,094
-------------------
Total Options (Identified Cost $92,156) ......................... 21,094
-------------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Short Term Investment--0.1%
<TABLE>
<CAPTION>
Principal
Amount Description Value (a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 115,000 Household Finance Corp., 4.000%, 1/03/2000 ...................... $ 114,974
-------------------
Total Short Term Investment (Identified Cost $114,974) .......... 114,974
-------------------
Total Investments--99.6% (Identified Cost $161,704,393) (b) ..... 167,721,152
Other assets less liabilities ................................... 752,482
-------------------
Total Net Assets--100% .......................................... $ 168,473,634
===================
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments
based on cost of $161,794,173 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. ............................................. $ 8,421,206
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over value. ............................................. (2,494,227)
-------------------
Net unrealized appreciation. .......................................... $ 5,926,979
===================
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 December 31, 1999. 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 December 31, 1999.
The Fund's subadviser independently evaluates the Fund's portfolio
securities and in making investment decisions does not rely solely on
the ratings of agencies.
(d) All or a portion of these securities have been segregated as collateral
in connection with the Fund's derivative investments and long
settlement positions at December 31, 1999.
(e) 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
rate.
(f) Variable rate securities. The interest rates change on these
instruments daily based on changes in a designated base rate. The rates
shown were those in effect at December 31, 1999.
(g) Delayed Delivery Securities.
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $161,704,393) ............................... $ 167,721,152
Cash .............................................................................. 2,016
Receivable for:
Fund shares sold .............................................................. 1,390,127
Accrued interest .............................................................. 2,937,060
-------------
172,050,355
LIABILITIES
Payable for:
Securities purchased .......................................................... $ 1,966,870
Fund shares redeemed .......................................................... 1,291,945
Dividends declared ............................................................ 129,901
Accrued expenses:
Management fees ............................................................... 64,802
Deferred trustees' fees ....................................................... 48,649
Accounting and administrative ................................................. 9,388
Other ......................................................................... 65,166
-------------
3,576,721
-------------
NET ASSETS ............................................................................. $ 168,473,634
=============
Net Assets consist of:
Capital paid in ............................................................... 171,640,406
Overdistributed net investment income ......................................... (11,294)
Accumulated net realized gains (losses) ....................................... (9,172,237)
Unrealized appreciation (depreciation) on investments ......................... 6,016,759
-------------
NET ASSETS ............................................................................. $ 168,473,634
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($152,829,361/21,325,482 shares of beneficial interest) ........................... $ 7.17
=============
Offering price per share (100/95.50 of $7.17) .......................................... $ 7.51*
=============
Net asset value and offering price of Class B shares
($15,644,273/2,182,591 shares of beneficial interest) ............................. $ 7.17**
=============
</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.
11
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ................................................................................... $ 10,944,533
Expenses
Management fees ........................................................................ $ 803,051
Service fees - Class A ................................................................. 411,552
Service and distribution fees - Class B ................................................ 161,938
Trustees' fees and expenses ............................................................ 11,232
Accounting and administrative .......................................................... 57,743
Custodian .............................................................................. 92,551
Transfer agent ......................................................................... 151,161
Audit and tax services ................................................................. 38,660
Legal .................................................................................. 5,525
Printing ............................................................................... 15,089
Registration ........................................................................... 35,869
Miscellaneous .......................................................................... 10,490
------------
Total expenses ............................................................................. 1,794,861
------------
Net investment income ...................................................................... 9,149,672
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
WRITTEN OPTIONS and FUTURES CONTRACTS
Realized gain (loss) on:
Investments - net ...................................................................... (2,289,287)
Written options - net .................................................................. 43,975
Futures contracts - net ................................................................ 118,750
------------
Total realized gain (loss) on investments, written options and futures contracts ....... (2,126,562)
------------
Unrealized appreciation (depreciation) on investments .................................. (12,111,760)
------------
Net gain (loss) on investment transactions, written options and futures contracts .......... (14,238,322)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ........................................... $ (5,088,650)
============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ..................................... $ 9,428,133 $ 9,149,672
Net realized gain (loss) on investments, written options
and futures contracts ................................. 733,217 (2,126,562)
Unrealized appreciation (depreciation) on investments ..... (448,293) (12,111,760)
------------- -------------
Increase (decrease) in net assets from operations ......... 9,713,057 (5,088,650)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (8,832,742) (8,416,716)
Class B ............................................... (620,875) (706,615)
In excess of net investment income
Class A ............................................... (19,639) 0
Class B ............................................... (1,380) 0
------------- -------------
(9,474,636) (9,123,331)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................... (2,172,125) (5,835,275)
------------- -------------
Total increase (decrease) in net assets ........................ (1,933,704) (20,047,256)
NET ASSETS
Beginning of the year ..................................... 190,454,594 188,520,890
------------- -------------
End of the year ........................................... $ 188,520,890 168,473,634
============= =============
OVERDISTRIBUTED NET INVESTMENT INCOME
End of the year ........................................... $ (80,004) $ (11,294)
============= =============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ........ $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ......................... 0.42 0.41 0.40 0.39 0.39
Net Realized and Unrealized Gain
(Loss) on Investments ....................... 0.74 (0.07) 0.23 0.01 (0.59)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .............. 1.16 0.34 0.63 0.40 (0.20)
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income .......... (0.41) (0.41) (0.41) (0.39) (0.39)
----------- ----------- ----------- ----------- -----------
Total Distributions ........................... (0.41) (0.41) (0.41) (0.39) (0.39)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year .............. $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.17
=========== =========== =========== =========== ===========
Total Return (%) (a) .......................... 17.2 4.6 8.6 5.3 (2.8)
Ratio of Operating Expenses to
Average Net Assets (%) ...................... 0.93 0.92 0.93 0.93 0.93
Ratio of Net Investment Income to
Average Net Assets (%) ...................... 5.52 5.46 5.19 5.03 5.13
Portfolio Turnover Rate (%) ................... 93 24 14 26 137
Net Assets, End of the Year (000) ............. $ 195,301 $ 180,983 $ 177,099 $ 172,643 $ 152,829
(a) A sales charge is not reflected in total return calculations.
<CAPTION>
Class B
------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ........ $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ......................... 0.36 0.35 0.34 0.33 0.33
Net Realized and Unrealized Gain
(Loss) on Investments ....................... 0.74 (0.07) 0.23 0.01 (0.59)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .............. 1.10 0.28 0.57 0.34 (0.26)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income .......... (0.35) (0.35) (0.35) (0.33) (0.33)
---------- ---------- ---------- ---------- ----------
Total Distributions ........................... (0.35) (0.35) (0.35) (0.33) (0.33)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year .............. $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.17
========== ========== ========== ========== ==========
Total Return (%) (a) .......................... 16.3 3.9 7.8 4.5 (3.5)
Ratio of Operating Expenses to
Average Net Assets (%) ...................... 1.68 1.67 1.68 1.68 1.68
Ratio of Net Investment Income to
Average Net Assets (%) ...................... 4.77 4.71 4.44 4.28 4.38
Portfolio Turnover Rate (%) ................... 93 24 14 26 137
Net Assets, End of the Year (000) ............. $ 12,069 $ 12,568 $ 13,356 $ 15,878 $ 15,644
(a) A contingent deferred sales charge is not reflected in total return
calculations.
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly known as New England 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 Year Ended December 31, 1999
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 Year Ended December 31, 1999
2. Purchases and Sales of Securities. For the year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were
$246,025,435 and $253,005,847 respectively.
Transactions in written options for the year ended December 31, 1999 are
summarized as follows:
Written Options
--------------------------
Number of Premiums
Contracts Received
--------- ---------
Open at December 31, 1998 .......... 0 $ 0
Contracts opened ................... (300) (179,850)
Contracts closed ................... 300 179,850
--------- ---------
Open at December 31, 1999 .......... 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. Fees earned by Nvest Management and Back
Bay Advisors under the management and subadvisory agreements in effect during
the year ended December 31, 1999 are as follows:
Fees Earned
-----------
Nvest Management $ 401,526
Back Bay 401,525
The effective management fee for the year ended December 31, 1999 was 0.44%.
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a subsidiary of Nvest and performs certain accounting and administrative
services for the Fund. The Fund reimburses NSC for all or part of NSC's expenses
of providing these services which include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting functions
and related clerical functions relating to the Fund and (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, registration of shares in various states, shareholder reports
and notices, proxy solicitation material furnished to shareholders of the Fund
or regulatory authorities and reports and questionnaires for SEC compliance. For
the year ended December 31, 1999 these expenses amounted to $57,743 and are
shown separately in the financial statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $105,963 as
compensation for its services in that capacity.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $411,552 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
December 31, 1999 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 year ended
December 31, 1999, the Fund paid Nvest Funds $40,485 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 year ended December 31, 1999, the Fund paid Nvest Funds
$121,453 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 year ended December
31, 1999 amounted to $248,606.
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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 Credit. At December 31, 1999, the Fund had the following
industry concentrations in excess of 10% as a percentage of the Fund's total net
assets: Airports 17.6%, Housing 13.1% and Industrial/Pollution 18.0%. The Fund
also had more than 10% of its total net assets invested in: New York 23.3% and
Pennsylvania 10.9% at December 31, 1999. 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 December 31, 1999 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 December 31,
--------------------------------------------------------
1998 1999
------------------------ ------------------------
Class A Shares Amount Shares Amount
- ------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 1,861,867 $ 14,499,337 1,990,350 $ 15,053,406
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 383,600 $ 2,983,011 757,810 $ 5,703,292
--------- ------------ --------- ------------
2,245,467 17,482,348 2,748,160 20,756,698
Shares repurchased .................................. (2,848,146) (22,174,070) (3,669,760) (27,649,417)
--------- ------------ --------- ------------
Net increase (decrease) ............................. (602,679) $ (4,691,722) (921,600) $ (6,892,719)
--------- ------------ --------- ------------
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1999
------------------------ ------------------------
Class B Shares Amount Shares Amount
- ------- ------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 530,845 $ 4,138,179 655,245 $ 4,900,420
------- ------------ ------- ------------
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........ 21,211 164,921 50,159 377,387
------- ------------ ------- ------------
552,056 4,303,100 705,404 5,277,807
Shares repurchased .............................. (229,346) (1,783,503) (568,649) (4,220,363)
------- ------------ ------- ------------
Net increase (decrease) ......................... 322,710 2,519,597 136,755 1,057,444
------- ------------ ------- ------------
Increase (decrease) derived from capital
shares transactions ......................... (279,969) $ (2,172,125) (784,845) $ (5,835,275)
======== ============ ======== ============
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I
and the Shareholders of Nvest Municipal Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition (except for bond ratings), and the related statements
of operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Nvest Municipal
Income Fund (formerly the New England Municipal Income Fund) (the "Fund"), a
series of Nvest Funds Trust I, at December 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods indicated, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
MU56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Government
Securities Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and 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.]
December 1989 through December 1999
Net Asset Maximum Sales Lehman Government
Value(1) Charge(2) Bond Index(4)
-------- --------- -------------
12/99 $18,168 $17,351 $20,578
12/98 19,415 18,541 21,048
12/97 17,813 17,012 19,160
12/96 16,149 15,422 17,484
12/95 16,022 15,301 17,012
12/94 13,348 12,748 14,377
12/93 14,125 13,490 14,878
12/92 12,959 12,376 13,445
12/91 12,134 11,588 12,539
12/90 10,564 10,089 10,872
12/89 10,000 9,550 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B and Y share
performance will differ from that shown based on differences in inception dates,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A (Inception 9/16/85) 1 Year 5 Years 10 Years
Net Asset Value(1) -6.42% 6.37% 6.16%
With Maximum Sales Charge(2) -10.63 5.40 5.67
- --------------------------------------------------------------------------------
Class B (Inception 9/23/93) 1 Year 5 Years Since Inception
Net Asset Value(1) -7.13% 5.57% 3.19%
With CDSC(3) -11.53 5.25 3.19
- --------------------------------------------------------------------------------
Class Y (Inception 3/31/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -6.28% 6.62% 5.35%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since Since
Fund's Fund's
Class B Class Y
Comparative Performance 1 Year 5 Years 10 Years Inception Inception
<S> <C> <C> <C> <C> <C>
Lehman Government Bond Index(4) -2.23% 7.44% 7.48% 5.27% 6.37%
Morningstar Long Government Average(5) -7.10 7.46 7.37 4.49 6.22
Lipper General Government Average(6) -3.01 6.51 6.63 4.32 5.37
- --------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.50% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares.
(4) The Lehman Government Bond Index is an unmanaged index of bonds issued by
the U.S. government and its agencies that have maturities between one and
ten years. The performance of the index has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments. It is not possible to invest
directly in an index. Class B since inception return is calculated from
9/30/93.
(5) Morningstar Long Government Average is an average (calculated on the basis
of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class B since inception return is calculated from 9/30/93.
(6) Lipper General Government Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Lipper Inc., an independent mutual fund ranking service. Class B since
inception return is calculated from 9/30/93.
2
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
Interview with Your Portfolio Managers
- --------------------------------------------------------------------------------
[PHOTO]
[PHOTO]
Scott Nicholson,
James Welch
Members of
management team,
Back Bay Advisors, L.P.
Q. How did Government Securities Fund perform over the year ending December
31, 1999?
1999 proved to be a very difficult year for the bond market. The reason? Rising
interest rates. Government Securities Fund generated a return of -6.42% (based
on the net asset value of Class A shares) for the 12 months ending December 31,
1999. The Fund's return included $0.68 per share in dividend distributions
reinvested during the period. By comparison, your Fund's benchmark, the Lehman
Government Bond Index, had a return of -2.23% for the same period.
Remember that your Fund's duration -- a measure of its sensitivity to changes in
interest rates -- remains at a relatively fixed level that is longer than that
of its benchmark. When a fund has a longer duration, its price is more sensitive
to changes in interest rates. Interest rates rose significantly during the year
- -- and bond prices fell -- and your Fund's concentration on longer-duration
bonds caused its performance to lag its benchmark. However, the reverse is also
true: In a declining interest-rate environment, the Fund should have a greater
opportunity to outpace its peers.
Q. Why did interest rates rise so significantly in 1999?
The U.S. economy continued to grow at a very robust pace. In response, the
Federal Reserve Board stepped in with a series of three interest-rate hikes in
an attempt to slow growth and head off inflation. All segments of the
fixed-income market suffered price declines through much of the year. On top of
that, non-Treasury sectors, including the agency and mortgage-backed segments in
which your Fund invests, were hit hard in the summer. At that time, issuers came
to market with new bonds in order to secure funding well in advance of the year
2000. Simultaneously, investors and money managers wanted to more heavily weight
their portfolios in Treasury securities in advance of 2000, because Treasuries
are more easily traded and carry the highest credit quality. Too much supply and
not enough demand dampened the performance of non-Treasury securities. More
recently, we've seen a recovery in the non-Treasury
3
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
sectors of the bond market. Supply diminished considerably and, because the
markets tend to be anticipatory, the closer we got to the turn of the
millennium, the more comfortable investors became with non-Treasury bonds.
Q. How was the Fund managed in this investment environment?
During the period, the yield curve flattened. That is, the difference between
short- and long-term yields diminished. Within a flattening yield curve
environment, intermediate-term securities in the middle of the yield curve tend
to underperform bonds with other maturities. We attempted to reduce this effect
by focusing the Fund's investments on either end of the yield curve, with very
little in the middle. On one end of the spectrum, it held longer-maturity
Treasuries. On the other, we focused on high-coupon, mortgage-backed securities
that offered low interest-rate sensitivity and attractive yields.
We also recently increased the Fund's stake in Treasuries -- with corresponding
declines in agency and mortgage-backed holdings -- in case the market
experienced any credit or liquidity problems related to the year 2000.
Q. What is your outlook?
We expect the Fed to raise short-term interest rates one or two more times over
the next six months. Such a scenario should not catch the market by surprise,
because bond yields have been priced as if rate increases are inevitable. With
inflation still very much under control and signs that U.S. economic growth is
moderating,
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Portfolio Mix -- 12/31/99
U.S. Government Securities 69.3%
Mortgage-Backed Securities 29.8%
U.S. Agency Securities 0.9%
Portfolio holdings and asset allocation will vary.
4
<PAGE>
NVEST GOVERNMENT SECURITIES FUND
================================================================================
just one or two more rate hikes could lay the groundwork for an improved
environment in mid to late 2000. That's because real yields -- stated yields
adjusted for inflation -- remain attractive on an historical basis.
The Fed remains committed to making sure that inflation doesn't become a
problem. The rationale for a limited series of additional rate hikes would be to
ensure that the economy slows to a level that is not so strong that it sparks
inflation. That's good news for bond investors because inflation reduces the
value of bonds' fixed payments.
The 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.
The Fund invests in mortgage- or asset-backed securities, which are subject to
prepayment risk. Treasury bills and U.S. government bonds fluctuate in value but
they are guaranteed as to the timely payment of interest and if held to
maturity, provide a guaranteed return of principal. Government guarantees apply
to individual securities only and not to prices and yields of shares in a
managed portfolio. These risks may increase share price volatility. See the
Fund's prospectus for details.
Note to shareholders: Effective September 20, 1999, the Fund is managed by a
management team from Back Bay Advisors. The management team consists of two or
more portfolio managers who jointly manage the Fund's portfolio. Prior to this
date, the Fund was managed by Scott Millimet.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Bonds and Notes -- 99.1% of Total Net Assets
<TABLE>
<CAPTION>
Ratings (c) (unaudited)
-------------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Backed--29.8%
$ 3,000,000 Federal Home Loan Mortgage Corp. 6.500%, 1/15/2022 .................. Aaa AAA $ 2,732,790
8,000,000 Federal Home Loan Mortgage Corp. 6.625%, 9/15/2009 .................. Aaa AAA 7,772,480
2,120,454 Federal Home Loan Mortgage Corp. 7.500%, 4/1/2012 ................... Aaa AAA 2,136,357
3,000,000 Federal National Mortgage Association 6.420%, 12/1/2007 ............. Aaa AAA 2,844,347
1,670,167 Government National Mortgage Association 7.500%, 4/15/2027 .......... Aaa AAA 1,652,948
10,780,080 Government National Mortgage Association 8.000%, 9/15/2029 .......... Aaa AAA 10,887,881
203,357 Government National Mortgage Association 8.500%, 2/15/2006 .......... Aaa AAA 208,750
370,666 Government National Mortgage Association 9.000%,
with various maturities to 2016 (d) ................................ Aaa AAA 389,795
140,008 Government National Mortgage Association 9.500%,
with various maturities to 2009 (d) ................................ Aaa AAA 147,961
154,563 Government National Mortgage Association 10.000%,
with various maturities to 2016 (d) ............................... Aaa AAA 164,849
19,576 Government National Mortgage Association 12.500%,
with various maturities to 2014 (d) ................................ Aaa AAA 22,085
----------
28,960,243
----------
U.S. Government--69.3%
4,000,000 United States Treasury Bonds 6.125%, 11/15/2027 ..................... Aaa AAA 3,722,480
5,000,000 United States Treasury Bonds 8.000%, 11/15/2021 ..................... Aaa AAA 5,674,200
4,500,000 United States Treasury Bonds 8.750%, 8/15/2020 ...................... Aaa AAA 5,452,020
5,000,000 United States Treasury Bonds 9.250%, 2/15/2016 ...................... Aaa AAA 6,172,650
9,000,000 United States Treasury Bonds 11.625%, 11/15/2004 .................... Aaa AAA 10,870,290
10,300,000 United States Treasury Bonds 13.250%, 5/15/2014 (e) ................ Aaa AAA 14,840,034
6,153,300 United States Treasury Notes (Inflation Indexed) 3.875%, 1/15/2009 .. Aaa AAA 5,945,626
5,000,000 United States Treasury Notes 6.000%, 8/15/2009 ...................... Aaa AAA 4,843,750
10,000,000 United States Treasury Stripped Bonds, Zero Coupon, 8/15/2015 ....... Aaa AAA 3,456,200
14,000,000 United States Treasury Stripped Bonds, Zero Coupon, 11/15/2011 ...... Aaa AAA 6,266,960
----------
67,244,210
----------
Total Bonds and Notes (Identified Cost $100,178,582) ................ 96,204,453
----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Short Term Investment-- 0.2%
<TABLE>
<CAPTION>
Principal
Amount Description Value (a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
$ 181,000 Repurchase Agreement with State Street Bank and Trust Co.
dated 12/31/1999 at 2.50% to be repurchased
at $181,038 on 1/03/2000 collateralized by $180,000
U.S. Treasury Bond 6.75% due 8/15/2026 valued at $185,372 .... $ 181,000
------------
Total Short Term Investment (Identified Cost $181,000) ....... 181,000
------------
Total Investments--99.3% (Identified Cost $100,359,582) (b) .. 96,385,453
Other assets less liabilities ................................ 701,999
------------
Total Net Assets--100% ....................................... $ 97,087,452
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999, net unrealized depreciation on
investments based on cost of $100,498,349 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. .......... $ 31,261
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value. .......... (4,144,157)
------------
Net unrealized depreciation. ................................. $ (4,112,896)
============
</TABLE>
At December 31, 1999 the Fund had a 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 December 31, 1999. Securities are
generally rated at the time of issuance. The rating
agencies may revise their Ratings from time to time. As a
result there can be no assurance that the same ratings
would be assigned if the securities were rated at December
31, 1999. 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 mortgage backed securities of the
Government National Mortgage Association are interests in
separate pools of mortgages. All separate investments in
securities of this issuer which have the same coupon rate
have been aggregated for the purpose of presentation in the
schedule of investments.
(e) All or a portion of this security has been segregated as
collateral in connection with the Fund's derivative and
long settlement positions during the year. There were no
open positions at year end.
See accompanying notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $100,359,582) ................. $ 96,385,453
Cash ................................................................ 125
Receivable for:
Fund shares sold ............................................. 18,518
Accrued interest ............................................. 1,230,813
-------------
97,634,909
LIABILITIES
Payable for:
Fund shares redeemed ......................................... $263,654
Dividends declared ........................................... 107,537
Accrued expenses:
Management fees .............................................. 54,646
Deferred trustees' fees ...................................... 48,187
Accounting and administrative ................................ 6,716
Other ........................................................ 66,717
-------------
547,457
-------------
NET ASSETS ............................................................. $ 97,087,452
=============
Net Assets consist of:
Capital paid in .............................................. 114,755,336
Overdistributed net investment income ........................ (35,145)
Accumulated net realized gains (losses) ...................... (13,658,610)
Unrealized appreciation (depreciation) on investments ........ (3,974,129)
-------------
NET ASSETS ............................................................. $ 97,087,452
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($84,903,514/8,112,918 shares of beneficial interest) .............. $10.47
======
Offering price per share (100/95.50 of $10.47) ......................... $10.96*
======
Net asset value and offering price of Class B shares
($9,430,195/901,000 shares of beneficial interest) ................. $10.47**
======
Net asset value, offering and redemption price of Class Y shares
($2,753,743/263,658 shares of beneficial interest) ................. $10.44
======
</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
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ................................................... $ 7,860,532
Expenses
Management fees ..................................... $ 694,061
Service fees - Class A .............................. 234,846
Service and distribution fees - Class B ............. 99,838
Trustees' fees and expenses ......................... 6,283
Accounting and administrative ....................... 39,373
Custodian ........................................... 84,907
Transfer agent ...................................... 241,900
Audit and tax services .............................. 37,900
Legal ............................................... 4,677
Printing ............................................ 22,932
Registration ........................................ 45,599
Miscellaneous ....................................... 2,460
------------
Total expenses ............................................. 1,514,776
------------
Net investment income ...................................... 6,345,756
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments - net ................................... (6,250,090)
Written options - net ............................... 905,136
Futures contracts - net ............................. (563,749)
------------
Total realized gain (loss) on investments,
written options and futures contracts ........... (5,908,703)
------------
Unrealized appreciation (depreciation) on:
Investments - net ................................... (7,805,841)
Futures contracts - net ............................. 67,406
------------
Total unrealized appreciation (depreciation) on
investments and futures contracts ............... (7,738,435)
------------
Net gain (loss) on investment transactions ................... (13,647,138)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ........ $ (7,301,382)
============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................................ $ 6,468,371 $ 6,345,756
Net realized gain (loss) on investments,
written options and futures contracts ................................ 2,352,038 (5,908,703)
Unrealized appreciation (depreciation) on
investments and futures contracts ................................... 657,435 (7,738,435)
------------- -------------
9,477,844 (7,301,382)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .......................................................... (5,800,979) (5,749,722)
Class B .......................................................... (359,173) (537,791)
Class Y .......................................................... (248,237) (182,001)
------------- -------------
(6,408,389) (6,469,514)
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS .......................... (2,871,290) (5,234,472)
------------- -------------
Total increase (decrease) in net assets ............................... 198,165 (19,005,368)
NET ASSETS
Beginning of the year ............................................ 115,894,655 116,092,820
------------- -------------
End of the year .................................................. $ 116,092,820 $ 97,087,452
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME
End of the year .................................................. $ 66,275 $ (35,145)
============= =============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ......... $ 10.43 $ 11.73 $ 11.08 $ 11.56 $ 11.90
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income .......................... 0.74 0.71 0.62 0.68 0.67
Net Realized and Unrealized Gain
(Loss) on Investments .......................... 1.29 (0.64) 0.48 0.33 (1.42)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............... 2.03 0.07 1.10 1.01 (0.75)
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ........... (0.73) (0.72) (0.62) (0.67) (0.68)
----------- ----------- ----------- ----------- -----------
Total Distributions ............................ (0.73) (0.72) (0.62) (0.67) (0.68)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............... $ 11.73 $ 11.08 $ 11.56 $ 11.90 $ 10.47
=========== =========== =========== =========== ===========
Total Return (%) (a) ........................... 20.0 0.8 10.3 9.0 (6.4)
Ratio of Operating Expenses to Average
Net Assets (%) ............................... 1.35 1.32 1.36 1.38 1.36
Ratio of Net Investment Income to
Average Net Assets (%) ....................... 6.69 6.45 5.63 5.80 6.00
Portfolio Turnover Rate (%) .................... 559 462 391 106 313
Net Assets, End of the Year (000) .............. $ 147,503 $ 120,607 $ 103,583 $ 103,032 $ 84,904
</TABLE>
(a) A sales charge is not reflected in total return calculations.
See accompanying notes to financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............. $ 10.43 $ 11.74 $ 11.08 $ 11.56 $ 11.90
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .............................. 0.65 0.63 0.54 0.58 0.59
Net Realized and Unrealized Gain
(Loss) on Investments .............................. 1.30 (0.65) 0.48 0.34 (1.42)
--------- --------- --------- --------- ---------
Total From Investment Operations ................... 1.95 (0.02) 1.02 0.92 (0.83)
--------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ............... (0.64) (0.64) (0.54) (0.58) (0.60)
--------- --------- --------- --------- ---------
Total Distributions ................................ (0.64) (0.64) (0.54) (0.58) (0.60)
--------- --------- --------- --------- ---------
Net Asset Value, End of the Year ................... $ 11.74 $ 11.08 $ 11.56 $ 11.90 $ 10.47
========= ========= ========= ========= =========
Total Return (%) (a) ............................... 19.2 (0.1) 9.5 8.2 (7.1)
Ratio of Operating Expenses to Average
Net Assets (%) ................................... 2.10 2.07 2.11 2.13 2.11
Ratio of Net Investment Income to
Average Net Assets (%) ........................... 5.94 5.70 4.88 5.05 5.25
Portfolio Turnover Rate (%) ........................ 559 462 391 106 313
Net Assets, End of the Year (000) .................. $ 4,858 $ 5,385 $ 5,654 $ 9,657 $ 9,430
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class Y
-------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............. $ 10.44 $ 11.71 $ 11.07 $ 11.54 $ 11.88
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .............................. 0.80 0.74 0.65 0.72 0.70
Net Realized and Unrealized Gain
(Loss) on Investments ............................ 1.26 (0.63) 0.47 0.32 (1.43)
--------- --------- --------- --------- ---------
Total From Investment Operations ................... 2.06 0.11 1.12 1.04 (0.73)
--------- --------- --------- --------- ---------
Less Distributions
Dividends from Net Investment Income ............... (0.79) (0.75) (0.65) (0.70) (0.71)
--------- --------- --------- --------- ---------
Total Distributions ................................ (0.79) (0.75) (0.65) (0.70) (0.71)
--------- --------- --------- --------- ---------
Net Asset Value, End of the Year ................... $ 11.71 $ 11.07 $ 11.54 $ 11.88 $ 10.44
========= ========= ========= ========= =========
Total Return (%) ................................... 20.3 1.1 10.5 9.3 (6.3)
Ratio of Operating Expenses to
Average Net Assets (%) ........................... 1.10 1.07 1.11 1.13 1.11
Ratio of Net Investment Income to
Average Net Assets (%) ........................... 6.94 6.70 5.88 6.05 6.25
Portfolio Turnover Rate (%) ........................ 559 462 391 106 313
Net Assets, End of the Year ........................ $ 7,364 $ 6,384 $ 6,658 $ 3,404 $ 2,754
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly known as New England 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 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.
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 December 31, 1999 the Fund held no delayed
delivery securities.
2. Purchases and Sales of Securities. For the year ended December 31, 1999,
purchases and sales of securities (excluding short-term investments) were as
follows:
Purchases Sales
--------------------------------- ------------------------------------
U.S. Government Other U.S. Government Other
--------------- ------------ --------------- ------------
$201,105,881 $130,384,386 $204,746,631 $131,558,637
Transactions in written options for the year ended December 31, 1999 are
summarized as follows:
Written Options
---------------------------
Number of Premiums
Contracts Received
--------- --------
Open at December 31, 1998 .............. 0 $ 0
Contracts opened ....................... (4,600) (2,172,728)
Contracts closed ....................... 4,600 2,172,728
----- -----------
Open at December 31, 1999 .............. 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. ("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. Fees earned by Nvest Management and Back Bay under the management and
subadvisory agreements in effect during the year ended December 31, 1999 are as
follows:
Fees Earned
-----------
Nvest Management $ 347,031
Back Bay 347,030
The effective management fee for the year ended December 31, 1999 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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
performing bookkeeping, accounting and financial reporting functions and
clerical functions relating to the Fund and (ii) expenses for services required
in connection with the preparation of registration statements and prospectuses,
registration of shares in various states, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance. For the year
ended December 31, 1999 these expenses amounted to $39,373 and are shown
separately in the financial statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $180,302 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 shares (the "Class B Plan").
Under the Class A Plan, the Fund pays Nvest Funds 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 year ended December 31, 1999, the
Fund paid Nvest Funds $234,846 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
December 31, 1999 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 year ended
December 31, 1999, the Fund paid Nvest Funds $24,960 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 year ended December 31, 1999, the Fund paid Nvest Funds
$74,878 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 year ended December
31, 1999 amounted to $233,604.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 December 31, 1999 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>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1998 1999
--------------------------- -----------------------------
Class A Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares Sold ......................................... 1,656,981 $ 19,549,659 2,132,834 $ 23,656,205
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 436,981 5,132,956 461,816 5,100,959
------------ ------------ ------------ ------------
2,093,962 $ 24,682,615 2,594,650 $ 28,757,164
Shares repurchased .................................. (2,395,445) (28,036,795) (3,141,142) (34,765,081)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. (301,483) $ (3,354,180) (546,492) $ (6,007,917)
------------ ------------ ------------ ------------
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1998 1999
--------------------------- -----------------------------
Class B Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 525,057 $ 6,224,313 378,984 $ 4,266,989
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 20,660 243,213 33,386 368,048
------------ ------------ ------------ ------------
545,717 $ 6,467,526 412,370 $ 4,635,037
Shares repurchased .................................. (223,281) (2,616,439) (322,881) (3,584,575)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. 322,436 $ 3,851,087 89,489 $ 1,050,462
------------ ------------ ------------ ------------
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
Class Y Shares Amount Shares Amount
------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold .................................................... 122,605 $ 1,438,718 71,052 $ 788,905
Shares issued in connection with the reinvestment of:
Dividends from net investment income ....................... 20,559 240,336 16,199 178,666
----------- ----------- ----------- -----------
143,164 1,679,054 87,251 967,571
Shares repurchased ............................................. (433,374) (5,047,251) (110,237) (1,244,588)
----------- ----------- ----------- -----------
Net increase (decrease) .................................... (290,210) $(3,368,197) (22,986) $ (277,017)
----------- ----------- ----------- -----------
Increase (decrease) derived from capital shares transactions (269,257) $(2,871,290) (479,989) $(5,234,472)
=========== =========== =========== ===========
</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
year ended December 31, 1999, the Fund did not enter into any securities lending
transactions.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I
and the Shareholders of the Nvest Government Securities Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition (except for bond ratings), and the related statements
of operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Nvest Government
Securities Fund (formerly the New England Government Securities Fund) (the
"Fund"), a series of Nvest Funds Trust I, at December 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
20
<PAGE>
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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
GV56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest International
Equity Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
May 1992 (Inception) through December 1999
Net Maximum Morgan
Asset Sales Stanley
Value(1) Charge(2) EAFE(5)
-------- --------- -------
12/99 $26,850 $25,312 $24,759
12/98 14,315 13,492 19,502
12/97 13,417 12,646 16,207
12/96 14,514 13,680 15,880
12/95 14,055 13,247 14,930
12/94 13,287 12,523 13,384
12/93 12,296 11,589 12,386
12/92 9,511 8,964 9,317
5/21/92 10,000 9,425 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception dates,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A (Inception 5/21/92) 1 Year 5 Years Since Inception
Net Asset Value(1,4) 87.59% 15.11% 13.85%
With Maximum Sales Charge(2,4) 76.80 13.75 12.97
- --------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1,4) 86.26% 14.32% 12.52%
With CDSC(3,4) 81.26 14.08 12.52
- --------------------------------------------------------------------------------
Class C (Inception 12/30/94) 1 Year 5 Years Since Inception
Net Asset Value(1,4) 86.23% 14.37% 14.36%
With CDSC(3,4) 85.23 14.37 14.36
- --------------------------------------------------------------------------------
Class Y (Inception 9/9/93) 1 Year 5 Years Since Inception
Net Asset Value(1,4) 88.61% 15.89% 14.06%
- --------------------------------------------------------------------------------
Since Since Since Since
Fund's Fund's Fund's Fund's
Class A Class B Class C Class Y
Comparative Performance 1 Year 5 Years Incept. Incept. Incept. Incept.
MSCI EAFE(5) 26.96% 12.83% 12.42% 11.62% 12.83% 11.62%
Morningstar Foreign
Stock Average(6) 44.31 15.11 13.36 14.08 15.92 14.08
Lipper International
Average(7) 40.88 15.05 13.25 13.46 15.05 13.46
- --------------------------------------------------------------------------------
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
Notes to Charts
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes the
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first 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 Australia Far East
Index (EAFE) is an unmanaged, market-weighted value index of the
performance of approximately 1,000 companies representing stock markets in
Europe, Australia, New Zealand and the Far East. The performance of the
index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
It is not possible to invest directly in an index.
(6) Morningstar Foreign Stock Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service. Class A
since inception return is calculated from 5/31/92. Class B and Y since
inception returns are calculated from 9/30/93.
(7) Lipper International Average is an average (calculated on the basis of net
asset value) of funds with similar investment objectives as calculated by
Lipper Inc., an independent mutual fund ranking service. Class A since
inception return is calculated from 5/28/92. Class B and Class Y since
inception returns are calculated from 9/30/93.
2
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
Questions & Answers with Your Portfolio Manager
- --------------------------------------------------------------------------------
[PHOTO]
[PHOTO]
[PHOTO]
Alexander Muromcew,
John Tribolet
and Eswar Menon
Loomis, Sayles &
Company, L.P.
On August 20, 1999, a new management team -- pictured at left -- took
responsibility for the International Equity Fund.
Q. How did the International Equity Fund perform during the 12 months ended
December 31, 1999?
The Fund's performance improved dramatically during the year, propelled by stock
selection and improving fundamentals in overseas markets. For the 12 months, the
Fund's Class A shares returned 87.59% based on net asset value, outperforming
the 26.96% return of the MSCI EAFE Index, a common standard for international
investing. The Fund's return includes capital gain distributions of $1.13 per
share and $0.02 in dividends.
Q. What was the overseas investment environment during the period?
After enduring a difficult investment environment for nearly two years,
investors in overseas markets in 1999 were rewarded for their patience. Several
foreign economies recovered from recession and their equity markets began
reviving. Asia, in particular, began to experience strong growth. In Japan,
banking reforms, corporate restructuring and a new generation of entrepreneurs
helped revitalize an economy that had been in recession for almost all of the
1990s. Outside Japan, several emerging Asian markets, which had been battered by
political and economic problems, reversed course. Stronger Asian economies
boosted investor confidence in the region, sparking an influx of capital into
the financial markets. The investment environment among European countries was
mixed. Slower economic growth, lower corporate profits and the poor performance
of the euro (Europe's new single currency) against the U.S. dollar held back
some European markets. The United Kingdom was Europe's bright spot, however, as
economic growth improved and declining interest rates encouraged investment.
3
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
Q. What factors contributed to the Fund's performance?
Individual stock selection, particularly in the technology area, was the biggest
contributor to performance. In virtually every geographic region in which we
invested, technology stocks were the strongest performers. We found
opportunities across the technology spectrum -- in software, semiconductor and
telecommunications companies. Other areas that performed well were specialty
retailers, consumer durables and energy stocks. We committed the largest
percentage of Fund assets to Europe, including the U.K. However, we invested
more assets in Japan than in any other single country. While Japanese stocks
across the board did well, the midsize companies that we emphasized outperformed
large-cap companies.
Q. As the new management team, how do you manage the portfolio?
We began managing the Fund in August 1999. Our team is composed of three
managers who have worked together as international investors for several years.
When selecting stocks for the portfolio, we use an investment strategy called
"fundamental analysis." That is, rather than basing our investment decisions on
macroeconomic issues, we judge companies on an individual basis, analyzing their
revenues, earnings and balance sheet variables. We look for companies with rapid
earnings growth, significant industry leadership, strong management and the
potential for increased market share. We concentrate investments in developed
countries outside of the U.S. Each member of the portfolio management team is
responsible for investments in a specific region of the world. We believe there
is no substitute
Your Fund's Country Mix -- 12/31/99
% of
Country Net Assets
- --------------------------------------------------------------------------------
1. Japan 29.9
- --------------------------------------------------------------------------------
2. United Kingdom 13.4
- --------------------------------------------------------------------------------
3. Netherlands 9.5
- --------------------------------------------------------------------------------
4. France 6.3
- --------------------------------------------------------------------------------
5. Germany 6.1
- --------------------------------------------------------------------------------
6. Canada 5.4
- --------------------------------------------------------------------------------
7. Hong Kong 3.7
- --------------------------------------------------------------------------------
8. Italy 3.7
- --------------------------------------------------------------------------------
9. Finland 3.6
- --------------------------------------------------------------------------------
10. Singapore 2.9
- --------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
4
<PAGE>
NVEST INTERNATIONAL EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
for first-hand knowledge of a company, and we travel extensively, visiting the
companies in which we invest. The portfolio management team is backed by Loomis
Sayles' large research department, composed of fundamental and technical
analysts who conduct proprietary research and obtain information from a variety
of industry sources.
Q. What is your outlook?
We are optimistic about the potential for growth in overseas markets. We believe
European markets will continue to benefit from merger and acquisition activity,
restructuring efforts and an emphasis on running their businesses with an eye to
shareholder value. In Japan, our enthusiasm is tempered by caution. While Japan
appears to have turned the corner on recession, we believe it has a way to go
before it is on a sure footing. The potential for short-term volatility is
present in all financial markets, but we are confident about the long-term
prospects of the individual companies in which we have invested. Most of our
portfolio companies are global in scope and derive their profits not only from
their own local markets but also from exporting their goods and services around
the world. We believe this is an excellent time for investors to diversify a
portion of their assets in overseas markets.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in the
manager's opinion may result in strategic and other portfolio changes.
The International Equity Fund invests in foreign and emerging market securities,
which may be affected by currency fluctuations, higher volatility and more
limited liability than U.S. securities. Political, economic and information
risks are also associated with foreign securities. Investing in small-cap
companies involves greater risk than is customarily associated with more
established companies. The Fund invests in lower rated, higher yielding bonds,
which may involve greater risk. The Fund's investments may also be affected by
the conversion of the currency of several European economies to the euro
currency. These risks may increase share price volatility. See the Fund's
prospectus for details.
