<PAGE>
Registration Nos. 33-62061
811-7345
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 14 [X]
(Check appropriate box or boxes.)
NVEST FUNDS TRUST III
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street
Boston, Massachusetts 02116
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code (617) 578-1132
John E. Pelletier, Esq.
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, Massachusetts 02116
---------------------------------------
(Name and Address of Agent for Service)
Copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
NVESTFUNDS(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest
STOCK FUNDS
(graphic omitted]
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY
Nvest Capital Growth Fund
Westpeak Investment Advisors, L.P.
Nvest Growth Fund
Capital Growth Management
Limited Partnership
Nvest Growth and Income Fund
Westpeak Investment Advisors, L.P.
Nvest Balanced Fund
Loomis, Sayles & Company, L.P.
ALL-CAP EQUITY
Nvest Equity Income Fund
Vaughan, Nelson, Scarborough & McCullough, L.P
INTERNATIONAL EQUITY
Nvest International Equity Fund
Loomis, Sayles & Company, L.P.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved any Fund's
shares or determined whether this Prospectus is accurate or complete. Anyone
who tells you otherwise is committing a crime.
For general information on the Funds or any of their services and for
assistance in opening an account, contact your financial representative or
call Nvest Funds.
PROSPECTUS
May 1, 2000
WHAT'S INSIDE
Goals, Strategies & Risks
[GRAPHIC OMITTED] Page 1
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Fund Fees & Expenses
[GRAPHIC OMITTED] Page 13
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Management Team
[GRAPHIC OMITTED] Page 16
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Fund Services
[GRAPHIC OMITTED] Page 19
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Fund Performance
[GRAPHIC OMITTED] Page 31
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Nvest Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
www.nvestfunds.com
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GOALS, STRATEGIES & RISKS
- --------------------------------------------------------------------------------
Nvest Capital Growth Fund ................................................. 1
Nvest Growth Fund ......................................................... 3
Nvest Growth and Income Fund .............................................. 5
Nvest Balanced Fund ....................................................... 7
Nvest Equity Income Fund .................................................. 9
Nvest International Equity Fund ........................................... 11
- --------------------------------------------------------------------------------
FUND FEES & EXPENSES
- --------------------------------------------------------------------------------
Fund Fees & Expenses ...................................................... 13
- --------------------------------------------------------------------------------
MORE ABOUT RISK
- --------------------------------------------------------------------------------
More About Risk ........................................................... 15
- --------------------------------------------------------------------------------
MANAGEMENT TEAM
- --------------------------------------------------------------------------------
Meet the Funds' Investment Advisers and Subadvisers ....................... 16
Meet the Funds' Portfolio Managers ........................................ 17
- --------------------------------------------------------------------------------
FUND SERVICES
- --------------------------------------------------------------------------------
Investing in the Funds .................................................... 19
How Sales Charges Are Calculated .......................................... 20
Ways to Reduce or Eliminate Sales Charges ................................. 21
It's Easy to Open an Account .............................................. 22
Buying Shares ............................................................. 23
Selling Shares ............................................................ 24
Selling Shares in Writing ................................................. 25
Exchanging Shares ......................................................... 26
Restrictions on Buying, Selling and Exchanging Shares ..................... 26
How Fund Shares Are Priced ................................................ 27
Dividends and Distributions ............................................... 28
Tax Consequences .......................................................... 28
Compensation to Securities Dealers ........................................ 29
Additional Investor Services .............................................. 30
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Nvest Capital Growth Fund ................................................. 31
Nvest Growth Fund ......................................................... 32
Nvest Growth and Income Fund .............................................. 33
Nvest Balanced Fund ....................................................... 34
Nvest Equity Income Fund .................................................. 35
Nvest International Equity Fund ........................................... 36
Glossary of Terms ......................................................... 37
If you have any questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
To learn more about the possible risks of investing in a Fund, please refer to
the section entitled "More About Risk." This section details the risks of
practices in which the Funds may engage. Please read this section carefully
before you invest.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
<PAGE>
<TABLE>
<S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST CAPITAL GROWTH FUND Stability Income Growth
High X
ADVISER: Nvest Funds Management, L.P. ("Nvest Management") --------- ------ ------
SUBADVISER: Westpeak Investment Advisors, L.P. ("Westpeak") Mod. X
MANAGER: Gerald H. Scriver --------- ------ ------
CATEGORY: Large-Cap Equity Low X
TICKER SYMBOL: CLASS A CLASS B CLASS C
------- ------- -------
NEFCX NECBX NECGX
</TABLE>
INVESTMENT GOAL
The Fund seeks long-term capital growth.
The Fund's investment goal may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in common stock of U.S. large and mid-capitalization companies in any
industry.
Westpeak constructs a portfolio of large and mid-capitalization stocks that
exhibit reasonable growth potential. Westpeak believes risk and return can be
accurately measured and controlled through thoughtful portfolio construction.