Your Fund's 10 Largest Investments -- 12/31/99
% of
Company Net Assets
- --------------------------------------------------------------------------------
1. Softbank Corporation 2.6
- --------------------------------------------------------------------------------
2. Pacific Century 2.0
- --------------------------------------------------------------------------------
3. Sony Corporation 1.9
- --------------------------------------------------------------------------------
4. Nokia Oyj 1.9
- --------------------------------------------------------------------------------
5. Arm Holdings 1.8
- --------------------------------------------------------------------------------
6. Kyocera Corporation 1.8
- --------------------------------------------------------------------------------
7. Murata Mfg. Co. 1.7
- --------------------------------------------------------------------------------
8. Kingston Commerce Hull 1.7
- --------------------------------------------------------------------------------
9. Kpnqwest 1.6
- --------------------------------------------------------------------------------
10. Solution 6 Holdings 1.6
- --------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock -- 97.9% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Australia -- 2.5%
180,000 ERG, Ltd. .................................... $ 1,010,354
167,100 Solution 6 Holdings, Ltd. .................... 1,821,039
------------
2,831,393
------------
Brazil -- 1.0%
9,000 Telecomunicacoes Brasileiras (ADR) ........... 1,156,500
------------
Canada -- 5.4%
30,500 Clearnet Communications, Inc. ................ 1,049,065
21,500 Diversinet Corp .............................. 473,000
10,600 JDS Uniphase Corp. ........................... 1,709,912
17,100 Nortel Networks Corp. ........................ 1,727,769
29,100 Telesystem International Wireless, Inc. ...... 1,070,461
------------
6,030,207
------------
Finland -- 3.6%
18,500 Comptel ...................................... 1,301,536
11,700 Nokia OYJ .................................... 2,121,478
14,000 UPM-Kymmene OYJ .............................. 564,116
------------
3,987,130
------------
France-- 6.3%
4,600 Alcatel S.A. ................................. 1,056,508
5,000 AXA .......................................... 697,086
4,100 Carrefour S.A. ............................... 756,227
6,100 Casino Guichard Perrachon S.A. ............... 698,667
7,000 Coflexip S.A. ................................ 508,762
1,950 Societe Television Francaise 1 ............... 1,021,453
11,600 STMicroelectronics NV ........................ 1,756,675
4,400 Total Fina S.A. .............................. 587,285
------------
7,082,663
------------
Germany-- 6.1%
16,000 Dresdner Bank AG ............................. 870,350
23,200 Epcos AG ..................................... 1,741,103
21,200 Global TeleSystems Group, Inc. ............... 734,050
5,700 Kamps AG ..................................... 393,320
5,700 Kamps AG New ................................. 380,113
6,600 Mannesmann AG ................................ 1,592,318
9,000 Siemens AG ................................... 1,145,054
------------
6,856,308
------------
Hong Kong-- 3.7%
78,000 Cheung Kong Holdings, Ltd. ................... 988,358
940,000 Giordano International, Ltd. ................. 967,389
951,000 Pacific Century Insurance Holdings ........... 2,208,214
------------
4,163,961
------------
India-- 0.3%
42,000 Gujarat Ambuja Cements Ltd ................... 315,000
------------
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Indonesia-- 0.4%
159,000 Gudang Garam Perus ........................... $ 427,792
------------
Israel-- 0.9%
8,700 Batm Advanced Communications, Ltd. ........... 719,519
13,000 Partner Communication Company, Ltd. (ADR) .... 336,375
------------
1,055,894
------------
Italy-- 3.7%
14,000 Bipop S.p.A .................................. 1,238,939
183,000 Pirelli S.p.A. ............................... 502,340
430,000 Seat Pagine Gialle S.p.A. .................... 1,412,103
84,000 Telecom Italia Mobile S.p.A. ................. 938,407
------------
4,091,789
------------
Japan-- 29.9%
1,000 Advantest Corp. .............................. 264,265
7,000 Doutor Coffee Co., Ltd. ...................... 568,660
600 Fancl Corp. .................................. 160,908
350 Fast Retailing Co. ........................... 142,508
93 Fuji Television Network Inc .................. 1,274,347
3,000 Fujitsu Support & Service, Inc. .............. 1,471,078
31,000 Fujitsu, Ltd. ................................ 1,413,918
1,800 Funai Electric Co. ........................... 1,060,585
600 Hikari Tsushin, Inc. ......................... 1,203,876
19 Japan Telecom Company, Ltd. .................. 762,455
14,000 Justsystem Corp. ............................. 849,565
7,800 Kyocera Corp. ................................ 2,023,099
5,000 Matsushita Communication Industries .......... 1,321,327
1 Mobilephone Telecommunications Int'l Ltd. .... 99,834
14 Mobilephone Telecommunications Int'l Ltd. .... 1,397,670
8,000 Murata Manufacturining Co., Ltd. ............. 1,879,221
8,600 Nippon System Development Co., Ltd. .......... 1,254,184
38 NTT Mobile Communications Network, Inc. ...... 1,461,682
5,200 Orix Corp .................................... 1,171,616
3,600 Ryohin Keikaku Co. ........................... 722,678
49,000 Sharp Corp. .................................. 1,254,135
2,090 Shohkoh Fund & Co. ........................... 827,449
3,000 Softbank Corp. ............................... 2,871,685
7,300 Sony Corp. ................................... 2,164,921
21,000 Taiyo Yuden Co. .............................. 1,245,571
10,000 Tokyo Electron, Ltd. ......................... 1,370,265
900 Trans Cosmos Inc ............................. 384,066
4,000 Trend Micro Inc. ............................. 1,010,081
2 Yahoo Japan Corp. ............................ 1,789,175
------------
33,420,824
------------
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Mexico-- 1.7%
16,000 Grupo Televisa S.A. (ADR) .................... $ 1,092,000
7,200 Telefonos de Mexico S.A. (ADR) 144A .......... 810,000
------------
1,902,000
------------
Netherlands-- 9.5%
15,000 ASM Lithography Holding NV ................... 1,706,250
10,400 Equant NV .................................... 1,164,800
19,800 Fortis NV .................................... 713,052
11,400 Koninklijke KPN NV ........................... 1,112,779
27,500 KPNQwest NV .................................. 1,831,110
14,100 OPENTV Corp. ................................. 1,131,525
13,500 United Pan-Europe Comminications NV .......... 1,727,101
36,000 VersaTel Telecom International NV ............ 1,257,750
------------
10,644,367
------------
Singapore-- 2.9%
141,000 Datacraft Asia ............................... 1,170,300
76,855 DBS Group Holdings ........................... 1,259,767
166,000 Natsteel Electronics Ltd. .................... 877,094
------------
3,307,161
------------
South Korea-- 1.9%
7,800 Korea Telecom Corp.(ADR) ..................... 583,050
3,600 Samsung Electronics Ltd. ..................... 843,329
18,025 SK Telecom Co., Ltd. (ADR) ................... 691,709
------------
2,118,088
------------
Spain-- 2.2%
22,000 Sogecable S.A. ............................... 1,405,051
13,464 Telefonica S.A. (ADR) ........................ 1,061,132
------------
2,466,183
------------
Sweden-- 0.9%
15,200 Ericsson Telefoniaktiebolag, Series B ........ 977,130
------------
Taiwan-- 1.0%
25,000 Taiwan Semiconductor Manufacturing
Company, Ltd. (ADR) .......................... 1,125,000
------------
Turkey-- 0.5%
18,000,000 Yapi Ve Kredi Bankasi ........................ 555,863
------------
United Kingdom-- 13.4%
30,600 Arm Holdings PLC ............................. 2,068,569
164,000 Billiton PLC ................................. 972,217
78,000 BP Amoco PLC ................................. 787,358
39,000 British Telecom PLC .......................... 944,951
61,000 Cable & Wireless PLC ......................... 1,046,424
25,600 COLT Telecom Group PLC ....................... 1,321,600
53,000 EMAP PLC ..................................... 1,095,820
33,000 Filtronic PLC ................................ 1,119,403
145,000 Kingston Communications PLC .................. 1,873,748
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
United Kingdom-- continued
64,000 Marconi PLC .................................. $ 1,128,901
8,525 NTL, Inc. .................................... 1,063,374
46,500 Prudential Corp. PLC ......................... 907,346
73,000 Shire Pharmaceuticals Group PLC .............. 725,189
------------
15,054,900
------------
Total Common Stock
(Identified Cost $65,041,476) .............. 109,570,153
------------
Short Term Investment - 1.6%
Principal
Amount Description Value (a)
- --------------------------------------------------------------------------------
$ 1,755,000 Repurchase Agreement with State
Street Bank & Trust Co. dated 12/31/1999
at 2.500% to be repurchased at $1,755,366
on 01/03/2000 collateralized by $1,435,000
U.S. Treasury Bond, 8.875%, due 02/15/2019
valued at $1,793,320 ......................... 1,755,000
------------
Total Short Term Investment
(Identified Cost $1,755,000) ................. 1,755,000
------------
Total Investments - 99.5%
(Identified Cost $66,796,476) (b) ............ 111,325,153
Other assets less liabilities ................ 624,985
------------
Total Net Assets - 100% ...................... $111,950,138
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation
on investments based on cost of $68,098,809 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 ............................ $ 44,260,850
Aggregate gross unrealized depreciation for all
investments in which there is an excess
of tax cost over value ............................ (1,034,506)
------------
Net unrealized appreciation. ........................ $ 43,226,344
============
The Fund earned foreign source income of $943,689 and
paid foreign taxes of $133,328 which it intends to
elect to pass through to its shareholders (unaudited).
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 $810,000 or 0.7%
of net assets.
Ten Largest Industry Holdings at December 31, 1999 (unaudited).
Telecommunications 23.4% Business Services 3.5%
Electronics 19.9 Conglomerates 3.5
Broadcasting 5.5 Retail 2.9
Computer Software & Services 3.7 Manufacturing 2.5
Banks 3.5 Insurance 2.1
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $66,796,476) ......... $111,325,153
Cash ....................................................... 842
Foreign cash at value (Identified cost $343,127) 339,337
Investments held as collateral for loaned securities ....... 20,467,916
Receivable for:
Fund shares sold ...................................... 392,973
Securities sold ....................................... 1,464,770
Dividends and interest ................................ 21,165
Tax reclaims .......................................... 55,183
------------
134,067,339
LIABILITIES
Payable for:
Collateral on securities loaned, at value ............. $ 20,467,916
Securities purchased .................................. 648,664
Fund shares redeemed .................................. 715,717
Withholding Taxes ..................................... 2,485
Accrued expenses:
Management fees ....................................... 170,164
Deferred trustees' fees ............................... 23,583
Accounting and administrative ......................... 4,954
Other ................................................. 83,718
------------
22,117,201
------------
NET ASSETS ..................................................... $111,950,138
============
Net Assets consist of:
Capital paid in ....................................... 62,876,669
Undistributed (overdistributed) net investment income . 26,821
Accumulated net realized gains (losses) ............... 4,530,265
Unrealized appreciation (depreciation)
on investments and foreign currency transactions ...... 44,516,383
------------
NET ASSETS .................................................... $111,950,138
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($67,197,473/2,646,327 shares of beneficial interest) ........ $25.39
======
Offering price per share (100/94.25 of $25.39) ................. 26.94*
======
Net asset value and offering price of Class B shares
($29,044,938/1,175,631 shares of beneficial interest) ....... $24.71**
======
Net asset value and offering price of Class C shares
($1,266,860/51,130 shares of beneficial interest) ........... $24.78**
======
Net asset value, offering and redemption price of Class Y shares
($14,440,867/559,564 shares of beneficial interest) .......... $25.81
======
</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.
10
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $133,328) .................................. $ 812,713
Interest ...................................................................... 446,955
Securities lending income ..................................................... 34,151
------------
1,293,819
Expenses
Management fees ........................................................... $ 634,275
Service fees - Class A .................................................... 111,048
Service and distribution fees - Class B ................................... 185,331
Service and distribution fees - Class C ................................... 7,292
Trustees' fees and expenses ............................................... 7,328
Accounting and administrative ............................................. 29,210
Custodian ................................................................. 199,881
Transfer agent ............................................................ 381,156
Audit and tax services .................................................... 46,540
Legal ..................................................................... 4,776
Printing .................................................................. 38,331
Registration .............................................................. 38,025
Miscellaneous ............................................................. 23,935
------------
Total expenses ................................................................ 1,707,128
Less expenses waived by the investment adviser and subadviser ................. (183,638) 1,523,490
------------ ------------
Net investment loss ........................................................... (229,671)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ......................................................... 11,769,319
Foreign currency transactions - net ....................................... (12,887)
------------
Total realized gain (loss) on investments and foreign currency transactions 11,756,432
------------
Unrealized appreciation (depreciation) on:
Investments - net ......................................................... 41,069,248
Foreign currency transactions - net ....................................... (17,664)
------------
Total unrealized appreciation (depreciation)
on investments and foreign currency transactions ......................... 41,051,584
------------
Net gain (loss) on investment transactions ......................................... 52,808,016
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............................. $ 52,578,345
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) .......................... $ 704,144 $ (229,671)
Net realized gain (loss) on investments
and foreign currency transactions .................. 953,025 11,756,432
Unrealized appreciation (depreciation) on investments
and foreign currency transactions .................. 4,841,006 41,051,584
------------- -------------
Increase (decrease) in net assets from operations ..... 6,498,175 52,578,345
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ...................................... (743,361) (49,375)
Class B ...................................... (169,471) 0
Class C ...................................... (7,274) 0
Class Y ...................................... (116,545) (30,949)
In excess of net investment income
Class A ...................................... (699,993) 0
Class B ...................................... (159,585) 0
Class C ...................................... (6,849) 0
Class Y ...................................... (109,746) 0
Net realized gain on investments
Class A ...................................... (611,914) (2,895,169)
Class B ...................................... (261,317) (1,259,652)
Class C ...................................... (11,221) (58,452)
Class Y ...................................... (68,571) (573,138)
In excess of net realized gain on investments
Class A ...................................... (303,298) 0
Class B ...................................... (129,523) 0
Class C ...................................... (5,561) 0
Class Y ...................................... (33,988) 0
------------- -------------
(3,438,217) (4,866,735)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ............ (18,064,404) (9,414,479)
------------- -------------
Total increase (decrease) in net assets ............... (15,004,446) 38,297,131
NET ASSETS
Beginning of the year .............................. 88,657,453 73,653,007
------------- -------------
End of the year .................................... $ 73,653,007 111,950,138
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year .................................... $ (537,133) 26,821
============= =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 15.50 $ 16.13 $ 16.31 $ 14.06 $ 14.26
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.27 0.02(b) 0.09(b) 0.15(b) (0.03)(b)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 0.63 0.51 (1.25) 0.77 12.31
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 0.90 0.53 (1.16) 0.92 12.28
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ........ (0.27) (0.02) 0.00 (0.23) (0.02)
Dividends in Excess of Net Investment Income 0.00 0.00 0.00 (0.21) 0.00
Distributions From Net Realized Capital Gains 0.00 (0.33) (1.05) (0.19) (1.13)
Distributions in Excess of Net Realized Gains 0.00 0.00 (0.04) (0.09) 0.00
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.27) (0.35) (1.09) (0.72) (1.15)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 16.13 $ 16.31 $ 14.06 $ 14.26 $ 25.39
=========== =========== =========== =========== ===========
Total Return (%) (a) ........................ 5.8 3.3 (7.6) 6.7 87.6
Ratio of Operating Expenses to
Average Net Assets (%) (c) ................ 1.75 1.75 1.75 1.91 2.00
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ................. 1.24 0.14 0.62 1.04 (0.15)
Portfolio Turnover Rate (%) ................. 119 59 154 105 229
Net Assets, End of the Year (000) ........... $ 136,848 $ 109,773 $ 57,845 $ 47,444 $ 67,197
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 year.
(c) The ratio of operating expenses to average net assets without giving effect
to expense limitations described in Note 4 to the Financial Statements
would have been (%):
1.83 1.79 2.14 2.25 2.26
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 15.35 $ 15.93 $ 16.00 $ 13.71 $ 13.98
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.19 (0.10)(b) (0.03)(b) 0.04(b) (0.15)(b)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 0.58 0.50 (1.17) 0.75 12.01
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ............ 0.77 0.40 (1.20) 0.79 11.86
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income ........ (0.19) 0.00 0.00 (0.12) 0.00
Dividends in Excess of Net Investment Income 0.00 0.00 0.00 (0.12) 0.00
Distributions From Net Realized Capital Gains 0.00 (0.33) (1.05) (0.19) (1.13)
Distributions in Excess of Net Realized Gains 0.00 0.00 (0.04) (0.09) 0.00
---------- ---------- ---------- ---------- ----------
Total Distributions ......................... (0.19) (0.33) (1.09) (0.52) (1.13)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year ............ $ 15.93 $ 16.00 $ 13.71 $ 13.98 $ 24.71
========== ========== ========== ========== ==========
Total Return (%) (a) ........................ 5.0 2.5 (8.0) 5.8 86.3
Ratio of Operating Expenses to
Average Net Assets (%) (c) ................ 2.50 2.50 2.50 2.66 2.75
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ................. 0.49 (0.61) (0.13) 0.29 (0.90)
Portfolio Turnover Rate (%) ................. 119 59 154 105 229
Net Assets, End of the Year (000) ........... $ 52,895 $ 45,974 $ 25,216 $ 19,797 $ 29,045
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 year.
(c) The ratio of operating expenses to average net assets without giving effect
to expense limitations described in Note 4 to the Financial Statements
would have been (%):
2.58 2.54 2.89 3.00 3.01
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 15.35 $ 15.96 $ 16.03 $ 13.74 $ 14.02
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.19 (0.10)(b) (0.03)(b) 0.05(b) (0.15)(b)
Net Realized and Unrealized Gain (Loss)
on Investments ............................ 0.61 0.50 (1.17) 0.75 12.04
--------- --------- --------- --------- ---------
Total From Investment Operations ............ 0.80 0.40 (1.20) 0.80 11.89
--------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.19) 0.00 0.00 (0.12) 0.00
Dividends in Excess of Net Investment Income 0.00 0.00 0.00 (0.12) 0.00
Distributions From Net Realized Capital Gains 0.00 (0.33) (1.05) (0.19) (1.13)
Distributions in Excess of Net Realized Gains 0.00 0.00 (0.04) (0.09) 0.00
--------- --------- --------- --------- ---------
Total Distributions ......................... (0.19) (0.33) (1.09) (0.52) (1.13)
--------- --------- --------- --------- ---------
Net Asset Value, End of the Year ............ $ 15.96 $ 16.03 $ 13.74 $ 14.02 $ 24.78
========= ========= ========= ========= =========
Total Return (%) (a) ........................ 5.2 2.5 (8.0) 5.9 86.2
Ratio of Operating Expenses
to Average Net Assets(%)(c) ............... 2.50 2.50 2.50 2.66 2.75
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ................. 0.49 (0.61) (0.13) 0.29 (0.90)
Portfolio Turnover Rate (%) ................. 119 59 154 105 229
Net Assets, End of the Year (000) ........... $ 1,066 $ 850 $ 843 $ 860 $ 1,267
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 year.
(c) The ratio of operating expenses to average net assets without giving effect
to expense limitations described in Note 4 to the Financial Statements
would have been (%):
2.58 2.54 2.89 3.00 3.01
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class Y
-------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 15.64 $ 16.25 $ 16.48 $ 14.35 $ 14.45
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.42 0.11(a) 0.19(a) 0.25(a) 0.02(a)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 0.60 0.54 (1.23) 0.77 12.54
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ............ 1.02 0.65 (1.04) 1.02 12.56
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income ........ (0.41) (0.09) 0.00 (0.33) (0.07)
Dividends in Excess of Net Investment Income 0.00 0.00 0.00 (0.31) 0.00
Distributions From Net Realized Capital Gains 0.00 (0.33) (1.05) (0.19) (1.13)
Distributions in Excess of Net Realized Gains 0.00 0.00 (0.04) (0.09) 0.00
---------- ---------- ---------- ---------- ----------
Total Distributions ......................... (0.41) (0.42) (1.09) (0.92) (1.20)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year ............ $ 16.25 $ 16.48 $ 14.35 $ 14.45 $ 25.81
========== ========== ========== ========== ==========
Total Return (%) ............................ 6.6 4.0 (6.7) 7.3 88.6
Ratio of Operating Expenses to
Average Net Assets (%) (b) ................ 1.00 1.00 1.15 1.31 1.55
Ratio of Net Investment Income to
Average Net Assets (%) .................... 1.99 0.89 1.22 1.64 0.10
Portfolio Turnover Rate (%) ................. 119 59 154 105 229
Net Assets, End of the Year (000) ........... $ 83,119 $ 52,161 $ 4,752 $ 5,552 $ 14,441
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 year.
(b) The ratio of operating expenses to average net assets without giving effect
to expense limitations described in Note 4 to the Financial Statements
would have been (%):
1.21 1.19 1.41 1.65 1.81
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly known as New England 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.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 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.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 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 year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were
$161,182,050 and $174,313,849, 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 ("MetLife").
Fees earned by Nvest Management and Loomis Sayles under the management and
subadvisory agreements in effect during the year ended December 31, 1999 are as
follows:
Fees Earned (a)
---------------
Nvest Management $ 352,375
Loomis Sayles 281,900
(a) Before reduction due to expense limitation. See Note 4.
The effective management fee for the year ended December 31, 1999 was 0.64%
after reduction due to expense limitation.
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses,
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
registration of shares in various states, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance. For the year
ended December 31, 1999, these expenses amounted to $29,210 and are shown
separately in the financial statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999 the Fund paid NSC $304,122 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, 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 year ended December 31, 1999,
the Fund paid Nvest Funds $111,048 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 December 31, 1999 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 year ended December 31, 1999, the Fund paid Nvest
Funds $46,333 and $1,823 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
year ended December 31, 1999, the Fund paid Nvest Funds $138,998 and $5,469 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 year ended December
31, 1999 amounted to $112,037.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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. Expense Limitations. Nvest Management has given a binding undertaking and
Loomis Sayles has voluntarily agreed until further notice to waive their
respective management and subadvisory fees and, if necessary, Nvest Management
has agreed to bear certain expenses associated with the Fund, to limit the
Fund's expenses to the annual rates of 2.0%, 2.75%, 2.75% and 1.75% of the
average net assets of the Fund's Class A,B,C, and Y shares, respectively. Nvest
Management's undertaking will be in effect for the life of the Fund's current
prospectus. Prior to September 23, 1999 Nvest Management and Loomis Sayles
voluntarily agreed to limit the Fund's expenses to an annual rate of 1.40% of
the Fund's Class Y average daily net assets.
As a result of the Fund's expenses exceeding the expense limitations during the
year ended December 31, 1999, Nvest Management waived $102,021 of its $352,375
management fees and Loomis Sayles waived $81,617 of its $281,900 subadvisory
fees.
5. Concentration of Risk. The Fund had the following geographic concentration in
excess of 10% of its total net assets at December 31, 1999: Japan 29.9% and
United Kingdom 13.4%. 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.
6. Capital Shares. At December 31, 1999 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 December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class A Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 8,474,110 $ 124,114,863 8,948,596 $ 133,717,101
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 95,988 1,345,238 2,866 48,761
Distributions from net realized gain ............ 60,507 854,966 184,256 2,759,892
------------- ------------- ------------- -------------
8,630,605 $ 126,315,067 9,135,718 $ 136,525,754
Shares repurchased .................................. (9,416,378) (139,099,092) (9,816,773) (146,515,786)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. (785,773) $ (12,784,025) (681,055) $ (9,990,032)
------------- ------------- ------------- -------------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class B Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 168,917 $ 2,457,017 174,034 $ 2,997,379
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 22,260 308,524 0 0
Distributions from net realized gain ............ 26,508 367,396 56,778 1,196,312
------------- ------------- ------------- -------------
217,685 $ 3,132,937 230,812 $ 4,193,691
Shares repurchased .................................. (641,262) (9,243,198) (471,443) (7,021,664)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. (423,577) $ (6,110,261) (240,631) $ (2,827,973)
------------- ------------- ------------- -------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class C Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 35,965 $ 530,364 69,578 $ 1,151,320
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 977 13,569 0 0
Distributions from net realized gain ............ 1,161 16,123 2,643 55,847
------------- ------------- ------------- -------------
38,103 $ 560,056 72,221 $ 1,207,167
Shares repurchased .................................. (38,140) (551,056) (82,442) (1,285,310)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. (37) $ 9,000 (10,221) $ (78,143)
------------- ------------- ------------- -------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class Y Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 108,270 $ 1,641,310 220,939 $ 3,992,137
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............ 15,944 226,291 1,792 30,949
Distributions from net realized gain ............ 7,161 102,558 26,052 573,138
------------- ------------- ------------- -------------
131,375 $ 1,970,159 248,783 $ 4,596,224
Shares repurchased .................................. (78,325) (1,149,277) (73,477) (1,114,555)
------------- ------------- ------------- -------------
Net increase (decrease) ............... 53,050 $ 820,882 175,306 $ 3,481,669
------------- ------------- ------------- -------------
Increase (decrease) derived
from capital shares transactions .... (1,156,337) $ (18,064,404) (756,601) $ (9,414,479)
============= ============= ============= =============
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
7. 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 4, 1999. 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 year ended December 31,
1999.
8. 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
December 31, 1999 the Fund had on loan securities having a market value of
$19,764,270 and collateralized by cash in the amount of $20,467,916 which was
invested in a short-term investment.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I and the Shareholders of the Nvest
International Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest International Equity Fund
(formerly the New England International Equity Fund) (the "Fund"), a series of
Nvest Funds Trust I, at December 31, 1999, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
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
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
*An investment in the Fund is not
insured or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
IE56-1299
[LOGO] Printed On Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Growth Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST GROWTH FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index, and would
incur transaction costs and other expenses even if they could.
Growth of a $10,000 Investment in Class A Shares Over 20 Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Net Asset Maximum Sales
Value(1) Charge(2) S&P 500(4)
-------- --------- ----------
1999 $338,177 $318,732 $266,281
1998 293,608 276,725 219,994
1997 220,096 207,440 171,175
1996 178,157 167,913 128,404
1995 147,384 138,909 104,478
1994 106,753 100,615 76,017
1993 114,850 108,246 74,997
1992 103,199 97,265 68,142
1991 110,527 104,172 63,323
1990 70,525 66,470 48,583
1989 67,001 63,148 50,148
1988 54,869 51,714 38,109
1987 54,085 50,975 32,712
1986 45,653 43,028 31,092
1985 38,500 36,286 26,211
1984 28,537 26,896 19,911
1983 30,502 28,748 18,745
1982 27,415 25,838 15,307
1981 15,352 14,470 12,599
1980 14,885 14,029 13,245
1979 10,000 9,425 10,000
Growth of a $10,000 Investment in Class A Shares Over 10 Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
December 1989 through December 1999
Net Asset Maximum Sales
Value(1) Charge(2) S&P 500(4)
-------- --------- ----------
1999 $50,474 $47,571 $53,099
1998 43,821 41,302 43,869
1997 32,850 30,961 34,134
1996 26,590 25,061 25,605
1995 21,997 20,732 20,834
1994 15,933 15,017 15,159
1993 17,142 16,156 14,955
1992 15,403 14,517 13,588
1991 16,496 15,548 12,627
1990 10,526 9,921 9,688
1989 10,000 9,425 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST GROWTH FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (Inception 11/27/68) 1 Year 5 Years 10 Years 15 Years 20 Years
Net Asset Value(1) 15.18% 25.94% 17.57% 17.91% 19.25%
With Maximum Sales Charge(2) 8.59 24.46 16.88 17.45 18.90
- -----------------------------------------------------------------------------------------------------------
Class B (Inception 2/28/97) 1 Year Since Inception
Net Asset Value(1) 14.37% 21.36%
With CDSC(3) 9.59 20.72
- -----------------------------------------------------------------------------------------------------------
Class C (Inception 9/1/98) 1 Year Since Inception
Net Asset Value(1) 14.37% 28.59%
With CDSC(3) 13.42 28.59
- -----------------------------------------------------------------------------------------------------------
Class Y (Inception 6/30/99) Since Inception
Net Asset Value(1) 9.67%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
1 5 10 15 20 Class B Class C Class Y
Comparative Performance Year Years Years Years Years Inception Inception Inception
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500(4) 21.04% 28.56% 18.21% 18.92% 17.88% 26.24% 39.83% 7.69%
Morningstar Large Blend Average(5) 19.47 23.89 15.71 16.29 -- 21.92 35.62 7.68
Lipper Large-Cap Core Average(6) 22.29 25.53 16.66 16.75 16.14 24.19 40.97 9.93
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance represents the percent change in net
asset value per share with all distributions reinvested. Returns would have
been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance for Class B shares
assumes reinvestment of all distributions and assumes that a maximum 5.00%
sales charge is applied to redemptions of Class B shares. The sales charge
will decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) The Standard & Poor's Composite Index of 500 Stocks (S&P 500(R)) is a
market value-weighted unmanaged index of common stock prices. It is a
common measure of stock total return performance. The performance of the
index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
It is not possible to invest directly in an index.
(5) Morningstar Large Blend Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service. Class 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 at net asset value
of all mutual funds with a similar current investment style or objective as
determined by Lipper Inc., an independent mutual fund ranking service.
Class C since inception return is calculated from 8/31/98.
2
<PAGE>
NVEST GROWTH FUND
================================================================================
Interview with Your Portfolio Manager
- --------------------------------------------------------------------------------
[PHOTO]
G. Kenneth Heebner
Capital Growth
Management
Q. How did Growth Fund perform duringits fiscal year ending December 31, 1999?
For the 12-months ended December 31, 1999, the return for Growth Fund Class A
shares was 15.18% based on net asset value and reinvested distributions totaling
$1.95. The return on the Fund's benchmark, Standard & Poor's 500 Index, was
21.04% for the same period.
Q. What was the investment environment like during 1999?
Throughout the year, economic growth in the U.S. was strong. Looking abroad, we
saw Asian economies rebound, led by South Korea and Japan. In Europe, economic
growth strengthened during the year. This across-the-board global economic
expansion created an environment that was more conducive to inflation than the
backdrop we witnessed in 1998, when foreign economic weakness helped suppress
prices in the U.S. domestic economy. As a result, interest rates rose in the
U.S., prodded by the Federal Reserve Board, which raised key short-term interest
rates three times during 1999.
Q. What was your strategy with the Fund over the course of the year?
We started the year with a portfolio that reflected our expectation of minimal
inflation, including a substantial concentration in financial stocks, such as
banks and insurance companies. As the year progressed, we saw evidence that
continuing economic strength both inside and outside of the U.S. would increase
the risk of inflationary pressures. Therefore, we eliminated the Fund's
positions in banks and significantly reduced its holdings of insurance
companies. Early in the year, we also established a modest position in real
estate investment trusts (REITs), reflecting the strong fundamentals of the real
estate industry and the proclivity for real estate to benefit from a strong
pricing environment.
3
<PAGE>
NVEST GROWTH FUND
================================================================================
- --------------------------------------------------------------------------------
To that end, upon liquidation of the financials position, we selected other
investments that would benefit from an improved pricing backdrop, purchasing
significant stakes in the steel and aluminum industries. Further, we believed
the economic expansion in the U.S. was much closer to maturity than in Europe,
Asia, and Latin America. Consequently, we sought companies in countries where
the duration of the business cycle was much less of an issue. Two examples are
Telefonos de Mexico, the Mexican telephone company, and Philips Electronics, an
international conglomerate domiciled in the Netherlands. Finally, throughout the
year we maintained a major position in the technology sector, with an emphasis
on companies with global operations, such as Texas Instruments, Applied
Materials, Teradyne and Computer Sciences.
Q. Which stocks boosted performance, and which ones did not?
The Fund's best performing stocks were its technology holdings, with strong
gains coming from Texas Instruments, Nokia, Applied Materials, Philips
Electronics and Teradyne. Several of these investments benefited from the
explosive growth in wireless communications. For example, Finnish company Nokia
is the global leader in wireless handsets and Texas Instruments is the leading
producer of specialized semiconductor chips, a key wireless handset component.
Top 10 Portfolio Holdings-- 12/31/99
% of
Company Net Assets
- --------------------------------------------------------------------------------
1. Koninklijke Philips Electronics 6.9
- --------------------------------------------------------------------------------
2. Alcoa, Inc. 6.7
- --------------------------------------------------------------------------------
3. Micron Technology, Inc. 5.8
- --------------------------------------------------------------------------------
4. Apple Computer, Inc. 5.5
- --------------------------------------------------------------------------------
5. Telefonos de Mexico S.A 5.5
- --------------------------------------------------------------------------------
6. Pohang Iron & Steel 5.1
- --------------------------------------------------------------------------------
7. Anheuser-Busch Companies, Inc. 5.1
- --------------------------------------------------------------------------------
8. Inco, Ltd. 5.1
- --------------------------------------------------------------------------------
9. TRICON Global Restaurants, Inc. 4.7
- --------------------------------------------------------------------------------
10. Applied Materials, Inc. 4.6
- --------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
4
<PAGE>
NVEST GROWTH FUND
================================================================================
- --------------------------------------------------------------------------------
On the down side, Volkswagen, UNUM, Philip Morris, and McKesson HBOC all
suffered from company-specific problems. In addition, our investment in REITs
was disappointing. In spite of their relatively high yield, REITs have been
punished because they are regarded as small-company stocks by a market that was
focused on large-capitalization and technology stocks. However, we continue to
maintain this position in the expectation that investors will come to recognize
the positive prospects this industry offers.
Q. What is your outlook?
As we look ahead to the year 2000, we see continued growth around the world. In
the U.S., we think the Federal Reserve, which raised interest rates three times
in 1999, will continue to attempt to engineer a slowdown in order to minimize
any inflationary side effects emerging from the continued growth of the domestic
economy. For our part, we are focused on companies with exposure to global
markets that may experience better growth than the U.S. In addition, we are
seeking companies that would benefit from any trend toward rising prices that
might emerge.
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.
The Fund invests in foreign securities. Investing in foreign securities 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. These risks may increase
share price volatility. See the Fund's prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock -- 99.8% of Total Net Assets
<TABLE>
<CAPTION>
Shares Description Value (a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Beverages--5.1%
1,450,000 Anheuser-Busch Companies, Inc. .................... $ 102,768,750
--------------
Communication Services--7.7%
346,000 Telecomunicacoes Brasileiras (ADR) ................ 44,461,000
993,000 Telefonos de Mexico S.A. (ADR) 144A ............... 111,712,500
--------------
156,173,500
--------------
Computer Software & Services--2.7%
585,000 Computer Sciences Corp. ........................... 55,355,625
--------------
Computers & Business Equipment--5.5%
1,095,000 Apple Computer, Inc. (c) .......................... 112,579,687
--------------
Electronic & Communication Equipment--4.4%
465,000 Nokia Corp. (ADR) ................................. 88,350,000
--------------
Electronic Components--8.5%
1,510,000 Micron Technology, Inc. (c) ....................... 117,402,500
560,000 Texas Instruments, Inc. ........................... 54,250,000
--------------
171,652,500
--------------
Electronics--14.2%
735,000 Applied Materials, Inc. (c) ....................... 93,115,312
1,037,560 Koninklijke (Royal) Philips Electronics NV (ADR) .. 140,070,600
849,200 Teradyne, Inc. .................................... 56,047,200
--------------
289,233,112
--------------
Food--Retailers/Wholesalers--2.6%
1,107,000 Hershey Foods Corp. ............................... 52,582,500
--------------
Insurance--4.2%
1,825,000 AFLAC, Inc. ....................................... 86,117,188
--------------
Leisure & Lodging--3.6%
4,810,000 Mirage Resorts, Inc. (c) .......................... 73,653,125
--------------
Machinery--2.3%
1,095,000 Deere & Company ................................... 47,495,625
--------------
Non-Ferrous Metals--13.7%
980,000 Alcan Aluminum, Ltd. .............................. 40,363,750
1,635,000 Alcoa, Inc. ....................................... 135,705,000
4,370,000 Inco, Ltd. ........................................ 102,695,000
--------------
278,763,750
--------------
Oil & Gas/Exploration & Production--1.6%
470,000 Total Fina S.A. (ADR) ............................. 32,547,500
--------------
</TABLE>
6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- Continued
<TABLE>
<CAPTION>
Shares Description Value (a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Investment Trusts--9.0%
1,187,500 Apartment Investment & Management Co. .................... $ 47,277,344
1,470,000 Boston Properties, Inc. .................................. 45,753,750
1,772,500 General Growth Properties, Inc. .......................... 49,630,000
1,255,000 Vornado Realty Trust ..................................... 40,787,500
--------------
183,448,594
--------------
Restaurants--5.8%
570,000 McDonald's Corp. ......................................... 22,978,125
2,460,000 TRICON Global Restaurants, Inc. (c) ...................... 95,017,500
--------------
117,995,625
--------------
Retail--3.7%
1,855,000 CVS Corp. ................................................ 74,084,063
--------------
Steel--5.2%
2,985,000 Pohang Iron & Steel Co. Ltd., (ADR) ...................... 104,475,000
--------------
Total Common Stock (Identified Cost $1,705,933,995) 2,027,276,144
--------------
</TABLE>
Short Term Investment -- 0.5%
<TABLE>
<CAPTION>
Principal
Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 9,690,000 American Express Credit Corp., 4.250%, 1/03/2000 ................. 9,690,000
---------------
Total Short Term Investment (Identified Cost $9,690,000) ......... 9,690,000
---------------
Total Investments--100.3% (Identified Cost $1,715,623,995)(b) ... 2,036,966,144
Other assets less liabilities .................................... (5,869,703)
---------------
Total Net Assets--100% .......................................... $ 2,031,096,441
===============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At December 31, 1999 the net unrealized
appreciation on investments based on cost of $1,719,885,024 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. ................................ $ 374,701,874
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ....................................... (57,620,754)
---------------
Net unrealized appreciation ............................................... $ 317,081,120
===============
(c) Non-income producing security.
</TABLE>
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.
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 year end, the
value of those securities amounted to $111,712,500 or 5.5% of net assets.
See accompanying notes to financial statements. 7
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $1,715,623,995) ...................... $2,036,966,144
Cash ....................................................................... 1,326,373
Receivable for:
Fund shares sold ........................................................ 737,265
Securities sold ......................................................... 61,369,029
Dividends and interest .................................................. 1,814,181
--------------
2,102,212,992
LIABILITIES
Payable for:
Securities purchased .................................................... 63,040,819
Fund shares redeemed .................................................... 6,462,041
Withholding taxes ....................................................... 164,357
Accrued expenses:
Management fees ......................................................... 1,107,064
Deferred trustees' fees ................................................. 170,732
Accounting and administrative ........................................... 67,548
Other ................................................................... 103,990
--------------
71,116,551
--------------
NET ASSETS ................................................................... $2,031,096,441
==============
Net assets consist of:
Capital paid in ....................................................... 1,624,441,299
Undistributed net investment income ................................... 2,622,961
Accumulated net realized gains (losses) ............................... 82,690,032
Unrealized appreciation (depreciation) on investments ................. 321,342,149
--------------
NET ASSETS ................................................................... $2,031,096,441
==============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($1,871,137,731/170,073,614 shares of beneficial interest) $ 11.00
=======
Offering price per share (100/94.25 of $11.00) ............................... $ 11.67*
=======
Net asset value and offering price of Class B shares
($135,786,479/12,724,158 shares of beneficial interest) .................. $ 10.67**
=======
Net asset value and offering price of Class C shares
($8,754,183/820,222 shares of beneficial interest) ....................... $ 10.67**
=======
Net asset value and offering price of Class Y shares
($15,418,048/1,400,618 shares of beneficial interest) .................... $ 11.01
=======
</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.
8 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $422,284) ................. $ 25,454,891
Interest ..................................................... 510,219
-------------
25,965,110
Expenses
Management fees .......................................... $ 12,879,997
Service fees - Class A ................................... 4,507,150
Service and distribution fees - Class B .................. 1,130,273
Service and distribution fees - Class C .................. 67,804
Trustees' fees and expenses .............................. 109,479
Accounting and administrative ............................ 485,101
Custodian ................................................ 268,501
Transfer agent ........................................... 2,615,459
Audit and tax services ................................... 30,490
Legal .................................................... 75,577
Printing ................................................. 166,424
Registration ............................................. 98,728
Insurance ................................................ 33,200
Miscellaneous ............................................ 28,185
-------------
Total expenses ............................................... 22,496,368
-------------
Net investment income ........................................ 3,468,742
-------------
REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS
Realized gain (loss) on Investments - net ................. 394,461,456
Unrealized appreciation (depreciation) on
Investments - net ....................................... (123,562,713)
-------------
Net gain (loss) on investment transactions ................ 270,898,743
-------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......... $ 274,367,485
=============
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .............................. $ 12,046,963 $ 3,468,742
Net realized gain (loss) on investments ............ 175,025,357 394,461,456
Unrealized appreciation (depreciation) on
investments ..................................... 294,812,738 (123,562,713)
--------------- ---------------
Increase (decrease) in net assets from
operations ...................................... 481,885,058 274,367,485
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ....................................... (12,963,989) 0
Class B ....................................... (12,876) 0
In excess of net investment income
Class B ....................................... (228,906) 0
Class C ....................................... (491) 0
Net realized gain on investments
Class A ....................................... (176,759,139) (284,686,939)
Class B ....................................... (5,423,472) (20,990,502)
Class C ....................................... (11,012) (1,367,985)
Class Y ....................................... 0 (2,322,809)
In excess of realized gain on investments
Class A ....................................... (46,985,929) 0
Class B ....................................... (1,441,662) 0
Class C ....................................... (2,926) 0
Return of capital
Class A ....................................... (48,136,496) 0
Class B ....................................... (1,595,598) 0
Class C ....................................... (3,240) 0
--------------- ---------------
(293,565,736) (309,368,235)
--------------- ---------------
Increase (decrease) in net assets
derived from capital share transactions ......... 236,759,604 163,514,961
--------------- ---------------
Total increase (decrease) in net assets .............. 425,078,926 128,514,211
NET ASSETS
Beginning of the year ........................... 1,477,503,304 1,902,582,230
--------------- ---------------
End of the year ................................. $ 1,902,582,230 $ 2,031,096,441
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the year ................................. $ (79,960) $ 2,622,961
=============== ===============
</TABLE>
10 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ........ $8.87 $10.55 $11.63 $10.41 $11.36
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) .............. 0.05 0.04 0.01 0.08(a) 0.02
Net Realized and Unrealized
Gain (Loss) on Investments .............. 3.30 2.07 2.79 3.00 1.57
--------- --------- --------- --------- ---------
Total From Investment Operations .......... 3.35 2.11 2.80 3.08 1.59
--------- --------- --------- --------- ---------
Less Distributions
Distributions From Net Investment Income .. (0.05) (0.04) 0.00 (0.10) 0.00
Distributions From Net Realized
Gain on Investments ..................... (1.62) (0.99) (4.02) (1.32) (1.95)
Distributions in Excess of Realized Gain on
Investments ............................. 0.00 0.00 0.00 (0.35) 0.00
Distributions From Return of Capital ...... 0.00 0.00 0.00 (0.36) 0.00
--------- --------- --------- --------- ---------
Total Distributions ....................... (1.67) (1.03) (4.02) (2.13) (1.95)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year .............. $ 10.55 $ 11.63 $ 10.41 $ 11.36 $ 11.00
========= ========= ========= ========= =========
Total Return (%)(b) ....................... 38.1 20.9 23.5 33.4 15.2
Ratio of Operating Expenses
to Average Net Assets(%) ................ 1.20 1.18 1.12 1.12 1.12
Ratio of Net Investment Income
to Average Net Assets(%) ................ 0.42 0.33 0.08 0.74 0.23
Portfolio Turnover Rate (%) ............... 235 199 214 202 206
Net Assets, End of Year (000,000) ......... $ 1,201 $ 1,297 $ 1,460 $ 1,825 $ 1,871
</TABLE>
(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.
See accompanying notes to financial statements. 11
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B Class C Class Y
------------------------------------------ --------------------------- -------------
February 28, September 1, June 30,
1997(a) Year Ended 1998(a) Year 1999(a)
through December 31, through Ended through
December 31, ----------------------- December 31, December 31, December 31,
1997 1998 1999 1998 1999 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ........................ $ 12.47 $ 10.32 $ 11.15 $ 11.18 $ 11.15 $ 11.94
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ....... (0.07) (0.00)(b) (0.05) (0.00)(b) (0.05) 0.03
Net Realized and Unrealized
Gain (Loss) on Investments ....... 1.94 2.95 1.52 2.09 1.52 0.99
------- ------- ------- ------- ------- -------
Total From Investment Operations ... 1.87 2.95 1.47 2.09 1.47 1.02
------- ------- ------- ------- ------- -------
Less Distributions
Distributions in Excess
of Net Investment Income ......... 0.00 (0.06) 0.00 (0.06) 0.00 0.00
Distributions From Net Realized
Gain on Investments .............. (4.02) (1.32) (1.95) (1.32) (1.95) (1.95)
Distributions in Excess
of Realized Gain on Investments .. 0.00 (0.35) 0.00 (0.35) 0.00 0.00
Distributions From Return
of Capital ....................... 0.00 (0.39) 0.00 (0.39) 0.00 0.00
------- ------- ------- ------- ------- -------
Total Distributions ................ (4.02) (2.12) (1.95) (2.12) (1.95) (1.95)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..... $ 10.32 $ 11.15 $ 10.67 $ 11.15 $ 10.67 $ 11.01
======= ======= ======= ======= ======= =======
Total Return (%) (c) ............... 14.4 32.4 14.4 22.2 14.4 9.7
Ratio of Operating Expenses
to Average Net Assets (%) ........ 1.87 (d) 1.87 1.87 1.87 (d) 1.87 0.87(d)
Ratio of Net Investment Income
to Average Net Assets (%) ........ (0.67)(d) (0.01) (0.52) (0.01)(d) (0.52) 0.48(d)
Portfolio Turnover Rate (%) ........ 214 202 206 202 206 206
Net Assets, End of
Period (000,000) ................. $ 18 $ 75 $ 136 $ 2 $ 9 $ 15
</TABLE>
(a) Commencement of operations.
(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. Periods less than one year are not annualized.
(d) Computed on an annualized basis.
12 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds
(formerly known as New England 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.
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
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
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 year ended December 31, 1999,
purchases and sales of securities (excluding short-term investments) were
$3,940,353,581 and $4,081,947,152 respectively.
3a. Management Fees and Other Transactions with Affiliates. During the year
ended December 31, 1999, 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"), formerly known as Nvest Investment Companies, L.P., which is a
subsidiary of Metropolitan Life Insurance Company. The management agreement in
effect during the year ended December 31, 1999 provided for fees as set forth
below:
Fees Earned Annual Percentage Rate Annual Net Asset Value Levels
----------- ---------------------- ----------------------------
$12,879,997 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 management fee for the year ended December 31, 1999 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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund, and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999 these
expenses amounted to $485,101 and are shown separately in the financial
statements as accounting and administrative.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $2,064,244 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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $4,507,150 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 December 31, 1999
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 year ended December 31, 1999, the Fund paid Nvest
Funds $282,568 and $16,951 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
year ended December 31, 1999, the Fund paid Nvest Funds $847,705 and $50,853 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 year ended December
31, 1999, amounted to $3,468,358.
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
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
$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 December 31, 1999, 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
-------------------------------------------------------------------
December 31, 1998 December 31, 1999
------------------------------- -------------------------------
Class A Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 13,369,466 $ 151,330,209 18,434,322 $ 213,507,329
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 28,926,825 276,829,718 26,795,700 275,995,710
------------- ------------- ------------- -------------
42,296,291 428,159,927 45,230,022 489,503,039
Shares repurchased ......................................... (21,781,147) (248,558,136) (35,860,181) (413,701,486)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 20,515,144 $ 179,601,791 9,369,841 $ 75,801,553
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
December 31, 1998 December 31, 1999
------------------------------- -------------------------------
Class B Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ............................................... 5,027,895 $ 56,325,194 6,618,990 $ 75,011,147
Shares issued in connection with the reinvestment of:
Distributions from net realized gain .................... 845,686 7,957,904 1,918,125 19,181,257
--------- ------------ --------- ------------
5,873,581 64,283,098 8,537,115 94,192,404
Shares repurchased ........................................ (827,997) (8,943,834) (2,578,844) (29,179,794)
--------- ------------ --------- ------------
Net increase (decrease) ................................... 5,045,584 $ 55,339,264 5,958,271 $ 65,012,610
--------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
December 31, 1998 December 31, 1999
------------------------------- -------------------------------
Class C Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 186,014 $ 1,864,243 734,168 $ 8,322,147
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 1,828 17,199 79,732 797,323
------- ----------- ------- -----------
187,842 1,881,442 813,900 9,119,470
Shares repurchased ......................................... (5,731) (62,893) (175,788) (1,978,356)
------- ----------- ------- -----------
Net increase (decrease) .................................... 182,111 $ 1,818,549 638,112 $ 7,141,114
------- ----------- ------- -----------
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
December 31, 1998 December 31, 1999
------------------------------- -------------------------------
Class Y Shares Amount Shares Amount
------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................. 0 $ 0 1,258,953 $ 14,177,783
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 0 0 225,296 2,322,801
------------- ------------- ------------- -------------
0 0 1,484,249 16,500,584
Shares repurchased ........................................... 0 0 (83,631) (940,900)
------------- ------------- ------------- -------------
Net increase (decrease) ...................................... 0 0 1,400,618 15,559,684
------------- ------------- ------------- -------------
Increase (decrease) derived from capital shares transactions . 25,742,839 $ 236,759,604 17,366,842 $ 163,514,961
============= ============= ============= =============
</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 4, 1999. 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 year ended December 31, 1999.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I and the Shareholders of the Nvest Growth
Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest Growth Fund (formerly the
New England Growth Fund) (the "Fund"), a series of Nvest Funds Trust I, at
December 31, 1999, the results of its operations, the changes in its net assets
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
18
<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.
<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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
GF56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Capital Growth Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T.Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T.Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
August 1992 (Inception) Through December 1999
Net Asset Maximum Sales Russell 1000
Value(1) Charge(2) Growth(4)
--------- ------------- ------------
12/99 $35,228 $33,209 $45,969
12/98 28,212 26,590 34,522
12/97 21,868 20,611 24,888
12/96 18,654 17,581 19,072
12/95 15,937 15,020 15,491
12/94 12,194 11,493 11,292
12/93 12,398 11,685 10,999
12/92 11,491 10,830 10,689
8/92 10,000 9,425 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A (Inception 8/3/92) 1 Year 5 Years Since Inception
Net Asset Value(1) 24.74% 23.64% 18.52%
With Maximum Sales Charge(2) 17.57 22.17 17.58
- --------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1) 23.81% 22.58% 17.77%
With CDSC(3) 18.81 22.41 17.77
- --------------------------------------------------------------------------------
Class C (Inception 12/30/94) 1 Year 5 Years Since Inception
Net Asset Value(1) 23.81% 22.59% 22.58%
With CDSC(3) 22.81 22.59 22.58
- --------------------------------------------------------------------------------
Class Y (Inception 3/16/99) Since Inception
Net Asset Value(1) 20.07%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since Since Since Since
Fund's Fund's Fund's Fund's
Class A Class B Class C Class Y
Comparative Performance 1 Year 5 Years Inception Inception Inception Inception
<S> <C> <C> <C> <C> <C> <C>
Russell 1000 Growth(4) 33.16% 32.41% 22.82% 26.48% 32.41 23.86%
Morningstar Large Growth Average(5) 38.63 28.74 21.78 23.07 29.66 27.87
Lipper Multi-Cap Growth Avg.(6) 52.30 28.55 21.67 21.73 28.55 42.18
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) Russell 1000 Growth Index is an unmanaged index measuring the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The performance of the index has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments. It is not possible to
invest directly in an index. Class A since inception return is calculated
from 7/31/92. Class B since inception return is calculated from 9/30/93.
(5) Morningstar Large Growth Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service. Class A
since inception return is calculated from 7/31/92. Class B since inception
return is calculated from 9/30/93.
(6) Lipper Multi-Cap Growth Average is the average performance at net asset
value of all mutual funds with a similar investment style or objective as
determined by Lipper Inc., an independent mutual fund ranking service.
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. Please tell us about Capital Growth Fund's performance during 1999.
For the year ended December 31, 1999, the return on Class A shares of Capital
Growth Fund was 24.74% based on net asset value and reinvested distributions
totaling $2.73. The return on the Fund's benchmark, the Russell 1000 Growth
Index, was 33.16% for the same period.
Q. What was the investment environment like during the period?
Early in the year, market interest shifted away for a time from the
large-capitalization growth stocks that had repeatedly driven the major averages
to new highs. As the expanding economy threatened to bring on interest rate
hikes, investors concluded that some of the market's performance leaders were
vulnerable because of their exceptionally high valuations. Stocks with more
modest valuations, seen as less vulnerable to a downturn, took center stage. But
not for long.
The rally in value stocks that began in April was one of the sharpest in years.
Because prices ran up so quickly, investors cut the rally short by taking
profits and returning to more familiar ground. Despite a hike in short-term
interest rates in June (the first of three in 1999) large-cap growth stocks, as
well as technology issues of all sizes, dominated attention once again.
Q. Given that environment, what strategies did you pursue?
When it appeared that investors were growing wary of large-cap growth stocks
with inflated prices and turning to more conventional valuation measures, we
shifted a larger portion of the Fund's portfolio to stocks in the Russell 1000
Growth Index. These stocks offered attractive growth prospects, along with book
values that appeared reasonable relative to their prices. We also moved out of
some large-capitalization stocks into mid-sized issues with below average
price/earnings (p/e) ratios, (a measure of whether a company's stock price is
high or low relative to its earnings). This proved premature when
large-capitalization growth stocks surged back later in the year.
3
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
- --------------------------------------------------------------------------------
Q. What factors or investments affected performance the most, positively or
negatively?
The biggest factor affecting performance was style, not stocks. The Fund's
portfolio is well diversified, with strict attention to risk control and without
heavy sector commitments. We concentrated on a company's present earnings and
future earning power -- its ability to increase the proverbial bottom line.
Put another way, we do not invest where there are neither earnings nor prospects
for earnings. The risk is too high. We are finding many companies, where
earnings are growing at above-average rates. But above-average earnings growth,
historically a predictor of higher stock prices, has not mattered recently,
except for a handful of giant companies.
Top 10 Portfolio Holdings -- 12/31/99
% of
Company Net Assets
- ------------------------------------------------------------
1. General Electric Co. 6.9
- ------------------------------------------------------------
2. Microsoft Corp. 6.6
- ------------------------------------------------------------
3. Cisco Systems, Inc. 4.8
- ------------------------------------------------------------
4. Lucent Technologies, Inc. 4.1
- ------------------------------------------------------------
5. Intel Corp. 2.8
- ------------------------------------------------------------
6. IVAX Corp. 2.5
- ------------------------------------------------------------
7. Wal-Mart Stores, Inc. 2.5
- ------------------------------------------------------------
8. Home Depot, Inc. 2.3
- ------------------------------------------------------------
9. DST Systems, Inc. 2.2
- ------------------------------------------------------------
10. Texas Instruments, Inc. 2.2
- ------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
In technology, we concentrated on established, profitable companies like Cisco,
which builds computer networks, chip maker Intel, and Microsoft. These quality
technology issues contributed to performance, as did Lucent, a major builder of
telecommunications infrastructure, and General Electric.
The Fund also benefited from being underweighted in the disappointing consumer
staples sector. Coca-Cola fell short of earnings estimates and was eliminated
from the portfolio.
Our commitment to interest-sensitive stocks was slightly above the benchmark's
weight. Performance suffered when rising rates sent these stocks lower.
4
<PAGE>
NVEST CAPITAL GROWTH FUND
================================================================================
- --------------------------------------------------------------------------------
Q. What is your outlook for next year?
At year-end, the Fund's portfolio was more modestly valued than the Russell 1000
Growth Index, based on our analysis. Average price/earnings ratios were lower
for the companies in the Fund although their earnings growth rates were higher.
This positioning reflects our view that there will soon be a shift back to the
traditional methods of stock evaluation that are part of our process. We think
market leadership will then broaden to include many more stocks than has been
the case for the last few years.
We expect the economy to march along at about the same pace; the one cautionary
note is interest rates. Continued rate hikes could eventually cut into corporate
earnings and threaten the economy's long-running expansion.
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.
Investing in small-cap companies involves greater risk than is commonly
associated with investments in more established companies. This risk may
increase share price volatility. See the Fund's prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock--99.5% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Aerospace--0.9%
49,300 General Dynamics Corp. ..................... $ 2,600,575
--------------
Banks--1.8%
19,500 Citigroup, Inc. ............................ 1,083,469
156,900 Hudson United Bancorp ...................... 4,010,756
--------------
5,094,225
--------------
Broadcasting--4.8%
66,400 AT&T Corp. - Liberty Media Group (c) ....... 3,768,200
14,500 CBS Corp. (c) .............................. 927,094
29,400 Comcast Corp., Special Class A ............. 1,486,538
21,000 Time Warner, Inc. .......................... 1,521,187
102,600 USA Networks, Inc. (c) ..................... 5,668,650
--------------
13,371,669
--------------
Building Construction--0.7%
40,000 USG Corp. .................................. 1,885,000
--------------
Business Services--4.3%
80,100 DST Systems, Inc. (c) ...................... 6,112,631
50,100 Electronic Data Systems Corp. .............. 3,353,569
16,100 Safeguard Scientifics, Inc. (c) ............ 2,609,206
--------------
12,075,406
--------------
Computer Software & Services--8.8%
60,400 Computer Associates International, Inc. .... 4,224,225
156,900 Microsoft Corp. (c) ........................ 18,318,075
16,900 Oracle Systems Corp. (c) ................... 1,893,856
--------------
24,436,156
--------------
Computers & Business Equipment--13.6%
125,250 Cisco Systems, Inc. (c) .................... 13,417,406
99,700 Electronics For Imaging, Inc. (c) .......... 5,795,063
14,100 EMC Corp. (c) .............................. 1,540,425
26,000 Hewlett-Packard Co. ........................ 2,962,375
36,900 International Business Machines Corp. ...... 3,985,200
119,100 National Instruments Corp. (c) ............. 4,555,575
32,900 Pitney Bowes, Inc. ......................... 1,589,481
73,400 Rational Software Corp. (c) ................ 3,605,775
12,200 Sysco Corp. ................................ 482,663
--------------
37,933,963
--------------
Consumer Durables--0.4%
46,500 Herman Miller, Inc. ........................ 1,069,500
--------------
Drugs - 7.3%
37,900 Amgen, Inc. (c) ............................ 2,276,369
12,800 Biogen, Inc. (c) .......................... 1,081,600
69,500 Bristol-Myers Squibb Co. ................... 4,461,031
46,600 Merck & Co. ................................ 3,125,112
182,100 Pfizer, Inc. ............................... 5,906,869
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- 99.5% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Drugs--continued ..........................
40,000 Schering-Plough Corp. ...................... $ 1,687,500
22,800 Warner-Lambert Co. ......................... 1,868,175
--------------
20,406,656
--------------
Drugs & Health Care--5.1%
96,000 Allergan, Inc. ............................. 4,776,000
16,100 Andrx Corp. ................................ 681,231
8,400 Forest Labs, Inc. (c) ...................... 516,075
267,100 IVAX Corp. (c) ............................. 6,877,825
25,500 United Healthcare Corp. .................... 1,354,688
--------------
14,205,819
--------------
Electronics--8.6%
102,400 Adaptec, Inc. (c) .......................... 5,107,200
22,600 Amkor Technology, Inc. (c) ................. 638,450
5,900 Applied Materials, Inc. (c) ................ 747,456
46,200 Burr Brown, Rights (c) ..................... 1,668,975
35,800 Commscope, Inc. (c) ........................ 1,443,188
45,300 Dallas Semiconductor Corp. ................. 2,919,019
8,000 Motorola, Inc. ............................. 1,178,000
62,600 Texas Instruments, Inc. .................... 6,064,375
90,800 Xilinx, Inc. (c) ........................... 4,128,562
--------------
23,895,225
--------------
Financial Services--8.1%
9,200 American Express Co. ....................... 1,529,500
124,900 General Electric Co. ....................... 19,328,275
13,400 SEI Investments Co. ........................ 1,594,809
--------------
22,452,584
--------------
Food & Beverages--3.3%
263,000 International Home Foods, Inc. (c) ......... 4,569,625
149,400 Kellogg Co. ................................ 4,603,388
--------------
9,173,013
--------------
Forest Products--0.6%
27,400 Kimberly-Clark Corp. ....................... 1,787,850
--------------
Health Care--Products--2.2%
39,500 Abbott Laboratories ........................ 1,434,344
49,900 Johnson & Johnson, Inc. .................... 4,646,937
--------------
6,081,281
--------------
Hotels & Restaurants--1.1%
19,400 Brinker International, Inc. (c) ............ 465,600
53,100 MGM Grand, Inc. (c) ........................ 2,671,594
--------------
3,137,194
--------------
Household Products--2.0%
50,900 Procter & Gamble Co. ....................... 5,576,731
--------------
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- 99.5% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Industrial Services--0.8%
45,300 Hertz Corp. ................................ ...... $ 2,270,663
--------------
Insurance--0.9%
51,800 Radian Group, Inc. (c) ............................ 2,473,450
--------------
Manufacturing--2.3%
39,800 Briggs & Stratton Corp. ........................... 2,134,275
57,000 Waters Corp. (c) .................................. 3,021,000
18,900 Zebra Technologies Corp. (c) ...................... 1,105,650
--------------
6,260,925
--------------
Publishing--2.4%
50,000 Central Newspapers, Inc. .......................... 1,968,750
113,500 Valassis Communications, Inc. (c) ................. 4,795,375
--------------
6,764,125
--------------
Retail--Clothing--0.3%
19,600 Limited, Inc. ..................................... 848,925
--------------
Retail--Department Store--3.8%
50,400 Dayton Hudson Corp. ............................... 3,701,250
100,600 Wal-Mart Stores, Inc. ............................. 6,953,975
--------------
10,655,225
--------------
Retail--Specialty--2.3%
93,750 Home Depot, Inc. .................................. 6,427,734
--------------
Securities & Asset Management--2.6%
20,900 Lehman Brothers Holdings, Inc. .................... 1,769,969
38,900 Morgan Stanley Dean Witter & Co. .................. 5,552,975
--------------
7,322,944
--------------
Semi-Conductors--2.8%
96,000 Intel Corp. ....................................... 7,902,000
--------------
Telecommunication--2.7%
86,100 MCI Worldcom, Inc. (c) ............................ 4,568,681
17,882 SBC Communications, Inc. .......................... 871,748
20,200 U.S. Cellular Corp. (c) ........................... 2,038,937
--------------
7,479,366
--------------
Telecommunication Equipment--4.4%
153,600 Lucent Technologies, Inc. ......................... 11,491,200
14,000 Tellabs, Inc. (c) ................................. 898,625
--------------
12,389,825
--------------
Trucking & Freight Forwarding--0.6%
39,100 Florida East Coast Industries, Inc. ............... 1,632,425
---------------
Total Common Stock (Identified Cost $195,890,734).. 277,610,454
---------------
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Short Term Investment -- 0.6%
Principal
Amount Value (a)
- --------------------------------------------------------------------------------
$1,627,000 Repurchase Agreement with
State Street Bank and Trust Co
dated 12/31/1999 at 2.50% to
be repurchased at $1,627,339
on 1/03/2000, collateralized
by $1,310,000 U.S. Treasury
Bond, at 9.250%, due 2/15/2016
valued at $1,665,719 ...................... $ 1,627,000
---------------
Total Short Term Investment
(Identified Cost $1,627,000) .............. 1,627,000
---------------
Total Investments--100.1%
(Identified Cost $197,517,734)(b).......... 279,237,454
Other assets less liabilities....... (378,054)
---------------
Total Net Assets-- 100%............. $ 278,859,400
===============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999 the net unrealized
appreciation on investments based on cost of
$197,517,734 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................................. $ 86,600,505
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value ................................ (4,880,785)
---------------
Net unrealized appreciation $ 81,719,720
===============
(c) Non-income producing security.
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
==========================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $197,517,734) ................. $ 279,237,454
Cash ............................................................ 24
Investments held as collateral for loaned securities ............ 2,611,622
Receivable for:
Fund shares sold ................................................ 69,266
Dividends and interest .......................................... 104,652
-------------
282,023,018
-------------
LIABILITIES
Payable for:
Collateral on securities loaned, at value ....................... $ 2,611,622
Fund shares redeemed ............................................ 235,006
Accrued expenses:
Management fees ................................................. 167,738
Deferred Trustees' fees ......................................... 30,813
Accounting and administrative ................................... 12,070
Other ........................................................... 106,369
-------------
3,163,618
-------------
NET ASSETS ............................................................... $ 278,859,400
=============
Net Assets consist of:
Capital paid in ................................................. $ 193,168,186
Undistributed net investment income (loss) ...................... (27,258)
Accumulated net realized gains (losses) ......................... 3,998,752
Unrealized appreciation (depreciation) on investments ........... 81,719,720
-------------
NET ASSETS ............................................................... $ 278,859,400
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($200,821,135/8,785,908 shares of beneficial interest) ............... $ 22.86
========
Offering price per share (100/94.25 of $22.86) ...................... $ 24.25*
========
Net asset value and offering price of Class B shares
($74,774,382/3,550,424 shares of beneficial interest) ............. $ 21.06**
========
Net asset value and offering price of Class C shares
($3,110,175/147,701 shares of beneficial interest) ................ $ 21.06**
========
Net asset value, offering and redemption price of Class Y shares
($153,708/6,719 shares of beneficial interest) .................... $ 22.88
========
</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.
10
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends ......................................................... $ 1,678,975
Interest .......................................................... 156,035
Securities lending income ......................................... 78,288
----------------
1,913,298
Expenses
Management fees ............................................... $ 1,826,043
Service fees - Class A ........................................ 449,506
Service and distribution fees - Class B ....................... 640,502
Service and distribution fees - Class C ....................... 24,404
Trustees' fees and expenses ................................... 20,535
Accounting and administrative ................................. 74,071
Custodian ..................................................... 110,856
Transfer agent ................................................ 631,717
Audit and tax services ........................................ 31,500
Legal ......................................................... 11,887
Printing ...................................................... 28,428
Registration .................................................. 62,731
Miscellaneous ................................................. 13,414
-----------
Total expenses .................................................... 3,925,594
----------------
Net investment loss ............................................... (2,012,296)
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments-- net ......................... 35,883,311
Unrealized appreciation (depreciation) on investments-- net ...... 22,175,104
-------------
Net gain (loss) on investment transactions ........................ 58,058,415
----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................. $ 56,046,119
================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ................................................ $ (1,666,515) $ (2,012,296)
Net realized gain (loss) on investments ..................................... 38,149,843 35,883,311
Unrealized appreciation (depreciation) on investments ....................... 17,491,799 22,175,104
------------- -------------
Increase (decrease) in net assets from operations ........................... 53,975,127 56,046,119
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ................................................................. (31,038,092) (21,565,434)
Class B ................................................................. (10,585,195) (8,617,664)
Class C ................................................................. (250,102) (360,787)
Class Y ................................................................. 0 (16,088)
------------- -------------
(41,873,389) (30,559,973)
------------- -------------
INCREASE (DECREASE IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ........................................ 26,554,677 18,457,562
------------- -------------
Total increase (decrease) in net assets .......................................... 38,656,415 43,943,708
NET ASSETS
Beginning of the period ..................................................... 196,259,277 234,915,692
------------- -------------
End of the period ........................................................... $ 234,915,692 $ 278,859,400
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period ........................................................... $ (18,123) $ (27,258)
============= =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 15.02 $ 18.41 $ 19.27 $ 19.95 $ 20.67
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ................ (0.11)(b) (0.14)(c) (0.18)(c) (0.13)(c) (0.13)(c)
Net Realized and Unrealized Gain (Loss)
on Investments ............................ 4.74 3.22 3.43 5.18 5.05
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 4.63 3.08 3.25 5.05 4.92
----------- ----------- ----------- ----------- -----------
Less Distributions
Distributions From Net Realized Capital Gains (1.24) (2.22) (2.57) (4.33) (2.73)
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (1.24) (2.22) (2.57) (4.33) (2.73)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 18.41 $ 19.27 $ 19.95 $ 20.67 $ 22.86
=========== =========== =========== =========== ===========
Total Return (%) (a) ........................ 30.7 17.1 17.2 29.0 24.7
Ratio of Operating Expenses to Average
Net Assets (%) ............................ 1.61 1.50 1.45 1.46 1.39
Ratio of Net Investment Income (loss)
to Average Net Assets (%) ................. (0.67) (0.71) (0.87) (0.62) (0.61)
Portfolio Turnover Rate (%) ................. 69 74 48 136 124
Net Assets, End of the Year (000) ........... $ 123,504 $ 141,326 $ 149,734 $ 175,511 $ 200,821
</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.
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ........ $ 14.89 $ 18.09 $ 18.74 $ 19.10 $ 19.37
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss) .................. (0.16)(b) (0.28)(c) (0.32)(c) (0.27)(c) (0.27)(c)
Net Realized and Unrealized Gain (Loss)
on Investments ................................ 4.60 3.15 3.25 4.87 4.69
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .............. 4.44 2.87 2.93 4.60 4.42
---------- ---------- ---------- ---------- ----------
Less Distributions
Distributions From Net Realized Capital
Gains ......................................... (1.24) (2.22) (2.57) (4.33) (2.73)
---------- ---------- ---------- ---------- ----------
Total Distributions ........................... (1.24) (2.22) (2.57) (4.33) (2.73)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year .............. $ 18.09 $ 18.74 $ 19.10 $ 19.37 $ 21.06
========== ========== ========== ========== ==========
Total Return (%) (a) .......................... 29.7 16.2 15.9 28.2 23.8
Ratio of Operating Expenses to Average
Net Assets (%) ................................ 2.36 2.25 2.20 2.21 2.14
Ratio of Net Investment Income(loss)
to Average Net Assets (%) ..................... (1.42) (1.46) (1.62) (1.37) (1.36)
Portfolio Turnover Rate (%) ................... 69 74 48 136 124
Net Assets, End of the Year(000) .............. $ 26,234 $ 37,439 $ 45,546 $ 57,796 $ 74,774
</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.
See accompanying notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C Class Y
--------------------------------------------------------- --------------
March 16,
1999(e) through
Year Ended December 31, December 31,
--------------------------------------------------------- --------------
1995 1996 1997 1998 1999 1999
--------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ............... $ 14.89 $ 18.08 $ 18.74 $ 19.11 $ 19.37 $ 21.49
------- ------- ------- -------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ........................... (0.09)(b) (0.28)(c) (0.34)(c) (0.27)(c) (0.27)(c) (0.05)(c)
Net Realized and Unrealized Gain (Loss)on Investments .. 4.52 3.16 3.28 4.86 4.69 4.17
------- ------- ------- -------- ------- -------
Total From Investment Operations ....................... 4.43 2.88 2.94 4.59 4.42 4.12
------- ------- ------- -------- ------- -------
Less Distributions
Distributions from Net Realized Capital Gains .......... (1.24) (2.22) (2.57) (4.33) (2.73) (2.73)
------- ------- ------- -------- ------- -------
Total Distributions .................................... (1.24) (2.22) (2.57) (4.33) (2.73) (2.73)
------- ------- ------- -------- ------- -------
Net Asset Value, End of the Period ..................... $ 18.08 $ 18.74 $ 19.11 $ 19.37 $ 21.06 $ 22.88
======= ======= ======= ======== ======= =======
Total Return(%)(a) ..................................... 29.7 16.2 15.9 28.1 23.8 20.1
Ratio of Operating Expenses
to Average Net Assets (%) ........ ................... 2.36 2.25 2.20 2.21 2.14 1.14(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets(%) ............................. (1.42) (1.46) (1.62) (1.37) (1.36) (0.36)(d)
Portfolio Turnover Rate(%) ............................. 69 74 48 136 124 124
Net Assets, End of the Period(000) ..................... $ 354 $ 504 $ 979 $ 1,609 $ 3,110 $ 154
</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) Commencement of operations.
See accompanying notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds
(formerly known as New England 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, 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 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 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
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 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 year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were
$303,093,195 and $313,059,768 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. Fees earned by Nvest Management and Westpeak under the
management and subadvisory agreements in effect during the year ended December
31, 1999 are as follows:
Fees Earned
-----------
Nvest Management $ 862,232
Westpeak 963,811
The effective management fee for the year ended December 31, 1999 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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following:
(i) expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999 these
expenses amounted to $74,071 and are shown separately in the financial
statements as accounting and administrative.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- continued
================================================================================
For the Year Ended December 31, 1999
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $469,973 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, 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 year ended December 31, 1999,
the Fund paid Nvest Funds $449,506 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 December 31, 1999 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 year ended December 31, 1999, the Fund paid Nvest
Funds $160,126 and $6,101 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
year ended December 31, 1999, the Fund paid Nvest Funds $480,376 and $18,303 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 year ended December
31, 1999 amounted to $498,031.
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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- continued
================================================================================
For the Year Ended December 31,1999
$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 December 31, 1999 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 December 31,
-----------------------------------------------------------------
1998 December 31, 1999
------------------------------ ------------------------------
Class A Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 5,280,173 $ 103,638,373 5,621,317 $ 120,686,618
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 1,654,600 30,368,183 976,412 20,905,335
------------- ------------- ------------- -------------
6,934,773 134,006,556 6,597,729 141,591,953
Shares repurchased ............................................. (5,945,919) (118,285,211) (6,304,823) (135,708,449)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ 988,854 $ 15,721,345 292,906 $ 5,883,504
------------- ------------- ------------- -------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998 December 31, 1999
------------------------------ ------------------------------
Class B Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 517,025 $ 10,206,537 727,026 $ 14,638,814
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 602,457 10,304,737 425,766 8,406,124
------------- ------------- ------------- -------------
1,119,482 20,511,274 1,152,792 23,044,938
Shares repurchased ............................................. (520,591) (10,256,232) (586,477) (11,878,592)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ 598,891 $ 10,255,042 566,315 $ 11,166,346
------------- ------------- ------------- -------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998 December 31, 1999
------------------------------ ------------------------------
Class C Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 68,953 $ 1,323,118 93,837 $ 1,890,390
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 14,104 241,925 17,947 354,357
------------- ------------- ------------- -------------
83,057 1,565,043 111,784 2,244,747
Shares repurchased ............................................. (51,202) (986,753) (47,180) (981,675)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ 31,855 $ 578,290 64,604 $ 1,263,072
------------- ------------- ------------- -------------
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS-- continued
================================================================================
For the Year Ended December 31,1999
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
March 16, 1999 (a)
through
1998 December 31, 1999
------------------------------ ------------------------------
Class Y Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 0 $ 0 6,148 $ 132,698
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 0 0 751 16,089
------------- ------------- ------------- -------------
.......................................................... 0 0 6,899 148,787
Shares repurchased ............................................. 0 0 (180) (4,147)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ 0 0 6,719 144,640
------------- ------------- ------------- -------------
Increase (decrease) derived from capital shares transactions 1,619,600 $ 26,554,677 930,544 $ 18,457,562
============= ============= ============= =============
</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 4, 1999. 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 year ended December 31,
1999.
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
December 31, 1999 the Fund had securities on loan with a market value of
$2,593,000 collateralized by United States Treasury Bonds with a market value of
$2,611,622.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I
and the Shareholders of the Nvest Capital Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest Capital Growth Fund
(formerly the New England Capital Growth Fund) (the "Fund"), a series of Nvest
Funds Trust I, at December 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
21
<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.
<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 CHART 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.
<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 TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Invester 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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
CG56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Balanced Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST BALANCED FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could. 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.]
December 1989 through December 1999
S&P 500(65%)/
Net Asset Maximum Sales Lehman Government/
Value(1) Charge(2) Corporate (35%)(4)
-------- --------- ------------------
12/99 $26,477 $24,949 $39,138
12/98 27,509 25,927 34,660
12/97 25,429 23,967 28,444
12/96 21,636 20,392 22,743
12/95 18,473 17,411 19,623
12/94 14,625 13,784 14,971
12/93 15,027 14,163 15,022
12/92 13,160 12,404 13,607
12/91 11,551 10,887 12,646
12/90 8,940 8,426 10,087
12/89 10,000 9,425 10,000
This illustration represents past performance of Class A shares and
cannot predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST BALANCED FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
Class A (Inception 11/27/68) 1 Year 5 Years 10 Years
Net Asset Value(1) -3.75% 12.60% 10.23%
With Maximum Sales Charge(2) -9.26 11.27 9.57
- --------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1) -4.43% 11.75% 9.19%
With CDSC(3) -8.75 11.49 9.19
- --------------------------------------------------------------------------------
Class C (Inception 12/30/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -4.45% 11.72% 11.71%
With CDSC(3) -5.31 11.72 11.71
- --------------------------------------------------------------------------------
Class Y (Inception 3/8/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -3.32% 13.09% 10.61%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
Class B Class C Class Y
Comparative Performance 1 Year 5 Years 10 Years Incept. Incept. Incept.
<S> <C> <C> <C> <C> <C> <C>
S&P/Lehman Gov't./Corp. Blend(4) 12 92% 21.23% 14.51% 16.81% 21.23% 18.88%
Morningstar Domestic Hybrid Average(5) 8.77 15.60 11.37 11.74 15.13 11.73
Lipper Balanced Average(6) 8.72 16.24 11.82 12.69 16.24 14.21
</TABLE>
- ---------
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. The fund was changed from an equity income fund to a balanced
fund on March 1, 1990. Results for periods prior to that date reflect former
investment policies and are not necessarily representative of the results that
would have been achieved had the Fund's current investment policies been in
effect. Class Y shares are available to certain institutional investors only.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) Represented by a 65% weighting in the Standard & Poor's Composite Index of
500 Stocks (the "S&P 500") and a 35% weighting in the Lehman
Government/Corporate Bond Index. Indices are balanced to 65%/35% at the end
of each year. The S&P 500 is a market value-weighted unmanaged index of
common stock prices for 500 selected stocks, most of which are listed on
the New York Stock Exchange. It is a common measure of stock total return
performance. The Lehman Government/Corporate Bond Index is an unmanaged
index that includes the Lehman Government and Corporate Bond indices,
including U.S. government Treasury and agency securities, corporate and
yankee bonds. The performance of the indices has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. It is not possible to invest
directly in an index. Class B 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 an average (calculated on the basis
of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class B inception return is calculated from 9/30/93. Class Y since
inception return is calculated from 3/31/94.
(6) Lipper Balanced Average is an average (calculated on the basis of net asset
value) of funds with similar investment objectives as calculated by Lipper
Inc., an independent mutual fund ranking service. Class 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]
John Hyll,
Jeff Wardlow,
Gregg Watkins
Loomis, Sayles &
Company, LP*
Q. Please talk about Balanced Fund's performance during 1999.
For the year ended December 31, 1999, the Fund's Class A shares returned -3.75%
at net asset value. This return includes a $1.83 per share loss in net asset
value and reinvested distributions of $1.33. The Fund lagged the 12.92% return
of its benchmark, which combines the Standard & Poor's 500 Stock Index (65%)
with the Lehman Brothers Government/Corporate Bond Index (35%).
Q. What was the market environment during the period?
From late 1998 into early 1999 the investment background hardly changed, as
large-capitalization growth stocks drove strong gains in the widely followed
market averages. Investors celebrated when slumping world economies began to
recover from earlier downturns, bringing brighter overseas prospects to these
multi-national giants, on top of a positive earnings outlook in the United
States.
The strong U.S. economy soon threatened to provoke inflation and bring on higher
interest rates. Lofty valuations for large-cap stocks came into question and
investors turned to issues that stood up better to tests of value, like those we
use to select stocks for the Fund. The value stock rally that followed was one
of the sharpest on record, but it was brief. It began in April and was all but
extinguished by June.
Large-cap stocks -- especially internet and technology issues -- led the market
higher over the summer. While this enthusiasm temporarily waned early in the
fall, technology stocks rallied once again in the fourth quarter.
* Meri Ann Beck and Barr Segal served on the Fund's fixed-income team until
August 1999.
3
<PAGE>
NVEST BALANCED FUND
================================================================================
- --------------------------------------------------------------------------------
Q. Given that environment, what was your investment strategy during the
period?
The Fund's allocation was essentially unchanged, with about 65% of assets in
stocks and 35% in bonds.
During 1999, in our equity selection process we emphasized areas where we saw a
combination of good value and improving fundamentals. One example is energy,
where firming oil prices indicated the potential for higher earnings. Similarly,
rising commodity prices were a positive factor for companies in the basic
materials sectors.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Your Fund's Asset Mix -- 12/31/99
Common Stocks 64.6%
Bonds 0.5%
Other 34.9%
Portfolio holdings and asset allocation will vary.
Q. What factors or investments affected stock performance the most, positively
or negatively?
Technology stocks now have significant impact, as more high-tech names have been
added to the popular averages. However, our value discipline filters out many
tech stocks because, among other reasons, they sell at inflated prices relative
to their earnings -- if there are earnings at all.
The tech stocks we own are established and profitable enterprises; examples are
Hewlett Packard and IBM. We took profits on these two hardware makers, then
repurchased their shares when the sector's prices fell and improved valuations.
Stock selection helped results in several areas: chemicals, Praxair and Dow
Chemical added to performance, as did paper maker Georgia Pacific. GTE was a
strong performer among telecommunications stocks, and we realized profits on the
sale of Cincinnati Bell.
4
<PAGE>
NVEST BALANCED FUND
================================================================================
- --------------------------------------------------------------------------------
On the other hand, our overweight position in financial stocks hurt performance.
Although banks weakened as interest rates rose, we have cut back only slightly,
as the industry's fundamentals are still attractive. Property/casualty insurers
suffered when they were unable to raise rates.
In aerospace, Lockheed and Martin Marietta had difficulty making their merger
work. The stocks of Litton and Northrop, although free of significant problems,
fell under the same cloud.
Q. What was the environment for bonds, and how did you respond?
Your Fund's Five Largest Industries -- 12/31/99
% of
Net Assets
1. Mortgages 7.7
2. Banks 7.4
3. Telecommunications 6.6
4. Oil & Gas/Major Integrated 5.1
5. Consumer 4.3
Portfolio holdings and asset allocations will vary.
The Federal Reserve Board reversed its three 1998 rate cuts in 1999, raising
short-term rates three times in an effort to guard against a resurgence of
inflation. Higher rates drove bond prices down, especially intermediate-term
bonds -- generally those that mature in five to 10 years -- and the area in
which the Fund primarily invests. Increased supply of new issues also burdened
the market, as corporations offered bonds earlier than planned rather than face
possible Y2K disruptions.
In response, we adopted a defensive stance, reducing the Fund's average duration
- -- its sensitivity to changes in interest rates -- and average maturity -- the
number of years until a bond comes due.
In the second half of the year we extended both duration and maturity. We also
moved out of U.S. Treasury obligations into those of federal agencies whose
yields were attractive relative to Treasuries. Both tactics proved beneficial to
the Fund.
Bond supply dwindled and prices began to recover during the fall. By year-end
the spread, or difference in yield, between Treasury issues and high-grade
corporate bonds was historically high given the robust state of the economy, an
indication that investors preferred the safety and liquidity of Treasuries,
should higher interest rates exact a toll on businesses.
5
<PAGE>
NVEST BALANCED FUND
================================================================================
- --------------------------------------------------------------------------------
Q. What is your outlook for next year and beyond?
We think a modest slowdown in the growth rate of the U.S. economy is possible
next year.
Historically, bonds have tended to bounce back after bad years. While there can
be no assurance that the pattern will repeat in 2000, slower economic expansion
may lead to lower rates and firmer prices.
As for stocks, we have never witnessed such a wide disparity between the few
favorites and the many overlooked companies with solid finances, strong
managements and positive outlooks.
In investing, nothing is permanent; markets have a way of retreating from
extremes back to more traditional behavior. We are positioning the Fund for the
time when investors reassess their holdings and move to restore some balance to
their portfolios.
The 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.
Treasury bills and U.S. government securities fluctuate in value, but they are
guaranteed as to the timely payment of interest and, if held to maturity,
provide a guaranteed return of principal. Government guarantees apply to
individual securities only and not to prices and yields of shares in a managed
portfolio. The Fund invests in foreign securities. Investing in foreign
securities involves special risks. The Fund invests in mortgage or asset-backed
securities, which are subject to pre-payment risks. These risks may increase
share price volatility. See the Fund's prospectus for details.
6
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock -- 64.6% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Aerospace & Defense--0.3%
18,300 Northrop Grumman Corp........................... $ 989,344
--------------
Auto & Related--1.7%
33,800 Dana Corp....................................... 1,011,887
52,000 General Motors Corp............................. 3,779,750
--------------
4,791,637
--------------
Banks--7.4%
45,000 Chase Manhattan Corp............................ 3,495,937
70,900 Citigroup, Inc.................................. 3,939,381
68,500 Comerica, Inc................................... 3,198,094
120,000 FleetBoston Financial Corp...................... 4,177,500
110,000 Keycorp......................................... 2,433,750
90,000 PNC Bank Corp................................... 4,005,000
--------------
21,249,662
--------------
Beverages--0.6%
25,700 Anheuser-Busch Companies, Inc................... 1,821,488
--------------
Broadcasting--0.8%
29,100 MediaOne Group, Inc. (d)........................ 2,235,244
--------------
Building & Related--0.8%
42,000 Black & Decker Corp............................. 2,194,500
--------------
Business Services--1.6%
42,600 Dun & Bradstreet Corp........................... 1,256,700
67,300 First Data Corp................................. 3,318,731
--------------
4,575,431
--------------
Chemicals-Major--2.1%
18,000 Dow Chemical Co................................. 2,405,250
50,000 Praxair, Inc.................................... 2,515,625
23,400 Rohm & Haas Co.................................. 952,087
--------------
5,872,962
--------------
Communication Equipment--1.0%
19,500 Motorola, Inc................................... 2,871,375
--------------
Computer Software & Services--1.6%
13,100 BMC Software, Inc. (d).......................... 1,047,181
28,800 Computer Sciences Corp. (d)..................... 2,725,200
25,000 Compuware Corp. (d)............................. 931,250
--------------
4,703,631
--------------
Computer Hardware--3.5%
12,600 Apple Computer, Inc. (d)........................ 1,295,438
86,600 Compaq Computer Corp............................ 2,343,612
30,000 Hewlett-Packard Co.............................. 3,418,125
27,500 International Business Machines Corp............ 2,970,000
--------------
10,027,175
--------------
7
See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Construction Equipment--0.2%
13,000 Caterpillar, Inc............................... $ 611,813
--------------
Containers-Metal/Glass--0.5%
55,000 Owens Illinois, Inc. (d)........................ 1,378,438
--------------
Drugs & Health Care--2.4%
25,200 Bristol-Myers Squibb Co......................... 1,617,525
52,700 Merck & Co...................................... 3,534,194
36,300 Pharmacia & Upjohn, Inc......................... 1,633,500
--------------
6,785,219
--------------
Electric Utilities--1.9%
80,000 Texas Utilities Co.............................. 2,845,000
80,600 Unicom Corp..................................... 2,700,100
--------------
5,545,100
--------------
Electronics--3.3%
35,000 Emerson Electric Co............................. 2,008,125
21,000 Intel Corp...................................... 1,728,562
40,000 Litton Industries, Inc. (d)..................... 1,995,000
28,000 Philips Electronics NV (ADR).................... 3,780,000
--------------
9,511,687
--------------
Entertainment--0.8%
75,400 Walt Disney Co.................................. 2,205,450
--------------
Financial-Consumer/Diversified--2.4%
74,100 CIT Group, Inc.................................. 1,565,362
60,000 Federal Home Loan Mortgage Corp................. 2,823,750
67,400 The FINOVA Group, Inc........................... 2,392,700
--------------
6,781,812
--------------
Foods--1.0%
128,500 Sara Lee Corp................................... 2,835,031
--------------
Health Care - Services--1.3%
160,000 Tenet Healthcare Corp. (d)...................... 3,760,000
--------------
Household Products--1.6%
58,000 Kimberly-Clark Corp............................. 3,784,500
30,000 Newell Rubbermaid, Inc.......................... 870,000
--------------
4,654,500
--------------
Insurance--3.6%
115,000 ACE, Ltd........................................ 1,919,062
95,000 Allstate Corp................................... 2,280,000
22,800 American International Group, Inc............... 2,465,250
39,600 Aon Corp........................................ 1,584,000
50,000 ReliaStar Financial Corp........................ 1,959,375
--------------
10,207,687
--------------
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Investment Banking/Broker/Management--1.4%
23,042 Bear Stearns Cos., Inc.......................... $ 985,046
21,500 Morgan Stanley Dean Witter & Co................. 3,069,125
--------------
4,054,171
--------------
Leisure--0.8%
125,000 Hasbro, Inc..................................... 2,382,813
--------------
Machinery--0.9%
33,500 Eaton Corp...................................... 2,432,938
--------------
Manufacturing--0.7%
20,200 Minnesota Mining & Manufacturing Co............. 1,977,075
--------------
Metals & Mining--0.5%
16,900 Alcoa, Inc..................................... 1,402,700
--------------
Natural Gas--1.2%
26,000 Columbia Gas Systems, Inc....................... 1,644,500
44,000 El Paso Energy Corp............................. 1,707,750
--------------
3,352,250
--------------
Oil & Gas/Drilling Equipment--1.0%
41,800 Baker Hughes, Inc............................... 880,413
55,000 Transocean Sedco Forex, Inc..................... 1,852,812
--------------
2,733,225
--------------
Oil & Gas/Major Integrated--5.1%
112,700 Conoco, Inc..................................... 2,789,325
81,964 Exxon Mobil Corp................................ 6,603,225
54,500 Texaco, Inc..................................... 2,960,031
90,000 USX-Marathon Group.............................. 2,221,875
--------------
14,574,456
--------------
Paper & Forest Products--1.6%
63,200 Georgia Pacific Corp. Timber Group.............. 1,556,300
17,500 International Paper Co.......................... 987,656
40,800 Willamette Industries, Inc...................... 1,894,650
--------------
4,438,606
--------------
Publishing--0.8%
26,700 Gannett Co...................................... 2,177,719
--------------
Restaurants--0.6%
45,100 McDonald's Corp................................ 1,818,094
--------------
Retail- General Merchandise--1.0%
58,000 Federated Department Stores, Inc.(d)............ 2,932,625
--------------
Retail - Grocery--0.5%
75,000 Kroger Co. (d).................................. 1,415,625
--------------
Retail - Specialty--0.5%
76,700 TJX Companies, Inc............................. 1,567,556
--------------
9
See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Telecommunication--5.1%
120,000 BellSouth Corp.................................. $ 5,617,500
64,000 GTE Corp........................................ 4,516,000
90,000 SBC Communications, Inc......................... 4,387,500
--------------
14,521,000
--------------
Telecommunication-Long Distance--1.9%
33,500 AT&T Corp....................................... 1,700,125
67,650 MCI Worldcom, Inc. (d).......................... 3,589,678
--------------
5,289,803
--------------
Tobacco--0.6%
76,700 Philip Morris Companies, Inc.................... 1,778,481
--------------
Total Common Stock
(Identified Cost $170,946,298).................. 184,458,323
--------------
<TABLE>
<CAPTION>
Bonds and Notes -- 34.9%
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Moody's & Poor's Value (a)
- --------------------------------------------------------------------------------------------------------
Consumer--4.3%
<S> <C> <C> <C> <C>
$ 2,505,000 AMERCO, 7.850%, 5/15/2003 ...................... Ba1 BBB 2,390,071
4,790,000 Coca Cola Enterprises, Inc., 6.750%, 1/15/2038.. A2 A 4,136,165
2,500,000 Dillards, Inc., 6.430%, 8/01/2004 .............. Baa1 BBB 2,357,394
3,660,000 Nabisco, Inc., 7.050%, 7/15/2007 ............... Baa2 BBB 3,385,756
----------
12,269,386
----------
Electric Utilities--1.4%
1,000,000 Calpine Corp., 7.625%, 4/15/2006 ............... Ba1 BB+ 944,550
3,000,000 Duke Capital Corp., 7.500%, 10/01/2009 ......... A3 A 2,979,093
----------
3,923,643
----------
Electronics--0.6%
1,790,000 Philips Electronics NV, 7.250%, 8/15/2013 ...... A3 BBB+ 1,667,206
----------
Equipment Trust--1.1%
600,000 Delta Air Lines, Inc., 9.200%, 9/23/2014 ....... Baa1 BBB 621,840
2,973,815 Federal Express Equipment Trust,
7.020%, 1/15/2016............................... Baa1 BBB+ 2,669,237
----------
3,291,077
----------
Finance--4.0%
1,775,000 National Health Investors, Inc., 7.300%,
7/16/2007....................................... Ba1 BBB- 1,497,299
1,990,000 ProLogis Trust, 7.050%, 7/15/2006 (REIT) ....... Baa2 BBB+ 1,874,958
4,025,000 Salomon, Inc., 7.000%, 3/15/2004 ............... Aa3 A 3,972,474
2,425,000 Secured Finance, Inc., 9.050%, 12/15/2004 ...... Aaa AAA 2,532,815
1,660,000 U.S. West Capital Funding, Inc., 6.250%,
7/15/2005....................................... Baa1 A- 1,570,991
----------
11,448,537
----------
Gas Utilities--0.4%
1,200,000 Williams Holdings Co., 6.250%, 2/01/2006 ...... Baa2 BBB- 1,116,156
----------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
<TABLE>
<CAPTION>
Bonds and Notes -- continued
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government--1.3%
$ 4,000,000 United States Treasury Bonds, 6.125%,
11/15/2027 ................................................ Aaa AAA $ 3,722,480
-----------
Industrials--2.4%
2,975,000 FMC Corp., 7.125%, 11/25/2002 ............................. Baa2 BBB- 2,925,090
4,190,000 Kerr-Mcgee Corp., 6.625%, 10/15/2007 ...................... Baa1 BBB 3,915,723
-----------
6,840,813
-----------
Investment Banking/Broker/Management--1.5%
3,050,000 Bear Stearns Cos., Inc., 6.750%, 12/15/2007 ............... A2 A 2,862,212
1,500,000 Donaldson Lufkin & Jenrette, Inc., 6.875%,
11/01/2005 ................................................ A3 A- 1,449,990
-----------
4,312,202
-----------
Leisure--2.3%
2,125,000 Carnival Corp., 7.050%, 5/15/2005 ......................... A2 A 2,070,005
2,000,000 Royal Caribbean Cruise Line, 8.125%,
7/28/2004 ................................................. Baa3 BBB 2,031,680
2,570,000 Royal Caribbean Cruise Line, 7.000%,
10/15/2007 ................................................ Baa3 BBB 2,418,113
-----------
6,519,798
-----------
Manufacturing--1.4%
2,400,000 Deere & Co., 6.550%, 7/15/2004 ............................ A2 A+ 2,319,073
1,780,000 Raytheon Co., 6.300%, 3/15/2005 ........................... Baa2 BBB- 1,679,501
-----------
3,998,574
-----------
Media Research--0.6%
1,870,000 Nielsen Media Research, Inc., 7.600%,
6/15/2009 ................................................. Baa2 -- 1,787,776
-----------
Mobile Homes--0.5%
2,650,000 Oakwood Homes Corp., 8.125%, 3/01/2009 .................... B3 BB- 1,378,000
-----------
Mortgages--7.7%
1,000,000 Federal National Mortgage Association, 5.625%, 5/14/2004 .. Aaa AAA 955,620
1,000,000 Federal National Mortgage Association, 6.375%, 6/15/2009 .. Aaa AAA 954,614
1,883,343 Federal National Mortgage Association, 5.500%, 1/01/2014 .. Aaa AAA 1,747,366
3,000,000 Federal National Mortgage Association, 6.000%, 2/25/2024 .. Aaa AAA 2,688,428
4,970,792 Federal National Mortgage Association, 6.000%, 4/01/2028 .. Aaa AAA 4,546,684
11,854,417 Government National Mortgage Association, 6.500%, 4/15/2029 Aaa AAA 11,139,477
-----------
22,032,189
-----------
Oil & Gas--1.0%
2,960,000 Tosco Corp., 7.625%, 5/15/2006 ............................ Baa2 BBB 2,923,829
-----------
Paper--0.2%
500,000 Westvaco Corp., 9.650%, 3/01/2002 ......................... A3 A 524,650
-----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
<TABLE>
<CAPTION>
Bonds and Notes -- continued
Ratings (c) (unaudited)
-----------------------
Principal Standard
Amount Description Moody's & Poor's Value (a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service--0.9%
$ 3,000,000 La Quinta Inns, Inc., 7.400%, 9/15/2005........................... Ba2 BB $ 2,501,006
-------------
Telecommunication--1.5%
4,600,000 Sprint Spectrum, L.P, 0/12.500%, 8/15/2006 (e).................... Baa3 BBB+ 4,300,908
-------------
Transportation--1.8%
2,350,000 Norfolk Southern Corp., 7.050%, 5/01/2037......................... Baa1 BBB+ 2,310,373
3,000,000 Northwest Airlines Corp., 8.375%, 3/15/2004....................... Ba2 BB 2,837,820
-------------
5,148,193
-------------
Total Bonds and Notes (Identified Cost $105,989,304).............. 99,706,423
-------------
Total Investments--99.5% (Identified Cost $276,935,602) (b)....... 284,164,746
Other assets less liabilities..................................... 1,304,883
-------------
Total Net Assets--100%............................................. $ 285,469,629
=============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999, the net unrealized appreciation on investments
based on cost of $276,941,847 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.......................................................... $ 27,463,575
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value.............................. (20,240,676)
-------------
Net unrealized appreciation.............................................. $ 7,222,899
=============
(c) The ratings shown are believed to be the most recent ratings available at
December 31, 1999. 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 December 31, 1999. The Fund's
subadviser independently evaluates the Fund's portfolio securities and in
making investment decisions does not rely solely on the ratings of
agencies.