Therefore its focus will be on the aggregate characteristics of the portfolio
and not just individual stocks. The portfolio emphasizes the characteristics
that Westpeak believes are most likely to be rewarded by the market in the
period ahead based upon current and historical probabilities. Westpeak will seek
to construct a portfolio of growth stocks with reasonable relative valuation.
The Fund's industry weightings will not vary significantly from the Russell 1000
Growth Index.
Using proprietary quantitative research based on macroeconomic, market and
company-specific information, Westpeak analyzes each stock and ranks it based on
characteristics such as:
x earnings growth
x potential earnings surprises
x earnings-to-price
x earnings momentum
In selecting investments for the Fund's portfolio, Westpeak employs the
following process:
o It starts with the Russell 3000 Growth Index of about 1,800 stocks and
generally eliminates stocks of companies below a $600 million market
capitalization threshold. This creates an overall universe of about 1,200
stocks, with approximately 90% of its capitalization from the Russell 1000
Growth Index (comprised of large and medium capitalization companies) and 10%
from the Russell 2000 Growth Index (comprised of small capitalization
companies).
o Next, it screens these stocks using fundamental growth and value criteria and
calculates a "fundamental rank" for each stock. This rank reflects a
historical analysis of the company using approximately 70 growth, value and
industry characteristics.
o All of the stocks are then screened using various Wall Street analysts'
historical and projected earnings estimates for the company and each is
assigned an "expectations rank." This rank accounts for the company's recent
and historical earnings revisions and the potential for "positive earnings
surprises" (whether its business has the potential to improve in the near
future).
o The fundamental and expectations rank for each stock are placed in a valuation
matrix to evaluate whether to buy, sell or hold a stock.
o The final step is the use of proprietary methodology to arrange the selected
stocks into an optimal portfolio using their respective fundamental and
expectation ranks and risk characteristics.
The desired result is a diversified portfolio of 75 to 125 stocks that Westpeak
believes will produce the highest long-term returns and characteristics similar
to that of the Fund's benchmark, the Russell 1000 Growth Index.
The Fund may:
o Hold up to 10% of its assets in smaller capitalization companies.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of capital gains, which
may lower your return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in a stock's value or periods of
below-average performance in a given stock or in the stock market as a whole.
Growth stocks are generally more sensitive to market movements than other
types of stocks, primarily because their stock prices are based heavily on
future expectations. Small capitalization companies may be subject to more
abrupt price movements, limited markets and less liquidity than larger, more
established companies, which could adversely affect the value of the
portfolio."
<PAGE>
Goals, Strategies & Risks [graphic omitted]
-------------------------
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Capital Growth Fund by showing changes in the Fund's performance from
year to year and by showing how the Fund's average annual returns for one-year,
five-year and since-inception periods compare with those of a broad measure of
market performance and those of indices of funds with similar objectives. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The Fund's current subadviser assumed that function on February 16,
1998. This chart and table reflect results achieved by the previous subadviser
using different investment principles for periods prior to February 16, 1998.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this Prospectus differ from the Class A returns
shown in the bar chart, depending upon the respective expenses of each class.
The chart does not reflect any sales charge that you may be required to pay when
you buy or redeem the Fund's shares. A sales charge will reduce your return.
(total return)
1993 7.89%
1994 -1.64%
1995 30.76%
1996 17.05%
1997 17.23%
1998 29.08%
1999 24.74%
/\ Highest Quarterly Return: Fourth Quarter 1998, up 24.26%.
\/ Lowest Quarterly Return: Third Quarter 1998, down 11.67%.
The table below shows the Fund's average annual total returns for the one-year,
five-year and since-inception periods compared to those of the Russell 1000
Growth Index, an unmanaged subset of stocks from the larger Russell 1000 Index,
selected for their greater growth orientation. They are also compared to the
Morningstar Large Growth and Lipper Multi-Cap Growth Averages, each an average
of the total returns of all mutual funds with an investment style similar to
that of the Fund as calculated by Morningstar, Inc. and Lipper, Inc. The Fund
previously compared its returns to the broad Lipper category in which the Fund
was categorized. In 1999, Lipper Inc. narrowed their existing categories and
created additional categories and the Fund falls within the Lipper Multi-Cap
Growth Average, one of the newly created categories. You may not invest directly
in an index. The Fund's total returns reflect its expenses and the maximum sales
charge that you may pay when you buy or redeem the Fund's shares. The Russell
1000 Growth Index returns have not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual fund
investments. The Morningstar Large Growth Average and Lipper Multi-Cap Growth
Average returns have been adjusted for these expenses but do not reflect any
sales charges.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999) SINCE CLASS
PAST 1 YEAR PAST 5 YEARS INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nvest Capital Growth Fund: Class A (inception 8/3/92) 17.57% 22.17% 17.58%
Russell 1000 Growth Index 33.16% 32.41% 22.82%
Morningstar Large Growth Average (calculated from 7/31/92) 38.63% 28.74% 21.78%
Lipper Multi-Cap Growth Average (calculated from 7/31/92) 52.30% 28.55% 21.67%
Nvest Capital Growth Fund: Class B (inception 9/13/93) 18.81% 22.41% 17.77%
Russell 1000 Growth Index 33.16% 32.41% 26.48%
Morningstar Large Growth Average (calculated from 9/30/93) 38.63% 28.74% 23.07%
Lipper Multi-Cap Growth Average (calculated from 9/30/93) 52.30% 28.55% 21.73%
Nvest Capital Growth Fund: Class C (inception 12/30/94) 22.81% 22.59% 22.58%
Russell 1000 Growth Index 33.16% 32.41% 32.41%
Morningstar Large Growth Average 38.63% 28.74% 29.66%
Lipper Multi-Cap Growth Average 52.30% 28.55% 28.55%
- ----------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST GROWTH FUND Stability Income Growth
High X
ADVISER: Capital Growth Management Limited Partnership ("CGM") --------- ------ ------
MANAGER: G. Kenneth Heebner Mod.