(d) 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 specified 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.
REIT Real Estate Investment Trust
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $276,935,602) ............ $284,164,746
Cash ........................................................... 18,128
Receivable for:
Fund shares sold ............................................. 183,149
Securities sold .............................................. 863,670
Dividends and interest ....................................... 2,019,019
------------
287,248,712
LIABILITIES
Payable for:
Fund shares redeemed ......................................... $ 596,397
Securities purchased ......................................... 811,687
Accrued expenses:
Management fees .............................................. 181,161
Deferred trustees' fees ...................................... 69,610
Accounting and administrative ................................ 16,192
Other expenses ............................................... 104,036
------------
1,779,083
------------
NET ASSETS ........................................................ $285,469,629
============
Net assets consist of:
Capital paid in .............................................. $278,189,457
Undistributed net investment income .......................... 31,634
Accumulated net realized gains (losses) ...................... 19,394
Unrealized appreciation (depreciation) on investments ........ 7,229,144
------------
NET ASSETS ........................................................ $285,469,629
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($167,943,143 / 14,361,962 shares of beneficial interest) ... $ 11.69
========
Offering price per share (100 / 94.25 of 11.69) ............... $ 12.40*
========
Net asset value and offering price of Class B shares
($65,941,972 / 5,692,717 shares of beneficial interest) ..... $ 11.58**
========
Net asset value and offering price of Class C shares
($4,454,474 / 386,257 shares of beneficial interest) ........ $ 11.53**
========
Net asset value, offering and redemption price of Class Y shares
($47,130,040 / 4,025,989 shares of beneficial interest) ..... $ 11.71
========
</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.
13
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
INVESTMENT INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
Dividends (net of foreign taxes of $17,773) ............. $ 3,946,520
Interest ................................................ 8,600,403
------------
12,546,923
Expenses
Management fees ....................................... $ 2,517,100
Service fees - Class A ................................ 500,098
Service and distribution fees - Class B ............... 784,237
Service and distribution fees - Class C ............... 52,722
Trustees' fees and expenses ........................... 15,457
Accounting and administrative ......................... 99,614
Custodian ............................................. 113,232
Transfer agent ........................................ 743,877
Audit and tax services ................................ 35,490
Legal ................................................. 14,960
Printing .............................................. 48,496
Registration .......................................... 57,498
Miscellaneous ......................................... 10,760
------------
Total expenses .......................................... 4,993,541
------------
Net investment income ................................... 7,553,382
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on investments--net ............... 21,528,018
------------
Unrealized appreciation (depreciation) on:
Investments--net .................................... (41,558,696)
Foreign currency transactions--net .................... (92)
------------
Total unrealized appreciation (depreciation) on
investments and foreign currency
transactions ............................................ (41,558,788)
------------
Net gain (loss) on investment transactions .............. (20,030,770)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.................................................. $(12,477,388)
============
</TABLE>
14
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1999
FROM OPERATIONS
<S> <C> <C>
Net investment income ....................................... $ 8,556,863 $ 7,553,382
Net realized gain (loss) on investments ..................... 36,886,910 21,528,018
Net unrealized appreciation (depreciation) on investments and
foreign currency tranactions .............................. (15,316,839) (41,558,788)
------------- -------------
Increase (decrease) in net assets from operations ........... 30,126,934 (12,477,388)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................... (5,071,303) (4,639,384)
Class B ................................................... (1,228,192) (1,264,308)
Class C ................................................... (84,069) (85,562)
Class Y ................................................... (2,049,589) (1,639,492)
Net realized gain on investments
Class A ................................................... (22,927,357) (13,844,100)
Class B ................................................... (8,531,184) (5,598,800)
Class C ................................................... (560,266) (372,784)
Class Y ................................................... (7,647,240) (3,811,458)
------------- -------------
(48,099,200) (31,255,888)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ..................... 3,590,030 (56,609,069)
------------- -------------
Total increase (decrease) in net assets ........................ (14,382,236) (100,342,345)
NET ASSETS
Beginning of the year ....................................... 400,194,210 385,811,974
------------- -------------
End of the year ............................................. $ 385,811,974 $ 285,469,629
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the year ............................................. $ 103,509 $ 31,634
============= =============
</TABLE>
15
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------
1995 1996 1997 1998 1999
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year .................. $ 11.27 $ 13.14 $ 13.94 $ 14.25 $ 13.52
--------- --------- --------- --------- --------
Income From Investment Operations
Net Investment Income ................................... 0.42 0.38 0.33 0.33 0.32
Net Realized and Unrealized Gain (Loss)
on Investments ........................................ 2.49 1.76 2.05 0.74 (0.82)
--------- --------- --------- --------- --------
Total From Investment Operations ........................ 2.91 2.14 2.38 1.07 (0.50)
--------- --------- --------- --------- --------
Less Distributions
Dividends From Net Investment Income .................... (0.40) (0.39) (0.33) (0.32) (0.32)
Distributions From Net Realized Capital Gains ........... (0.64) (0.95) (1.74) (1.48) (1.01)
--------- --------- --------- --------- --------
Total Distributions ..................................... (1.04) (1.34) (2.07) (1.80) (1.33)
--------- --------- --------- --------- --------
Net Asset Value, End of the Year ........................ $ 13.14 $ 13.94 $ 14.25 $ 13.52 $ 11.69
========= ========= ========= ========= ========
Total Return (%) (a) .................................... 26.3 17.1 17.5 8.2 (3.8)
Ratio of Operating Expenses to Average
Net Assets (%) ........................................ 1.36 1.33 1.29 1.30 1.33
Ratio of Net Investment Income to
Average Net Assets (%) ................................ 3.37 2.79 2.25 2.25 2.30
Portfolio Turnover Rate (%) ............................. 54 70 69 81 61
Net Assets, End of the Year (000) ....................... $ 196,514 $219,626 $ 233,421 $ 222,866 $167,943
</TABLE>
(a) A sales charge is not reflected in total return calculations.
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------
1995 1996 1997 1998 1999
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year .................. $ 11.24 $ 13.08 $ 13.86 $ 14.15 $ 13.40
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................................... 0.34 0.29 0.23 0.21 0.21
Net Realized and Unrealized Gain (Loss) on
Investments ........................................... 2.46 1.74 2.03 0.74 (0.80)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ........................ 2.80 2.03 2.26 0.95 (0.59)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income .................... (0.32) (0.30) (0.23) (0.22) (0.22)
Distributions From Net Realized Capital Gains ........... (0.64) (0.95) (1.74) (1.48) (1.01)
---------- ---------- ---------- ---------- ----------
Total Distributions ..................................... (0.96) (1.25) (1.97) (1.70) (1.23)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year ........................ $ 13.08 $ 13.86 $ 14.15 $ 13.40 $ 11.58
========== ========== ========== ========== ==========
Total Return (%) (a) .................................... 25.3 16.3 16.7 7.3 (4.4)
Ratio of Operating Expenses to Average Net
Assets (%) ............................................ 2.11 2.08 2.04 2.05 2.08
Ratio of Net Investment Income to Average
Net Assets (%) ........................................ 2.62 2.04 1.50 1.50 1.55
Portfolio Turnover Rate (%) ............................. 54 70 69 81 61
Net Assets, End of the Year (000) ....................... $ 40,361 $ 58,367 $ 76,558 $ 84,255 $ 65,942
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
16
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............... $ 11.24 $ 13.05 $ 13.82 $ 14.10 $ 13.35
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ................................ 0.35 0.29 0.23 0.21 0.21
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 2.44 1.73 2.02 0.74 (0.80)
--------- --------- --------- --------- ---------
Total From Investment Operations ..................... 2.79 2.02 2.25 0.95 (0.59)
--------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ................. (0.34) (0.30) (0.23) (0.22) (0.22)
Distributions From Net Realized Capital Gains ........ (0.64) (0.95) (1.74) (1.48) (1.01)
--------- --------- --------- --------- ---------
Total Distributions .................................. (0.98) (1.25) (1.97) (1.70) (1.23)
--------- --------- --------- --------- ---------
Net Asset Value, End of the Year ..................... $ 13.05 $ 13.82 $ 14.10 $ 13.35 $ 11.53
========= ========= ========= ========= =========
Total Return (%) (a) ................................. 25.2 16.2 16.6 7.3 (4.5)
Ratio of Operating Expenses
to Average Net Assets (%) .......................... 2.11 2.08 2.04 2.05 2.08
Ratio of Net Investment Income
to Average Net Assets (%) .......................... 2.62 2.04 1.50 1.50 1.55
Portfolio Turnover Rate (%) .......................... 54 70 69 81 61
Net Assets, End of the Year (000) .................... $ 718 $ 2,538 $ 4,596 $ 5,480 $ 4,454
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
<TABLE>
<CAPTION>
Class Y
------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............... $ 11.27 $ 13.15 $ 13.95 $ 14.27 $ 13.54
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ................................ 0.46 0.44 0.40 0.39 0.36
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 2.51 1.76 2.06 0.74 (0.81)
-------- -------- -------- -------- --------
Total From Investment Operations ..................... 2.97 2.20 2.46 1.13 (0.45)
-------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ................. (0.45) (0.45) (0.40) (0.38) (0.37)
Distributions From Net Realized Capital Gains ........ (0.64) (0.95) (1.74) (1.48) (1.01)
-------- -------- -------- -------- --------
Total Distributions .................................. (1.09) (1.40) (2.14) (1.86) (1.38)
-------- -------- -------- -------- --------
Net Asset Value, End of the Year ..................... $ 13.15 $ 13.95 $ 14.27 $ 13.54 $ 11.71
======== ======== ======== ======== ========
Total Return (%) ..................................... 26.8 17.6 18.1 8.6 (3.3)
Ratio of Operating Expenses to Average
Net Assets (%) ....................................... 1.11 0.88 0.88 0.90 0.93
Ratio of Net Investment Income to
Average Net Assets (%) ............................. 3.62 3.24 2.66 2.65 2.68
Portfolio Turnover Rate (%) .......................... 54 70 69 81 61
Net Assets, End of the Year (000) .................... $ 59,411 $ 77,665 $ 85,620 $ 73,212 $47,130
</TABLE>
17
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds
(formerly known as New England 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").
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.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on the
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 year ended December 31, 1999,
purchases and sales of securities (excluding short-term investments) were as
follows:
Purchases Sales
---------------------------- ----------------------------
U.S. Government Other U.S. Government Other
--------------- ------------ --------------- ------------
$11,803,563 $195,742,761 $46,891,869 $236,573,681
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. Fees earned by Nvest Management and Loomis Sayles under the
management and subadvisory agreements in effect during the year ended December
31, 1999 are as follows:
Fees Earned
-----------
Nvest Management $ 1,047,478
Loomis Sayles 1,469,622
The effective management fee for the year ended December 31, 1999 was 0.73%.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999 these
expenses amounted to $99,614 and are shown separately in the financial
statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $548,788 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, 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 year ended December 31, 1999,
the Fund paid Nvest Funds $500,098 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 December 31, 1999, 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 year ended December 31, 1999, the Fund paid Nvest
Funds $196,059 and $13,180 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
year ended December 31, 1999, the Fund paid Nvest Funds $588,178 and $39,542 in
distribution fees under the Class B and Class C plans, respectively.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the year ended December
31, 1999, amounted to $540,783.
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 December 31, 1999, 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 December 31,
----------------------------------------------------------------
1998 1999
---- ----
Class A Shares Amount Shares Amount
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ................................................ 4,184,781 $60,620,980 1,265,090 $16,907,083
Shares issued in connection with the reinvestment of:
Dividends from net investment income ..................... 343,283 4,825,054 341,407 4,400,684
Distributions from net realized gain ..................... 1,673,947 22,101,687 1,139,027 13,348,732
--------- ----------- --------- ----------
6,202,011 87,547,721 2,745,524 34,656,499
Shares repurchased ......................................... (6,091,042) (87,727,573) (4,870,716) (63,915,765)
--------- ----------- --------- ----------
Net increase (decrease) .................................... 110,969 $ (179,852) (2,125,192) $(29,259,266)
--------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
------------------------ -------------------------
Class B Shares Amount Shares Amount
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .............................................. 1,248,516 $ 17,867,284 860,330 $ 11,357,242
Shares issued in connection with the reinvestment of:
Dividends from net investment income ................... 83,821 1,166,098 94,655 1,206,918
Distributions from net realized gain ................... 627,610 8,221,630 467,733 5,429,353
--------- ----------- --------- ----------
1,959,947 27,255,012 1,422,718 17,993,513
Shares repurchased ....................................... (1,084,622) (15,449,632) (2,015,881) (26,014,153)
--------- ----------- --------- ----------
Net increase (decrease) .................................. 875,325 $11,805,380 (593,163) $(8,020,640)
--------- ----------- --------- ----------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1999
------------------------ --------------------------
Class C Shares Amount Shares Amount
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .................................................... 227,595 $3,252,356 89,239 $1,163,532
Shares issued in connection with the reinvestment of:
Dividends from net investment income ......................... 5,863 81,509 6,531 83,083
Distributions from net realized gain ......................... 42,147 550,039 31,247 361,197
-------- ---------- -------- ----------
275,605 3,883,904 127,017 1,607,812
Shares repurchased ............................................. (190,985) (2,763,416) (151,265) (1,959,487)
-------- ---------- -------- ----------
Net increase (decrease) ........................................ 84,620 $1,120,488 (24,248) $ (351,675)
-------- ---------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1999
--------------------- ------------------------
Class Y Shares Amount Shares Amount
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................................... 408,384 $ 5,832,877 405,924 $ 5,372,675
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........................... 145,334 2,049,589 126,531 1,639,492
Distributions from net realized gain ........................... 578,415 7,647,241 324,920 3,811,458
---------- ----------- ---------- -----------
1,132,133 15,529,707 857,375 10,823,625
Shares repurchased ............................................... (1,724,451) (24,685,693) (2,239,982) (29,801,113)
---------- ----------- ---------- -----------
Net increase (decrease) .......................................... (592,318) $ (9,155,986) (1,382,607) $(18,977,488)
---------- ----------- ---------- -----------
Increase (decrease) derived from capital shares transactions ..... 478,596 $ 3,590,030 (4,125,210) $(56,609,069)
========== =========== ========== ===========
</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 4, 1999. 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 year ended December 31,
1999.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I and the Shareholders of the Nvest
Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition (except for bond ratings), and the related statements
of operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Nvest Balanced
Fund (formerly the New England Balanced Fund) (the "Fund"), a series of Nvest
Funds Trust I, at December 31, 1999, the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999, by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
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 FUND
================================================================================
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
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
*An investment in the Fund is not
insured or guaranteed by the FDIC or any
other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
BL56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Star Advisers Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
Nvest Star Advisers Fund
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown 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 Midcap Index(4) is the primary benchmark and the S&P 500
Stock Index(5) is the secondary benchmark for Nvest Star Advisers Fund.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
July 1994 through December 1999
Net Asset Maximum Sales
Value(1) Charge(2) S&P 500(4) S&P 400(5)
--------- -------------- ---------- ----------
12/99 $35,690 $33,638 $36,400 $29,288
12/98 24,372 22,970 30,073 25,530
6/98 23,293 21,954 27,534 23,290
12/97 20,436 19,261 23,400 21,441
6/97 18,775 17,695 21,167 18,323
12/96 17,006 16,028 17,552 16,216
6/96 16,098 15,172 15,721 14,862
12/95 14,293 13,471 14,281 13,610
6/95 12,252 11,547 12,484 12,228
12/94 10,638 10,026 10,391 10,401
7/7/94 10,000 9,425 10,000 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
Nvest Star Advisers Fund
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A (Inception 7/7/94) 1 Year 5 Years Since Inception
Net Asset Value(1) 46.44% 27.39% 26.11%
With Maximum Sales Charge(2) 38.03 25.89 24.76
- --------------------------------------------------------------------------------
Class B (Inception 7/7/94) 1 Year 5 Years Since Inception
Net Asset Value(1) 45.36% 26.46% 25.18%
With CDSC(3) 40.36 26.30 25.12
- --------------------------------------------------------------------------------
Class C (Inception 7/7/94) 1 Year 5 Years Since Inception
Net Asset Value(1) 45.31% 26.45% 25.19%
With CDSC(3) 44.31 26.45 25.19
- --------------------------------------------------------------------------------
Class Y (Inception 11/15/94) 1 Year 5 Years Since Inception
Net Asset Value(1) 46.78% 27.81% 26.50%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
Fund's
Since Fund's Inception Class Y
Comparative Performance 1 Year 5 Years (Class A, B and C) Inception
<S> <C> <C> <C> <C>
S&P 400 Midcap Index(4) 14.72% 23.05% 21.22% 22.87%
S&P 500 Stock Index(5) 21.04 28.56 26.63 28.42
Morningstar Mid Cap Growth Avg.(6) 38.63 29.34 29.34 18.62
Lipper Multi-Cap Growth Average(7) 52.30 28.56 26.84 28.31
</TABLE>
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance represents the percent change in net
asset value per share with all distributions reinvested. Returns would have
been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance represents the percent change in net
asset value per share with all distributions reinvested and reflects the
maximum sales charge of 5.75% at the time of purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance for Class B shares
represents the percent change in net asset value per share with all
distributions reinvested and assumes that a maximum 5.00% sales charge is
applied to redemptions. The sales charge will decrease over time, declining
to zero six years after the purchase of shares. With CDSC performance for
Class C shares assumes a maximum 1.00% sales charge on redemptions within
the first year of purchase.
(4) The Standard & Poor's Midcap 400 Index (S&P 400(R)) is an unmanaged index
representing the performance of the mid-sized company segment of the U.S.
stock market. The performance of the index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. It is not possible to invest
directly in an index.
(5) The Standard & Poor's Composite Index of 500 Stocks (S&P 500(R)) is a
market value-weighted unmanaged index of common stock prices. It is a
common measure of stock total return performance. The performance of the
S&P 500 has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
It is not possible to invest directly in an index.
(6) Morningstar Mid Cap Growth Average is an average (calculated on the basis
of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class A, 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 at net asset
value of all mutual funds with a similar current investment style or
objective as determined by Lipper Inc., an independent mutual fund ranking
service. Class Y since inception return is calculated from 11/30/94.
2
<PAGE>
Nvest Star Advisers Fund
================================================================================
================================================================================
*Effective January 2000, Joseph R. Gatz and Dawn Alston Paige became lead
portfolio manager and co-portfolio manager of the Loomis Sayles segment of the
Fund. Detailed information from a supplement to the Fund's prospectus appears on
page 28 of this report.
================================================================================
Overview: How the Fund Performed
- --------------------------------------------------------------------------------
An excellent economy, rising corporate profits and an emphasis on rapidly
growing technology and telecommunications companies helped produce strong
returns for Star Advisers Fund.
For the 12-month period ended December 31, 1999, Star Advisers Fund's Class A
shares returned 46.44% based on net asset value, significantly outperforming the
14.72% return of the S&P 400 Midcap Index and the 21.04% return of the S&P 500
Index. The Fund's return includes capital gain distributions of $4.31 per share
and a $4.48 per share gain in net asset value to $24.50 on December 31, 1999.
================================================================================
Star Advisers Fund is composed of four separate segments, each managed by a
different investment management firm. This multiple-manager approach is the
foundation of the Star concept. It provides a means to diversify among not just
individual securities but also among the investment styles and strategies of
several established management firms."
================================================================================
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 economic backdrop was positive for stocks
By almost any measure, the economic environment for U.S. stocks was superb
during the 12-month period. Economic growth was strong, inflation remained at a
relatively moderate level, the unemployment rate continued to decline and
consumer confidence was high. Within this attractive economic framework, the
demand for goods and services produced by U.S. companies escalated and corporate
profits rose.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Portfolio Mix -- 12/31/99
Oakmark/HarRis 12.2%
Kobrick 31.9%
Janus 40.6%
Loomis Sayles 15.3%
Portfolio holdings and asset allocation will vary.
3
<PAGE>
Nvest Star Advisers Fund
================================================================================
- --------------------------------------------------------------------------------
While these favorable economic factors were generally positive for stocks, they
were sometimes overshadowed by concerns that inflation would eventually
accelerate causing interest rates to rise. In a preemptive strike against
inflation, the Federal Reserve Board raised interest rates three times, each
time by 0.25%. Although the interest-rate hikes were relatively modest, the
Fed's actions triggered a stock market correction in the third quarter of 1999,
erasing the gains made in the first six months of the year. The downturn in the
market was short-lived, however. Despite rising interest rates, stocks surged
ahead in the fourth quarter, and investors recouped their earlier losses.
Technology and telecommunications stocks were leaders
Among market sectors, technology and telecommunications stocks were the clear
winners. While the value of many technology companies rose, those engaged in
building the infrastructure of the Internet were standouts. This area of the
market intersected with another market sector -- telecommunication, where
companies developing wireless access to the Internet were some of the best
performers. Businesses seeking to deliver bundled telecommunications services to
consumers also made strong gains. Bundled services could include traditional
telephone service, Internet access, cable television and cellular telephone
service. The market's bias in favor of technology and telecommunications stocks
hampered the performance of stocks in more traditional sectors. As a result,
areas such as manufacturing, finance, consumer staples had more modest returns
during the period. Energy was a notable exception. An increase in worldwide
demand for energy significantly boosted prices and profits of energy companies.
Your Fund's 10 Largest Sectors -- 12/31/99
% of
Sector Net Assets
- --------------------------------------------------------------------------------
1. Computer Software & Services 17.0
- --------------------------------------------------------------------------------
2. Broadcasting 8.3
- --------------------------------------------------------------------------------
3. Telecommunication Equipment 6.4
- --------------------------------------------------------------------------------
4. Telecommunication 4.2
- --------------------------------------------------------------------------------
5. Internet Content 3.6
- --------------------------------------------------------------------------------
6. Business Services 3.5
- --------------------------------------------------------------------------------
7. Computers & Business Equipment 3.3
- --------------------------------------------------------------------------------
8. Electronics 3.2
- --------------------------------------------------------------------------------
9. Communication Equipment 3.1
- --------------------------------------------------------------------------------
10. Computer Networking 3.1
- --------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
The Fund's subadvisers
Because Star Advisers Fund uses four different investment managers with
different styles and areas of interest, it participates in multiple segments of
the market. For
4
<PAGE>
Nvest Star Advisers Fund
================================================================================
- --------------------------------------------------------------------------------
example, the Janus segment benefited largely from its focus on technology and
telecommunications stocks. In August, Kobrick Funds replaced Founders Asset
Management as a portfolio manager and this segment also benefited from a mix of
technology and telecommunications stocks, even though it had fewer investments
in these areas than the Janus segment. Because the Oakmark/Harris team uses a
value approach to investing, this segment did least well because value stocks in
the U.S. were out of favor with investors during 1999. The Loomis Sayles
segment, which concentrates its investments in small-cap value stocks, produced
relatively good returns, although this segment too was not a strong contributor
to performance because of its value orientation.
Our outlook
Going into 2000, we believe that the economic environment should remain positive
for stocks and that existing investment preferences for large-cap growth stocks,
especially technology and telecommunications stocks, will continue in the
short-run. While strong economic fundamentals are favorable for stocks, concerns
about accelerating inflation continue to exist. There is a strong possibility
that the Federal Reserve Board will raise interest rates in the first quarter of
2000, which could have a negative impact on the large-cap growth stocks that
have dominated the market over the past year. Value stocks, too, may regain
market favor if the economy slows. Because your Fund emphasizes different
investment styles and strategies, it is well positioned to take advantage of any
changes in market leadership that may occur.
Your Fund's 10 Largest Holdings -- 12/31/99
% of
Company Net Assets
- --------------------------------------------------------------------------------
1. Nokia Corp. (ADR) 4.5
- --------------------------------------------------------------------------------
2. AT&T Corp. - Liberty Media Group 3.2
- --------------------------------------------------------------------------------
3. Cisco Systems 2.0
- --------------------------------------------------------------------------------
4. CMG Information Services, Inc. 1.6
- --------------------------------------------------------------------------------
5. VERITAS Software Corp. 1.5
- --------------------------------------------------------------------------------
6. Amazon.com, Inc. 1.4
- --------------------------------------------------------------------------------
7. Exodus Communications, Inc. 1.4
- --------------------------------------------------------------------------------
8. JDS Uniphase Corp. 1.4
- --------------------------------------------------------------------------------
9. Enron Corp. 1.3
- --------------------------------------------------------------------------------
10. DoubleClick, Inc. 1.3
- --------------------------------------------------------------------------------
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. Stock funds fluctuate in value
and, when redeemed, may be worth more or less than their original cost.
Star Advisers Fund may invest in foreign and emerging market securities which
may involve special risks. The Fund may invest in higher yielding securities.
Investments in lower-rated, higher yielding bonds may involve greater risk.
Investing in small-cap companies involves greater risk than is customarily
associated with more established companies. The Fund may invest in REITS which
are subject to changes in underlying real estate values, rising interest rates
and mortgage prepayment risks. This Fund may invest in derivative securities for
hedging purposes. The risks may increase share volatility. See the Fund's
prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock-- 94.2% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Aerospace & Defense--1.5%
21,800 Alliant Techsystems, Inc. ...................... $ 1,358,413
299,000 Boeing Co. ..................................... 12,427,187
370,000 Lockheed Martin Corp. .......................... 8,093,750
50,000 Newport News Shipbuilding, Inc. ................ 1,375,000
-----------
23,254,350
-----------
Apparel & Textiles--1.1%
135,900 Burlington Industries, Inc. (c) ................ 543,600
78,000 Jones Apparel Group, Inc. (c) .................. 2,115,750
48,600 Liz Claiborne, Inc. ............................ 1,828,575
230,000 NIKE, Inc., Class B ............................ 11,399,375
17,200 Russell Corp. .................................. 288,100
25,800 Springs Industries, Inc. ....................... 1,03,387
-----------
17,205,787
-----------
Automotive--0.2%
42,400 Oshkosh Truck Corp. ............................ 1,242,850
102,200 Tower Automotive, Inc. (c) ..................... 1,577,713
-----------
2,820,563
-----------
Banks & Thrifts--2.7%
278,000 Bank One Corp. ................................. 8,913,375
69,400 Bay View Capital Corp. ......................... 984,612
43,400 Chittenden Corp. ............................... 1,285,725
53,300 City National Corp. ............................ 1,755,569
90,700 Colonial BancGroup, Inc. ....................... 941,013
23,100 Commerce Bancorp, Inc. ......................... 934,106
78,737 Commercial Federal Corp. ....................... 1,402,503
68,600 Community First Bankshares, Inc. ............... 1,080,450
72,815 Fifth Third Bancorp ............................ 5,342,801
27,000 First Midwest Bancorp, Inc. .................... 715,500
156,874 Firstar Corp. .................................. 3,313,963
103,900 FirstMerit Corp. ............................... 2,389,700
64,169 Hudson United Bancorp .......................... 1,640,320
63,600 Local Financial Corp. .......................... 659,850
50,300 Staten Island Bancorp, Inc. .................... 905,400
372,500 Washington Mutual, Inc. ........................ 9,685,000
13,500 Wilmington Trust Corp. ......................... 651,375
-----------
42,601,262
-----------
Biotechnology--0.1%
52,300 Medicis Pharmaceutical Corp. ................... 2,226,019
-----------
Broadcasting--8.3%
892,575 AT&T Corp. -
Liberty Media Group (c) ........................ $50,653,631
89,380 Cablevision Systems Corp. (c) .................. 6,748,190
273,685 Comcast Corp., Special Class A ................. 13,838,198
131,535 Cox Communications, Inc. (c) ................... 6,774,053
81,700 Cumulus Media, Inc. (c) ........................ 4,146,275
150,470 EchoStar Communications Corp. (c) .............. 14,670,825
33,800 Emmis Communications Corp. (c) ................. 4,212,853
119,100 Entercom Communications Corp. (c) .............. 7,860,600
149,232 Infinity Broadcasting Corp. .................... 5,400,333
19,400 Liberty Digital, Inc. .......................... 1,440,450
102,200 Network Event Theater, Inc. (e) ................ 2,432,360
112,080 UnitedGlobalCom, Inc. .......................... 7,915,650
86,900 Wink Communications, Inc. ...................... 5,219,431
-----------
131,312,849
-----------
Building & Related--0.9%
250,000 Black & Decker Corp. ........................... 13,062,500
76,800 Furniture Brands International, Inc. ........... 1,689,600
-----------
14,752,100
-----------
Business Services--3.5%
37,500 ADVO, Inc. ..................................... 890,625
87,300 Burns International Services Corp. ............. 943,931
518,800 Cendant Corp. (c) .............................. 13,780,625
67,700 Cheap Tickets, Inc. ............................ 926,644
91,900 CMG Information Services, Inc. ................. 25,444,812
28,500 Interim Services (c) ........................... 705,375
35,500 Manpower, Inc. ................................. 1,335,687
59,250 Tetra Tech, Inc. (c) ........................... 910,969
55,795 TMP Worldwide, Inc. (c) ........................ 7,922,890
36,000 True North Communications ...................... 1,608,750
25,900 United Stationers, Inc. ........................ 739,769
-----------
55,210,077
-----------
Chemicals--0.5%
47,500 CUNO, Inc. ..................................... 983,398
53,500 Cytec Industries, Inc. ......................... 1,237,187
18,100 Dexter Corp. ................................... 719,475
50,200 Ferro Corp. .................................... 1,104,400
19,000 Great Lakes Chemical Corp. ..................... 725,563
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Chemicals--continued
51,200 Olin Corp. ..................................... $ 1,014,400
42,400 OM Group, Inc. ................................. 1,460,150
24,800 Scotts Co. ..................................... 998,200
-----------
8,242,773
-----------
Communication Equipment--3.1%
110,400 E-Tek Dynamics, Inc. ........................... 14,862,600
134,980 JDS Uniphase Corp. ............................. 21,773,961
38,400 Sycamore Networks, Inc. ........................ 11,827,200
-----------
48,463,761
-----------
Communication Services--0.9%
111,000 Covad Communications Group, Inc. ............... 6,209,062
119,900 Western Wireless Corp. ......................... 8,003,325
-----------
14,212,387
-----------
Computer Networking--3.1%
287,525 Cisco Systems, Inc. (c) ........................ 30,801,116
19,400 Crossroads Systems, Inc. ....................... 1,639,300
20,200 Juniper Networks, Inc. ......................... 6,868,000
56,100 Redback Networks, Inc. ......................... 9,957,750
-----------
49,266,166
-----------
Computer Software
& Services--17.0%
137,200 Acclaim Entertainment, Inc. .................... 703,150
29,900 Akamai Technologies, Inc. ...................... 9,795,987
79,500 Allaire Corp. .................................. 11,631,844
155,625 America Online, Inc. (c) ....................... 11,739,961
75,000 Ariba, Inc. .................................... 13,303,125
77,800 BEA Systems, Inc. .............................. 5,441,137
100,400 Cadence Design Systems, Inc. ................... 2,409,600
52,900 CIBER, Inc. (c) ................................ 1,454,750
45,200 Complete Business Solutions, Inc. .............. 1,135,650
148,200 Computer Associates International, Inc. ........ 10,364,737
44,500 Computer Horizons Corp. (Rights)(c) ............ 720,344
28,200 DSL.net, Inc. .................................. 407,138
171,635 Electronic Arts, Inc. (c) ...................... 14,417,340
248,350 Exodus Communications, Inc. .................... 22,056,584
82,000 FileNET Corp. (c) .............................. 2,091,000
66,600 Hyperion Solutions Corp. ....................... 2,897,100
158,800 Informix Corp. (c) ............................. 1,816,275
63,900 Intertrust Technologies Corp. .................. 7,516,237
65,800 Interwoven, Inc. ............................... 8,002,925
208,900 Intuit, Inc. (c) ............................... 12,520,944
56,900 J.D. Edwards & Co. (c) ......................... 1,699,888
15,800 Manugistics Group, Inc. (c) .................... 510,538
61,600 Metamor Worldwide, Inc. ........................ 1,794,100
101,495 Microsoft Corp. (c) ............................ 11,849,541
18,700 Netcentives, Inc. .............................. 1,165,244
74,200 NOVA Corp. (c) ................................. 2,341,938
31,300 OneMain.com, Inc. .............................. 469,500
49,000 Oracle Systems Corp. (c) ....................... 5,491,062
275,600 Parametric Technology Corp. (c) ................ 7,458,425
68,300 Peregrine Systems, Inc. ........................ 5,750,006
88,465 Phone.com., Inc. ............................... 10,256,411
30,800 Policy Management Systems Corp. ................ 787,325
113,700 RealNetworks, Inc. ............................. 13,679,531
48,600 Retek, Inc. .................................... 3,657,150
91,190 Sapient Corp. .................................. 12,852,091
15,100 Segue Software, Inc. ........................... 377,500
40,500 Silknet Software, Inc. ......................... 6,712,875
66,780 Software.com, Inc. ............................. 6,410,880
79,200 SunGard Data Systems, Inc. ..................... 1,881,000
117,400 Symantec Corp. (c) ............................. 6,882,575
19,600 The 3DO Co. .................................... 178,238
194,255 USWeb Corp. .................................... 8,632,207
56,840 VeriSign, Inc. (c) ............................. 10,852,887
20,265 Vignette Corp. ................................. 3,303,195
47,810 Whittman-Hart, Inc. ............................ 2,563,811
-----------
267,983,746
-----------
Computers &
Business Equipment--3.3%
78,320 ASM Lithography Holding NV (c) ................. 8,908,900
192,800 Dell Computer Corp. (c) ........................ 9,832,800
136,215 EMC Corp. (c) .................................. 14,881,488
43,900 Gadzoox Networks, Inc. ......................... 1,912,394
83,370 i2 Technologies, Inc. (c) ...................... 16,257,150
-----------
51,792,732
-----------
Computer Hardware--0.4%
27,800 Brocade Communications Systems, Inc. ........... 4,920,600
38,500 Hutchinson Technology, Inc. .................... 818,125
-----------
5,738,725
-----------
Consumer Goods
& Services--2.4%
198,000 Fortune Brands, Inc. ........................... 6,546,375
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Consumer Goods
& Services--(continued)
370,000 Galileo International, Inc. .................. $11,076,875
250,000 H & R Block, Inc. ............................ 10,937,500
680,000 Mattel, Inc. ................................. 8,925,000
-----------
37,485,750
-----------
Consumer-Jewelry/
Novelty/Gifts--0.0%
19,400 Jostens, Inc. ................................ 471,663
-----------
Drugs & Health Care--1.3%
66,200 Covance, Inc. ................................ 715,788
34,400 Dura Pharmaceuticals, Inc. (c) ............... 479,450
45,200 PAREXEL International Corp. .................. 533,925
46,965 Pfizer, Inc. ................................. 1,523,427
407,170 Schering-Plough Corp. ........................ 17,177,484
-----------
20,430,074
-----------
Electric Utilities--0.1%
44,500 NSTAR ........................................ 1,802,250
-----------
Electrical Equipment--0.3%
37,300 Etec Systems, Inc. ........................... 1,673,838
34,500 Hadco Corp. .................................. 1,759,500
17,200 SCI Systems, Inc. (c) ........................ 1,413,625
35,900 Sensormatic Electronics Corp. ................ 626,006
-----------
5,472,969
-----------
Electronic Components--0.6%
52,050 Maxim Integrated Products, Inc. (c) .......... 2,456,110
35,287 Vishay Intertechnology, Inc. ................. 1,115,951
102,690 Vitesse Semiconductor Corp. (c) .............. 5,384,807
-----------
8,956,868
-----------
Electronics--3.2%
72,100 Actel Corp. (c) .............................. 1,730,400
38,800 Beckman Coulter, Inc. ........................ 1,973,950
20,600 C-COR.net Corp. .............................. 1,578,475
18,100 DuPont Photomasks, Inc. ...................... 873,325
48,900 International Rectifier Corp. (c) ............ 1,271,400
58,300 KLA-Tencor Corp. (c) ......................... 6,493,162
61,500 Lam Research Corp. (c) ....................... 6,861,094
41,700 Litton Industries, Inc. (c) .................. 2,079,787
55,885 PE Corp.-PE Biosystems Group ................. 6,723,664
62,400 PMC-Sierra, Inc. (c) ......................... 10,003,500
53,200 Remec, Inc. .................................. 1,356,600
24,800 Sony Corp. ................................... 7,354,801
28,100 Tektronix, Inc. .............................. 1,092,388
52,600 Varian Medical Systems, Inc. ................. 1,568,138
-----------
50,960,684
-----------
Entertainment--0.8%
50,200 CEC Entertainment, Inc. (c) .................. 1,424,425
32,800 Network Event Theater, Inc. .................. 975,800
157,900 Viacom, Inc., Class B (c) .................... 9,543,081
-----------
11,943,306
-----------
Financial Services--1.4%
55,135 American Express Co. ......................... 9,166,194
43,800 AmeriCredit Corp. ............................ 810,300
131,200 Anthracite Capital, Inc. ..................... 836,400
90,900 Brandywine Realty Trust (REIT) (c) ........... 1,488,488
133,500 Capital Automotive (REIT) .................... 1,627,031
43,500 GATX Corp. ................................... 1,468,125
93,850 Healthcare Realty Trust (REIT) ............... 1,466,406
238,300 Imperial Credit Industries, Inc. (c) ......... 1,489,375
69,600 Liberty Property Trust (REIT) ................ 1,687,800
57,500 Pacific Gulf Properties, Inc. ................ 1,164,375
47,600 Sun Communities, Inc. ........................ 1,532,125
-----------
22,736,619
-----------
Food & Beverages--1.5%
32,100 Corn Products International, Inc. ............ 1,051,275
84,800 International Multifoods Corp. ............... 1,123,600
117,400 Michael Foods, Inc. .......................... 2,890,975
220,000 Nabisco Holdings Corp. ....................... 6,957,500
67,700 Pepsi Bottling Group, Inc. ................... 1,121,281
397,000 Philip Morris Companies, Inc. ................ 9,205,438
48,000 The Earthgrains Co. .......................... 774,000
-----------
23,124,069
-----------
Health Care -
Medical Technology--1.5%
93,850 Conmed Corp. (c) ............................. 2,428,369
41,700 DVI, Inc. (c) ................................ 633,319
175,200 EndoSonics Corp. ............................. 788,400
40,200 IDEXX Laboratories, Inc. (c) ................. 648,225
309,631 Medtronic, Inc. .............................. 11,282,180
66,100 MiniMed, Inc. (c) ............................ 4,841,825
63,200 Respironics, Inc. ............................ 503,625
101,000 Sybron International Corp. ................... 2,493,437
-----------
23,619,380
-----------
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Health Care - Services--0.4%
35,100 First Health Group Corp. (c) ............... $ 943,313
121,300 Health Management
Associates, Inc. (c) ....................... 1,622,387
77,200 Lincare Holdings, Inc. ..................... 2,677,875
54,033 Per-Se Technologies, Inc. .................. 454,215
-----------
5,697,790
-----------
Hotels & Restaurants--0.3%
52,200 Brinker International, Inc. ................ 1,252,800
68,701 MeriStar Hospitality Corp. ................. 1,099,216
44,600 Ruby Tuesday, Inc. ......................... 811,163
55,300 Wendy's International, Inc. ................ 1,140,562
-----------
4,303,741
-----------
Household Products--0.1%
56,400 Dial Corp. ................................. 1,371,225
-----------
Information Services--0.8%
72,000 ACNielsen Corp. (c) ........................ 1,773,000
350,000 Dun & Bradstreet Corp. ..................... 10,325,000
-----------
12,098,000
-----------
Insurance--0.8%
39,300 AmerUs Life Holdings, Inc. ................. 903,900
35,800 Annuity & Life Re Holdings ................. 935,275
25,500 Arthur J. Gallagher & Co. .................. 1,651,125
92,700 CNA Surety Corp. ........................... 1,205,100
31,600 Liberty Financial Cos ...................... 724,825
38,000 Protective Life Corp. ...................... 1,208,875
24,100 Radian Group, Inc. (c) ..................... 1,150,775
51,800 Reinsurance Group America, Inc. ............ 1,437,450
57,000 StanCorp Financial Group, Inc. (c) ......... 1,435,687
43,900 Trigon Healthcare, Inc. .................... 1,295,050
-----------
11,948,062
-----------
Internet Content--3.6%
78,245 DoubleClick, Inc. .......................... 19,800,875
154,615 E*TRADE Group, Inc. ........................ 4,039,317
5,850 InfoSpace.com, Inc. ........................ 1,251,900
32,770 Inktomi Corp. (c) .......................... 2,908,338
44,200 Internet Capital Group, Inc. ............... 7,514,000
74,000 Lycos, Inc. (c) ............................ 5,887,625
10,300 NetRatings, Inc. ........................... 495,688
33,400 Yahoo, Inc. ................................ 14,451,762
-----------
56,349,505
-----------
Investment Companies--0.2%
14,700 Affiliated Managers Group, Inc. ............ $ 594,431
79,300 Federated Investors, Inc., Class B ......... 1,590,957
19,000 Investment Technology Group ................ 546,250
-----------
2,731,638
-----------
Leisure--0.2%
48,000 Harman International
Industries, Inc. ........................... 2,694,000
-----------
Machinery--3.0
93,895 Applied Materials, Inc. (c) ................ 11,895,323
21,900 Applied Power, Inc. ........................ 804,825
230,000 Cooper Industries, Inc. .................... 9,300,625
150,000 Eaton Corp. ................................ 10,893,750
56,987 Mannesmann AG .............................. 13,748,697
89,600 Milacron, Inc. ............................. 1,377,600
-----------
48,020,820
-----------
Manufacturing--0.6%
32,900 A.O. Smith Corp. ........................... 719,688
36,900 Cordant Technologies, Inc. ................. 1,217,700
28,100 Crane Co. .................................. 558,488
35,300 Diebold, Inc. .............................. 829,550
56,600 Federal Signal Corp. ....................... 909,137
42,100 Hussmann International, Inc. ............... 634,131
38,700 National Service Industries, Inc. .......... 1,141,650
45,000 Pentair, Inc. .............................. 1,732,500
32,000 Regal Beloit Corp. ......................... 660,000
10,400 SPX Corp. (c) .............................. 840,450
46,300 UNOVA, Inc. ................................ 601,900
-----------
9,845,194
-----------
Metals & Mining--0.2%
57,200 Harsco Corp. ............................... 1,816,100
87,300 Worthington Industries, Inc. ............... 1,445,906
-----------
3,262,006
-----------
Natural Gas--0.2%
34,800 AGL Resources, Inc. ........................ 591,600
37,200 MCN Corp. .................................. 883,500
17,900 New Jersey Resources Corp. ................. 699,219
33,800 Washington Gas Light Co. ................... 929,500
-----------
3,103,819
-----------
See accompanying notes to financial statements.