CATEGORY: Large-Cap Equity --------- ------ ------
Low X X
TICKER SYMBOL: CLASS A CLASS B CLASS C
-----------------------------
NEFGX NEBGX NEGCX
</TABLE>
INVESTMENT GOAL
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.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in a focused portfolio of equity securities. The Fund will generally
invest in common stock of large capitalization companies that CGM expects will
grow at a faster rate than the United States economy. When CGM believes that
market conditions warrant, however, CGM may select stocks based upon overall
economic factors such as the general economic outlook, the level and direction
of interest rates and potential impact of inflation. The Fund will not invest in
small capitalization companies.
In general, CGM seeks companies with the following characteristics, although not
all of the companies selected will have these attributes:
x well-established with records of above-average growth
x promise of maintaining their leadership positions in their industries
x likely to benefit from internal revitalization or innovations, changes in
consumer demand, or basic economic forces
Rather than following a particular style, CGM employs a flexible approach and
seeks to take advantage of opportunities as they arise. In making an investment
decision, CGM generally employs the following methods:
o It uses a top-down approach, meaning that it analyzes the overall economic
factors that may affect a potential investment.
o CGM then conducts a thorough analysis of certain industries and companies,
evaluating the fundamentals of each on a case-by-case basis and focusing on
companies that it determines are attractively valued.
o CGM's ultimate decision to purchase a security results from a thorough
assessment of all of the information that CGM deems to be relevant at the time
of investment.
o CGM will sell a stock if it determines that its investment expectations are
not being met, if better opportunities are identified or if its price
objective has been attained.
The Fund may:
o Invest in foreign securities.
o Invest in other investment companies.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower your return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Although the Fund is diversified, its focused approach means that its
relatively small number of holdings may result in greater share price
fluctuations than a more diversified mutual fund. Growth stocks are generally
more sensitive to market movements than other types of stocks, primarily
because their stock prices are based heavily on future expectations.
INVESTMENTS IN OTHER INVESTMENT COMPANIES: May incur extra costs in addition to
its own expenses.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
<PAGE>
Goals, Strategies & Risks [graphic omitted]
-------------------------
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Capital Growth Fund by showing changes in the Fund's performance from
year to year and by showing how the Fund's average annual returns for one-year,
five-year and since-inception periods compare with those of a broad measure of
market performance and those of indices of funds with similar objectives. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this Prospectus differ from the Class A returns
shown in the bar chart, depending upon the respective expenses of each class.
The chart does not reflect any sales charge that you may be required to pay when
you buy or redeem the Fund's shares. A sales charge will reduce your return.
(total return)
1990 5.26%
1991 56.72%
1992 -6.63%
1993 11.29%
1994 -7.05%
1995 38.06%
1996 20.88%
1997 23.54%
1998 33.40%
1999 15.18%
/\ Highest Quarterly Return: Fourth Quarter 1998, up 28.51%
\/ Lowest Quarterly Return: Third Quarter 1998, down 18.07%
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class' inception if shorter)
compared to those of the Standard & Poor's Composite Index of 500 Stocks ("S&P
500"), a market value-weighted, unmanaged index of common stock prices for 500
selected stocks. They are also compared to the Morningstar Large Blend and
Lipper Large-Cap Core Averages, each an average of the total returns of all
mutual funds with an investment style similar to that of the Fund as calculated
by Morningstar, Inc. and Lipper, Inc. The Fund previously compared its returns
to the broad Lipper category in which the Fund was categorized. In 1999, Lipper
Inc. narrowed their existing categories and created additional categories and
the fund falls within Lipper Large-Cap Core Average, one of the newly created
categories.You may not invest directly in an index. The Fund's total returns
reflect its expenses and the maximum sales charges that you may pay when you buy
or redeem the Fund's shares. The S&P 500 returns have not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. The Morningstar Large Blend Average and
Lipper Large-Cap Core Average returns have been adjusted for these expenses but
do not reflect any sales charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------- *Since
AVERAGE ANNUAL TOTAL RETURNS class
(for the periods ended December 31, 1999) inception
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
Nvest Growth Fund: Class A (inception 11/27/68) 8.59% 24.46% 16.88%
S&P 500 21.04% 28.56% 18.21%
Morningstar Large Blend Average 19.47% 23.89% 15.71%
Lipper Large-Cap Core Average 22.29% 25.53% 16.66%
Nvest Growth Fund: Class B (inception 2/28/97) 9.59% 20.72%*
S&P 500 21.04% 26.24%*
Morningstar Large Blend Average 19.47% 21.92%*
Lipper Large-Cap Core Average 22.29% 24.19%*
Nvest Growth Fund: Class C (inception 9/1/98) 13.42% 28.59%*
S&P 500 21.04% 39.83%*
Morningstar Large Blend Average
(calculated from 8/31/98) 19.47% 35.62%*
Lipper Large-Cap Core Average
(calculated from 8/31/98) 22.29% 40.97%*
- ----------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST GROWTH Stability Income Growth
AND INCOME FUND High X
--------- ------ ------
ADVISER: Nvest Funds Management, L.P. ("Nvest Mangement") Mod. X
SUBADVISER: Westpeak Investment Advisors, L.P. ("Westpeak") --------- ------ ------
MANAGER: Gerald H. Scriver Low X
CATEGORY: Large-Cap Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
-----------------------------
NEFOX NEGBX NECOX
</TABLE>
INVESTMENT GOAL
The Fund seeks opportunities for long-term capital growth and income.
The Fund's investment goal may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all its
assets in common stock of large and mid-capitalization companies in any
industry.
Westpeak constructs a portfolio of recognizable, large and mid-capitalization
stocks that exhibit good relative value and reasonable growth potential.
Westpeak believes risk and return can be accurately measured and controlled
through thoughtful portfolio construction. Therefore its focus will be on the
aggregate characteristics of the portfolio and not just individual stocks. The
portfolio emphasizes the characteristics that Westpeak believes are most likely
to be rewarded by the market in the period ahead based upon current and
historical probabilities. At times the portfolio may be biased toward value; at
other times toward growth as determined by the characteristics Westpeak favors.
The Fund's industry weightings will not vary significantly from the S&P 500.
Using proprietary quantitative research based on macroeconomic, market and
company-specific information, Westpeak analyzes each stock and ranks it based on
characteristics such as:
x earnings-to-price
x earnings growth
x potential earnings surprises
x book-to-price
In selecting investments for the Fund, Westpeak employs the following process:
o It starts with an initial universe of approximately 2,100 stocks of mainly
large capitalization companies and eliminates stocks of companies below a $1.6
billion market capitalization threshold. This creates an overall universe of
about 1,000 stocks.
o Next, it screens these stocks using fundamental growth and value criteria and
calculates a "fundamental rank" for each stock. This rank reflects a
historical analysis of the company using approximately 70 growth, value and
industry-specific characteristics.
o All of the stocks are then screened using various Wall Street analysts'
historical and projected earnings estimates for the company and each is
assigned an "expectations rank." This rank accounts for the company's recent
and historical earnings revisions and the potential for "positive earnings
surprises" (whether its business has the potential to improve in the near
future).
o The fundamental and expectations ranks for each stock are placed in a
valuation matrix to evaluate whether to buy, sell or hold a stock.
o The final step is the use of proprietary methodology to arrange the selected
stocks into an optimal portfolio using their respective fundamental and
expectation ranks and risk characteristics.
The desired result is a diversified portfolio of 75 to 150 stocks, with risk
characteristics that approximate that of the benchmark, the S&P 500 Index, which
Westpeak believes will produce the highest long-term returns consistent with the
portfolio's risk parameters.
The Fund may:
o Invest in foreign securities traded in U.S. markets (through American
Depositary Receipts ("ADRs") or stocks sold in U.S. dollars).
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower your return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Growth stocks are generally more sensitive to market movements than other
types of stocks, primarily because their stock prices are based heavily on
future expectations. Value stocks present the risk that they may fall out of
favor with investors and underperform growth stocks during given periods.
FOREIGN SECURITIES: ADRs may be more volatile than U.S. securities and carry
political, economic and information risks that are associated with foreign
securities."
<PAGE>
Goals, Strategies & Risks [graphic omitted]
-------------------------
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Growth and Income Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns for the
one-, five- and ten-year (since inception if shorter) periods compare with those
of a broad measure of market performance and those of indices of funds with
similar objectives. The Fund's past performance does not necessarily indicate
how it will perform in the future. The Fund's current subadviser assumed that
function on May 1, 1995. This chart and table reflect results achieved by the
previous subadviser using different investment principles for periods prior to
May 1, 1995.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the other classes of shares offered by
this Prospectus differ from the Class A returns shown in the bar chart,
depending upon the respective expenses of each class. The chart does not reflect
any sales charge that you may be required to pay when you buy or redeem the
Fund's shares. A sales charge will reduce your return.