9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Office Equipment &
Supplies--0.1%
37,200 HON Industries, Inc. ....................... $ 816,075
18,400 National Computer Systems, Inc. ............ 692,300
-----------
1,508,375
-----------
Oil & Gas/Exploration
& Production--1.4%
455,505 Enron Corp. ................................ 20,213,034
55,800 Newfield Exploration Co. ................... 1,492,650
67,600 Plains Resources, Inc. (c) ................. 845,000
-----------
22,550,684
-----------
Oil & Gas/Refining
/Marketing--0.1%
53,000 Valero Energy Corp. ........................ 1,053,375
-----------
Paper & Forest Products--0.1%
15,300 Chesapeake Corp. (Rights) .................. 466,650
34,900 Consolidated Papers, Inc. .................. 1,110,256
-----------
1,576,906
-----------
Petroleum Services--0.4%
28,300 Cooper Cameron Corp. ....................... 1,384,931
36,800 Maverick Tube Corp. ........................ 908,500
102,600 Patterson Energy, Inc. (c) ................. 1,333,800
56,200 Santa Fe International Corp. ............... 1,454,175
23,800 Tidewater, Inc. ............................ 856,800
-----------
5,938,206
-----------
Publishing--2.4%
28,000 Houghton Mifflin Co. ....................... 1,181,250
200,000 Knight-Ridder, Inc. ........................ 11,900,000
40,450 Lamar Advertising Co. (c) .................. 2,449,753
204,900 R. H. Donnelley Corp. (c) .................. 3,867,488
256,664 Time Warner, Inc. .......................... 18,592,098
-----------
37,990,589
-----------
Retail--1.3%
17,400 Ames Department Stores, Inc. (c) ........... 501,338
36,800 Barnes & Noble, Inc. ....................... 759,000
81,400 Burlington Coat Factory
Warehouse Corp. ............................ 1,129,425
135,900 Charming Shoppes, Inc. (c) ................. 900,337
76,100 CompUSA, Inc. (c) .......................... 390,013
70,400 Family Dollar Stores, Inc. ................. 1,148,400
17,700 Michaels Stores, Inc. ...................... 504,450
555,170 Rite Aid Corp. ............................. 6,210,964
40,900 Saks, Inc. ................................. 636,506
66,100 ShopNow.com, Inc. .......................... 1,251,769
63,600 The Men's Wearhouse, Inc. (c) .............. 1,868,250
160,000 Tweeter Home
Entertainment Group, Inc. .................. 5,680,000
-----------
20,980,452
-----------
Retail - Food & Drug--0.2%
9,700 Hannaford Brothers Co. ..................... 672,331
35,600 Sonic Corp. ................................ 1,014,600
79,400 SUPERVALU, Inc. ............................ 1,588,000
-----------
3,274,931
-----------
Retail - Specialty--1.7%
297,300 Amazon.com, Inc. (c) ....................... 22,631,962
27,440 eBay, Inc. ................................. 3,435,145
-----------
26,067,107
-----------
Semi-Conductors--2.5%
50,695 Broadcom Corp. ............................. 13,808,051
125,350 Conexant Systems, Inc. ..................... 8,320,106
201,300 National Semiconductor Corp. (c) ........... 8,618,156
94,715 Texas Instruments, Inc. .................... 9,175,516
-----------
39,921,829
-----------
Services--0.5%
83,700 Daisytek International Corp. ............... 1,951,256
109,100 Information Resources, Inc. (Rights) ....... 1,009,175
51,100 Modis Professional Services, Inc. .......... 728,175
64,244 Pittway Corp. .............................. 2,878,934
62,800 Viad Corp. ................................. 1,750,550
-----------
8,318,090
-----------
Software--2.4%
124,800 PSINet, Inc. ............................... 7,706,400
52,800 TIBCO Software, Inc. ....................... 8,078,400
159,817 VERITAS Software Corp. (c) ................. 22,873,808
-----------
38,658,608
-----------
Specialty Printing--0.1%
41,300 Deluxe Corp. ............................... 1,133,169
-----------
Telecommunication--4.2%
89,600 Amdocs, Ltd. ............................... 3,091,200
116,500 Level 3 Communications, Inc. ............... 9,538,437
141,900 McLeodUSA, Inc. ............................ 8,354,363
25,965 Nextel Communications, Inc. (c) ............ 2,677,641
See accompanying notes to financial statements.
10
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Telecommunication--(continued)
57,587 NTL, Inc. ................................ $ 7,183,978
64,235 Sprint Corp. PCS Group ................... 6,584,088
54,200 TALK.com, Inc. ........................... 962,050
249,354 Telefonica S.A ........................... 6,229,429
5,700 Telefonica S.A. (ADR) .................... 449,231
54,850 Telefonos de Mexico S.A. (ADR) 144A ...... 6,170,625
65,245 VoiceStream Wireless Corp. ............... 9,285,179
73,305 Winstar Communications, Inc. (c) ......... 5,516,201
--------------
66,042,422
--------------
Telecommunication
Equipment--6.4%
189,500 Advanced Fibre Communications, Inc. ...... 8,468,281
54,100 Davox Corp. .............................. 1,061,713
70,100 Inter Tel, Inc. .......................... 1,752,500
374,950 Nokia Corp. (ADR) ........................ 71,240,500
35,161 Nokia Oyj ................................ 6,375,496
220,500 P-Com, Inc. (c) .......................... 1,950,047
173,800 PairGain Technologies, Inc. (c) .......... 2,465,787
95,400 Sawtek, Inc. (c) ......................... 6,350,064
79,400 Tekelec, Inc. ............................ 1,786,500
--------------
101,450,888
--------------
Trucking &
Freight Forwarding--0.1%
33,700 CNF Transportation, Inc. ................. 1,162,650
48,800 Wisconsin Central Transportation Corp. ... 655,750
--------------
1,818,400
--------------
Utilities--0.1%
35,000 American States Water Co. ................ 1,260,000
--------------
Waste Management--0.1%
67,900 Republic Services, Inc. (c) .............. 976,063
52,400 Safety-Kleen Corp. ....................... 592,775
--------------
1,568,838
--------------
Total Common Stock
(Identified Cost $1,129,272,940) ......... 1,484,625,598
--------------
Bonds and Notes -- 0.0%
Principal
Amount Description Value(a)
- --------------------------------------------------------------------------------
Retail - Specialty--0.0%
$ 158,000 Amazon.com, Inc., 0/10.00%,
5/01/2008 (d) ............................ $ 100,330
----------
Total Bonds and Notes
(Identified Cost $101,221) ............... 100,330
----------
Short Term Investments-- 6.0%
- --------------------------------------------------------------------------------
26,600,000 Associates Corp of North America,
4.000%, 1/03/2000 ........................ 26,594,089
23,986,000 Repurchase Agreement with State
Street Bank & Trust Co. dated
12/31/1999 at 2.50% to be
repurchased at $23,990,997 on
1/03/2000, collateralized by
$19,915,000 U.S. Treasury Bond
10.375% due 11/15/2012
with a value of $24,484,060 .............. 23,986,000
28,719,000 Repurchase Agreement with State
Street Bank & Trust Co. dated
12/31/1999 at 3.25% to be
repurchased at $28,726,778 on
1/03/2000, collateralized by
$23,415,000 U.S. Treasury Bond
8.875% due 2/15/2019
with a value of $29,295,894 .............. 28,719,000
11,798,142 Associates First Capital Corp.,
4.000%, 1/03/2000 ........................ 11,798,142
4,100,000 Chevron Corp.,
3.500%, 1/03/2000 ........................ 4,100,000
---------------
Total Short Term Investments
(Identified Cost $95,197,231) ........... 95,197,231
---------------
Total Investments--100.2%
(Identified Cost
$1,224,571,392) (b) .................... 1,579,923,159
Other assets less liabilities ............ (3,107,746)
---------------
Total Net Assets--100% ................... $ 1,576,815,413
===============
See accompanying notes to financial statements.
11
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Forward Currency Contracts Outstanding
at December 31, 1999
<TABLE>
<CAPTION>
Local Aggregate Unrealized
Delivery Currency Face Total Appreciation/
Date Amount Value Value Depreciation
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Euro(bought) 4/7/00 $ 2,800,000 $ (3,083,682) $ 2,840,877 $ (242,805)
Euro(bought) 4/7/00 3,000,000 (3,034,530) 3,043,798 9,268
Euro(sold) 4/7/00 11,200,000 12,204,640 (11,363,510) 841,130
Euro(sold) 4/7/00 3,000,000 3,252,150 (3,043,797) 208,353
Euro(sold) 4/7/00 150,000 158,966 (152,190) 6,776
Euro(sold) 4/7/00 5,950,000 6,251,368 (6,036,864) 214,504
Euro(sold) 4/7/00 2,000,000 2,079,590 (2,029,198) 50,392
Euro(sold) 4/7/00 3,200,000 3,257,663 (3,246,717) 10,946
Euro(sold) 4/14/00 5,500,000 5,601,200 (5,583,042) 18,158
Euro(sold) 4/14/00 1,300,000 1,324,557 (1,319,628) 4,929
Euro(sold) 6/9/00 14,100,000 14,748,600 (14,369,485) 379,115
Euro(sold) 6/9/00 1,900,000 1,991,580 (1,936,314) 55,266
Euro(sold) 6/9/00 3,000,000 3,107,910 (3,057,337) 50,573
Euro(sold) 6/9/00 4,000,000 4,142,720 (4,076,450) 66,270
------------ ------------ ------------
52,002,732 (50,329,857) 1,672,875
============ ============ ============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: at December 31, 1999 the net
unrealized appreciation on investments based on cost of
$1,228,940,053 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. ............................. $ 429,809,453
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value. ............................. (78,826,347)
-------------
Net unrealized appreciation ....................................................... $ 350,983,106
=============
</TABLE>
(c) Non-income producing security.
(d) Step Bond: Coupon rate is zero or below market for an initial period
and then increases to a higher coupon rate at a specificd date and
rate.
(e) Security valued at fair value as determined in good faith by or under
the direction of the Board of Trustees.
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.
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 $6,170,625 or
0.4% of net assets.
See accompanying notes to financial statements.
12
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $1,224,571,392) .......................... $ 1,579,923,159
Investments held as collateral for loaned securities ........................... 122,676,599
Receivable for:
Fund shares sold ........................................................... 1,996,771
Securities sold ............................................................ 16,493,337
Open forward currency contracts - net ...................................... 1,672,875
Accrued dividends and interest ............................................. 958,039
Tax reclaims ............................................................... 5,367
---------------
1,723,726,147
LIABILITIES
Payable for:
Collateral on securities loaned, at value .................................. $ 122,676,599
Securities purchased ....................................................... 19,010,204
Fund shares redeemed ....................................................... 3,239,650
Due to Custodian Bank ...................................................... 299,412
Withholding Taxes .......................................................... 1,352
Accrued expenses:
Management fees ............................................................ 1,289,052
Deferred trustees' fees .................................................... 55,937
Accounting and administrative .............................................. 49,298
Other ...................................................................... 289,230
-------------
146,910,734
---------------
NET ASSETS .......................................................................... $ 1,576,815,413
===============
Net Assets consist of:
Capital paid in ................................................................ $ 1,115,324,326
Undistributed (overdistributed) net investment income (loss) ................... (1,727,665)
Accumulated net realized gain (loss) ........................................... 106,194,467
Unrealized appreciation (depreciation) on investments, forward currency
contracts and foreign currency transactions ................................ 357,024,285
---------------
NET ASSETS .......................................................................... $ 1,576,815,413
===============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($619,184,125/25,276,861 shares of beneficial interest) ........................ $ 24.50
=======
Offering price per share (100/94.25 of $24.50) ...................................... $ 25.99*
=======
Net asset value and offering price of Class B shares
($742,908,235/32,109,249 shares of beneficial interest) ........................ $ 23.14**
=======
Net asset value and offering price of Class C shares
($139,709,606/6,032,754 shares of beneficial interest) ......................... $ 23.16**
=======
Net asset value, offering price and redemption price of Class Y shares
($75,013,447/2,990,995 shares of beneficial interest) .......................... $ 25.08
=======
</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
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $37,528) ........................................... $ 9,139,691
Interest .............................................................................. 3,180,235
Securities lending income ............................................................. 782,878
-------------
13,102,804
Expenses
Management fees ..................................................................... 12,591,170
Service fees - Class A .............................................................. 1,212,508
Service and distribution fees - Class B ............................................. 5,635,995
Service and distribution fees - Class C ............................................. 1,075,550
Trustees' fees and expenses ......................................................... 72,239
Accounting and administrative ....................................................... 310,812
Custodian and securities lending .................................................... 504,342
Transfer agent ...................................................................... 2,656,691
Audit and tax services .............................................................. 46,000
Legal ............................................................................... 63,408
Printing ............................................................................ 168,717
Registration ........................................................................ 105,540
Amortization of organization expenses ............................................... 17,453
Insurance ........................................................................... 19,600
Miscellaneous ....................................................................... 42,378
-------------
Total expenses ........................................................................ 24,522,403
-------------
Net investment loss ................................................................... (11,419,599)
-------------
REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS,
FORWARD CURRENCY CONTRACTS and FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ................................................................. 308,628,101
Forward currency contracts - net .................................................. 2,192,798
Foreign currency transactions - net ............................................... (24,752)
-------------
Total realized gain (loss) on investments, forward currency contracts
and foreign currency transactions ............................................... 310,796,147
-------------
Unrealized appreciation (depreciation) on:
Investments-- net ................................................................. 192,949,849
Forward currency contracts-- net .................................................. 1,614,992
Foreign currency transactions-- net ............................................... (1,130)
-------------
Total unrealized appreciation (depreciation) on investments, forward currency
contracts and foreign currency transactions ..................................... 194,563,711
-------------
Net gain (loss) on investment transactions ............................................ 505,359,858
-------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ...................................... $ 493,940,259
=============
</TABLE>
See accompanying notes to financial
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ............................................................. $ (6,725,548) $ (11,419,599)
Net realized gain (loss) on investments, forward currency contracts
and foreign currency transactions ........................................... 120,343,445 310,796,147
Unrealized appreciation (depreciation) on investments, forward currency contracts
and foreign currency transactions ........................................... 65,237,461 194,563,711
--------------- ---------------
Increase (decrease) in net assets from operations ............................... 178,855,358 493,940,259
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ..................................................................... (29,743,099) (95,026,426)
Class B ..................................................................... (34,777,382) (118,089,760)
Class C ..................................................................... (6,853,215) (22,415,981)
Class Y ..................................................................... (2,746,734) (10,913,709)
--------------- ---------------
(74,120,430) (246,445,876)
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ......................................... (22,655,877) 236,852,491
--------------- ---------------
Total increase (decrease) in net assets .............................................. 82,079,051 484,346,874
NET ASSETS
Beginning of the year ........................................................... 1,010,389,488 1,092,468,539
--------------- ---------------
End of the year ................................................................. $ 1,092,468,539 $ 1,576,815,413
=============== ===============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the year ............................................................. $ 163,718 $ (1,727,665)
=============== ===============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 13.25 $ 16.78 $ 18.18 $ 18.17 $ 20.02
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.00 (0.06)(b) (0.02)(b) (0.05)(b) (0.12)(b)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 4.52 3.17 3.62 3.28 8.91
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 4.52 3.11 3.60 3.23 8.79
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ........ 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)
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.99) (1.71) (3.61) (1.38) (4.31)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 16.78 $ 18.18 $ 18.17 $ 20.02 $ 24.50
=========== =========== =========== =========== ===========
Total Return (%)(a) ......................... 34.4 19.0 20.2 19.3 46.4
Ratio of Operating Expenses to
Average Net Assets (%) .................... 1.82 1.68 1.66 1.62 1.62
Ratio of Net Investment Income to
Average Net Assets (%) .................... (0.33) (0.36) (0.14) (0.24) (0.54)
Portfolio Turnover Rate (%) ................. 142 127 168 101 186
Net Assets, End of the Year (000) ........... $ 223,596 $ 348,573 $ 416,938 $ 443,165 $ 619,184
</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.
See accompanying notes to financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...... $ 13.23 $ 16.63 $ 17.86 $ 17.63 $ 19.23
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.00 (0.20)(b) (0.17)(b) (0.18)(b) (0.27)(b)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 4.39 3.14 3.55 3.16 8.49
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ............ 4.39 2.94 3.38 2.98 8.22
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ........ 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)
----------- ----------- ----------- ----------- -----------
Total Distributions ......................... (0.99) (1.71) (3.61) (1.38) (4.31)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ............ $ 16.63 $ 17.86 $ 17.63 $ 19.23 $ 23.14
=========== =========== =========== =========== ===========
Total Return (%)(a) ......................... 33.4 18.1 19.3 18.4 45.4
Ratio of Operating Expenses to
Average Net Assets (%) .................... 2.57 2.43 2.41 2.37 2.37
Ratio of Net Investment Income to
Average Net Assets (%) .................... (1.08) (1.11) (0.89) (0.99) (1.29)
Portfolio Turnover Rate (%) ................. 142 127 168 101 186
Net Assets, End of the Year (000) ........... $ 220,017 $ 366,314 $ 462,034 $ 508,937 $ 742,908
</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.
See accompanying notes to financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year .......... $ 13.24 $ 16.65 $ 17.87 $ 17.64 $ 19.25
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) .................... 0.00 (0.20)(b) (0.17)(b) (0.18)(b) (0.27)(b)
Net Realized and Unrealized Gain
(Loss) on Investments ......................... 4.40 3.13 3.55 3.17 8.49(b)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ................ 4.40 2.93 3.38 2.99 8.22
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ............ 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)
----------- ----------- ----------- ----------- -----------
Total Distributions ............................. (0.99) (1.71) (3.61) (1.38) (4.31)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ................ $ 16.65 $ 17.87 $ 17.64 $ 19.25 $ 23.16
=========== =========== =========== =========== ===========
Total Return (%)(a) ............................. 33.4 18.0 19.3 18.5 45.3
Ratio of Operating Expenses to
Average Net Assets (%) ........................ 2.57 2.43 2.41 2.37 2.37
Ratio of Net Investment Income to
Average Net Assets (%) ........................ (1.08) (1.11) (0.89) (0.99) (1.29)
Portfolio Turnover Rate (%) ..................... 142 127 168 101 186
Net Assets, End of the Year (000) ............... $ 45,672 $ 80,312 $ 94,412 97,849 $ 139,710
</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.
See accompanying notes to financial statements.
18
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class Y
--------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............ $ 13.24 $ 16.83 $ 18.33 $ 18.41 $ 20.37
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss) ...................... 0.00 (0.02)(a) 0.03(a) (0.00)(a) (0.07)(a)
Net Realized and Unrealized Gain
(Loss) on Investments ........................... 4.58 3.23 3.66 3.34 9.09
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .................. 4.58 3.21 3.69 3.34 9.02
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income .............. 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)
---------- ---------- ---------- ---------- ----------
Total Distributions ............................... (0.99) (1.71) (3.61) (1.38) (4.31)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year .................. $ 16.83 $ 18.33 $ 18.41 $ 20.37 $ 25.08
========== ========== ========== ========== ==========
Total Return (%) .................................. 34.8 19.6 20.5 19.6 46.8
Ratio of Operating Expenses to
Average Net Assets (%) .......................... 1.57 1.43 1.41 1.37 1.37
Ratio of Net Investment Income to
Average Net Assets (%) .......................... (0.08) (0.11) 0.11 0.01 (0.29)
Portfolio Turnover Rate (%) ....................... 142 127 168 101 186
Net Assets, End of the Year (000) ................. $ 5,569 $ 18,649 $ 37,006 $ 42,517 $ 75,013
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the year.
See accompanying notes to financial statements.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly known as New England 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 interest income is
recorded on the accrual basis. Interest income for the Fund is increased by the
accretion of discount. In
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 fiscal year end, 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. 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 organization
costs, net operating losses, distributions from real estate investment trusts,
foreign currency transactions and litigation proceeds for book and tax purposes.
Permanent book and tax basis differences will result in reclassification to
capital accounts.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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.
h. Organization Expense. Costs incurred in fiscal 1994 in connection with the
Fund's organization and registration, amounting to approximately $165,000 in the
aggregate, were paid and are being amortized by the Fund over 60 months.
2. Purchases and Sales of Securities. For the year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were
$2,118,862,326 and $2,150,744,366, 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 as follows: Harris Associates, Janus Capital Corporation, Kobrick
Funds LLC (Replaced Founders Asset Management, Inc. effective August 23, 1999)
and Loomis, Sayles & Company, L.P. (the "Subadvisers") as follows: Janus Capital
Corporation, 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") formerly Nvest Investment Companies, L.P., which is a subsidiary
of Metropolitan Life Insurance Company.
Fees retained by Nvest Management and paid to each Subadviser under the
management agreement and subadvisory agreements in effect during the year ended
December 31, 1999 are as follows:
Fees Earned
-----------
Nvest Management $ 6,314,704
Harris Associates 1,213,904
Founders Asset Management, Inc. 1,077,006
Kobrick Funds LLC 628,465
Janus Capital Corporation 2,213,726
Loomis, Sayles & Company, L.P. 1,143,365
-----------
$12,591,170
===========
The effective management fee for the year ended December 31, 1999 was 1.04%.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting, and financial
reporting functions and clerical functions relating to the Fund, and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999, these
expenses amounted to $310,812 and are shown separately in the financial
statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as a sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $1,959,076 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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $ 1,212,508 in service 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 year ended December 31, 1999 the Fund paid Nvest
Funds $1,408,999 and $268,888 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
year ended December 31, 1999, the Fund paid Nvest Funds $4,226,996 and $806,662
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 year ended December
31, 1999 amounted to $2,698,318.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 December 31, 1999 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
-------------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------------- -------------------------------
Class A Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 7,745,900 $ 144,536,590 20,850,711 $ 457,332,948
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 1,738,294 29,133,801 4,061,647 92,120,558
------------- ------------- ------------- -------------
9,484,194 173,670,391 24,912,358 549,453,506
Shares repurchased ......................................... (10,305,177) (192,986,379) (21,767,243) (476,769,565)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (820,983) $ (19,315,988) 3,145,115 $ 72,683,941
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------------- -------------------------------
Class B Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 3,638,826 $ 67,366,177 5,090,595 $ 108,536,607
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 2,058,653 33,226,657 5,228,880 112,295,911
------------- ------------- ------------- -------------
5,697,479 100,592,834 10,319,475 220,832,518
Shares repurchased ......................................... (5,444,982) (99,728,292) (4,670,208) (98,109,169)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 252,497 $ 864,542 5,649,267 $ 122,723,349
------------- ------------- ------------- -------------
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------------- -------------------------------
Class C Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 1,232,859 $ 22,880,050 1,357,862 $ 28,638,765
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 411,134 6,639,808 971,714 20,885,267
------------- ------------- ------------- -------------
1,643,993 29,519,858 2,329,576 49,524,032
Shares repurchased ......................................... (1,911,802) (34,992,392) (1,380,274) (28,904,111)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (267,809) $ (5,472,534) 949,302 $ 20,619,921
------------- ------------- ------------- -------------
<CAPTION>
Year Ended
-------------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------------- -------------------------------
Class Y Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 499,785 $ 9,729,009 848,485 $ 19,170,997
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 161,193 2,746,731 470,250 10,913,701
------------- ------------- ------------- -------------
660,978 12,475,740 1,318,735 30,084,698
Shares repurchased ......................................... (584,070) (11,207,637) (415,165) (9,259,418)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 76,908 $ 1,268,103 903,570 $ 20,825,280
Increase (decrease) derived from capital shares transactions (759,387) $ (22,655,877) 10,647,254 $ 236,852,491
============= ============= ============= =============
</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 4, 1999. 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 year ended December 31,
1999.
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
December 31, 1999 the Fund had securities on loan with a market value of
$123,463,677 collateralized by United States Treasury Bonds with a market value
of $122,676,599. The market value of the loaned securities is determined at the
close of business on December 31, 1999. Any additional required collateral is
requested from the borrower and delivered to the Fund on the next business day.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees Nvest Funds Trust I and the Shareholders of the Nvest Star
Advisers Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest Star Advisers Fund
(formerly the New England Star Advisers Fund) (the "Fund"), a series of Nvest
Funds Trust I, at December 31, 1999, the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
26
<PAGE>
ADDITIONAL INFORMATION
================================================================================
Shareholder Meeting (Unaudited). At a special shareholders' meeting held on
October 29, 1999, shareholders of the Fund voted for the following proposals:
1. Subadvisory agreement relating to the Fund between New England Funds
Management and Kobrick Funds LLC
<TABLE>
<CAPTION>
Voted For Voted Against Abstained Votes Broker Non-Votes Total Votes
--------- ------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
29,579,494.194 231,259.36 979,797.575 0.000 30,790,551.129
</TABLE>
27
<PAGE>
================================================================================
NVEST STAR WORLDWIDE FUND
(formerly New England Star Worldwide Fund)
Supplement Dated February 28, 2000 to Nvest Star Funds Class A, B, and C
Prospectus and Nvest Stock and Star Funds Class Y Prospectus each dated
May 3, 1999 (as revised February 1, 2000)
On February 25, 2000, the Board of Trustees of Nvest Funds Trust I (the "Trust")
approved a new interim Subadvisory Agreement (the "Interim Agreement") relating
to Nvest Star Worldwide Fund (the "Fund") between Nvest Funds Management, L.P.
("Nvest Management"), the Fund's adviser, and Loomis, Sayles & Company, L.P.
("Loomis Sayles"). The Interim Agreement is effective as of February 28, 2000,
and will continue to be in effect for a period of 150 days or until shareholders
of the Fund approve a new Subadvisory Agreement between Nvest Management and
Loomis Sayles, whichever occurs first. Under the Interim Agreement, Loomis
Sayles succeeds Janus Capital Corporation, ("Janus") as the subadviser of the
segment of the Fund previously managed by Janus (the "Segment") and is
responsible for day-to-day management of the Segment's investment operations
under the oversight of Nvest Management. A special shareholder meeting will be
held in April to vote on the approval of a second, final Subadvisory Agreement
for the Fund between Nvest Management and Loomis Sayles, which was also approved
by the Board of Trustees of the Trust on February 25, 2000 (the "Final
Subadvisory Agreement"). The Final Subadvisory Agreement would replace the
Interim Agreement. A notice of the special shareholder meeting and a proxy
statement will be sent to shareholders in early March. In the event that the
Fund's shareholders do not approve the Final Subadvisory Agreement between Nvest
Management and Loomis Sayles at the special shareholder meeting, shareholders
will be notified and the Board of Trustees will consider alternative
arrangements for the management of the Segment's investment portfolio.
The annual subadvisory fee rates payable to Loomis Sayles under the Interim
Agreement and the Final Subadvisory Agreement are identical to those previously
paid to Janus to manage the Segment, which are 0.65% of the first $50 million of
the Segment's average daily net assets, 0.60% of such assets between $50 million
and $100 million and 0.55% of such assets in excess of $100 million.
In conjunction with Loomis Sayles becoming a subadviser to the Fund, the Fund's
Board of Trustees approved amendments to the Segment's investment strategies,
which will be effective at the close of business on February 25, 2000.
Accordingly, the subsection entitled "Janus" within the section entitled "Star
Worldwide Fund - More on Investment Strategies" page of the
28
<PAGE>
================================================================================
Prospectuses are revised as of such date by replacing such subsection with the
text set forth below.
Loomis Sayles
The segment of the Star Worldwide Fund managed by Loomis Sayles will invest at
least 65% of its assets in equity securities of companies headquartered outside
of the United States. The segment will hold securities from at least 3 different
countries including those within emerging markets. The segment will focus on
securities with large market capitalization but may invest in securities with
any size capitalization. The securities selected by Loomis Sayles for the
segment typically have the following characteristics:
o strong, competitive position in a particular industry
o strong pricing power
o strong distribution channels
o improving business or financial fundamentals
In making investment decisions, Loomis Sayles employs the following methods:
o Loomis Sayles uses a bottom-up, fundamental research process to build
the segment's portfolio.
o It looks for growth-oriented stocks of well-managed companies that
typically have the characteristics listed above.
o In addition to its bottom-up approach to security selection, an
overlay of country and industry macro-economic data is used to provide
guidelines for portfolio weighting with a view towards minimizing
portfolio risk.
o The strong Loomis Sayles research team is combined with a global
network of research contacts to provide a steady stream of information
and ideas.
o Loomis Sayles will sell a position when the fundamental outlook is
deteriorating or when other more favorable opportunities arise.
In the section entitled "Meet the Funds' Investment Adviser and Subadvisers,"
the first sentence of the text entitled "Janus" under the heading "Subadvisers"
is revised to read as follows:
Janus Capital, located at 100 Fillmore Street, Denver, Colorado 80206, serves as
subadviser to a segment of the Star Advisers Fund. In this same section, the
first sentence of the text entitled "Loomis Sayles" is revised to read as
follows:
Loomis Sayles, located at One Financial Center, Boston, Massachusetts, 02111,
serves as subadviser to a segment of the Star Advisers Fund, Star Small Cap Fund
and Star Worldwide Fund.
29
<PAGE>
================================================================================
In the section entitled "Meet the Funds' Portfolio Managers," the biographical
information on Helen Young Hayes and Laurence Chang under the heading "Star
Advisers Fund" is replaced with the following:
Alexander Muromcew
Alexander Muromcew has served as co-portfolio manager for the Loomis Sayles
segment of Nvest Star Worldwide Fund since February 28, 2000. He is also a
co-portfolio manager for Nvest International Equity Fund, Loomis Sayles
International Equity Fund, Loomis Sayles Emerging Markets Fund and the
International Equities sector of Loomis Sayles Worldwide Fund. Prior to joining
Loomis Sayles, Mr. Muromcew was a portfolio manager at Nicholas Applegate
Capital Management since 1996. Prior to 1996, Mr. Muromcew held positions with
Jardine Fleming Securities in Japan, Emerging Markets Investors Corporation and
Teton Partners L.P. He received a M.B.A. from Stanford University and his B.A.
from Dartmouth College.
John Tribolet
John Tribolet has served as co-portfolio manager for the Loomis Sayles segment
of Nvest Star Worldwide Fund since February 28, 2000. He is also a co-portfolio
manager for Nvest International Equity Fund, Loomis Sayles International Equity
Fund, Loomis Sayles Emerging Markets Fund and the International Equities sector
of Loomis Sayles Worldwide Fund. Prior to joining Loomis Sayles, Mr. Tribolet
was a portfolio manager for European Equities at Nicholas Applegate Capital
Management since 1997. From 1995 to 1997 he was a full time M.B.A. student at
the University of Chicago. Prior to 1995, he spent three years in the investment
banking industry, most recently at Paine Webber Inc. He received his B.S. from
Columbia University.
Eswar Menon
Eswar Menon has served as co-portfolio manager for the Loomis Sayles segment of
Nvest Star Worldwide Fund since February 28, 2000. He is also a co-portfolio
manager for Nvest International Equity Fund, Loomis Sayles International Equity
Fund, Loomis Sayles Emerging Markets Fund and the International Equities sector
of Loomis Sayles Worldwide Fund. Prior to joining Loomis Sayles, Mr. Menon was
the Portfolio Manager for Emerging Countries at Nicholas Applegate Capital
Management since 1995. Prior to his position at Nicholas Applegate Capital
Management, he spent five years with Koeneman Capital Management and Integrated
Device Technology. Mr. Menon received a M.B.A. from the University of Chicago
and a M.S. from the University of California. He received his B.S. from Indian
Institute of Technology, Madras, India.
30
<PAGE>
================================================================================
NVEST STAR ADVISERS FUND
Supplement dated February 1, 2000 to Nvest Star Funds Class A, B and C
Prospectus and Nvest Stock and Star Funds Class Y Prospectus each dated
May 3, 1999 (as updated or revised through February 1, 2000)
Effective immediately, the segment of the Fund subadvised by Loomis Sayles will
be managed by Joseph R. Gatz and Dawn Alston Paige, as lead portfolio manager
and co-portfolio manager, respectively. They replace Mary C. Champagne and
Jeffrey C. Petherick.
Accordingly, in the section entitled "Meet the Funds' Portfolio Managers" the
biographical information on Ms. Champagne and Mr. Petherick under the heading
"Star Advisers Fund" is replaced with the following:
Joseph R. Gatz
Joseph R. Gatz has served as lead portfolio manager of the Loomis Sayles segment
of Star Advisers Fund since January 2000. Mr. Gatz, Vice President of Loomis
Sayles, joined the firm in 1999. He is also co-portfolio manager of Loomis
Sayles Mid-Cap Value Fund and lead portfolio manager of Loomis Sayles Small Cap
Value Fund. Prior to joining Loomis Sayles in 1999, Mr. Gatz was a portfolio
manager at Banc One Investment Advisers Corporation and certain of its corporate
predecessors since 1993. He received a M.B.A. from Indiana University and a B.A.
from Michigan State University and has 15 years of investment experience.
Dawn Alston Paige
Dawn Alston Paige has served as co-portfolio manager of the Loomis Sayles
segment of Star Advisers Fund since January 2000. Ms. Alston Paige, Vice
President of Loomis Sayles, joined the firm in 1992. She is also co-portfolio
manager of Loomis Sayles Mid-Cap Value Fund and co-portfolio manager of Loomis
Sayles Small Cap Value Fund. She received a M.B.A. from University of Michigan
and a B.S. from Virginia Commonwealth University and has eight years of
investment experience.
31
<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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
SA56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO]NvestFunds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Star Worldwide Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index, and if it were possible, 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
December 1995 (Inception) through December 1999
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Net Asset Maximum MSCI MSCI
Value(1) Sales Charge(2) World(4) EAFE(5)
-------- --------------- -------- -------
12/99 $18,819 $17,740 $20,693 $16,604
6/99 15,817 14,907 17,972 13,597
12/98 13,674 12,888 16,534 13,061
6/98 14,056 13,248 15,481 12,600
12/97 13,147 12,391 13,249 10,855
6/97 13,628 12,844 13,180 11,845
12/96 11,667 10,996 11,400 10,637
6/96 11,176 10,533 10,733 10,467
12/29/95 10,000 9,425 10,000 10,000
This illustration represents past performance of Class A shares and
cannot predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B and C share
performance will differ from that shown based on differences in fees and sales
charges. All index and Fund performance assumes reinvestment of distributions.
1
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A (Inception 12/29/95) 1 Year Since Inception
Net Asset Value(1) 37.63% 17.10%
With Maximum Sales Charge(2) 29.72 15.39
- --------------------------------------------------------------------------------
Class B (Inception 12/29/95) 1 Year Since Inception
Net Asset Value(1) 36.62% 16.26%
With CDSC(3) 31.62 15.94
- --------------------------------------------------------------------------------
Class C (Inception 12/29/95) 1 Year Since Inception
Net Asset Value(1) 36.50% 16.28%
With CDSC(3) 35.50 16.28
- --------------------------------------------------------------------------------
Since Fund's
Comparative Performance 1 Year Inception
MSCI World Index(4) 24.93% 19.52%
MSCI EAFE Index(5) 26.96 13.24
Morningstar World Stock Average(6) 37.76 18.62
Lipper Global Average(7) 36.08 20.13
- --------------------------------------------------------------------------------
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
their original cost.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge of 5.75% at the time of purchase of Class A
shares performance assumes reinvestment of all distributions.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) The Morgan Stanley Capital International (MSCI) World Index is a market
cap-weighted index comprised of the performance of companies representing
stock markets in 23 developed markets, including the U.S., Canada,
Australia, New Zealand and those in Europe and the Far East. The
performance of the index has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual
fund investments. It is not possible to invest directly in an index.
(5) The Morgan Stanley Capital International (MSCI) Europe Australia Far East
Index (EAFE) is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of companies representing stock markets in
Europe, Australia, New Zealand and the Far East. The performance of the
index has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
It is not possible to invest directly in an index.
(6) Morningstar World Stock Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service.
(7) Lipper Global 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., an independent mutual fund ranking service.
2
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
================================================================================
Effective February 28, 2000, the Board of Trustees appointed Loomis Sayles an
interim subadviser to the Fund, replacing Janus Capital Corporation. The
proposed change will be submitted for approval to Fund shareholders in April.
See page 27 of this report.
================================================================================
Overview: How Your Fund Performed
- --------------------------------------------------------------------------------
Renewed economic strength and rising investor confidence in several world
markets are reflected in your Fund's 12-month performance.
For the year that ended December 31, 1999, Star Worldwide Fund's Class A shares
returned 37.63% based on net asset value, outperforming the 24.93% return of the
MSCI World Index and the 26.96% return of the MSCI EAFE Index, the Fund's
benchmarks. The Fund's return includes reinvested capital gain distributions of
$2.09 per share.
================================================================================
Star Worldwide Fund is composed of four segments, each managed by a different
investment management firm. This multiple-manager approach provides a means to
diversify among individual securities and among the investment styles and
strategies of several established management firms.
================================================================================
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.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Portfolio Segments -- 12/31/99
Oakmark/Harris International 21.8%
Oakmark/Harris Domestic 19.5%
Janus 36.4%
Montgomery 22.3%
Portfolio holdings and asset allocation will vary.
3
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
- --------------------------------------------------------------------------------
Economic recovery in Asia
After the crises of 1998, the Asian economy rebounded in 1999, attracting large
inflows of investment dollars to the region and driving some financial markets
higher. Japan made one of the most dramatic turnarounds. After several years of
recession, stock markets rallied as banking reforms, changes in business
practices and an emphasis on new business development took hold. While Japanese
stocks across the board posted strong gains, small-cap stocks generated the
greatest returns. Among Asia's emerging markets, several countries enjoyed
recoveries. Thailand and South Korea, for example, benefited from improved
banking systems and large-scale corporate restructuring. As these economies
recovered from recession, companies attracted new buyers for their products and
new investors. As a result, corporate profits and stock prices rose.
European markets were in the doldrums
The performance of European markets lagged that of other world markets. The
value of the euro -- Europe's new single currency, introduced in January 1999 --
declined against the U.S. dollar, and economic growth slowed. European stocks
were also eclipsed by Asia's success. However, positive economic fundamentals,
in addition to the major themes of corporate restructuring and a clearer focus
on shareholder value remained intact. The general attractiveness of European
markets was evident during the last quarter of 1999, when investment activity
increased and stock prices rose. Roughly 40% of the Fund was invested in Europe
as of the end of December.
Your Fund's 10 Largest Investments -- 12/31/99
% of
Company Net Assets
-----------------------------------------------------------------------
1. NTT Mobile Communications Network, Inc. 2.5
-----------------------------------------------------------------------
2. Cisco Systems 2.2
-----------------------------------------------------------------------
3. Nokia Oyj 2.2
-----------------------------------------------------------------------
4. Mannesmann AG 2.1
-----------------------------------------------------------------------
5. Sony Corp. 1.6
-----------------------------------------------------------------------
6. Fortune Brands, Inc. 1.5
-----------------------------------------------------------------------
7. China Telecom Hong Kong, Ltd. 1.4
-----------------------------------------------------------------------
8. Valmet-Rauma Oyj 1.2
-----------------------------------------------------------------------
9. NIKE, Inc. 1.1
-----------------------------------------------------------------------
10. Black & Decker Corp. 1.1
-----------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
Excluding Short Term Investments.
4
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
- --------------------------------------------------------------------------------
Another strong year in the U.S.
Against a backdrop of robust economic growth, U.S. financial markets produced
double-digit gains. While concerns that inflation might eventually accelerate
led to three Federal Reserve Board interest-rate hikes, higher rates did
nothing to dampen investor enthusiasm for stocks. Technology and
telecommunication stocks continued to lead the market and growth stocks were far
more popular than value stocks. The Fund benefited by maintaining more than
one-third of its assets in U.S. stocks.
The Fund's portfolio managers
Star Worldwide Fund's global approach to investing allowed it to take advantage
of the strong economic and business trends that prevailed in some world markets.
In August, Founders was removed as a subadviser to the Fund and assets were
equally reallocated among the remaining subadvisers. Performance was boosted by
investments in Japan, as well as in the Asian emerging markets and in the U.S.
The Janus segment of the Fund, with its high concentration in technology and
telecommunication stocks, led the portfolio. While the Montgomery segment also
emphasized technology and telecommunications stocks, it also benefited from its
emphasis on large Japanese banks and securities firms and on overseas oil
companies. The Oakmark/Harris foreign segment, which follows a value strategy,
was rewarded for its early entry into the Japanese and emerging Asian markets.
Oakmark/Harris found value in these markets when many investors were abandoning
them in 1997 and 1998. This segment benefited from Oakmark/Harris's strategy of
purchasing shares at cheap prices and holding them until their value became
recognized. The domestic portion of the Oakmark/Harris portfolio lagged,
however, because value stocks remained out of favor in the U.S. with investors.