(total return)
1990 -4.26%
1991 30.61%
1992 9.28%
1993 7.95%
1994 0.99%
1995 35.11%
1996 17.21%
1997 33.43%
1998 23.93%
1999 9.45%
/\ Highest Quarterly Return: Fourth Quarter 1998, up 19.13%.
\/ Lowest Quarterly Return: Third Quarter 1990, down 13.59%.
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class' inception if shorter)
compared to those of the S&P 500, a market value-weighted, unmanaged index of
common stock prices of 500 selected stocks. They are also compared to the
Morningstar Large-Cap Value and Lipper Multi-Cap Core Averages, each an average
of the total returns of all mutual funds with an investment style similar to
that of the Fund as calculated by Morningstar, Inc. and Lipper, Inc. The Fund
previously compared its returns to the broad Lipper category in which the Fund
was categorized. In 1999, Lipper Inc. narrowed their existing categories and
created additional categories and the Fund falls within Lipper Multi-Cap Core
Average, one of the newly created categories. You may not invest directly in an
index. The Fund's total returns reflect its expenses and the maximum sales
charge that you may pay when you buy or redeem the Fund's shares. The S&P 500
returns have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments. The
Morningstar Large-Cap Value Average and Lipper Multi-Cap Core Average returns
have been adjusted for these expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------- *Since
AVERAGE ANNUAL TOTAL RETURNS class
(for the periods ended December 31, 1999) inception
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
Nvest Growth and Income Fund: Class A
(inception 5/6/31) 3.16% 21.98% 14.94%
S&P 500 21.04% 28.56% 18.21%
Morningstar Large-Cap Value Average 6.59% 19.31% 13.95%
Lipper Multi-Cap Core Average 22.50% 23.07% 15.51%
Nvest Growth and Income Fund: Class B
(inception 9/13/93) 4.03% 22.40% 17.75%*
S&P 500 21.04% 28.56% 22.96%*
Morningstar Large-Cap Value Average
(calculated from 9/30/93) 6.59% 19.31% 15.60%*
Lipper Multi-Cap Core Average
(calculated from 9/30/93) 22.50% 23.07% 18.29%*
Nvest Growth and Income Fund: Class C
(inception 5/1/95) 7.71% 21.42%*
S&P 500 21.04% 27.49%*
Morningstar Large-Cap Value Average
(calculated from 4/30/95) 6.59% 18.24%*
Lipper Multi-Cap Core Average
(calculated from 4/30/95) 22.50% 22.31%*
- ----------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST BALANCED FUND Stability Income Growth
High
ADVISER: Nvest Funds Management, L.P. ("Nvest Mangement") --------- ------ ------
SUBADVISER: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Mod. X X X
MANAGERS: Equity (Value Component): --------- ------ ------
Jeff Wardlow and Gregg Watkins Low
Equity (Growth Component):
Mark Baribeau, Pamela Czekanski,
Richard Skaggs
Fixed Income: John Hyll
CATEGORY: Large-Cap Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
-----------------------------
NEFBX NEBBX NEBCX
</TABLE>
INVESTMENT GOAL
The Fund seeks a reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund principally invests in common stocks of quality, large to mid-market
capitalization companies of any industry and investment grade bonds. Generally,
the Fund will invest approximately 65% of its assets in equity securities and
approximately 35% of its assets in fixed-income securities. Nvest Management
allocates capital invested in the Fund's equity securities equally between a
growth and a value component. Loomis Sayles uses a flexible approach to seek
investments with some of the following characteristics, although not all of the
companies selected will have all of these attributes:
EQUITY SECURITIES (growth or value component):
x discounted price compared to its current value for future growth prospects
(growth/value)
x leading position within industry (growth)
x superior earnings growth potential (growth)
x below-average price-to-earnings ratios (value)
x competitive current and estimated dividend yield (value)
FIXED-INCOME SECURITIES:
x greater yield-to-maturity than appropriate benchmarks
x maturities typically between 1 and 30 years
x controlled duration variance compared to index
In order to maintain a balanced, flexible portfolio of investments, Loomis
Sayles employs the following strategy:
o Depending on Loomis Sayles' view of the economic outlook, the Fund may invest
more heavily in either equity or fixed-income securities. However, the Fund
will always invest a minimum of 50% of its assets in equity securities and a
minimum of 25% of its assets in fixed-income securities.
o For the value component, it selects stocks from a universe of approximately
1,400 companies. It then uses a proprietary valuation model to rank stocks
based on valuation, earnings estimate revisions and quality. Fundamental
research is then used to identify what Loomis Sayles believes are the most
attractive 60 to 75 stocks for purchase by the Fund.
o For the growth component, Loomis Sayles selects stocks from a universe of
approximately 500 companies. It then uses fundamental analysis to identify
companies with leading market positions. Valuation analysis follows to find
undervalued companies with positive growth catalysts. Portfolio construction
then balances opportunities with risks to produce a portfolio of about 50
stocks.
o It selects bonds by placing a greater emphasis on security and sector
selection than interest rate anticipation. It conducts extensive research and
credit analysis of over 600 corporate issuers and assigns each a proprietary
rating. It combines these ratings with internal policy limitations to select
bonds for the Fund.
o Loomis Sayles will sell a stock when its price objective has been attained,
its fundamentals deteriorate or when more attractive opportunities are
identified. It sells bonds depending on expected credit deterioration or when
it identifies other securities with better total returns going forward.
The Fund may also invest in:
o Foreign securities and related currency hedging transactions; Rule 144A
securities; Mortgage- and asset-backed securities; Zero-coupon bonds and
when-issued securities.
o Money market or high quality debt securities for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Growth stocks are generally more sensitive to market movements than other
types of stocks, primarily because their stock prices are based heavily on
future expectations. Value stocks present the risk that they may fall out of
favor with investors and underperform growth stocks during given periods. Rule
144A securities may be more illiquid than other equity securities.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Generally, the value of fixed-income securities rises when
prevailing interest rates fall and falls when interest rates rise. Zero-coupon
bonds may be subject to these risks to a greater extent than other
fixed-income securities.
MORTGAGE- AND ASSET-BACKED SECURITIES: Subject to prepayment risk. With
prepayment, the Fund may reinvest the prepaid amounts in securities with lower
yields than the prepaid obligations. The Fund may also incur a realized loss
when there is a prepayment of securities that were purchased at a premium."
<PAGE>
Goals, Strategies & Risks [graphic omitted]
-------------------------
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Balanced Fund by showing changes in the Fund's performance from year to
year and by showing how the Fund's average annual returns for one-, five- and
ten-year (since inception if shorter) periods compare with those of a broad
measure of market performance and those of indices of funds with similar
objectives. The Fund's past performance does not necessarily indicate how it
will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the other classes of shares offered by
this Prospectus differ from the Class A returns shown in the bar chart,
depending upon the respective expenses of each class. The chart does not reflect
any sales charge that you may be required to pay when you buy or redeem the
Fund's shares. A sales charge will reduce your return.
(total return)
1990 -10.60%
1991 29.21%
1992 13.93%
1993 14.18%
1994 -2.67%
1995 26.31%
1996 17.12%
1997 17.53%
1998 8.18%
1999 -3.75%
/\ Highest Quarterly Return: First Quarter 1991, up 15.31%.
\/ Lowest Quarterly Return: Third Quarter 1990, down 15.86%.
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class' inception if shorter)
compared to those of a blend of the Standard & Poor's Composite Index of 500
stocks ("S&P 500") and the Lehman Government/ Corporate Bond Index ("S&P/Lehman
G/C Blend"). This index is represented by a 65% weighting in the S&P 500 and a
35% weighting in the Lehman G/C Index. Indices are rebalanced to 65%/35% at
the end of each year. They are also compared to the Morningstar Domestic Hybrid
and Lipper Balanced Averages, each an average of the total returns of all mutual
funds with an investment style similar to that of the Fund as calculated by
Morningstar, Inc. and Lipper, Inc. You may not invest directly in an index. The
Fund's total returns reflect its expenses and the maximum sales charges that you
may pay when you buy or redeem the Fund's shares. The S&P/Lehman G/C Blend
returns have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments. The
Morningstar Domestic Hybrid Average and Lipper Balanced Average returns have
been adjusted for these expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------- *Since
AVERAGE ANNUAL TOTAL RETURNS class
(for the periods ended December 31, 1999) inception
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
Nvest Balanced Fund: Class A
(inception 11/27/68) -9.26% 11.27% 9.57%
S&P/Lehman G/C Blend 12.92% 21.23% 14.51%
Morningstar Domestic Hybrid Average 8.77% 15.60% 11.37%
Lipper Balanced Average 8.72% 16.24% 11.82%
Nvest Balanced Fund: Class B (inception 9/13/93) -8.75% 11.49% 9.19%*
S&P/Lehman G/C Blend
(Lehman calculated from 9/30/93) 12.92% 21.23% 16.81%*
Morningstar Domestic Hybrid Average
(calculated from 9/30/93) 8.77% 15.60% 11.74%*
Lipper Balanced Average (calculated from 9/30/93) 8.72% 16.24% 12.69%*
Nvest Balanced Fund: Class C (inception 12/30/94) -5.31% 11.72% 11.71%*
S&P/Lehman G/C Blend 12.92% 21.23% 21.23%*
Morningstar Domestic Hybrid Average 8.77% 15.60% 15.13%*
Lipper Balanced Average 8.72% 16.24% 16.24%*"
- ----------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST EQUITY INCOME FUND Stability Income Growth
High
ADVISER: Nvest Funds Management, L.P. ("Nvest Management") --------- ------ ------
SUBADVISER: Vaughan, Nelson, Scarborough & Mod. X X X
McCullough, L.P. ("VNSM") --------- ------ ------
MANAGERS: Margaret M. Buescher and Jean Malo Low
CATEGORY: All-Cap Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
-----------------------------
NEEIX NEBIX NECEX
</TABLE>
INVESTMENT GOAL
The Fund seeks current income and capital growth.