Country Diversification -- 12/31/99
% of
Country Net Assets
-----------------------------------------------------------------------
1. United States 37.7
-----------------------------------------------------------------------
2. Japan 11.3
-----------------------------------------------------------------------
3. United Kingdom 11.0
-----------------------------------------------------------------------
4. Finland 5.6
-----------------------------------------------------------------------
5. Netherlands 5.6
-----------------------------------------------------------------------
6. France 5.3
-----------------------------------------------------------------------
7. Germany 3.7
-----------------------------------------------------------------------
8. Hong Kong 2.7
-----------------------------------------------------------------------
9. Brazil 2.6
-----------------------------------------------------------------------
10. Italy 2.1
-----------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
5
<PAGE>
NVEST STAR WORLDWIDE FUND
================================================================================
- --------------------------------------------------------------------------------
Our outlook
Over the next year or so we believe that investing overseas may be more
attractive than investing in the U.S. For the past five years, U.S. stock prices
have moved significantly higher, while overseas stocks have produced only modest
results. Many of the catalysts that triggered the rise in U.S. markets have just
begun to take hold in foreign markets. These catalysts include economic reform
and corporate restructuring. As these improvements continue overseas, we believe
they should increase demand for goods and services, boost corporate profits, and
attract more foreign investment. Under such conditions, the foreign stocks in
the portfolios may account for a larger portion of the Fund's returns in the
future.
The 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. Stock funds fluctuate in
value and, when redeemed, may be worth more or less than their original cost.
Star Worldwide Fund invests in foreign securities which may involve special
risks including currency fluctuations and conversion to the euro in several
European countries, as well as political and economic developments not
associated with domestic funds. Investments in emerging markets may be more
subject to these risks than in developed markets. The Fund may invest in higher
yielding, lower-rated bonds which may involve greater risk. The Fund may also
invest in smaller companies which may have more abrupt price movements, limited
markets and less liquidity than larger, more established companies. The Fund may
invest in REITS which are subject to changes in underlying real estate values,
rising interest rates and mortgage prepayment risks. This Fund may invest in
derivative securities for hedging purposes. These risks may increase share
volatility. See the Fund's prospectus for details.
6
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock -- 93.3% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Australia--0.4%
313,300 Cable & Wireless Optus, Ltd. .................... $ 1,046,919
400,000 Reinsurance Australia
Corporation, Ltd. .............................. 139,178
------------
1,186,097
------------
Bermuda--0.2%
28,500 IPC Holdings, Ltd. .............................. 423,938
------------
Brazil--2.6%
16,900,000 Embratel Participacoes S.A. (c) ................. 282,524
10,710 Petroleo Brasileiro S.A.
- Petrobras (ADR) .............................. 273,105
33,100,000 Tele Centro Sul Participacoes S.A. (c) .......... 355,461
101,900,000 Tele Sudeste Celular
Participacoes S.A. ............................. 406,133
18,085 Telecomunicacoes Brasileiras (ADR) .............. 2,323,923
187,200,000 Telemig Celular Participacoes S.A. (c) .......... 362,690
121,900,000 Telesp Celular Participacoes S.A. ............... 1,147,135
30,900,000 Telesp Participacoes S.A. ....................... 427,794
63,900 Uniao de Bancos
Brasileiros S.A. (GDR) ......................... 1,924,988
3,300,000 Unibanco - Uniao de Bancos
Brasileiros S.A. (c) ........................... 219,208
------------
7,722,961
------------
Canada--1.5%
30,550 AT&T Canada, Inc. (ADR) ......................... 1,229,637
24,900 Canadian Imperial
Bank of Commerce ............................... 595,116
928 Celestica, Inc. ................................. 51,945
13,080 Celestica, Inc. (USD) ........................... 725,940
15,290 Nortel Networks Corp ............................ 1,544,290
2,830 QLT Phototherapeutics, Inc. ..................... 166,263
6,384 Rogers Communications, Inc,
Class B ........................................ 158,004
2,206 Shaw Communications, Class B .................... 72,820
------------
4,544,015
------------
Denmark--0.8%
13,400 Den Danske Bank Group ........................... 1,468,960
13,900 Unidanmark A/S .................................. 978,224
------------
2,447,184
------------
Finland--5.6%
21,000 Kone Corp., Class B ............................. 1,034,447
15,755 Nokia Corp. (ADR) ............................... 2,993,450
36,117 Nokia Oyj ....................................... 6,548,840
57,500 Outokumpu Oyj ................................... 813,813
13,789 Sonera Oyj ...................................... 945,238
11,240 Tieto Corp. ..................................... 702,002
263,703 Valmet-Rauma Oyj ................................ 3,426,770
------------
16,464,560
------------
France--5.3%
4,400 Air Liquide S.A. ................................ 736,655
26,000 Alstom (c) ...................................... 866,925
3,464 Atos S.A. ....................................... 574,365
11,600 Aventis S.A. .................................... 674,239
3,900 Axa ............................................. 543,727
18,690 Banque Nationale de Paris ....................... 1,724,587
3,447 Capital Gemini S.A. ............................. 875,028
1,377 Carrefour S.A. .................................. 253,982
3,400 Castorama Dubois
Investissement S.A. ............................ 1,034,347
43,545 Chargeurs S.A. .................................. 2,452,056
7,960 France Telecom S.A. (c) ......................... 1,052,829
16,800 ISIS ............................................ 1,005,254
2,200 Societe Television Francaise .................... 1,152,408
7,535 Total Fina S.A. ................................. 1,005,725
18,580 Vivendi ......................................... 1,677,939
------------
15,630,066
------------
Germany--3.3%
65,080 Buderus AG ...................................... 1,101,380
7,900 Deutsche Telekom AG ............................. 562,635
4,404 Em.TV Merchandising AG .......................... 283,928
11,600 Epcos AG ........................................ 870,551
25,740 Mannesmann AG ................................... 6,210,038
5,600 SAP Aktiengesellschaft (ADR) .................... 291,550
3,140 Siemens AG ...................................... 399,497
------------
9,719,579
------------
Hong Kong--2.7%
79,000 Cheung Kong Holdings, Ltd. ...................... 1,001,029
33,170 China Telecom
Hong Kong, Ltd. (ADR) (c) ...................... 4,264,418
1,195,000 First Pacific Company, Ltd. ..................... 922,365
1,079,000 Giordano International, Ltd. .................... 1,110,439
82,000 Henderson Land
Development Company, Ltd. ...................... 527,433
119,000 Varitronix International, Ltd. .................. 272,490
------------
8,098,174
------------
Ireland--0.0%
1 Bank of Ireland ................................. 10
------------
Israel--0.2%
3,210 Check Point Software
Technologies, Ltd. ............................. 637,987
------------
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Italy--2.1%
54,800 ACEA S.p.A. ..................................... $ 761,798
8,205 Bipop S.p.A ..................................... 726,107
203,400 Fila Holdings S.p.A. (ADR) ...................... 2,237,400
75,300 Italgas S.p.A. .................................. 285,209
191,940 Telecom Italia Mobile S.p.A. .................... 2,144,259
32,057 Unicredito Italiano S.p.A. (c) .................. 157,588
------------
6,312,361
------------
Japan--11.3%
15,000 Asahi Breweries, Ltd. ........................... 164,138
58,000 Bank of Tokyo-Mitsubishi, Ltd. .................. 808,378
61,000 Canon, Inc. ..................................... 2,423,999
396,000 Citizen Watch Co. ............................... 2,519,331
78,000 Daiwa Securities Group, Inc. .................... 1,220,730
157,000 Fuji Bank, Ltd. ................................. 1,525,898
43,000 Fujitsu, Ltd. ................................... 1,961,241
90,000 Hitachi, Ltd. ................................... 1,444,651
5,000 Ito-Yokado Company, Ltd. ........................ 543,212
13,000 Kirin Brewery Co. ............................... 136,782
29,000 Mitsubishi Estate Company, Ltd. ................. 282,989
41,000 Mitsui Fudosan Company, Ltd. .................... 277,694
32,000 NEC Corp. ....................................... 762,651
92 Nippon Telegraph & Telephone Corp. .............. 1,575,805
165,000 Nissan Motor Company, Ltd. ...................... 649,212
25 NTT Data Corp ................................... 575,022
195 NTT Mobile Communications
Network, Inc. .................................. 7,500,734
700 Rohm Co. ........................................ 293,237
1,800 Softbank Corp. .................................. 1,723,011
16,300 Sony Corp. ...................................... 4,834,002
20,000 Takeda Chemical Industries ...................... 988,549
1,000 The Furukawa Electric Company, Ltd. ............. 15,171
29,000 Tokio Marine & Fire
Insurance Company, Ltd. ........................ 339,190
6,000 Tokyo Electron, Ltd. ............................ 822,159
5,000 Yamanouchi
Pharmaceutical Company, Ltd. ................... 174,709
------------
33,562,495
------------
Mexico--0.7%
12,540 Grupo Televisa S.A. (ADR) ....................... 855,855
11,060 Telefonos
de Mexico S.A. (ADR) 144A ...................... 1,244,250
------------
2,100,105
------------
Netherlands--5.6%
6,500 Akzo Nobel NV ................................... 326,079
2,884 ASM Lithography Holding NV ...................... 320,443
2,670 ASM Lithography Holding NV (c) .................. 303,713
12,329 Equant NV (c) ................................... 1,399,690
20,264 Getronics NV .................................... 1,616,704
7,900 Heineken NV ..................................... 385,329
81,600 Hunter Douglas .................................. 2,219,393
7,586 Koninklijke (Royal)
Philips Electronics NV ......................... 1,031,637
7,920 Koninklijke (Royal)
Philips Electronics NV (ADR) ................... 1,069,200
11,904 Koninklijke KPN NV .............................. 1,161,975
26,800 Libertel NV ..................................... 701,921
11,538 STMicroelectronics NV ........................... 1,775,964
130 STMicroelectronics NV (USD) ..................... 19,687
28,997 TNT Post Group NV (c) ........................... 831,028
14,707 United Pan-Europe
Comminications NV ............................. 1,881,517
26,800 VNU NV .......................................... 1,408,702
------------
16,452,982
------------
New Zealand--1.1%
550,000 Brierley Investments, Ltd. ...................... 114,950
863,532 Fernz Corporation, Ltd. ......................... 1,962,700
158,224 Fletcher Challenge Building ..................... 233,135
205,000 Telecom Corporation
of New Zealand, Ltd. ........................... 964,012
------------
3,274,797
------------
Panama--0.8%
100,400 Banco Latinoamericano
de Exportaciones S.A., Class E ................. 2,359,400
------------
Singapore--0.0%
11,616 United Overseas Bank, Ltd. ...................... 102,525
------------
South Africa--0.0%
1 Barlow, Ltd. .................................... 7
23 BOE, Ltd. ....................................... 22
369 JCI Gold, Ltd. .................................. 354
39 Randfontein Estates
Gold Mining Co. ................................ 55
------------
438
------------
South Korea--1.7%
12,920 Dongah Tire Industry Co. ........................ 380,033
16,840 Keumkang, Ltd. .................................. 778,600
6,980 Lotte Chilsung Beverage Co. ..................... 430,295
5,260 Samsung Electronics ............................. 1,232,197
597 SK Telecom Company, Ltd. ........................ 2,139,842
------------
4,960,967
------------
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Spain--1.7%
72,200 Banco Santander
Central Hispano S.A. ........................... $ 817,492
27,100 Sogecable S.A. .................................. 1,730,768
62,606 Telefonica S.A. ................................. 1,564,040
2,442 Telefonica S.A. (ADR) ........................... 192,460
14,000 Terra Networks S.A. ............................. 765,082
------------
5,069,842
------------
Sweden--1.7%
104,931 Assa Abloy AB, Series B ......................... 1,473,646
5,700 Ericsson LM
Telephone Co. (ADR) (c) ........................ 374,418
30,388 Ericsson Telefoniaktiebolag, Series B ........... 1,953,489
69,268 Securitas AB .................................... 1,253,646
------------
5,055,199
------------
Switzerland--0.7%
240 Julius Baer Holding, Ltd. ....................... 724,989
1,970 Sika Finanz AG .................................. 643,346
1,820 Swisscom AG (c) ................................. 736,093
------------
2,104,428
------------
Taiwan--0.0%
1 Synnex Technology
International Corp. 144A (GDR) ................. 26
------------
United Kingdom--11.0%
25,600 Barclays PLC .................................... 735,646
186,000 Berisford PLC ................................... 1,017,009
33,700 British Telecom PLC ............................. 816,534
38,107 Capita Group PLC ................................ 692,485
256,717 Charter PLC ..................................... 1,105,109
27,740 COLT Telecom Group .............................. 1,432,077
6,700 COLT Telecom Group PLC (ADR) .................... 1,366,800
41,714 Compass Group PLC ............................... 572,735
398,000 Cordiant Communications
Group PLC ...................................... 1,883,666
286,400 Diageo PLC ...................................... 2,283,039
32,376 Energis PLC (c) ................................. 1,555,835
58,300 Freeserve PLC ................................... 593,284
47,290 Glaxo Wellcome PLC .............................. 1,339,838
43,728 Hays PLC ........................................ 692,212
67,312 HSBC Holdings PLC ............................... 932,896
272,000 IMI PLC ......................................... 1,232,409
23,348 Logica PLC ...................................... 603,424
182,000 Morgan Crucible Co. ............................. 854,025
43,900 National Express Group PLC ...................... 517,655
41,895 Prudential Corp. PLC ............................ 817,490
144,625 Reckitt & Colman PLC ............................ 1,364,299
380,000 Rolls-Royce PLC ................................. 1,310,493
27,906 Sema Group PLC .................................. 500,350
7,200 Shell Transport & Trading Co. (ADR) ............. 354,600
1,813,000 Somerfield PLC .................................. 2,621,043
136,026 Telewest Communications PLC ..................... 721,790
155,600 Thus PLC ........................................ 982,742
682,967 Tomkins PLC ..................................... 2,217,425
22,785 Vodafone AirTouch PLC (ADR) ..................... 1,127,858
79,224 Vodafone Group PLC .............................. 394,904
------------
32,639,672
------------
United States--32.3%
2,780 3Com Corp. (c) .................................. 130,660
100,366 ACNielsen Corp. (c) ............................. 2,471,513
5,730 Amazon.com, Inc. (c) ............................ 436,196
4,000 Amdocs, Ltd. .................................... 138,000
13,730 America Online, Inc. (c) ........................ 1,035,757
5,080 American Express Co. ............................ 844,550
3,565 AMFM, Inc. ...................................... 278,961
17,000 AT&T Corp. ...................................... 862,750
22,560 AT&T Corp. -
Liberty Media Group (c) ....................... 1,280,280
59,000 Atmel Corp. (c) ................................. 1,744,187
8,885 Bank of New York Company, Inc. .................. 355,400
74,052 Bank One Corp. .................................. 2,374,292
5,200 BEA Systems, Inc. ............................... 363,675
11,300 Bell Atlantic Corp. ............................. 695,656
61,300 Black & Decker Corp. ............................ 3,202,925
72,000 Boeing Co. ...................................... 2,992,500
62,000 Brunswick Corp. ................................. 1,379,500
9,000 Carrier Access Corp. (c) ........................ 605,813
61,505 Cisco Systems (c) ............................... 6,588,723
8,100 Clear Channel
Communications, Inc. (c) ....................... 722,925
42,970 Comcast Corp., Special Class A .................. 2,172,671
20,350 Dell Computer Corp. (c) ......................... 1,037,850
59,100 Dun & Bradstreet Corp. .......................... 1,743,450
35,000 Eaton Corp. ..................................... 2,541,875
4,000 Electronic Arts, Inc. (c) ....................... 336,000
3,450 Electronic Data Systems Corp. ................... 230,934
11,580 EMC Corp. (c) ................................... 1,265,115
22,860 Enron Corp. ..................................... 1,014,412
4,255 Equant NV (c) ................................... 476,560
15,400 Estee Lauder Companies, Inc. .................... 776,737
15,600 Flextronics International, Ltd. (c) ............. 717,600
See accompanying notes to financial statements.
9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
United States--continued
132,500 Fortune Brands, Inc. ............................ $ 4,380,781
100,000 Galileo International, Inc. ..................... 2,993,750
5,565 Genetech, Inc. .................................. 748,493
29,860 Global Crossing, Ltd. (c) ....................... 1,493,000
41,600 Global TeleSystems Group, Inc. (c) .............. 1,440,400
68,000 H & R Block, Inc. ............................... 2,975,000
45,800 Hollywood Entertainment Corp. ................... 664,100
950 i2 Technologies, Inc. (c) ....................... 185,250
3,990 International
Business Machines Corp. ........................ 430,920
8,030 JDS Uniphase Corp. .............................. 1,295,339
40,400 Knight-Ridder, Inc. ............................. 2,403,800
1,415 Korea Thrunet Company, Ltd. ..................... 96,043
115,000 Lockheed Martin Corp. ........................... 2,515,625
18,815 Lucent Technologies, Inc. ....................... 1,407,597
2,160,000 Mandarin
Oriental International, Ltd. ................... 1,512,000
200,000 Mattel, Inc. .................................... 2,625,000
18,600 MCI Worldcom, Inc. (c) .......................... 986,962
13,725 Medtronic, Inc. ................................. 500,105
24,855 Microsoft Corp. (c) ............................. 2,901,821
49,600 Nabisco Holdings Corp. .......................... 1,568,600
2,430 Nextel Communications, Inc. (c) ................. 250,594
65,000 NIKE, Inc., Class B ............................. 3,221,562
5,862 NTL, Inc. ....................................... 731,285
154,625 Old Republic International Co. .................. 2,106,766
2,035 PE Corp.-PE Biosystems Group .................... 244,836
103,000 Philip Morris Companies, Inc. ................... 2,388,312
1,450 Phone.com., Inc. ................................ 168,109
11,820 R. H. Donnelley Corp. (c) ....................... 223,103
3,220 RF Micro Devices, Inc. .......................... 220,369
14,915 Schering-Plough Corp. ........................... 629,227
660 Sepracor, Inc. (c) .............................. 65,464
22,460 Sprint Corp. PCS Group .......................... 2,302,150
17,590 Staples, Inc. (c) ............................... 364,993
16,360 Sun Microsystems, Inc. (c) ...................... 1,266,877
904 Synthes-Stratec, Inc., 144A ..................... 403,184
8,215 Texas Instruments, Inc. ......................... 795,828
26,475 Time Warner, Inc. ............................... 1,917,783
25,636 TYCO International, Ltd. ........................ 996,599
1,775 USWeb Corp. ..................................... 78,877
375 VeriSign, Inc. (c) .............................. 71,602
250 VERITAS Software Corp. (c) ...................... 35,781
3,400 VoiceStream Wireless Corp. ...................... 483,863
4,760 Warner-Lambert Co. .............................. 390,023
95,000 Washington Mutual, Inc. ......................... 2,470,000
1,395 Whittman-Hart, Inc. ............................. 74,808
------------
95,844,048
------------
Total Common Stock
(Identified Cost $206,566,324) ................. 276,713,856
------------
Preferred Stock -- 1.5%
- --------------------------------------------------------------------------------
Argentina--0.7%
174,500 Quilmes Industrial S.A. (ADR) ................... 2,083,093
------------
Germany--0.4%
180 Marschollek Lautenschlaeger
und Partner AG ................................. 54,397
222 Porsche AG ...................................... 608,278
830 SAP-Vorzug AG ................................... 499,988
------------
1,162,663
------------
United States--0.4%
12,870 UnitedGlobalCom, Inc., 144A ..................... 1,171,170
------------
Total Preferred Stock
(Identified Cost $3,427,339) ................... 4,416,926
------------
Short Term Investments -- 5.0%
Principal
Amount
- --------------------------------------------------------------------------------
$ 6,000,000 Federal Home Loan Bank, Zero Coupon,
1/03/2000 ..................................... 5,999,500
8,672,000 Repurchase Agreement with State Street
Bank & Trust Co. dated 12/31/1999
at 3.25% to be repurchased at
$8,674,349 on 1/03/2000
collateralized by $10,650,000
U.S. Treasury Bond 5.25% due
11/15/2028 with a
value of $8,852,812 ........................... 8,672,000
------------
Total Short Term Investments
(Identified Cost $14,671,500) .................. 14,671,500
------------
Total Investment--99.8%
(Identified Cost $224,665,163) (b) .............. 295,802,282
Other assets less liabilities ................... 654,042
------------
Total Net Assets--100% .......................... $296,456,324
============
See accompanying notes to financial statements.
10
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
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) 4/7/2000 100,000 $ 161,956 $ (161,531) $ 425
British Pounds (sold) 4/7/2000 300,000 486,255 (484,592) 1,663
British Pounds (sold) 4/7/2000 200,000 324,388 (323,061) 1,327
British Pounds (sold) 4/10/2000 3,018,503 5,000,000 (4,875,742) 124,258
British Pounds (bought) 4/14/2000 300,000 (498,828) 484,578 (14,250)
British Pounds (sold) 4/14/2000 300,000 495,420 (484,578) 10,842
British Pounds (sold) 4/20/2000 45,000 73,069 (72,685) 384
British Pounds (sold) 6/9/2000 750,000 1,215,975 (1,211,168) 4,807
British Pounds (sold) 6/9/2000 150,000 243,099 (242,234) 865
Canadian Dollar (sold) 4/7/2000 40,000 27,364 (27,776) (412)
Canadian Dollar (sold) 4/7/2000 20,000 13,671 (13,888) (217)
Canadian Dollar (sold) 4/7/2000 20,000 13,806 (13,888) (82)
Canadian Dollar (sold) 5/18/2000 30,000 20,548 (20,851) (303)
Euro Currency (sold) 4/7/2000 300,000 325,800 (304,380) 21,420
Euro Currency (sold) 4/7/2000 100,000 105,977 (101,460) 4,517
Euro Currency (sold) 4/7/2000 400,000 420,260 (405,840) 14,420
Euro Currency (sold) 4/7/2000 300,000 304,857 (304,380) 477
Euro Currency (sold) 4/7/2000 2,000,000 2,064,020 (2,029,198) 34,822
Euro Currency (sold) 4/7/2000 1,500,000 1,546,875 (1,521,899) 24,976
Euro Currency (bought) 4/7/2000 300,000 (330,395) 304,380 (26,015)
Euro Currency (bought) 4/7/2000 1,000,000 (1,011,550) 1,014,599 3,049
Euro Currency (bought) 4/14/2000 300,000 (330,429) 304,530 (25,899)
Euro Currency (sold) 4/14/2000 2,100,000 2,268,000 (2,131,707) 136,293
Euro Currency (sold) 4/20/2000 500,000 550,200 (507,764) 42,436
Euro Currency (sold) 6/2/2000 1,400,000 1,467,200 (1,426,053) 41,147
Euro Currency (sold) 6/9/2000 500,000 510,675 (509,556) 1,119
Euro Currency (sold) 6/9/2000 200,000 205,342 (203,822) 1,520
Hong Kong Dollar (sold) 5/7/2001 1,600,000 201,081 (204,239) (3,158)
Hong Kong Dollar (sold) 5/7/2001 1,600,000 200,715 (204,239) (3,524)
Hong Kong Dollar (sold) 5/7/2001 400,000 50,180 (51,060) (880)
Hong Kong Dollar (sold) 5/7/2001 1,000,000 125,448 (127,649) (2,201)
Hong Kong Dollar (sold) 5/7/2001 900,000 112,880 (114,885) (2,005)
Hong Kong Dollar (sold) 5/7/2001 100,000 12,554 (12,765) (211)
Hong Kong Dollar (sold) 5/7/2001 800,000 100,528 (102,120) (1,592)
Hong Kong Dollar (sold) 5/7/2001 800,000 100,598 (102,120) (1,522)
Hong Kong Dollar (sold) 5/7/2001 300,000 37,819 (38,295) (476)
Hong Kong Dollar (sold) 5/7/2001 150,000 18,890 (19,147) (257)
Hong Kong Dollar (sold) 5/7/2001 150,000 18,889 (19,147) (258)
Hong Kong Dollar (sold) 5/7/2001 400,000 50,434 (51,060) (626)
Hong Kong Dollar (sold) 5/7/2001 200,000 25,326 (25,530) (204)
Hong Kong Dollar (sold) 5/7/2001 1,000,000 126,831 (127,650) (819)
Hong Kong Dollar (sold) 5/7/2001 1,600,000 202,899 (204,240) (1,341)
Hong Kong Dollar (sold) 5/7/2001 1,700,000 215,612 (217,005) (1,393)
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Forward Currency Contracts Outstanding - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Local Aggregate Unrealized
Delivery Currency Face Total Appreciation/
Date Amount Value Value (Depreciation)
-------- -------- --------- ----- --------------
<S> <C> <C> <C> <C> <C>
Hong Kong Dollar (sold) 5/7/2001 300,000 $ 38,051 $ (38,295) $ (244)
Hong Kong Dollar (sold) 5/7/2001 1,700,000 216,346 (217,005) (659)
Hong Kong Dollar (sold) 5/7/2001 4,000,000 509,554 (510,599) (1,045)
Hong Kong Dollar (bought) 5/7/2001 1,200,000 (150,659) 153,179 2,520
Hong Kong Dollar (bought) 5/7/2001 500,000 (62,814) 63,825 1,011
Hong Kong Dollar (sold) 5/10/2001 1,000,000 127,071 (127,642) (571)
Hong Kong Dollar (sold) 5/10/2001 800,000 101,611 (102,115) (504)
Hong Kong Dollar (sold) 5/10/2001 1,400,000 177,895 (178,699) (804)
Hong Kong Dollar (sold) 5/10/2001 1,300,000 165,241 (165,935) (694)
Hong Kong Dollar (sold) 5/10/2001 2,000,000 254,761 (255,285) (524)
Japanese Yen (sold) 2/24/2000 140,933,000 1,300,000 (1,391,803) (91,803)
Japanese Yen (sold) 3/6/2000 40,000,000 384,353 (395,710) (11,357)
Japanese Yen (bought) 3/6/2000 40,000,000 (381,607) 395,710 14,103
Japanese Yen (bought) 3/16/2000 122,000,000 (1,165,791) 1,208,824 43,033
Japanese Yen (sold) 3/16/2000 135,000,000 1,305,609 (1,337,633) (32,024)
Japanese Yen (sold) 3/16/2000 20,000,000 199,607 (198,168) 1,439
Japanese Yen (sold) 3/17/2000 152,280,000 1,500,000 (1,509,089) (9,089)
Japanese Yen (bought) 4/7/2000 178,000,000 (1,708,606) 1,769,932 61,326
Japanese Yen (sold) 4/7/2000 155,000,000 1,483,197 (1,541,233) (58,036)
Japanese Yen (sold) 4/7/2000 23,000,000 220,359 (228,699) (8,340)
Japanese Yen (sold) 4/7/2000 40,000,000 386,382 (397,737) (11,355)
Japanese Yen (sold) 4/7/2000 40,000,000 390,033 (397,737) (7,704)
Japanese Yen (sold) 4/14/2000 90,000,000 872,093 (895,944) (23,851)
Japanese Yen (sold) 4/20/2000 35,000,000 340,865 (348,768) (7,903)
Japanese Yen (sold) 5/18/2000 17,000,000 165,370 (170,190) (4,820)
Japanese Yen (sold) 6/2/2000 95,000,000 925,024 (953,436) (28,412)
Swiss Franc (sold) 4/20/2000 175,000 111,707 (111,314) 393
Swiss Franc (bought) 6/2/2000 110,000 (72,968) 70,314 (2,654)
Swiss Franc (sold) 6/2/2000 110,000 72,321 (70,314) 2,007
------------ ------------ ------------
$ 24,979,244 $(24,772,683) $ 206,561
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
- --------------------------------------------------------------------------------
(a) See Notes 1a Notes to Financial Statements.
(b) Federal Tax Information: at December 31, 1999 the net unrealized
appreciation on investments based on cost of $225,348,066 for federal
income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ................. $ 87,613,313
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ................. (17,159,097)
------------
Net unrealized appreciation .......................................... $ 70,454,216
============
</TABLE>
(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 year
end, the value of these securities amounted to $2,818,630 or 1.0% 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 .
USD United States Dollars
Ten Largest Industry Holdings at December 31, 1999 (unaudited)
<TABLE>
<S> <C> <C> <C>
Telecommunication 17.7% Telecommunication Equipment 4.5%
Banks & Thrifts 6.8% Broadcasting 3.6%
Machinery 4.7% Food & Beverages 3.4%
Consumer Goods & Services 4.6% Electronics 2.8%
Computer Software & Services 4.6% Apparel & Textiles 2.7%
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $224,665,163) ................................ $ 295,802,282
Cash ............................................................................... 174,905
Foreign cash at value (Identified cost $24,215) .................................... 24,181
Investments held as collateral for loaned securities ............................... 8,712,119
Receivable for:
Fund shares sold ............................................................... 256,826
Securities sold ................................................................ 770,370
Open forward currency contracts - net .......................................... 206,561
Dividends and interest ......................................................... 213,141
Tax reclaims ................................................................... 120,581
Unamortized organization expense ................................................... 13,529
-------------
306,294,495
LIABILITIES
Payable for:
Securities purchased ........................................................... $ 353,958
Fund shares redeemed ........................................................... 268,642
Collateral on loaned securities, at value ...................................... 8,712,119
Foreign withholding taxes ...................................................... 8,494
Accrued expenses:
Management fees ................................................................ 248,908
Deferred trustees' fees ........................................................ 20,085
Accounting and administrative .................................................. 12,054
Other .......................................................................... 213,911
-------------
9,838,171
-------------
NET ASSETS .............................................................................. $ 296,456,324
=============
Net assets consist of:
Capital paid in ................................................................ $ 213,065,307
Undistributed (overdistrbuted) net investment income (loss) .................... (248,268)
Accumulated net realized gain (loss) ........................................... 12,306,390
Unrealized appreciation (depreciation) on investments, forward currency
contracts and foreign currency transactions - net ............................ 71,332,895
-------------
NET ASSETS .............................................................................. $ 296,456,324
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($126,414,821/6,351,884 shares of beneficial interest) ............................. $19.90
======
Offering price per share (100/94.25 of $19.90) .......................................... $21.11*
======
Net asset value and offering price of Class B shares
($141,338,449/7,337,972 shares of beneficial interest) ............................. $19.26**
======
Net asset value and offering price of Class C shares
($28,703,054/1,489,194 shares of beneficial interest) .............................. $19.27**
======
</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
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $285,922) ................................. $ 3,278,247
Interest ..................................................................... 692,665
Securities lending income .................................................... 125,260
------------
4,096,172
Expenses
Management fees .............................................................. $ 2,625,697
Service fees - Class A ....................................................... 270,924
Service and distribution fees - Class B ...................................... 1,181,955
Service and distribution fees - Class C ...................................... 235,012
Trustees' fees and expenses .................................................. 24,071
Accounting and administrative ................................................ 74,470
Custodian and securities lending ............................................. 663,848
Transfer agent ............................................................... 938,035
Audit and tax services ....................................................... 46,000
Legal ........................................................................ 17,572
Printing ..................................................................... 50,792
Registration ................................................................. 58,433
Amortization of organization expenses ........................................ 13,027
Insurance .................................................................... 4,400
Miscellaneous ................................................................ 10,505
------------
Total expenses ................................................................... 6,214,741
------------
Net investment income (loss) ..................................................... (2,118,569)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS, FORWARD CURRENCY AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ............................................................ 44,376,776
Futures contracts - net ...................................................... 109,815
Foreign currency transactions - net .......................................... (132,350)
Forward currency transactions - net .......................................... 761,319
------------
Net realized gain (loss) on investments, futures contracts
foreign currency and forward currency transactions ......................... 45,115,560
------------
Unrealized appreciation (depreciation) on:
Investments - net ............................................................ 39,974,888
Foreign currency transactions - net .......................................... (28,204)
Forward currency transactions - net .......................................... 497,452
------------
Net unrealized appreciation (depreciation) on investments, foreign currency
and forward currency transactions ......................................... 40,444,136
------------
Net gain (loss) on investment transactions ....................................... 85,559,696
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................................. $ 83,441,127
============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) .......................................................... $ (1,030,505) $ (2,118,569)
Net realized gain (loss) on investments, futures contracts, foreign currency
and forward currency transactions ................................................ (3,136,961) 45,115,560
Unrealized appreciation (depreciation) on investments, foreign currency
and forward currency transactions ................................................ 13,069,028 40,444,136
------------- -------------
Increase (decrease) in net assets from operations ..................................... 8,901,562 83,441,127
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ........................................................................... 0 (12,083,293)
Class B ........................................................................... 0 (13,730,866)
Class C ........................................................................... 0 (2,796,280)
------------- -------------
0 (28,610,439)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ............................................... (30,804,047) (4,457,284)
------------- -------------
Total increase (decrease) in net assets .................................................... (21,902,485) 50,373,404
NET ASSETS
Beginning of the year ................................................................. 267,985,405 246,082,920
------------- -------------
End of the year ....................................................................... $ 246,082,920 $ 296,456,324
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the year ....................................................................... $ (91,225) $ (248,268)
============= =============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------
1996 1997 1998 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year (a) ....................... $ 12.50 $ 14.40 $ 15.46 $ 16.08
----------- ----------- ----------- -----------
Income (Loss) From Investment Operations
Net Investment Income (Loss) (b) ............................. (0.03) (0.02) 0.01 (0.07)
Net Realized and Unrealized Gain (Loss) on
Investments ................................................ 2.11 1.88 0.61 5.98
----------- ----------- ----------- -----------
Total From Investment Operations ............................. 2.08 1.86 0.62 5.91
----------- ----------- ----------- -----------
Less Distributions
Distributions From Net Realized Capital Gains ................ (0.18) (0.76) 0.00 (2.09)
Distributions From Paid-in Capital ........................... 0.00 (0.04) 0.00 0.00
----------- ----------- ----------- -----------
Total Distributions .......................................... (0.18) (0.80) 0.00 (2.09)
----------- ----------- ----------- -----------
Net Asset Value, End of Year ................................. $ 14.40 $ 15.46 $ 16.08 $ 19.90
=========== =========== =========== ===========
Total Return (%) (c) ......................................... 16.7 12.7 4.0 37.6
Ratio of Operating Expenses to Average Net Assets (%) ........ 2.58 2.07 2.09 2.06
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) .................................. (0.21) (0.12) 0.03 (0.42)
Portfolio Turnover Rate (%) .................................. 57 80 84 91
Net Assets, End of Year (000) ................................ $ 68,509 $ 118,381 $ 106,763 $ 126,415
</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 year.
(c) A sales charge is not reflected in total return calculations.
See accompanying notes to financial statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
1996 1997 1998 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year (a) ...................... $ 12.50 $ 14.30 $ 15.23 $ 15.73
----------- ----------- ----------- -----------
Income (Loss) From Investment Operations
Net Investment Income (Loss) (b) ............................ (0.12) (0.14) (0.11) (0.20)
Net Realized and Unrealized Gain (Loss) on
Investments ............................................... 2.10 1.87 0.61 5.82
----------- ----------- ----------- -----------
Total From Investment Operations ............................ 1.98 1.73 0.50 5.62
----------- ----------- ----------- -----------
Less Distributions
Distributions From Net Realized Capital Gains ............... (0.18) (0.76) 0.00 (2.09)
Distributions From Paid-in Capital .......................... 0.00 (0.04) 0.00 0.00
----------- ----------- ----------- -----------
Total Distributions ......................................... (0.18) (0.80) 0.00 (2.09)
----------- ----------- ----------- -----------
Net Asset Value, End of Year ................................ $ 14.30 $ 15.23 $ 15.73 $ 19.26
=========== =========== =========== ===========
Total Return (%) (c) ........................................ 15.9 11.9 3.3 36.6
Ratio of Operating Expenses to Average Net Assets (%) ....... 3.33 2.82 2.84 2.81
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) .................................... (0.96) (0.87) (0.72) (1.17)
Portfolio Turnover Rate (%) ................................. 57 80 84 91
Net Assets, End of Year (000) ............................... $ 65,367 $ 123,467 $ 116,305 $ 141,338
</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 year.
(c) A contingent deferred sales charge is not reflected in total return
calculations.
See accompanying notes to financial statements.
18
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1996 1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year (a) ......................... $ 12.50 $ 14.31 $ 15.24 $ 15.75
---------- ---------- ---------- ----------
Income (Loss) From Investment Operations
Net Investment Income (Loss) (b) ............................... (0.12) (0.13) (0.11) (0.21)
Net Realized and Unrealized Gain (Loss) on
Investments .................................................. 2.11 1.86 0.62 5.82
---------- ---------- ---------- ----------
Total From Investment Operations ............................... 1.99 1.73 0.51 5.61
---------- ---------- ---------- ----------
Less Distributions
Distributions From Net Realized Capital Gains .................. (0.18) (0.76) 0.00 (2.09)
Distributions From Paid-in Capital ............................. 0.00 (0.04) 0.00 0.00
---------- ---------- ---------- ----------
Total Distributions ............................................ (0.18) (0.80) 0.00 (2.09)
---------- ---------- ---------- ----------
Net Asset Value, End of Year ................................... $ 14.31 $ 15.24 $ 15.75 $ 19.27
========== ========== ========== ==========
Total Return (%) (c) ........................................... 15.9 11.8 3.3 36.5
Ratio of Operating Expenses to Average Net Assets (%) .......... 3.33 2.82 2.84 2.81
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) ....................................... (0.96) (0.87) (0.72) (1.17)
Portfolio Turnover Rate (%) .................................... 57 80 84 91
Net Assets, End of Year (000) .................................. $ 17,980 $ 26,137 $ 23,016 $ 28,703
</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 year.
(c) A contingent deferred sales charge is not reflected in total return
calculations.
See accompanying notes to financial statements.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly known as New England 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, 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, 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.
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
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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. 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 organization
costs, net operating losses 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
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 year ended December 31, 1999
purchase and sales of securities (excluding short-term investments) were
$215,491,663 and $254,665,442 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., Founders Asset Management, Inc.
and Janus Capital Corporation 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 and Harris Associates,
L.P. are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest"), formerly
known as New England Investment Companies, L.P., which is a subsidiary of
Metropolitan Life Insurance Company. Fees earned by Nvest Management and the
subadvisers under the management and subadvisory agreements in effect during the
year ended December 31,1999, are as follows:
Fees Earned
-----------
Nvest Management $ 968,638
Harris Associates, L.P. 663,004
Founders Asset Management, Inc. 248,981
Janus Capital Corporation 480,249
Montgomery Asset Management, L.P. 264,825
----------
$2,625,697
==========
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting, and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the year ended December 31, 1999, these
expenses amounted to $74,470 and are shown separately in the financial
statements as accounting and administrative.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $702,598 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, 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 year ended December 31, 1999,
the Fund paid Nvest Funds $270,924 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 year ended December 31, 1999 the Fund paid Nvest
Funds $295,489 and $58,753 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
year ended December 31, 1999, the Fund paid Nvest Funds $886,466 and $176,259 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 year ended December
31, 1999 amounted to $674,856.
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, other than registered
investment companies. 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.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 December 31, 1999, 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 December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class A Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 7,129,724 $ 106,981,131 17,418,778 $ 308,405,361
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 0 0 625,286 11,630,312
------------- ------------- ------------- -------------
7,129,724 106,981,131 18,044,064 320,035,673
Shares repurchased ............................................. (8,149,583) (123,663,965) (18,330,936) (325,330,531)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ (1,019,859) $ (16,682,834) (286,872) $ (5,294,858)
------------- ------------- ------------- -------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class B Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 1,309,851 $ 20,459,129 938,431 $ 16,521,040
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 0 0 706,524 12,724,497
------------- ------------- ------------- -------------
1,309,851 20,459,129 1,644,955 29,245,537
Shares repurchased ............................................. (2,024,121) (30,707,569) (1,700,021) (29,067,473)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ (714,270) $ (10,248,440) (55,066) $ 178,064
------------- ------------- ------------- -------------
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Class C Shares Amount Shares Amount
- ------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 1,030,781 $ 15,901,710 1,341,499 $ 23,365,742
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 0 0 150,031 2,703,557
------------- ------------- ------------- -------------
1,030,781 15,901,710 1,491,530 26,069,299
Shares repurchased ............................................. (1,284,215) (19,774,483) (1,463,990) (25,409,789)
------------- ------------- ------------- -------------
Net increase (decrease) ........................................ (253,434) (3,872,773) 27,540 659,510
------------- ------------- ------------- -------------
Increase (decrease) derived from capital shares transactions ... (1,987,563) $ (30,804,047) (314,398) $ (4,457,284)
============= ============= ============= =============
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 4, 1999. 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 year ended December 31,
1999.
6. Security Lending. The Fund has entered into an agreement to lend its
securities to a third party. 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
December 31, 1999 the Fund loaned securities having a market value of $8,600,887
and collateralized by United States Treasury Bonds with a market value of
$8,712,119.
7. Concentration of Risk. The Fund had the following geographic concentration in
excess of 10% of its total net assets at December 31, 1999: Japan 11.3%, United
Kingdom 11.0% and United States 37.7%. 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.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I and the Shareholders of the Nvest Star
Worldwide Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest Star Worldwide Fund
(formerly the New England Star Worldwide Fund) (the "Fund"), a series of Nvest
Funds Trust I, at December 31, 1999, the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
26
<PAGE>
================================================================================
NVEST STAR WORLDWIDE FUND
(formerly New England Star Worldwide Fund)
Supplement Dated February 28, 2000 to Nvest Star Funds Class A, B, and C
Prospectus and Nvest Stock and Star Funds Class Y Prospectus each dated
May 3, 1999 (as revised February 1, 2000)
On February 25, 2000, the Board of Trustees of Nvest Funds Trust I (the "Trust")
approved a new interim Subadvisory Agreement (the "Interim Agreement") relating
to Nvest Star Worldwide Fund (the "Fund") between Nvest Funds Management, L.P.
("Nvest Management"), the Fund's adviser, and Loomis, Sayles & Company, L.P.
("Loomis Sayles"). The Interim Agreement is effective as of February 28, 2000,
and will continue to be in effect for a period of 150 days or until shareholders
of the Fund approve a new Subadvisory Agreement between Nvest Management and
Loomis Sayles, whichever occurs first. Under the Interim Agreement, Loomis
Sayles succeeds Janus Capital Corporation, ("Janus") as the subadviser of the
segment of the Fund previously managed by Janus (the "Segment") and is
responsible for day-to-day management of the Segment's investment operations
under the oversight of Nvest Management. A special shareholder meeting will be
held in April to vote on the approval of a second, final Subadvisory Agreement
for the Fund between Nvest Management and Loomis Sayles, which was also approved
by the Board of Trustees of the Trust on February 25, 2000 (the "Final
Subadvisory Agreement"). The Final Subadvisory Agreement would replace the
Interim Agreement. A notice of the special shareholder meeting and a proxy
statement will be sent to shareholders in early March. In the event that the
Fund's shareholders do not approve the Final Subadvisory Agreement between Nvest
Management and Loomis Sayles at the special shareholder meeting, shareholders
will be notified and the Board of Trustees will consider alternative
arrangements for the management of the Segment's investment portfolio.
The annual subadvisory fee rates payable to Loomis Sayles under the Interim
Agreement and the Final Subadvisory Agreement are identical to those previously
paid to Janus to manage the Segment, which are 0.65% of the first $50 million of
the Segment's average daily net assets, 0.60% of such assets between $50 million
and $100 million and 0.55% of such assets in excess of $100 million.
In conjunction with Loomis Sayles becoming a subadviser to the Fund, the Fund's
Board of Trustees approved amendments to the Segment's investment strategies,
which will be effective at the close of business on February 25, 2000.
Accordingly, the subsection entitled "Janus" within the section entitled "Star
Worldwide Fund - More on Investment Strategies" page of the
27
<PAGE>
================================================================================
Prospectuses are revised as of such date by replacing such subsection with the
text set forth below.
Loomis Sayles
The segment of the Star Worldwide Fund managed by Loomis Sayles will invest at
least 65% of its assets in equity securities of companies headquartered outside
of the United States. The segment will hold securities from at least 3 different
countries including those within emerging markets. The segment will focus on
securities with large market capitalization but may invest in securities with
any size capitalization. The securities selected by Loomis Sayles for the
segment typically have the following characteristics:
o strong, competitive position o strong distribution channels
in a particular industry o improving business or financial
o strong pricing power fundamentals
In making investment decisions, Loomis Sayles employs the following methods:
o Loomis Sayles uses a bottom-up, o The strong Loomis Sayles research
fundamental research process to team is combined with a global
build the segment's portfolio. network of research contacts to
o It looks for growth-oriented stocks provide a steady stream of
of well-managed companies that information and ideas.
typically have the characteristics o Loomis Sayles will sell a position
listed above. when the fundamental outlook is
o In addition to its bottom-up deteriorating or when other more
approach to security selection, an favorable opportunities arise.
overlay of country and industry
macro-economic data is used to
provide guidelines for portfolio
weighting with a view towards
minimizing portfolio risk.