The Fund's investment goal may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in dividend-paying common stock of medium to large capitalization
companies. The Fund is designed to offer an income stream, however, the ability
of the Fund to pay dividends depends on the assets and expenses of the Fund.
VNSM uses rigorous fundamental research and active management to analyze a broad
selection of company or industry sectors and to seek companies with the
following characteristics, although not all of the companies selected will have
these attributes:
x Higher gross dividend yields compared to the Standard & Poor's Composite Index
of 500 Stocks ("S&P 500")
x Higher profitability (return-on-equity) than the market
x Strong and growing cash flows and dividends-to-cash flow ratio
x Low price-to-sales ratio
In selecting investments for the Fund, VNSM employs the following strategy:
o It uses a value-driven investment philosophy that selects stocks selling at a
relatively low value based primarily on its dividend yield over time. It
selects companies that VNSM believes are out-of-favor or misunderstood and
that may provide a growing stream of dividends.
o VNSM starts with an investment universe of 5,000 securities. VNSM then uses
value-driven quantitative screens to seek those companies that generally have
a market capitalization in excess of $2 billion and relative dividend yields
above their 10-year average. These screens create a research universe of 300
to 400 companies.
o VNSM then uses fundamental analysis to build a portfolio of 40 to 50
securities consisting of quality companies in the opinion of VNSM. This
fundamental analysis focuses on the strength of a company's balance sheet,
cash flow growth, dividend coverage and management.
o VNSM will generally sell a stock when its absolute yield falls below 80% of
the S&P 500 yield, when its relative yield falls below its 10-year average,
when the company shows a deteriorating financial condition, or when it has
repeated negative earnings surprises.
The Fund may also invest in:
o Convertible and non-convertible preferred stock.
o Convertible and non-convertible investment grade bonds.
o Foreign securities including American Depositary Receipts ("ADRs"), which
are foreign investments issued by a U.S. bank.
o Money market or high quality debt securities for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in a stock's value or periods of
below-average performance in a given stock or in the stock market as a whole.
Value stocks present the risk that they may fall out of favor with investors
and underperform growth stock during given periods.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Generally, the value of fixed-income securities rises when
prevailing interest rates fall and falls when interest rates rise.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
<PAGE>
Goals, Strategies & Risks [graphic omitted]
-------------------------
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Equity Income Fund by showing changes in the Fund's performance from
year to year and by showing how the Fund's average annual returns for one-year
and since-inception periods compare with those of a broad measure of market
performance and those of indices of funds with similar objectives. The Fund's
past performance does not necessarily indicate how the Fund will perform in the
future. The Fund's current subadviser assumed that function on June 1, 1999.
This chart and table reflect results achieved by the previous subadviser under
different investment policies for periods prior to June 1, 1999.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
(total return)
1996 26.61%
1997 22.64%
1998 2.67%
1999 -1.94%
/\ Highest Quarterly Return: Second Quarter 1999, up 12.75%.
\/ Lowest Quarterly Return: Third Quarter 1998, down 13.14%.
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the Russell 1000 Value Index,
an unmanaged subset of stocks from the larger Russell 1000 Index, selected for
their greater value orientation. The returns are also compared to the
Morningstar Large Value and Lipper Equity Income Averages, each an average of
the total returns of all mutual funds with an investment style similar to that
of the Fund as calculated by Morningstar, Inc. and Lipper, Inc. You may not
invest directly in an index. The Fund's total returns reflect its expenses and
the maximum sales charges you may pay when you buy or redeem the Fund's shares.
The Russell 1000 Value Index returns have not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable to
mutual fund investments. The Morningstar Large Value Average and Lipper Equity
Income Average returns have been adjusted for these expenses but do not reflect
any sales charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
SINCE CLASS A SINCE CLASS B AND C
PAST 1 YEAR INCEPTION INCEPTION
<S> <C> <C> <C>
Nvest Equity Income Fund:
Class A (inception 11/28/95) -7.61% 10.79%
Class B (inception 9/15/97) -7.51% -0.03%
Class C (inception 9/15/97) -3.63% 1.29%
Russell 1000 Value Index 7.35% 19.84% 12.24%
Morningstar Large Value Average 6.59% 16.55%* 8.74%*
Lipper Equity Income Average 3.31% 14.41%* 7.06%*
- ---------------------------------------------------------------------------------------------------------
* The Russell, Lipper and Morningstar Averages were calculated from November 30, 1995 for Class A Shares
and September 30, 1997 for Class B and C Shares.