In the section entitled "Meet the Funds' Investment Adviser and Subadvisers,"
the first sentence of the text entitled "Janus" under the heading "Subadvisers"
is revised to read as follows:
Janus Capital, located at 100 Fillmore Street, Denver, Colorado 80206, serves as
subadviser to a segment of the Star Advisers Fund. In this same section, the
first sentence of the text entitled "Loomis Sayles" is revised to read as
follows:
Loomis Sayles, located at One Financial Center, Boston, Massachusetts, 02111,
serves as subadviser to a segment of the Star Advisers Fund, Star Small Cap Fund
and Star Worldwide Fund.
28
<PAGE>
================================================================================
In the section entitled "Meet the Funds' Portfolio Managers," the biographical
information on Helen Young Hayes and Laurence Chang under the heading "Star
Advisers Fund" is replaced with the following:
Alexander Muromcew
Alexander Muromcew has served as co-portfolio manager for the Loomis Sayles
segment of Nvest Star Worldwide Fund since February 28, 2000. He is also a
co-portfolio manager for Nvest International Equity Fund, Loomis Sayles
International Equity Fund, Loomis Sayles Emerging Markets Fund and the
International Equities sector of Loomis Sayles Worldwide Fund. Prior to joining
Loomis Sayles, Mr. Muromcew was a portfolio manager at Nicholas Applegate
Capital Management since 1996. Prior to 1996, Mr. Muromcew held positions with
Jardine Fleming Securities in Japan, Emerging Markets Investors Corporation and
Teton Partners L.P. He received a M.B.A. from Stanford University and his B.A.
from Dartmouth College.
John Tribolet
John Tribolet has served as co-portfolio manager for the Loomis Sayles segment
of Nvest Star Worldwide Fund since February 28, 2000. He is also a co-portfolio
manager for Nvest International Equity Fund, Loomis Sayles International Equity
Fund, Loomis Sayles Emerging Markets Fund and the International Equities sector
of Loomis Sayles Worldwide Fund. Prior to joining Loomis Sayles, Mr. Tribolet
was a portfolio manager for European Equities at Nicholas Applegate Capital
Management since 1997. From 1995 to 1997 he was a full time M.B.A. student at
the University of Chicago. Prior to 1995, he spent three years in the investment
banking industry, most recently at Paine Webber Inc. He received his B.S. from
Columbia University.
Eswar Menon
Eswar Menon has served as co-portfolio manager for the Loomis Sayles segment of
Nvest Star Worldwide Fund since February 28, 2000. He is also a co-portfolio
manager for Nvest International Equity Fund, Loomis Sayles International Equity
Fund, Loomis Sayles Emerging Markets Fund and the International Equities sector
of Loomis Sayles Worldwide Fund. Prior to joining Loomis Sayles, Mr. Menon was
the Portfolio Manager for Emerging Countries at Nicholas Applegate Capital
Management since 1995. Prior to his position at Nicholas Applegate Capital
Management, he spent five years with Koeneman Capital Management and Integrated
Device Technology. Mr. Menon received a M.B.A. from the University of Chicago
and a M.S. from the University of California. He received his B.S. from Indian
Institute of Technology, Madras, India.
29
<PAGE>
================================================================================
NVEST STAR ADVISERS FUND
Supplement dated February 1, 2000 to Nvest Star Funds Class A, B and C
Prospectus and Nvest Stock and Star Funds Class Y Prospectus each dated
May 3, 1999 (as updated or revised through February 1, 2000)
Effective immediately, the segment of the Fund subadvised by Loomis Sayles will
be managed by Joseph R. Gatz and Dawn Alston Paige, as lead portfolio manager
and co-portfolio manager, respectively. They replace Mary C. Champagne and
Jeffrey C. Petherick.
Accordingly, in the section entitled "Meet the Funds' Portfolio Managers" the
biographical information on Ms. Champagne and Mr. Petherick under the heading
"Star Advisers Fund" is replaced with the following:
Joseph R. Gatz
Joseph R. Gatz has served as lead portfolio manager of the Loomis Sayles segment
of Star Advisers Fund since January 2000. Mr. Gatz, Vice President of Loomis
Sayles, joined the firm in 1999. He is also co-portfolio manager of Loomis
Sayles Mid-Cap Value Fund and lead portfolio manager of Loomis Sayles Small Cap
Value Fund. Prior to joining Loomis Sayles in 1999, Mr. Gatz was a portfolio
manager at Banc One Investment Advisers Corporation and certain of its corporate
predecessors since 1993. He received a M.B.A. from Indiana University and a B.A.
from Michigan State University and has 15 years of investment experience.
Dawn Alston Paige
Dawn Alston Paige has served as co-portfolio manager of the Loomis Sayles
segment of Star Advisers Fund since January 2000. Ms. Alston Paige, Vice
President of Loomis Sayles, joined the firm in 1992. She is also co-portfolio
manager of Loomis Sayles Mid-Cap Value Fund and co-portfolio manager of Loomis
Sayles Small Cap Value Fund. She received a M.B.A. from University of Michigan
and a B.S. from Virginia Commonwealth University and has eight years of
investment experience.
30
<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.
31
<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 FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
The Power of Monthly Investing
$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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
SW56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest Star Small Cap Fund
Where
The Best
Minds Meet(R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
Note the prospectus supplement that appears at the end of this report relating
to Star Advisers Fund and Star Worldwide Fund.
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown 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 GRAPH IN THE PRINTED MATERIAL.]
December 1996 (Inception) through December 1999
Net Asset Maximum Sales
Value(1) Charge(2) Russell 2000(4)
-------- --------- ---------------
12/99 $21,429 $20,201 $14,460
6/99 14,975 14,114 13,033
12/98 12,956 12,211 11,924
9/98 10,292 9,701 10,252
6/98 13,341 12,574 12,839
3/98 14,126 13,314 13,467
12/97 12,697 11,966 12,236
9/97 13,160 12,403 12,660
6/97 11,040 10,405 11,020
3/97 9,352 8,814 9,483
12/96 10,000 9,425 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B and C share
performance will differ from that shown based on differences in fees and sales
charges. All index and Fund performance assumes reinvestment of distributions.
1
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A (Inception 12/31/96) 1 Year Since Inception
Net Asset Value(1) 65.38% 28.92%
With Maximum Sales Charge(2) 55.82 26.41
- --------------------------------------------------------------------------------
Class B (Inception 12/31/96) 1 Year Since Inception
Net Asset Value(1) 64.14% 27.98%
With CDSC(3) 59.14 27.37
- --------------------------------------------------------------------------------
Class C (Inception 12/31/96) 1 Year Since Inception
Net Asset Value(1) 64.14 27.98%
With CDSC(3) 63.14 27.98
- --------------------------------------------------------------------------------
Since Fund's
Class A, B, C
Comparative Performance 1 Year Inception
Russell 2000 Small Stock Index(4) 21.26% 13.08%
Morningstar Small-Cap Growth Average(5) 65.85 26.18
Lipper Small-Cap Growth Average(6) 62.33 24.53
- --------------------------------------------------------------------------------
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1.00%
sales charge on redemptions within the first year of purchase.
(4) Russell 2000 Small Stock Index is an unmanaged index measuring the stock
price performance of small companies. The performance of the index has not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments. It is not possible
to invest directly in an index.
(5) Morningstar Small-Cap Growth Average is an average (calculated on the basis
of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking
service.
(6) Lipper Small-Cap Growth Average is the average performance at net asset
value of all mutual funds with a similar investment style or objective as
determined by Lipper Inc., an independent mutual fund ranking service.
2
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
Overview: How the Fund Performed
- --------------------------------------------------------------------------------
Small-cap growth stocks produced strong returns in 1999, especially those in the
technology and telecommunications areas. For the 12 months ended December 31,
1999, Class A shares of Star Small Cap Fund returned 65.38% based on net asset
value, outperforming the 21.26% return of the Russell 2000 Index, the Fund's
benchmark. The Fund's return includes $2.19 per share in reinvested capital
gains.
Star Small Cap Fund is composed of four separate segments, each managed by a
different investment management firm with special expertise in specific markets.
This multiple-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 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.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Portfolio Segments -- 12/31/99
RS Investment Management 40.9%
Montgomery 16.1%
Loomis Sayles 30.9%
Oakmark/Harris 12.1%
Portfolio holdings and asset allocation will vary.
3
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
- --------------------------------------------------------------------------------
Small-cap growth stocks prospered in a positive economic environment
During 1999, the economic environment for small-cap growth stocks was excellent.
The economy continued to grow rapidly, inflation remained at a relatively
moderate level, and the demand for innovative technological products was high.
While the Federal Reserve Board raised interest rates three times during the
year, its actions failed to dampen investor enthusiasm for growth stocks.
Investors continued to favor the stocks of companies with the potential for
rapid earnings growth, and many of these were in the small-cap area of the
market.
While small-cap growth stocks made strong gains during 1999, small-cap value
stocks were poor performers. One reason for the disparity is that small-cap
growth stocks tended to be in the technology and telecommunication sectors of
the market -- areas that grew the fastest in 1999.
Technology stocks provided the best opportunities
Many small-cap companies are young organizations creating new products or
services. Over the past several years, some of the most promising new product
development has been in the areas of technology and telecommunications.
Companies in these sectors have been active in providing quick and easy access
to the Internet, wireless communications and cable services. The Fund took
advantage of these technological advances by investing in small companies that
are developing the Internet infrastructure, making better wireless products and
seeking ways to offer important parts of bundled communication services to
businesses and consumers. Bundled services may include traditional telephone
service, Internet access, cable television and cellular telephone service.
Because investors favored technology and telecommunication stocks,
Your Fund's 10 Largest Sectors -- 12/31/99
% of
Sector Net Assets
- --------------------------------------------------------------------------------
1. Computer Software & Services 19.1
- --------------------------------------------------------------------------------
2. Electronics 7.5
- --------------------------------------------------------------------------------
3. Drugs & Health Care 6.0
- --------------------------------------------------------------------------------
4. Broadcasting 5.9
- --------------------------------------------------------------------------------
5. Telecommunication 5.5
- --------------------------------------------------------------------------------
6. Internet Content 4.8
- --------------------------------------------------------------------------------
7. Retail 4.5
- --------------------------------------------------------------------------------
8. Telecommunications Equipment 4.4
- --------------------------------------------------------------------------------
9. Business Services 3.8
- --------------------------------------------------------------------------------
10. Petroleum Services 3.0
- --------------------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
4
<PAGE>
NVEST STAR SMALL CAP FUND
================================================================================
- --------------------------------------------------------------------------------
other, more traditional areas of the market suffered. The returns on
manufacturing, finance, and consumer staples stocks lagged those of stocks in
the high-tech sector of the market.
The Fund's portfolio managers
Star Small Cap Fund's multi-manager approach to investing ensures it has
exposure to opportunities in different market areas at all times. The RS
Investment Management segment of the Fund was heavily invested in technology and
telecommunication stocks. It led the Fund's other segments in performance. The
Loomis Sayles segment, which emphasizes young, aggressive companies with dynamic
earnings growth, also benefited from a focus on technology and
telecommunication. The Montgomery segment was more diversified among market
sectors and produced more modest returns in 1999. The Oakmark/Harris segment,
which follows a value strategy, generated the poorest performance for the year
because value stocks remained out of favor with investors.
Our outlook
As we move into 2000, we believe economic fundamentals of strong growth and
relatively low inflation will continue. We also think the market may retain its
preference for technology and telecommunication stocks. This narrowness in the
market may prevail until there is a catalyst for change, which could come in the
form of additional interest-rate hikes by the Federal Reserve Board. If interest
rates rise significantly, the valuations of growth companies may become more
difficult to justify because higher interest rates are geared to slow economic
growth. Should this happen, we believe that value stocks, which have been
overlooked by investors, may benefit. Value stocks emphasize asset value today
rather than earnings growth tomorrow, and they are less influenced by the
prospects for higher inflation and interest rates. Because of its multi-manager
approach, your Fund is positioned to participate no matter which direction the
market takes.
The 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. Stock funds fluctuate in
value and, when redeemed, may be worth more or less than their original cost.
Star Small Cap Fund may invest in foreign and emerging market securities which
may involve special risks. The Fund may invest in higher yielding, lower-rated
bonds, which may involve greater risk. Small capitalization companies may be
subject to more abrupt price movements, limited markets and less liquidity than
larger, more established companies. The Fund may invest in REITS which are
subject to changes in underlying real estate values, rising interest rates and
mortgage prepayment risks. This Fund may invest in derivative securities for
hedging purposes. The risks may increase share volatility. See the Fund's
prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock-- 94.0% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Aerospace & Defense--0.2%
15,000 Moog, Inc. (c) ................................ $ 405,000
------------
Apparel & Textiles--0.2%
45,000 Reebok International, Ltd. (c) ................ 368,438
------------
Automotive--0.2%
25,000 Standard Motor Products, Inc. ................. 403,125
------------
Banks & Thrifts--1.3%
4,600 Bank United Corp. ............................. 125,350
35,937 BankAtlantic Bancorp, Inc. .................... 148,240
13,600 Commercial Federal Corp. ...................... 242,250
40,000 Golden State Bancorp, Inc. (c) ................ 690,000
25,000 Hudson City Bancorp, Inc. ..................... 335,938
30,000 Northwest Bancorp, Inc. ....................... 208,125
30,000 People's Bank ................................. 633,750
18,400 Staten Island Bancorp, Inc. ................... 331,200
------------
2,714,853
------------
Broadcasting--5.9%
13,100 Acme Communications, Inc. ..................... 435,575
1 AT&T Corp. -
Liberty Media Group (c) ..................... 57
19,300 Citadel Communications Corp. (c) .............. 1,252,087
21,400 Cumulus Media, Inc. (c) ....................... 1,086,050
3,500 EchoStar Communications Corp. (c) ............. 341,250
14,300 Entercom Communications Corp. (c) ............. 943,800
60,000 LodgeNet Entertainment Corp. .................. 1,492,500
8,650 Radio One, Inc. ............................... 795,800
17,700 Radio Unica Corp. ............................. 511,088
30,000 TCI Satellite Entertainment, Inc. (c) ......... 480,000
21,100 UnitedGlobalCom, Inc. ......................... 1,490,187
38,000 Westwood One, Inc. (c) ........................ 2,888,000
13,000 Wink Communications, Inc. ..................... 780,813
------------
12,497,207
------------
Building & Related--0.9%
26,100 Elcor Corp. ................................... 786,263
12,300 Granite Construction, Inc. .................... 226,781
25,800 Manitowoc Co. ................................. 877,200
------------
1,890,244
------------
Business Services--3.8%
13,800 Administaff, Inc. (c) ......................... 417,450
100 Avert, Inc. ................................... 1,281
3,900 Catalina Marketing Corp. (c) .................. 451,425
15,750 Diamond Technology Partners, Inc. ............. 1,353,516
50,000 HA-LO Industries, Inc. (c) .................... 375,000
17,950 Macrovision Corp. ............................. 1,328,300
30,000 On Assignment, Inc. (c) ....................... 896,250
15,400 Proxicom, Inc. ................................ 1,914,412
135,000 SITEL Corp. ................................... 945,000
15,000 Superior Consultant Holdings Corp. ............ 213,750
17,900 Tetra Tech, Inc. (c) .......................... 275,213
------------
8,171,597
------------
Chemicals--0.3%
30,000 Ferro Corp. ................................... 660,000
------------
Communication Equipment--0.2%
1,200 Sycamore Networks, Inc. ....................... 369,600
------------
Communication Services--1.1%
49,800 American Mobile Satellite Corp. ............... 1,048,912
10,000 Covad Communications Group, Inc. .............. 559,375
14,000 Powerwave Technologies, Inc. (c) .............. 817,250
------------
2,425,537
------------
Computer Networking--0.6%
2,200 Foundry Networks, Inc. ........................ 663,713
1,700 Juniper Networks, Inc. ........................ 578,000
------------
1,241,713
----------
Computer Software
& Services--19.1%
17,300 Acxiom Corp. (c) .............................. 415,200
3,600 Allaire Corp. ................................. 526,725
5,000 Art Technology Group, Inc. .................... 640,625
10,000 Aware, Inc. ................................... 363,750
40,000 bamboo.com, Inc. .............................. 662,500
9,200 Breakaway Solutions, Inc. ..................... 671,600
4,400 Business Objects S.A. (ADR) (c) ............... 587,950
25,000 CIBER, Inc. (c) ............................... 687,500
8,300 Clarify, Inc. (c) ............................. 1,045,800
27,000 Commtouch Software, Ltd. ...................... 1,311,188
51,300 Concentric Network Corp. (c) .................. 1,580,681
7,300 Cysive, Inc. .................................. 526,056
21,700 Datastream Systems, Inc. ...................... 533,006
39,175 Dendrite International, Inc. .................. 1,327,053
30,000 DSET Corp. .................................... 1,121,250
7,100 E-Stamp Corp. ................................. 157,975
3,150 E.piphany, Inc. ............................... 702,844
16,000 eGain Communications Corp. .................... 604,000
25,000 Evolving Systems Inc. ......................... 212,500
30,000 FileNet Corp. (c) ............................. 765,000
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Computer Software
& Services--continued
18,800 General Magic, Inc. ........................... $ 72,850
5,900 Genesys Telecommunications
Laboratory, Inc. (c) ........................ 318,600
40,000 Geoworks Corp. ................................ 670,000
40,000 INSO Corp. .................................... 1,290,000
30,000 IntraNet Solutions, Inc. ...................... 1,110,000
53,000 JDA Software Group (c) ........................ 867,875
27,500 Macromedia, Inc. (c) .......................... 2,010,937
20,300 Mercury Interactive Corp. (c) ................. 2,191,131
29,500 Metamor Worldwide, Inc. ....................... 859,188
1,900 Metasolv Software, Inc. ....................... 155,325
22,200 MICROS Systems, Inc. (c) ...................... 1,642,800
20,000 National Data Corp. ........................... 678,750
11,900 Netegrity, Inc. ............................... 677,556
22,500 Network Access Solutions Corp. ................ 742,500
8,000 Optimal Robotics Corp. ........................ 298,000
8,900 Packeteer, Inc. ............................... 631,900
6,500 Portal Software Inc. .......................... 668,688
12,600 Sanchez Computer Associates, Inc. ............. 518,963
22,500 SeaChange International, Inc. ................. 795,938
5,500 Silknet Software, Inc. ........................ 911,625
32,500 Stamps.com, Inc. .............................. 1,352,812
32,500 Symantec Corp. (c) ............................ 1,905,312
90,000 The 3DO Co. ................................... 818,438
10,000 TSI International Software, Ltd. .............. 566,250
7,000 VeriSign, Inc. (c) ............................ 1,336,563
52,500 Verity, Inc. (c) .............................. 2,234,531
16,500 Worldgate Communications, Inc. ................ 784,781
------------
40,554,516
------------
Computers &
Business Equipment--2.1%
21,400 Concurrent Computer Corp. ..................... 399,912
6,200 Kronos, Inc. (c) .............................. 372,000
12,300 Media 100, Inc. ............................... 325,181
35,700 Pinnacle Systems, Inc. (c) .................... 1,452,544
216,657 United Shipping
and Technology, Inc. ........................ 1,733,256
25,000 United Shipping and
Technology, Inc., Unregistered (d) .......... 160,000
------------
4,442,893
------------
Computer Hardware--0.5%
4,300 CacheFlow, Inc. ............................... 561,956
45,000 Micron Electronics, Inc. (c) .................. 500,625
------------
1,062,581
------------
Consumer Goods & Services--1.5%
19,500 Education Management Corp. (c) ................ 273,000
23,300 Playtex Products, Inc. (c) .................... 358,237
50,000 R.G. Barry Corp. (c) .......................... 196,875
30,000 Student Advantage, Inc. ....................... 665,625
30,000 ValueVision International, Inc. ............... 1,719,375
------------
3,213,112
------------
Diversified Conglomerates--0.3%
50,000 U.S. Industries, Inc. (c) ..................... 700,000
------------
Drugs & Health Care--6.0%
13,700 Abgenix, Inc. ................................. 1,815,250
15,500 Alkermes, Inc. ................................ 761,438
32,500 Catalytica, Inc. (c) .......................... 440,781
40,800 Duane Reade, Inc. (c) ......................... 1,124,550
33,000 Enzon, Inc. ................................... 1,431,375
28,300 Gilead Sciences, Inc. (c) ..................... 1,531,737
8,000 ICOS Corp. (c) ................................ 234,000
17,600 IDEC Pharmaceuticals Corp. (c) ................ 1,729,200
9,200 Invitrogen Corp. .............................. 552,000
7,800 Medimmune, Inc. (c) ........................... 1,293,825
12,500 Pharmacyclics, Inc. (c) ....................... 515,625
10,000 Protein Design Labs, Inc. ..................... 700,000
18,250 Tularik, Inc. ................................. 590,844
------------
12,720,625
------------
Electric Utilities--0.7%
4,200 Independent Energy
Holdings PLC (ADR) .......................... 139,912
39,100 Montana Power Co. ............................. 1,410,044
------------
1,549,956
------------
Electronic Components--2.1%
11,000 California Amplifier, Inc. .................... 289,438
11,600 Optical Coating Laboratory, Inc. (c) .......... 3,433,600
3,700 Plexus Corp. (c) .............................. 162,800
3,300 Sanmina Corp. (c) ............................. 329,587
10,500 Vishay Intertechnology, Inc. .................. 332,062
------------
4,547,487
------------
Electronics--7.5%
26,200 Advanced Energy Industries, Inc. (c) .......... 1,290,350
11,900 Applied Micro Circuits Corp. (c) .............. 1,514,275
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Electronics--continued
14,600 Credence Systems Corp. ........................ 1,262,900
9,000 Cree Research, Inc. (c) ....................... 768,375
16,000 Cymer, Inc. (c) ............................... 736,000
17,600 Emulex Corp. (c) .............................. 1,980,000
1,800 KLA-Tencor Corp. (c) .......................... 200,475
3,000 Lam Research Corp. (c) ........................ 334,688
28,050 LTX Corp. ..................................... 627,619
10,000 Photon Dynamics, Inc. ......................... 387,500
4,900 PMC-Sierra, Inc. (c) .......................... 785,531
17,200 Power Integrations, Inc. (c) .................. 824,525
31,300 PRI Automation, Inc. (c) ...................... 2,101,012
10,750 SDL, Inc. (c) ................................. 2,343,500
11,200 TranSwitch Corp. (c) .......................... 812,700
------------
15,969,450
------------
Entertainment--0.6%
18,200 CEC Entertainment, Inc. (c) ................... 516,425
13,100 SportsLine USA, Inc. .......................... 656,638
------------
1,173,063
------------
Financial Services--0.6%
10,000 Duff & Phelps Credit Rating Co. ............... 889,375
12,100 Profit Recovery
Group International, Inc. (c) ............... 321,406
------------
1,210,781
------------
Food & Beverages--1.0%
60,000 Del Monte Foods Co. ........................... 738,750
20,000 International Multifoods Corp. ................ 265,000
40,000 M&F Worldwide Corp. ........................... 202,500
40,000 Ralcorp Holdings, Inc. (c) .................... 797,500
31,200 Seminis, Inc. ................................. 196,950
------------
2,200,700
------------
Health Care -
Medical Technology--1.8%
12,550 ArthroCare Corp. .............................. 765,550
14,500 Cerus Corp. (c) ............................... 384,250
40,000 Closure Medical Corp. ......................... 515,000
20,000 Cytyc Corp. (c) ............................... 1,221,250
57,500 Endocardial Solutions, Inc. ................... 503,125
40,000 Hanger Orthopedic Group, Inc. ................. 400,000
------------
3,789,175
------------
Health Care - Services--1.2%
25,000 Cyberonics, Inc. .............................. 398,438
64,600 First Health Group Corp. (c) .................. 1,736,125
10,000 NovaMed Eyecare, Inc. ......................... 67,500
24,700 Oxford Health Plans, Inc. (c) ................. 313,381
------------
2,515,444
------------
Hotels & Restaurants--0.5%
50,000 Prime Hospitality Corp. (c) ................... 440,625
95,600 Steakhouse Partners, Inc. ..................... 579,575
------------
1,020,200
------------
Household Products--0.3%
11,400 WestPoint Stevens, Inc. ....................... 199,500
5,900 Whirlpool Corp. ............................... 383,869
------------
583,369
------------
Industrial
Goods & Services--1.2%
25,000 Columbus McKinnon Corp. ....................... 253,125
15,000 HB Fuller Co. ................................. 839,063
60,000 MagneTek, Inc. (c) ............................ 461,250
23,500 PerkinElmer, Inc. ............................. 979,656
------------
2,533,094
------------
Insurance--1.0%
10,000 PMI Group, Inc. ............................... 488,125
16,092 Radian Group, Inc. (c) ........................ 768,393
11,000 StanCorp Financial Group, Inc. (c) ............ 277,062
20,000 The MONY Group, Inc. .......................... 583,750
------------
2,117,330
------------
Internet Content--4.8%
15,000 24/7 Media, Inc. .............................. 843,750
3,700 Ask Jeeves, Inc. .............................. 417,869
180,769 billserv. com, Inc. (d) ....................... 1,280,640
150,769 billserv.com, Inc., Warrant (d) ............... 838,948
1,500 BroadVision, Inc. ............................. 255,094
3,240 DoubleClick, Inc. ............................. 819,922
24,000 EarthWeb, Inc. ................................ 1,207,500
12,200 Euro909.com (ADR) ............................. 335,500
8,800 Inktomi Corp. (c) ............................. 781,000
5,000 Internet Capital Group, Inc. .................. 850,000
7,000 NBC Internet, Inc. ............................ 540,750
6,000 Network Solutions, Inc. ....................... 1,305,375
10,200 S1 Corp. ...................................... 796,875
------------
10,273,223
------------
Investment Companies--0.1%
10,900 Waddell & Reed Financial, Inc. ................ 295,663
------------
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Leisure--0.4%
50,000 Coachmen Industries, Inc. ..................... $ 756,250
------------
Machinery--0.9%
18,600 Applied Power, Inc. ........................... 683,550
40,000 Jore Corp. .................................... 312,500
20,000 Northwest Pipe Co. (c) ........................ 280,000
47,300 Sames Corp. ................................... 733,150
------------
2,009,200
------------
Manufacturing--0.7%
15,000 Cognex Corp. (c) .............................. 585,000
12,500 SPX Corp. (c) ................................. 1,010,156
------------
1,595,156
------------
Oil & Gas/
Drilling Equipment--1.8%
19,300 Atwood Oceanics, Inc. (c) ..................... 745,463
50,000 Global Marine, Inc. (c) ....................... 831,250
97,800 Marine Drilling Companies, Inc. (c) ........... 2,194,387
------------
3,771,100
------------
Oil & Gas/
Exploration & Production--0.6%
40,000 EOG Resources, Inc. ........................... 702,500
11,300 Newfield Exploration Co. ...................... 302,275
41,700 Santa Fe Snyder Corp. ......................... 333,600
------------
1,338,375
------------
Paper & Forest Products--0.7%
16,200 Mead Corp. .................................... 703,688
15,400 Willamette Industries, Inc. ................... 715,137
------------
1,418,825
------------
Petroleum Services--3.0%
25,000 BJ Services Co. (c) ........................... 1,045,312
280,000 Bonus Resource Services Corp. ................. 455,837
35,000 ENSCO International, Inc. ..................... 800,625
12,500 Ensign Resource
Service Group, Inc. (CAD) ................... 290,094
29,500 Maverick Tube Corp. ........................... 728,281
27,600 R&B Falcon Corp. (c) .......................... 365,700
27,500 Teekay Shipping Corp. ......................... 438,281
49,100 UTI Energy Corp. .............................. 1,132,369
29,500 Varco International, Inc. (c) ................. 300,531
20,000 Weatherford International, Inc. ............... 798,750
------------
6,355,780
------------
Publishing--0.5%
50,000 Ziff-Davis, Inc. .............................. 1,050,000
------------
Real Estate--0.5%
60,000 Catellus Development Corp. (c) ................ 768,750
25,000 Trammell Crow Co. ............................. 290,625
------------
1,059,375
------------
Retail--4.5%
17,450 American Eagle Outfitters, Inc. ............... 785,250
8,200 Ames Department Stores, Inc. (c) .............. 236,263
27,150 AnnTaylor Stores Corp. (c) .................... 934,978
32,200 Charlotte Russe Holding, Inc. ................. 676,200
30,075 Cost Plus, Inc. (c) ........................... 1,071,422
35,000 Department 56, Inc. ........................... 791,875
151,300 Krause's Furniture, Inc. (c) .................. 434,987
43,100 Linens'n Things, Inc. (c) ..................... 1,276,837
20,000 Michaels Stores, Inc. ......................... 570,000
33,300 Pacific Sunwear of California (c) ............. 1,061,437
7,100 Talbots, Inc. ................................. 316,838
5,700 The Men's Wearhouse, Inc. (c) ................. 167,438
100,000 Ugly Duckling Corp. (c) ....................... 687,500
8,400 Ultimate Electronics, Inc. .................... 207,900
20,000 Value City Department Stores, Inc. ............ 302,500
------------
9,521,425
------------
Retail - Food & Drug--0.3%
20,000 Great Atlantic & Pacific Tea Co. .............. 557,500
1,000 Whole Foods Market, Inc. (c) .................. 46,375
------------
603,875
------------
Retail - Specialty--0.7%
140,000 Shop At Home, Inc. ............................ 1,391,250
19,300 SkyMall, Inc. ................................. 142,337
------------
1,533,587
------------
Semi-Conductors--1.2%
600 Broadcom Corp. ................................ 163,425
8,900 General Motors Corp., Class H ................. 854,400
110,000 Oak Technology, Inc. .......................... 1,038,125
15,000 Varian Semiconductor
Equipment Associates, Inc. .................. 510,000
------------
2,565,950
------------
Services--0.5%
15,100 HotJobs.com, Ltd. ............................. 659,681
30,000 ITT Educational Services, Inc. ................ 463,125
------------
1,122,806
------------
See accompanying notes to financial statements.
9
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock-- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Telecommunication--5.5%
17,500 Adelphia Business Solutions, Inc. ............. $ 840,000
20,000 BroadWing, Inc. ............................... 737,500
12,100 ESAT Telecom Group PLC (ADR) (c) .............. 1,107,150
8,600 FiberNet Telecom Group, Inc. .................. 130,075
23,100 ITC DeltaCom, Inc. (c) ........................ 638,138
17,400 Metromedia Fiber Network (c) .................. 834,112
20,600 Polycom, Inc. ................................. 1,311,962
91,400 Primus Telecomm Group, Inc. ................... 3,496,050
124,200 Startec Global
Communications Corp. ........................ 2,654,775
------------
11,749,762
------------
Telecommunication Equipment--4.4%
16,100 Advanced Radio Telecom Corp. .................. 386,400
22,600 Carrier Access Corp. (c) ...................... 1,521,262
11,000 Comverse Technology, Inc. (c) ................. 1,592,250
35,000 Digital Microwave Corp. (c) ................... 820,313
4,800 Ditech Communications Corp. ................... 448,800
6,000 Finisar Corp. ................................. 539,250
25,000 MRV Communications, Inc. (c) .................. 1,571,875
38,400 Sawtek, Inc. (c) .............................. 2,556,000
------------
9,436,150
------------
Waste Management--0.2%
22,000 Casella Waste Systems, Inc. (c) ............... 415,250
------------
Total Common Stock
(Identified Cost $136,443,510) ................ 199,922,842
------------
Preferred Stock-- 0.2%
- --------------------------------------------------------------------------------
Coal--0.2%
24,500 Westmoreland Coal Co., Preferred .............. 385,875
------------
Total Preferred Stock
(identified Cost $286,850) .................... 385,875
------------
Short Term Investments-- 5.1%
Principal
Amount
- --------------------------------------------------------------------------------
$ 121,000 Repurchase Agreement with State
Street Bank & Trust Co. dated
12/31/1999 at 2.50% to be
repurchased at $121,025 on
1/03/2000, collateralized by
$125,000 U.S. Treasury Bond
5.75% due 11/15/2000 with
a value of $125,469 ........................... 121,000
6,819,000 Repurchase Agreement with State
Street Bank & Trust Co. dated
12/31/1999 at 2.50% to be
repurchased at $6,820,421 on
1/03/2000, collateralized by
$6,755,000 U.S. Treasury Bond
6.75% due 8/15/2026
with a value of $6,966,094 .................... 6,819,000
3,967,000 Repurchase Agreement with State
Street Bank & Trust Co. dated
12/31/1999 at 3.25% to be
repurchased at $3,968,074 on
1/03/2000, collateralized by
$3,235,000 U.S. Treasury Bond
8.875% due 2/15/2019
with a value of $4,047,794 .................... 3,967,000
------------
Total Short Term Investments
(Identified Cost $10,907,000) ................. 10,907,000
------------
Total Investments--99.3%
(Identified Cost $147,637,360) (b) ............ 211,215,717
Other assets less liabilities ................. 1,565,317
------------
Total Net Assets--100% ........................ $212,781,034
============
(a) See Note 1a. of Notes to
Financial Statements.
(b) Federal Tax Information: At
December 31, 1999 the net
unrealized appreciation on
investments based on cost of
$149,013,319 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 ........................... $ 70,283,167
------------
Aggregate gross unrealized
depreciation for all investments
in which there is an excess of
tax cost over value ........................... (8,080,769)
------------
Net unrealized appreciation $ 62,202,398
------------
(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.
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.
CAD Denominated in Canadian Dollars.
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS & LIABILTIES
================================================================================
December 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $147,637,360) .............................. $211,215,717
Cash ............................................................................. 233,921
Investments held as collateral for loaned securities ............................. 6,781,818
Receivable for:
Fund shares sold ............................................................... 564,920
Securities sold ................................................................ 4,217,937
Dividends and interest ......................................................... 13,292
Unamortized organization expense ................................................. 17,107
-------------
223,044,712
LIABILITIES
Payable for:
Collateral on securities loaned, at value ...................................... $6,781,818
Securities purchased ........................................................... 3,043,124
Fund shares redeemed ........................................................... 106,219
Foreign withholding taxes ...................................................... 159
Accrued expenses:
Management fees ................................................................ 173,309
Deferred trustees' fees ........................................................ 25,739
Accounting and administrative .................................................. 7,878
Other expenses ................................................................. 125,432
-------------
10,263,678
-------------
NET ASSETS ......................................................................... $212,781,034
=============
Net Assets consist of:
Capital paid in ................................................................ $130,044,027
Undistributed (overdistributed) net investment income (loss) ................... (25,759)
Accumulated net realized gains (losses) ........................................ 19,184,389
Unrealized appreciation (depreciation) on investments .......................... 63,578,377
-------------
NET ASSETS ......................................................................... $212,781,034
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($84,725,074/3,617,642 shares of beneficial interest) ......................... $23.42
======
Offering price per share (100/94.25 of $23.42) ................................ $24.85*
======
Net asset value and offering price of Class B shares
($102,029,373/4,464,753 shares of beneficial interest) ........................ $22.85**
======
Net asset value and offering price of Class C shares
($26,026,587/1,139,065 shares of beneficial interest) ......................... $22.85**
======
</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
================================================================================
Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $746) ................................................. $ 312,699
Interest ................................................................................. 360,342
Securities lending income ................................................................ 57,411
------------
730,452
Expenses
Management fees ...................................................................... $ 1,492,557
Service fees - Class A ............................................................... 147,871
Service and distribution fees - Class B .............................................. 668,816
Service and distribution fees - Class C .............................................. 161,139
Trustees' fees and expenses .......................................................... 30,251
Accounting and administrative ........................................................ 47,197
Custodian and securities lending ..................................................... 267,826
Transfer agent ....................................................................... 571,761
Audit and tax services ............................................................... 44,300
Legal ................................................................................ 10,785
Printing ............................................................................. 39,208
Registration ......................................................................... 46,197
Amortization of organization expense ................................................. 8,906
Insurance ............................................................................ 2,400
Miscellaneous ........................................................................ 6,606
------------
Total expenses ........................................................................... 3,545,820
------------
Net investment loss ........................................................................... (2,815,368)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SECURITIES SOLD
SHORT, WRITTEN OPTIONS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments-- net ...................................................................... 39,479,016
Securities sold short-- net ............................................................ 94,613
Written options-- net .................................................................. 522,523
------------
Total realized gain (loss) on investments, securities sold
short and written options ................................................................ 40,096,152
------------
Unrealized appreciation (depreciation) on:
Investments-- net ...................................................................... 45,231,841
Securities sold short-- net ............................................................ 112,050
Written options-- net .................................................................. (44,222)
Foreign currency transactions-- net .................................................... 20
------------
Net unrealized appreciation (depreciation) on investments, securities sold short,
written options and foreign currency transactions ........................................ 45,299,689
------------
Net gain (loss) on investment transactions .................................................... 85,395,841
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......................................... $ 82,580,473
============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ..................................... $ (2,417,784) $ (2,815,368)
Net realized gain (loss) on investments,
securities sold short and written options ................... 1,618,726 40,096,152
Unrealized appreciation (depreciation) on investments, securities
sold short, written options and foreign currency transactions 2,707,927 45,299,689
------------- -------------
Increase (decrease) in net assets from operations ................ 1,908,869 82,580,473
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ...................................................... (72,914) (7,389,591)
Class B ...................................................... (81,808) (8,795,407)
Class C ...................................................... (19,163) (2,189,940)
------------- -------------
(173,885) (18,374,938)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS .......................... 12,594,454 15,593,441
------------- -------------
Total increase (decrease) in net assets ............................... 14,329,438 79,798,976
NET ASSETS
Beginning of the year ............................................ 118,652,620 132,982,058
------------- -------------
End of the year .................................................. $ 132,982,058 $ 212,781,034
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the year .................................................. $ (3,552) $ (25,759)
============= =============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------- ---------------------------------------
Year Ended December 31, Year Ended December 31,
--------------------------------------- ---------------------------------------
1997 1998 1999 1997 1998 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year (c) ........ $ 12.50 $ 15.37 $ 15.66 $ 12.50 $ 15.26 $ 15.43
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations
Net investment income (loss) (a) .............. (0.20) (0.23) (0.27) (0.30) (0.33) (0.39)
Net realized and unrealized gain on
investments ................................. 3.55 0.54 10.22 3.54 0.52 10.00
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations .............. 3.35 0.31 9.95 3.24 0.19 9.61
----------- ----------- ----------- ----------- ----------- -----------
Less distributions
Distributions from net realized
capital gains ............................... (0.48) (0.02) (2.19) (0.48) (0.02) (2.19)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions ........................... (0.48) (0.02) (2.19) (0.48) (0.02) (2.19)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of year .................. $ 15.37 $ 15.66 $ 23.42 $ 15.26 $ 15.43 $ 22.85
=========== =========== =========== =========== =========== ===========
Total return (%) (b) .......................... 27.0 2.1 65.4 26.1 1.3 64.1
Ratio of operating expenses to average
net assets (%) .............................. 2.20 2.07 2.06 2.95 2.82 2.81
Ratio of net investment income (loss)
to average net assets (%) ................... (1.44) (1.52) (1.54) (2.19) (2.27) (2.29)
Portfolio turnover rate (%) ................... 140 182 263 140 182 263
Net assets, end of year (000) ................. $ 52,066 $ 56,161 $ 84,725 $ 52,616 $ 61,409 $ 102,029
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(b) A sales charge in the case of Class A shares and a contingent deferred
sales charge in the case of Class B shares is not reflected in total return
calculations.
(c) Fund commenced operations on December 31, 1996.
See accompanying notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
--------------------------------------
Year Ended December 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period(c) .............. $ 12.50 $ 15.26 $ 15.43
---------- ---------- ----------
Income (loss) from investment operations
Net investment income (loss) (a) ..................... (0.30) (0.33) (0.39)
Net realized and unrealized gain (loss) on investments 3.54 0.52 10.00
---------- ---------- ----------
Total from investment operations ..................... 3.24 0.19 9.61
---------- ---------- ----------
Less distributions
Distributions from net realized capital gains ........ (0.48) (0.02) (2.19)
---------- ---------- ----------
Total distributions .................................. (0.48) (0.02) (2.19)
---------- ---------- ----------
Net asset value, end of year ......................... $ 15.26 $ 15.43 $ 22.85
========== ========== ==========
Total return (%) (b) ................................. 26.1 1.3 64.1
Ratio of operating expenses to average net assets (%) 2.95 2.82 2.81
Ratio of net investment income (loss)
to average net assets (%) ....................... (2.19) (2.27) (2.29)
Portfolio turnover rate (%) .......................... 140 182 263
Net assets, end of year (000) ........................ $ 13,970 $ 15,412 $ 26,027
</TABLE>
(a) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(b) A contingent deferred sales charge is not reflected in total return
calculations.
(c) Fund commenced operations on December 31, 1996.
See accompanying notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a series of Nvest Funds
(formerly known as New England 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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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. Short Sales. A short sale is a transaction in which the Fund sells securities
it does not own (but has borrowed) in anticipation of a decline in the market
price of the securities. When the Fund makes a short sale, the proceeds it
receives from the sale will be held on behalf of the broker effecting the sale
until the Fund replaces the borrowed securities. To deliver the securities to
the buyer, the Fund arranges through the broker to borrow the securities and, in
doing so, the Fund becomes obligated to replace the securities borrowed at their
market value at the time of replacement, whatever that price may be. The Fund
may have to pay a premium to borrow the securities and must pay any dividends or
interest payable on the borrowed securities until the securities are replaced.
At December 31, 1999, there were no short sales.
h. Short Sales Against the Box. In a short sale against the box, the Fund sells
a borrowed security, while at the same time owning an identical security in the
portfolio. While the short sale is outstanding, the Fund will not dispose of the
security hedged by the short sale.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
When the Fund sells short against the box, it will establish a margin account
with the broker lending the security sold short. While the short sale is
outstanding, the broker retains the proceeds of the short sale, and the Fund
pledges securities or cash as additional collateral. The Fund earns interest
from the broker on the proceeds of the short sale and accrues such interest on a
daily basis. At December 31, 1999, there were no short sales against the box.
i. Options. The Fund may use options to enhance investment return, or to hedge
against changes in the values of securities the Fund owns or expects to
purchase. Writing puts and buying calls tends to increase the Fund's exposure to
the underlying instrument and writing calls or buying puts tends to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of options contracts may not correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty is unable to perform.
The maximum loss for purchased options is limited to 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.
j. 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 year ended December 31, 1999,
purchases and sales of securities (excluding short-term investments) were
$358,651,236 and $368,077,297 respectively.
Transactions in written options for the year ended December 31, 1999 are
summarized as follows:
Written Options
-------------------------------
Number of Premiums
Contracts Received
----------- -----------
Open at December 31, 1998 .............. (50) $ (62,972)
Contracts opened ....................... (1,835) (1,445,682)
Contracts closed ....................... 1,885 1,508,654
----------- -----------
Open at December 31, 1999 .............. 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 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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
$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, 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, 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"),
formerly known as Nvest Investment Companies, L.P., which is a subsidiary of
Metropolitan Life Insurance Company. Fees earned by Nvest Management and the
subadvisers under the management and subadvisory agreements in effect during the
period ended December 31, 1999, are as follows:
Fees Earned
-----------
Nvest Management $ 649,355
Harris Associates, L.P. 176,418
Loomis, Sayles & Company, L.P. 220,509
Montgomery Asset Management, L.P. 170,613
RS Investment Management, L.P. 275,662
----------
$1,492,557
==========
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting, financial reporting
functions and clerical functions relating to the Fund and (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, registration of shares in various states, shareholder reports
and notices, proxy solicitation material furnished to shareholders of the Fund
or regulatory authorities and reports and questionnaires for SEC compliance. For
the year ended December 31, 1999, these expenses amounted to $47,197 and are
shown separately in the financial statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $424,301 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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $147,871 in fees under the Class A Plan.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 year ended December 31, 1999 the Fund paid Nvest
Funds $167,204 and $40,285 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
year ended December 31, 1999, the Fund paid Nvest Funds $501,612 and $120,854 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 year ended December
31, 1999 amounted to $519,834.
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 Year Ended December 31, 1999
4. Capital Shares. At December 31, 1999 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 December 31,
-----------------------------------------------------------
1998 1999
--------------------------- ----------------------------
Class A Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 10,007,052 $145,480,024 12,987,079 $223,593,397
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............ 5,652 69,350 338,833 7,092,084
------------ ------------ ------------ ------------
10,012,704 145,549,374 13,325,912 230,685,481
Shares repurchased .................................. (9,814,676) (142,857,804) (13,293,729) (229,357,906)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. 198,028 $ 2,691,570 32,183 $ 1,327,575
------------ ------------ ------------ ------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1999
--------------------------- ----------------------------
Class B Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 1,448,884 $ 21,668,586 997,712 $ 17,773,867
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............ 6,043 73,183 395,509 8,078,038
------------ ------------ ------------ ------------
1,454,927 21,741,769 1,393,221 25,851,905
Shares repurchased .................................. (923,148) (13,235,193) (908,070) (14,947,215)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. 531,779 $ 8,506,576 485,151 $ 10,904,690
------------ ------------ ------------ ------------
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1999
--------------------------- ----------------------------
Class C Shares Amount Shares Amount
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ......................................... 415,402 $ 6,261,996 432,575 $ 7,736,382
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ............ 1,496 18,135 94,832 1,937,150
------------ ------------ ------------ ------------
416,898 6,280,131 527,407 9,673,532
Shares repurchased .................................. (333,755) (4,883,823) (386,906) (6,312,356)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. 83,143 1,396,308 140,501 3,361,176
------------ ------------ ------------ ------------
Increase derived from capital shares transactions ... 812,950 $ 12,594,454 657,835 $ 15,593,441
============ ============ ============ ============
</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 4, 1999. 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 period ended December 31,
1999.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
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
December 31, 1999 the Fund loaned securities having a market value of $6,764,906
collateralized by United States Treasury Bonds with a market value of
$6,781,818.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees of Nvest Funds Trust I and the Shareholders of the Nvest Star
Small Cap Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest Star Small Cap Fund
(formerly the New England Star Small Cap Fund) (the "Fund"), a series of Nvest
Funds Trust I, at December 31, 1999, the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
23
<PAGE>
================================================================================
NVEST STAR WORLDWIDE FUND
(formerly New England Star Worldwide Fund)
Supplement Dated February 28, 2000 to Nvest Star Funds Class A, B, and C
Prospectus and Nvest Stock and Star Funds Class Y Prospectus each dated May 3,
1999 (as revised February 1, 2000)
On February 25, 2000, the Board of Trustees of Nvest Funds Trust I (the "Trust")
approved a new interim Subadvisory Agreement (the "Interim Agreement") relating
to Nvest Star Worldwide Fund (the "Fund") between Nvest Funds Management, L.P.
("Nvest Management"), the Fund's adviser, and Loomis, Sayles & Company, L.P.
("Loomis Sayles"). The Interim Agreement is effective as of February 28, 2000,
and will continue to be in effect for a period of 150 days or until shareholders
of the Fund approve a new Subadvisory Agreement between Nvest Management and
Loomis Sayles, whichever occurs first. Under the Interim Agreement, Loomis
Sayles succeeds Janus Capital Corporation, ("Janus") as the subadviser of the
segment of the Fund previously managed by Janus (the "Segment") and is
responsible for day-to-day management of the Segment's investment operations
under the oversight of Nvest Management. A special shareholder meeting will be
held in April to vote on the approval of a second, final Subadvisory Agreement
for the Fund between Nvest Management and Loomis Sayles, which was also approved
by the Board of Trustees of the Trust on February 25, 2000 (the "Final
Subadvisory Agreement"). The Final Subadvisory Agreement would replace the
Interim Agreement. A notice of the special shareholder meeting and a proxy
statement will be sent to shareholders in early March. In the event that the
Fund's shareholders do not approve the Final Subadvisory Agreement between Nvest
Management and Loomis Sayles at the special shareholder meeting, shareholders
will be notified and the Board of Trustees will consider alternative
arrangements for the management of the Segment's investment portfolio.
The annual subadvisory fee rates payable to Loomis Sayles under the Interim
Agreement and the Final Subadvisory Agreement are identical to those previously
paid to Janus to manage the Segment, which are 0.65% of the first $50 million of
the Segment's average daily net assets, 0.60% of such assets between $50 million
and $100 million and 0.55% of such assets in excess of $100 million.
In conjunction with Loomis Sayles becoming a subadviser to the Fund, the Fund's
Board of Trustees approved amendments to the Segment's investment strategies,
which will be effective at the close of business on February 25, 2000.
Accordingly, the subsection entitled "Janus" within the section entitled "Star
Worldwide Fund - More on Investment Strategies" page of the
24
<PAGE>
================================================================================
Prospectuses are revised as of such date by replacing such subsection with the
text set forth below.
Loomis Sayles
The segment of the Star Worldwide Fund managed by Loomis Sayles will invest at
least 65% of its assets in equity securities of companies headquartered outside
of the United States. The segment will hold securities from at least 3 different
countries including those within emerging markets. The segment will focus on
securities with large market capitalization but may invest in securities with
any size capitalization. The securities selected by Loomis Sayles for the
segment typically have the following characteristics:
o strong, competitive position in a particular industry
o strong pricing power
o strong distribution channels
o improving business or financial fundamentals
In making investment decisions, Loomis Sayles employs the following methods:
o Loomis Sayles uses a bottom-up, fundamental research process to build
the segment's portfolio.
o It looks for growth-oriented stocks of well-managed companies that
typically have the characteristics listed above.
o In addition to its bottom-up approach to security selection, an
overlay of country and industry macro-economic data is used to provide
guidelines for portfolio weighting with a view towards minimizing
portfolio risk.
o The strong Loomis Sayles research team is combined with a global
network of research contacts to provide a steady stream of information
and ideas.
o Loomis Sayles will sell a position when the fundamental outlook is
deteriorating or when other more favorable opportunities arise.
In the section entitled "Meet the Funds' Investment Adviser and Subadvisers,"
the first sentence of the text entitled "Janus" under the heading "Subadvisers"
is revised to read as follows:
Janus Capital, located at 100 Fillmore Street, Denver, Colorado 80206, serves as
subadviser to a segment of the Star Advisers Fund. In this same section, the
first sentence of the text entitled "Loomis Sayles" is revised to read as
follows:
Loomis Sayles, located at One Financial Center, Boston, Massachusetts, 02111,
serves as subadviser to a segment of the Star Advisers Fund, Star Small Cap Fund
and Star Worldwide Fund.
25
<PAGE>
================================================================================
In the section entitled "Meet the Funds' Portfolio Managers," the biographical
information on Helen Young Hayes and Laurence Chang under the heading "Star
Advisers Fund" is replaced with the following:
Alexander Muromcew
Alexander Muromcew has served as co-portfolio manager for the Loomis Sayles
segment of Nvest Star Worldwide Fund since February 28, 2000. He is also a
co-portfolio manager for Nvest International Equity Fund, Loomis Sayles
International Equity Fund, Loomis Sayles Emerging Markets Fund and the
International Equities sector of Loomis Sayles Worldwide Fund. Prior to joining
Loomis Sayles, Mr. Muromcew was a portfolio manager at Nicholas Applegate
Capital Management since 1996. Prior to 1996, Mr. Muromcew held positions with
Jardine Fleming Securities in Japan, Emerging Markets Investors Corporation and
Teton Partners L.P. He received a M.B.A. from Stanford University and his B.A.
from Dartmouth College.
John Tribolet
John Tribolet has served as co-portfolio manager for the Loomis Sayles segment
of Nvest Star Worldwide Fund since February 28, 2000. He is also a co-portfolio
manager for Nvest International Equity Fund, Loomis Sayles International Equity
Fund, Loomis Sayles Emerging Markets Fund and the International Equities sector
of Loomis Sayles Worldwide Fund. Prior to joining Loomis Sayles, Mr. Tribolet
was a portfolio manager for European Equities at Nicholas Applegate Capital
Management since 1997. From 1995 to 1997 he was a full time M.B.A. student at
the University of Chicago. Prior to 1995, he spent three years in the investment
banking industry, most recently at Paine Webber Inc. He received his B.S. from
Columbia University.
Eswar Menon
Eswar Menon has served as co-portfolio manager for the Loomis Sayles segment of
Nvest Star Worldwide Fund since February 28, 2000. He is also a co-portfolio
manager for Nvest International Equity Fund, Loomis Sayles International Equity
Fund, Loomis Sayles Emerging Markets Fund and the International Equities sector
of Loomis Sayles Worldwide Fund. Prior to joining Loomis Sayles, Mr. Menon was
the Portfolio Manager for Emerging Countries at Nicholas Applegate Capital
Management since 1995. Prior to his position at Nicholas Applegate Capital
Management, he spent five years with Koeneman Capital Management and Integrated
Device Technology. Mr. Menon received a M.B.A. from the University of Chicago
and a M.S. from the University of California. He received his B.S. from Indian
Institute of Technology, Madras, India.
26
<PAGE>
================================================================================
NVEST STAR ADVISERS FUND
Supplement dated February 1, 2000 to Nvest Star Funds Class A, B and C
Prospectus and Nvest Stock and Star Funds Class Y Prospectus each dated May 3,
1999 (as updated or revised through February 1, 2000)
Effective immediately, the segment of the Fund subadvised by Loomis Sayles will
be managed by Joseph R. Gatz and Dawn Alston Paige, as lead portfolio manager
and co-portfolio manager, respectively. They replace Mary C. Champagne and
Jeffrey C. Petherick.
Accordingly, in the section entitled "Meet the Funds' Portfolio Managers" the
biographical information on Ms. Champagne and Mr. Petherick under the heading
"Star Advisers Fund" is replaced with the following:
Joseph R. Gatz
Joseph R. Gatz has served as lead portfolio manager of the Loomis Sayles segment
of Star Advisers Fund since January 2000. Mr. Gatz, Vice President of Loomis
Sayles, joined the firm in 1999. He is also co-portfolio manager of Loomis
Sayles Mid-Cap Value Fund and lead portfolio manager of Loomis Sayles Small Cap
Value Fund. Prior to joining Loomis Sayles in 1999, Mr. Gatz was a portfolio
manager at Banc One Investment Advisers Corporation and certain of its corporate
predecessors since 1993. He received a M.B.A. from Indiana University and a B.A.
from Michigan State University and has 15 years of investment experience.
Dawn Alston Paige
Dawn Alston Paige has served as co-portfolio manager of the Loomis Sayles
segment of Star Advisers Fund since January 2000. Ms. Alston Paige, Vice
President of Loomis Sayles, joined the firm in 1992. She is also co-portfolio
manager of Loomis Sayles Mid-Cap Value Fund and co-portfolio manager of Loomis
Sayles Small Cap Value Fund. She received a M.B.A. from University of Michigan
and a B.S. from Virginia Commonwealth University and has eight years of
investment experience.
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.]
The Power of Monthly Investing
$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.
<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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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)
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
SC56-1299
[LOGO] Printed on Recycled Paper
<PAGE>
ANNUAL REPORT
================================================================================
[LOGO] Nvest Funds (SM)
Where The Best Minds Meet (R)
- --------------------------------------------------------------------------------
Nvest Value Fund
Where
The Best
Minds Meet (R)
- -----------------
December 31, 1999
- -----------------
<PAGE>
================================================================================
February 2000
- --------------------------------------------------------------------------------
[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers."
After serving as Executive Vice President for Sales and Marketing since 1998, I
became President of Nvest Funds late last year. Bruce Speca, my predecessor, has
moved on to head up a new Internet venture affiliated with the parent company of
our funds. It's especially exciting for me to be assuming my new
responsibilities as we begin a new century and introduce a new identity for our
fund family.
We expect 2000 to be a year of innovation, as we work on new investment options
for you, our shareholders, and your financial advisers. At the same time, our
commitment to bringing you funds led by some of the Best Minds in the industry
remains our core business principle.
A new name, the same Best Minds
On February 1, New England Funds became Nvest Funds. We chose this new name
primarily to emphasize our affiliation with Nvest Companies, L.P., our corporate
parent and a major financial organization with over $133 billion in assets under
management (as of 12/31/99) through 18 affiliated companies.
The companies that comprise Nvest represent a breadth of investment resources
and experience that is difficult to match. As an Nvest affiliate, we call on an
impressive roster of Best Minds to manage our funds. The recent addition of the
Kobrick Funds to our fund family extends that tradition.
1999 in review
Last year, the market focused on technology companies and large-capitalization
growth stocks. Value-oriented equity investors are still waiting for a shift in
investor sentiment, and bond investors felt the negative price impact of rising
interest rates. The following pages discuss how your fund's managers addressed
those challenges. Short-term results notwithstanding, I believe most investors
would do well to own an array of investment types in a well thought-out asset
allocation plan.
I look forward to working with you and your financial adviser as you invest
toward your personal goals. For our part, we are committed to supporting you
with quality investment products and outstanding customer service.
/s/ John T. Hailer
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
NVEST VALUE FUND
================================================================================
Investment Results Through December 31, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and 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.]
December 1989 through December 1999
Net Asset Maximum Sales Russell 1000
Value (1) Charge (2) Value (4)
--------- ------------- ------------
12/99 $ 29,756 $ 28,033 $ 42,616
12/98 31,969 30,130 39,699
12/97 29,858 28,141 34,332
12/96 24,686 23,266 25,398
12/95 19,544 18,420 20,879
12/94 14,770 13,921 15,092
12/93 14,978 14,117 15,398
12/92 12,803 12,067 13,036
12/91 10,978 10,347 11,454
12/90 8,637 8,140 9,192
12/89 10,000 9,425 10,000
10,000 9,425 10,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
1
<PAGE>
NVEST VALUE FUND
================================================================================
Average Annual Total Returns -- 12/31/99
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A (Inception 6/5/70) 1 Year 5 Years 10 Years
<S> <C> <C> <C> <C>
Net Asset Value(1) -6.92% 15.04% 11.52%
With Maximum Sales Charge(2) -12.27 13.69 10.86
- -----------------------------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1) -7.61% 14.17% 11.82%
With CDSC(3) -11.41 13.93 11.82
- -----------------------------------------------------------------------------------------------------
Class C (Inception 12/30/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -7.60% 14.19% 14.18%
With CDSC(3) -8.36 14.19 14.18
- -----------------------------------------------------------------------------------------------------
Class Y (Inception 3/31/94) 1 Year 5 Years Since Inception
Net Asset Value(1) -6.72% 15.32% 13.66%
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since Since Since
Comparative Performance Fund's Fund's Fund's
Class B Class C Class Y
1 Year 5 Years 10 Years Incept. Incept. Incept.
<S> <C> <C> <C> <C> <C> <C>
Russell 1000 Value(4) 7.35% 23.07% 15.60% 17.64% 23.07% 20.11%
Morningstar Large Value Average(5) 6.59 19.31 13.95 15.60 19.42 17.26
Lipper Multi-Cap Value Average(6) 7.73 18.47 13.26 14.91 18.48 16.41
- -----------------------------------------------------------------------------------------------------
</TABLE>
Notes to Charts
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. The Fund's current subadviser began managing the Fund on July 1,
1996. Results for earlier periods reflect performances under previous
subadvisers. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance represents the percent change in net
asset value per share with all distributions reinvested. Returns would have
been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance represents the percent change in net
asset value per share with all distributions reinvested and reflects the
maximum sales charge of 5.75% at the time of purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance for Class B shares
represents the percent change in net asset value per share with all
distributions reinvested and assumes that a maximum 5.00% sales charge is
applied to redemptions. The sales charge will decrease over time, declining
to zero six years after the purchase of shares. With CDSC performance for
Class C shares assumes a maximum 1.00% sales charge on redemptions within
the first year of purchase.
(4) Russell 1000 Value Index is an unmanaged index measuring the performance of
those Russell 1000 companies with lower price-to-book ratios and lower
forecasted growth values. The performance of the index has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments. It is not possible to
invest directly in an index. Class B since inception return is calculated
from 9/30/93.
(5) Morningstar Large Value Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service. Class 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., an independent mutual fund ranking
service. Class B since inception return is calculated from 9/30/93.
2
<PAGE>
NVEST VALUE FUND
================================================================================
Interview with Your Portfolio Managers
- --------------------------------------------------------------------------------
[PHOTO]
[PHOTO]
Jeff Wardlow
Lauriann Kloppenburg
Loomis, Sayles &
Company
Q. Please tell us about Value Fund's performance results for 1999.
For the year ended December 31, 1999, the Fund's Class A shares returned
-6.92% at net asset value. This return includes reinvested distributions of
$1.55. The Fund lagged the 7.35% return of the Russell 1000 Value Index,
the Fund's benchmark index for the performance of value stocks.
Q. What was the market environment during the period?
The markets began last year much as they had ended 1998 -- with gains
coming from large-capitalization growth stocks and a range of
technology-based issues. Technology stocks were particularly robust, buoyed
by strong growth prospects in the telecom and Internet sectors. Growth and
sustainability of that growth were prized and valuation levels crept higher
and higher.
By spring, the bubbling domestic economy threatened to trigger inflation and the
market began worrying about possible interest rate hikes. High price-to-earnings
ratios -- a measure of how expensive a company's stocks is in terms of its
earnings -- become vulnerable as interest rates rise. Investors suddenly
wondered if valuations for large-cap growth stocks had become excessive and
turned their attention to issues in other sectors of the market.
The ensuing rally in value stocks -- one of the sharpest on record -- lasted
only through April and May. Rate worries were soon validated. The Federal
Reserve Board raised short-term rates in June; two more increases would follow.
But despite higher rates, Wall Street's mood reversed again over the summer.
This time the concentration on large-capitalization stocks was even narrower,
with the technology sector the unquestioned darling of investors.
3
<PAGE>
NVEST VALUE FUND
================================================================================
- --------------------------------------------------------------------------------
Q. Given that environment, what strategies did you pursue?
Our view early in the year was that brighter conditions overseas, coupled
with continued domestic strength would provide a better outlook for the
companies in the traditional value sectors of the market, such as
chemicals, papers, metals, capital goods and energy. Valuation levels for
the market had reached such extreme levels that we expected last year's
winners to take a rest. Therefore, we focused our efforts on identifying
undervalued stocks with improving fundamentals, paying particular attention
to valuation. This approach turned out badly, despite the fact that our
economic expectations were achieved. Valuation turned out to be less
important than current earnings and price momentum -- the notion that a
rising stock will go on rising until something happens to change its
course.
Q. What factors or investments affected performance the most, either
positively or negatively?
We looked for "low expectation" stocks -- those toward which the market was
indifferent or even negative -- with improving fundamentals that were not
yet generally recognized. The quest was challenging and frustrating. Stocks
with low expectations turned out to deserve them, and those with improving
fundamentals were neither undiscovered nor inexpensive by traditional
measures. In short, there was a dearth of our traditional bread-and-butter
stocks.
Your Fund's 10 Largest Holdings -- 12/31/99
% of
Company Net Assets
- -----------------------------------------------------------------------
1. Exxon Mobil Corp. 4.4
- -----------------------------------------------------------------------
2. Citigroup, Inc. 3.8
- -----------------------------------------------------------------------
3. BellSouth Corp. 3.4
- -----------------------------------------------------------------------
4. SBC Communications, Inc. 2.9
- -----------------------------------------------------------------------
5. Bell Atlantic Corp. 2.7
- -----------------------------------------------------------------------
6. Chase Manhattan 2.4
- -----------------------------------------------------------------------
7. AT&T Corp. 2.4
- -----------------------------------------------------------------------
8. Bank America Corp. 2.0
- -----------------------------------------------------------------------
9. General Motors Corp. 2.0
- -----------------------------------------------------------------------
10. Morgan Stanley Dean Witter & Co. 2.0
- -----------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
4
<PAGE>
NVEST VALUE FUND
================================================================================
- --------------------------------------------------------------------------------
Our focus on valuation hurt performance across all sectors. Technology was the
biggest disappointment, despite its relatively small size in the portfolio. Here
we did well with IBM, but this gain was more than offset by losses in what
seemed undervalued stocks like Xerox, Raytheon and Compaq. The terrain for
consumer cyclical stocks was filled with land mines and we were hurt by our
positions in some mid-sized stocks like retailer TJX, appliance maker Black and
Decker, and Hasbro, a toy manufacturer.
More positively, the Fund benefited from its overweight position in energy
stocks, as OPEC effectively controlled oil supply while the stronger global
economy was generating increased demand. Higher oil prices boosted the earnings
prospects for Royal Dutch/Petroleum, Exxon Mobil and Conoco. The strengthening
global backdrop was also a positive for our positions in Dow Chemical and Alcoa.
Financials are the mainstay of the Fund and here we had good success in regional
and money center banks (Wells Fargo, Citigroup), only to be disappointed with
our insurance selections, especially Ace Limited and Hartford Financial
Services. Despite a choppy 1999, we see strong potential in this sector, as the
restrictive 1930s-era Glass Steagall regulations come down. We anticipate a
rapid consolidation phase within the industry, creating larger, more efficient
financial services companies and attractive possibilities for the Fund's
portfolio.
Q. What is your outlook for this year?
We believe the U.S. economy will remain strong, at least in the first half of
the year, and that recovery will continue in Europe and Asia. Meanwhile, the
Federal Reserve Board will not relax its vigilance; any suggestion of renewed
inflation will be met with further interest rate increases.
For the Fund, we are taking the view that the focus on earnings growth will
continue to overshadow traditional value measures. For that reason, we are
fine-tuning our approach in order to give equal weight to value and to earnings
momentum as we analyze candidates for the portfolio.
The 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.
The Fund invests in foreign securities. Investing in foreign securities involves
special risks. These risks may increase share price volatility. See the Fund's
prospectus for details.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of December 31, 1999
Common Stock -- 99.0% of Total Net Assets
Shares Description Value (a)
- --------------------------------------------------------------------------------
Aerospace--1.1%
50,000 Boeing Co. ....................................... $2,078,125
15,000 United Technologies Corp. ........................ 975,000
-----------
3,053,125
-----------
Aerospace & Defense--0.4%
20,000 Northrop Grumman Corp. ........................... 1,081,250
-----------
Auto & Related--2.5%
50,000 Dana Corp. ....................................... 1,496,875
78,000 General Motors Corp. ............................. 5,669,625
-----------
7,166,500
-----------
Banks--13.1%
115,000 Bank America Corp. ............................... 5,771,562
45,000 Bank of New York Company, Inc. ................... 1,800,000
90,000 Chase Manhattan Corp. ............................ 6,991,875
110,000 CIT Group, Inc. .................................. 2,323,750
70,000 Comerica, Inc. ................................... 3,268,125
160,000 FleetBoston Financial Corp. ...................... 5,570,000
100,000 PNC Bank Corp. ................................... 4,450,000
90,000 U.S. Bancorp ..................................... 2,143,125
140,000 Wells Fargo & Co. ................................ 5,661,250
-----------
37,979,687
-----------
Broadcasting--2.1%
45,000 AT&T Corp. - Liberty Media Group (c) ............. 2,553,750
45,000 MediaOne Group, Inc. (c) ......................... 3,456,562
-----------
6,010,312
-----------
Building & Related--1.0%
55,000 Black & Decker Corp. ............................. 2,873,750
-----------
Business Services--1.5%
52,000 Dun & Bradstreet Corp. ........................... 1,534,000
55,000 First Data Corp. ................................. 2,712,187
-----------
4,246,187
-----------
Chemicals-Major--3.7%
30,000 Dow Chemical Co. ................................. 4,008,750
26,261 E.l. du Pont de Nemours & Co. .................... 1,729,943
38,000 Praxair, Inc. .................................... 1,911,875
75,000 Rohm & Haas Co. .................................. 3,051,563
-----------
10,702,131
Computer Hardware--3.2%
20,000 Apple Computer, Inc. (c) ......................... 2,056,250
105,000 Compaq Computer Corp. ............................ 2,841,562
16,000 Hewlett-Packard Co. .............................. 1,823,000
24,000 International Business Machines Corp. ............ 2,592,000
-----------
9,312,812
-----------
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Construction Equipment--1.3%
30,000 Caterpillar, Inc. ................................ $1,411,875
45,000 Ingersoll-Rand Co. ............................... 2,477,813
----------
3,889,688
----------
Containers-Metal/Glass--0.7%
80,000 Owens Illinois, Inc. (c) ......................... 2,005,000
----------
Domestic Oil--6.9%
25,000 Chevron Corp. .................................... 2,165,625
160,000 Exxon Mobil Corp. ................................ 12,890,000
30,000 Texaco, Inc. ..................................... 1,629,375
140,000 USX-Marathon Group 3,456,250
----------
10,141,250
----------
Drugs & Health Care--1.7%
40,000 Bristol-Myers Squibb Co. ......................... 2,567,500
50,000 Pharmacia & Upjohn, Inc. ......................... 2,250,000
----------
4,817,500
----------
Electric Utilities--4.1%
28,000 Duke Power Co. ................................... 1,403,500
57,000 Edison International ............................. 1,492,688
38,000 NSTAR ............................................ 1,539,000
150,000 PECO Energy Co. .................................. 5,212,500
65,000 Texas Utilities Co. .............................. 2,311,562
----------
1,959,250
----------
Electronics--3.6%
52,000 Emerson Electric Co. ............................. 2,983,500
40,000 Intel Corp. ...................................... 3,292,500
28,000 Motorola, Inc. ................................... 4,123,000
----------
10,399,000
----------
Financial-Consumer/Diversified--8.4%
200,000 Citigroup, Inc. .................................. 11,112,500
90,000 Federal National Mortgage Association ............ 5,619,375
100,000 ReliaStar Financial Corp. ........................ 3,918,750
108,000 The FINOVA Group, Inc. ........................... 3,834,000
----------
24,484,625
----------
Foods--1.3%
175,000 Sara Lee Corp. ................................... 3,860,938
----------
Forest Products--1.4%
57,000 International Paper Co. .......................... 3,216,938
20,000 Willamette Industries, Inc. ...................... 928,750
----------
4,145,688
----------
Health Care - Services--1.6%
200,000 Tenet Healthcare Corp. (c) ....................... 4,700,000
----------
See accompanying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Household Products--1.7%
60,000 Kimberly-Clark Corp. ............................. $3,915,000
40,000 Newell Rubbermaid, Inc. .......................... 1,160,000
----------
5,075,000
----------
Insurance--4.1%
130,000 ACE, Ltd. ........................................ 2,169,375
42,000 Allstate Corp. ................................... 1,008,000
45,000 American International Group, Inc. ............... 4,865,625
110,000 AXA Financial, Inc. .............................. 3,726,250
----------
11,769,250
----------
Investment Banking/Broker/Management--1.3%
23,000 Lehman Brothers Holdings, Inc. ................... 1,947,813
50,000 Paine Webber Group, Inc. ......................... 1,940,625
----------
3,888,438
----------
Investment Companies--2.0%
40,000 Morgan Stanley Dean Witter & Co. ................. 5,710,000
----------
Leisure--2.0%
150,000 Hasbro, Inc. ..................................... 2,859,375
100,000 Walt Disney Co. .................................. 2,925,000
----------
5,784,375
----------
Liquor--0.7%
30,000 Anheuser-Busch Companies, Inc. ................... 2,126,250
----------
Machinery--1.0%
40,000 Eaton Corp. ...................................... 2,905,000
----------
Manufacturing--1.0%
30,000 Minnesota Mining & Manufacturing Co. ............. 2,936,250
----------
Metals & Mining--0.9%
31,200 Alcoa, Inc. ...................................... 2,589,600
----------
Natural Gas--2.3%
55,500 Columbia Gas Systems, Inc. ....................... 3,510,375
45,000 El Paso Energy Corp. ............................. 1,746,562
35,000 Enron Corp. ...................................... 1,553,125
----------
6,810,062
----------
Oil & Gas/Drilling Equipment--1.1%
85,000 Baker Hughes, Inc. ............................... 1,790,313
40,000 Transocean Sedco Forex, Inc. ..................... 1,347,500
----------
3,137,813
----------
Oil & Gas/Major Integrated--2.4%
140,000 Conoco, Inc. ..................................... 3,465,000
60,000 Royal Dutch Petroleum Co. ........................ 3,626,250
----------
7,091,250
----------
See accompanying notes to financial statements.
8
<PAGE>
PORTFOLIO COMPOSITION -- continued
================================================================================
Investments as of December 31, 1999
Common Stock -- continued
Shares Description Value (a)
- --------------------------------------------------------------------------------
Photography-Imaging--0.5%
60,000 Xerox Corp. ....................................... $1,361,250
-----------
Publishing--1.1%
40,000 Gannett Co. ....................................... 3,262,500
-----------
Restaurants--1.0%
70,000 McDonald's Corp. .................................. 2,821,875
-----------
Retail - General Merchandise--0.7%
40,000 Federated Department Stores, Inc.(c) .............. 2,022,500
-----------
Retail - Grocery--0.7%
100,000 Kroger Co. (c) .................................... 1,887,500
-----------
Retail - Specialty--0.8%
110,000 TJX Companies, Inc. ............................... 2,248,125
-----------
Telecommunication--8.9%
125,000 Bell Atlantic Corp. ............................... 7,695,312
210,000 BellSouth Corp. ................................... 9,830,625
170,000 SBC Communications, Inc. .......................... 8,287,500
-----------
25,813,437
-----------
Telecommunication-Long Distance--4.7%
135,000 AT&T Corp. ........................................ 6,851,250
70,500 MCI Worldcom, Inc. (c) ............................ 3,740,906
45,000 Sprint Corp. (c) .................................. 3,029,063
-----------
13,621,219
-----------
Tobacco--0.4%
50,000 Philip Morris Companies, Inc. ..................... 1,159,375
-----------
Total Common Stock (Identified Cost $266,032,542) ........ 286,849,762
-----------
<TABLE>
<CAPTION>
Short Term Investment -- 1.0%
Principal Amount
- -----------------------------------------------------------------------------------------------------
<S> <C>
$ 2,885,799 Associates First Capital Corp., 4.000%, 1/03/2000 ....................... 2,885,799
------------
Total Short Term Investments (Identified Cost $2,885,799) ............... 2,885,799
------------
Total Investments--100% (Identified Cost $268,918,341) (b) .............. 289,735,561
Other assets less liabilities ........................................... 104,554
------------
Total Net Assets--100% .................................................. $289,840,115
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1999 the net unrealized appreciation on investments based
on cost of $268,987,006 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 ................................................. $ 40,969,222
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over value ................................................. (20,220,667)
------------
Net unrealized appreciation ...................................................... $ 20,748,555
============
(c) Non-income producing security.
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $ 268,918,341) ................ $ 289,735,561
Receivable for:
Fund shares sold .................................................. 110,063
Securities sold ................................................... 5,937,919
Dividends and interest ............................................ 321,306
-------------
296,104,849
LIABILITIES
Payable for:
Securities purchased .............................................. $ 4,465,521
Fund shares redeemed .............................................. 1,417,546
Accrued expenses:
Management fees ................................................... 184,307
Deferred trustees' fees ........................................... 81,628
Accounting and administrative ..................................... 16,675
Other ............................................................. 99,057
-------------
6,264,734
-------------
NET ASSETS $ 289,840,115
=============
Net Assets consist of:
Capital paid in ................................................... $ 274,375,731
Undistributed (overdistributed) net investment income (loss) ...... (16,077)
Accumulated net realized gain (loss) .............................. (5,336,759)
Unrealized appreciation (depreciation) on investments ............. 20,817,220
-------------
NET ASSETS ............................................................. $ 289,840,115
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($216,739,510/29,093,599 shares of beneficial interest) ............. $ 7.45
=======
Offering price per share 100/94.25 of $7.45) ........................... $ 7.90*
=======
Net asset value and offering price of Class B shares
($59,497,151/8,345,572 shares of beneficial interest) ............... $ 7.13**
=======
Net asset value and offering price of Class C shares
($3,398,023/476,073 shares of beneficial interest) .................. $ 7.14**
=======
Net asset value, offering and redemption price of Class Y shares
($10,205,431/1,375,355 shares of beneficial interest) ............... $ 7.42
=======
</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.
10
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of $38,020) ...................... $ 5,738,190
Interest ......................................................... 217,489
------------
5,955,679
Expenses
Management fees ................................................ $ 2,627,025
Service fees - Class A ......................................... 674,343
Service and distribution fees - Class B ........................ 740,246
Service and distribution fees - Class C ........................ 49,847
Trustees' fees and expenses .................................... 15,109
Accounting and administrative .................................. 103,852
Custodian ...................................................... 105,422
Transfer agent ................................................. 862,873
Audit and tax services ......................................... 31,490
Legal .......................................................... 16,281
Printing ....................................................... 52,204
Registration ................................................... 54,610
Insurance ...................................................... 6,804
Miscellaneous .................................................. 9,700
------------
Total expenses ................................................. 5,349,806
------------
Net investment income .......................................... 605,873
------------
REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS
Realized gain (loss) on investments -- net ....................... 40,961,789
Unrealized appreciation (depreciation) on investments -- net ..... (67,081,156)
------------
Net gain (loss) on investment transactions ....................... (26,119,367)
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............... $(25,513,494)
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1999
---------------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .......................................... $ 673,271 $ 605,873
Net realized gain (loss) on investments ........................ 43,925,834 40,961,789
Unrealized appreciation (depreciation) on investments .......... (16,546,350) (67,081,156)
------------- -------------
Increase (decrease) in net assets from operations ................ 28,052,755 (25,513,494)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ........................................................ (637,468) (604,075)
Class B ........................................................ 0 0
Class C ........................................................ 0 0
Class Y ........................................................ (71,186) (53,329)
Net realized gain (loss) on investments
Class A ........................................................ (33,246,881) (35,285,726)
Class B ........................................................ (9,056,118) (10,111,504)
Class C ........................................................ (724,000) (584,148)
Class Y ........................................................ (2,185,299) (1,629,464)
In excess of net realized gain
Class A ........................................................ 0 (3,757,859)
Class B ........................................................ 0 (1,076,855)
Class C ........................................................ 0 (62,211)
Class Y ........................................................ 0 (173,535)
------------- -------------
(45,920,952) (53,338,706)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS .......................... (13,439,982) (59,686,617)
------------- -------------
Total increase (decrease) in net assets ............................. (31,308,179) (138,538,817)
NET ASSETS
Beginning of the year ............................................ 459,687,111 428,378,932
------------- -------------
End of the year .................................................. $ 428,378,932 $ 289,840,115
============= =============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS)
End of the year .................................................. $ 87,947 $ (16,077)
============= =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............... $ 7.27 $ 8.78 $ 9.60 $ 10.14 $ 9.68
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income (Loss) ......................... 0.10 0.06 0.03 0.03(b) 0.03
Net Realized and Unrealized Gain
(Loss) on Investments .............................. 2.21 2.12 1.96 0.59 (0.71)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ..................... 2.31 2.18 1.99 0.62 (0.68)
----------- ----------- ----------- ----------- -----------
Less Distributions
Dividends From Net Investment Income ................. (0.09) (0.06) (0.02) (0.02) (0.02)
Distributions From Net Realized
Capital Gains ........................................ (0.71) (1.30) (1.43) (1.06) (1.38)
Distributions in Excess of Net Realized Gains ........ 0.00 0.00 0.00 0.00 (0.15)
----------- ----------- ----------- ----------- -----------
Total Distributions .................................. (0.80) (1.36) (1.45) (1.08) (1.55)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of the Year ..................... $ 8.78 $ 9.60 $ 10.14 $ 9.68 $ 7.45
=========== =========== =========== =========== ===========
Total Return (%) (a) ................................. 32.3 26.3 21.0 7.1 (6.9)
Ratio of Operating Expenses to
Average Net Assets (%) ............................. 1.37 1.31 1.25 1.26 1.33
Ratio of Net Investment Income to
Average Net Assets (%) ............................. 1.22 0.78 0.28 0.29 0.32
Portfolio Turnover Rate(%) ........................... 52 64 55 75 70
Net Assets, End of the Year (000) .................... $ 241,038 $ 297,581 $ 348,988 $ 317,902 $ 216,740
</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.
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............... $ 7.23 $ 8.70 $ 9.47 $ 9.91 $ 9.38
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income (Loss) ......................... 0.05 0.01 (0.05) (0.05)(b) (0.04)
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 2.18 2.07 1.92 0.58 (0.68)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ..................... 2.23 2.08 1.87 0.53 (0.72)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income ................. (0.05) (0.01) 0.00 0.00 0.00
Distributions From Net Realized Capital Gains ........ (0.71) (1.30) (1.43) (1.06) (1.38)
Distributions in Excess of Net Realized Gains ........ 0.00 0.00 0.00 0.00 (0.15)
---------- ---------- ---------- ---------- ----------
Total Distributions .................................. (0.76) (1.31) (1.43) (1.06) (1.53)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year ..................... $ 8.70 $ 9.47 $ 9.91 $ 9.38 $ 7.13
========== ========== ========== ========== ==========
Total Return (%) (a) ................................. 31.3 25.4 20.0 6.3 (7.6)
Ratio of Operating Expenses to Average
Net Assets (%) ..................................... 2.12 2.06 2.00 2.01 2.08
Ratio of Net Investment Income to Average
Net Assets (%) ..................................... 0.47 0.03 (0.47) (0.46) (0.43)
Portfolio Turnover Rate (%) .......................... 52 64 55 75 70
Net Assets, End of the Year (000) .................... $ 27,941 $ 48,210 $ 80,008 $ 86,243 $ 59,497
</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.
See accompanying notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ...................... $ 7.23 $ 8.70 $ 9.46 $ 9.92 $ 9.39
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................................ 0.05 0.01 (0.05)(b) (0.05)(b) (0.04)
Net Realized and Unrealized Gain on Investments ............. 2.18 2.06 1.94 0.58 (0.68)
--------- --------- --------- --------- ---------
Total From Investment Operations ............................ 2.23 2.07 1.89 0.53 (0.72)
--------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........................ (0.05) (0.01) 0.00 0.00 0.00
Distributions From Net Realized Capital Gains ............... (0.71) (1.30) (1.43) (1.06) (1.38)
Distributions in Excess of Net Realized Gains ............... 0.00 0.00 0.00 0.00 (0.15)
--------- --------- --------- --------- ---------
Total Distributions ......................................... (0.76) (1.31) (1.43) (1.06) (1.53)
--------- --------- --------- --------- ---------
Net Asset Value, End of the Year ............................ $ 8.70 $ 9.46 $ 9.92 $ 9.39 $ 7.14
========= ========= ========= ========= =========
Total Return (%) (a) ........................................ 31.3 25.2 20.2 6.3 (7.6)
Ratio of Operating Expenses to Average Net Assets(%) ........ 2.12 2.06 2.00 2.01 2.08
Ratio of Net Investment Income to Average Net Assets(%) ..... 0.47 0.03 (0.47) (0.46) (0.43)
Portfolio Turnover Rate (%) ................................. 52 64 55 75 70
Net Assets, End of the Year (000) ........................... $ 1,224 $ 3,735 $ 6,527 $ 6,445 $ 3,398
</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.
See accompanying notes to financial statements.
15
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
Class Y
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ............. $ 7.24 $ 8.75 $ 9.55 $ 10.10 $ 9.65
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............................. 0.12 0.08 0.06(a) 0.06(a) 0.06
Net Realized and Unrealized Gain
on Investments ................................... 2.21 2.10 1.95 0.59 (0.71)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ................... 2.33 2.18 2.01 0.65 (0.65)
---------- ---------- ---------- ---------- ----------
Less Distributions
Dividends From Net Investment Income ............... (0.11) (0.08) (0.03) (0.04) (0.05)
Distributions From Net Realized Capital Gains ...... (0.71) (1.30) (1.43) (1.06) (1.38)
Distributions in Excess of Net Realized Gains ...... 0.00 0.00 0.00 0.00 (0.15)
---------- ---------- ---------- ---------- ----------
Total Distributions ................................ (0.82) (1.38) (1.46) (1.10) (1.58)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Year ................... $ 8.75 $ 9.55 $ 10.10 $ 9.65 $ 7.42
========== ========== ========== ========== ==========
Total Return (%) ................................... 32.8 26.4 21.3 7.4 (6.7)
Ratio of Operating Expenses to
Average Net Assets (%) ........................... 1.12 1.06 1.00 1.01 1.08
Ratio of Net Investment Income to Average
Net Assets (%) ................................... 1.47 1.03 0.53 0.54 0.57
Portfolio Turnover Rate (%) ........................ 52 64 55 75 70
Net Assets, End of the Year ........................ $ 6,738 $ 12,716 $ 24,164 $ 17,789 $ 10,205
</TABLE>
(a) Per share net investment income has been calculated using the average
shares outstanding during the year.
See accompanying notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Year Ended December 31, 1999
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds
(formerly known as New England 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 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
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 Year Ended December 31, 1999
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 year ended December 31, 1999
purchases and sales of securities (excluding short-term investments) were
$250,268,254 and $357,571,610 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 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. Fees earned by Nvest Management and Loomis
Sayles under the management and subadvisory agreements in effect during the year
ended December 31, 1999 are as follows:
Fees Earned
-----------
Nvest Management $ 992,511
Loomis Sayles 1,634,514
The effective annualized management fee for the year ended December 31, 1999 was
0.73%.
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 reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses,
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
registration of shares in various states, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance. For the year
ended December 31, 1999 these expenses amounted to $103,852 and are shown
separately in the financial statements as accounting and administrative.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the year ended December 31, 1999, the Fund paid NSC $665,219 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, 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 year ended December 31, 1999, the
Fund paid Nvest Funds $674,343 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
December 31, 1999 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 year ended December 31, 1999 the Fund paid Nvest
Funds $185,062 and $12,462 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
year ended December 31, 1999 the Fund paid Nvest Funds $555,184 and $37,385 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 year ended December
31, 1999 amounted to $603,680.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
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 December 31, 1999 there was an unlimited number of shares
of beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital shares. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------- -----------------------------
Class A Shares Amount Shares Amount
------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................. 3,168,405 $ 32,743,000 2,346,397 $ 22,300,459
Shares issued in connection with the reinvestment of:
Dividends from net investment income ....................... 69,256 643,647 75,122 577,581
Distributions from net realized gain ....................... 3,576,328 32,683,737 5,074,919 38,315,721
--------- ------------- --------- -------------
6,813,989 66,070,384 7,496,438 61,193,761
Shares repurchased ........................................... (8,406,922) (84,819,119) (11,234,478) (104,215,629)
--------- ------------- --------- -------------
Net increase (decrease) ...................................... (1,592,933) $ (18,748,735) (3,738,040) $ (43,021,868)
--------- ------------- --------- -------------
<CAPTION>
Year Ended
--------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------- -----------------------------
Class B Shares Amount Shares Amount
------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................. 627,075 $ 7,599,849 1,053,267 $ 9,458,092
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 2,182,049 19,416,320 1,475,509 10,666,215
--------- ------------- --------- -------------
2,809,124 27,016,169 2,528,776 20,124,307
Shares repurchased ............................................. (1,691,995) (16,635,319) (3,374,257) (29,996,708)
--------- ------------- --------- -------------
Net increase (decrease) ........................................ 1,117,129 $ 10,380,850 (845,481) $ (9,872,401)
--------- ------------- --------- -------------
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------- -----------------------------
Class C Shares Amount Shares Amount
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................. 228,311 $ 2,343,603 100,723 $ 920,756
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 77,541 687,252 85,269 618,538
305,852 3,030,855 185,992 1,539,294
Shares repurchased ........................................... (277,675) (2,693,021) (395,961) (3,583,052)
Net increase (decrease) ...................................... 28,177 $ 337,834 (209,969) $ (2,043,758)
<CAPTION>
Year Ended
--------------------------------------------------------------
December 31,1998 December 31, 1999
------------------------- -----------------------------
Class Y Shares Amount Shares Amount
------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................................. 440,251 $ 4,617,366 365,082 $ 3,446,134
Shares issued in connection with the reinvestment of:
Dividends from net investment income ....................... 5,510 52,176 6,962 53,329
Distributions from net realized gain ....................... 243,400 2,204,301 239,878 1,802,999
689,161 6,873,843 611,922 5,302,462
Shares repurchased ........................................... (1,238,799) (12,283,774) (1,079,849) (10,051,052)
Net increase (decrease) ...................................... (549,638) $ (5,409,931) (467,927) $ (4,748,590)
Increase (decrease) derived from capital
shares transactions ............................................ (997,265) $(13,439,982) (5,261,416) $(59,686,617)
</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 4, 1999. 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 year ended December 31,
1999.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Trustees Nvest Funds Trust I and the Shareholders of the Nvest Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio composition and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Nvest Value Fund (formerly the
New England Value Fund) (the "Fund"), a series of Nvest Funds Trust I, at
December 31, 1999, the results of its operations, the changes in its net assets
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
22
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Glossary for Mutual Fund Investors
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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.
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REGULAR INVESTING PAYS
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Five Good Reasons to Invest Regularly
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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 FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
The Power of Monthly Investing
$100 $200 $500
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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.
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NVEST FUNDS
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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
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
*An investment in the Fund is not insured
or guaranteed by the FDIC
or any other 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.
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[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
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399 Boylston Street
Boston, Massachusetts
02116
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VL56-1299
[LOGO] Printed on Recycled Paper