For actual past expenses of Class A, B and C shares, see the section entitled, "Fund Fees & Expenses."
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST INTERNATIONAL EQUITY Stability Income Growth
FUND High X
--------- ------ ------
ADVISER: Nvest Funds Management, L.P. ("Nvest Management") Mod.
SUBADVISER: Loomis, Sayles & Company, L.P. ("Loomis Sayles") --------- ------ ------
MANAGERS: Alexander Muromcew, John Tribolet and Eswar Menon Low X X
CATEGORY: International Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
-----------------------------
NEFIX NEIBX NECIX
</TABLE>
INVESTMENT GOAL
The Fund seeks total return from long-term capital growth and dividend income.
The Fund's investment goal may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest primarily in equity
securities of companies organized or headquartered outside of the United States.
The Fund will hold securities from at least 3 different countries including
those within emerging markets. The Fund will focus on securities with large
market capitalization but may invest in securities with any size capitalization.
Loomis Sayles uses a bottom-up, fundamental research process to build the Fund's
portfolio. Combining careful research with visits with management, Loomis Sayles
looks for growth oriented stocks of well-managed companies that are industry
leaders globally and possess strong competitive positions with pricing power and
strong distribution. Improving business or financial fundamentals are catalysts
for buy decisions while deteriorating fundamentals or better opportunities in
other companies will trigger sell decisions. In addition to its bottom-up
approach to security selection, an overlay of country and industry macro data is
used to provide guidelines for portfolio weighting with a view towards
minimizing portfolio risk. The strong Loomis Sayles research team is combined
with a global network of research contacts to provide a steady stream of
information and ideas. Together with discipline and a thorough decision-making
process, the Loomis Sayles research operation seeks to provide investors with a
successful investment strategy.
Loomis Sayles uses a "No-Walls Decision MakingSM" investment process, in which
the managers all meet in person to exchange ideas and make portfolio decisions;
each buy and sell decision is subject to intense scrutiny by the entire team;
and the skill and unique perspective of each manager on the team is leveraged.
The Fund may:
o Engage in active and frequent trading of its securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower your return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Growth stocks are generally more sensitive to market movements than other
types of stocks, primarily because their stock prices are based heavily on
future expectations. Small capitalization companies may be subject to more
abrupt price movements, limited markets and less liquidity than larger, more
established companies, which could adversely affect the value of the
portfolio.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency. Investments in emerging markets may
be subject to these risks to a greater extent than those in more developed
markets.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest International Equity Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns for
one-year, five-year and since-inception periods compare with those of a broad
measure of market performance and those of indices of funds with similar
objectives. The Fund's past performance does not necessarily indicate how it
will perform in the future. The Fund's current subadviser assumed that function
on February 14, 1997. This chart and table reflect results achieved by the
previous subadviser under different investment policies for periods prior to
February 14, 1997.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this Prospectus differ from the Class A returns
shown in the bar chart, depending upon the respective expenses of each class.
The chart does not reflect any sales charge that you may be required to pay when
you buy or redeem the Fund's shares. A sales charge will reduce your return.
(total return)
1993 29.39%
1994 8.06%
1995 5.78%
1996 3.27%
1997 -7.56%
1998 6.69%
1999 87.59%
/\ Highest Quarterly Return: Fourth Quarter 1999, up 66.81%
\/ Lowest Quarterly Return: Third Quarter 1998, down 14.56%.
The table below shows the Fund's average annual total returns for the one-year,
five-year and since-inception periods compared to those of the Morgan Stanley
Capital International ("MSCI") Europe, Australasia and Far East Index ("EAFE"),
an arithmetical average of the performance of over 1,000 companies representing
stock markets in Europe, Australia, New Zealand and the Far East. The returns
are also compared to the Morningstar Foreign Stock and Lipper International
Averages, each an average of the total returns of all mutual funds with an
investment style similar to that of the Fund as calculated by Morningstar, Inc.
and Lipper, Inc. You may not invest directly in an index. The Fund's total
returns reflect its expenses and the maximum sales charge that you may pay when
you buy or redeem the Fund's shares. The MSCI EAFE returns have not been
adjusted for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments. The Morningstar Foreign Stock
Average and Lipper International Average returns have been adjusted for these
expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999)
SINCE CLASS
PAST 1 YEAR PAST 5 YEARS INCEPTION
<S> <C> <C> <C>
Nvest International Equity Fund: Class A
(inception 5/21/92) 76.80% 13.75% 12.97%
MSCI EAFE 26.96% 12.83% 12.42%
Morningstar Foreign Stock Average
(calculated from 5/31/92) 44.31% 15.11% 13.36%
Lipper International Average
(calculated from 5/28/92) 40.88% 15.05% 13.25%
Nvest International Equity Fund: Class B
(inception 9/13/93) 81.26% 14.08% 12.52%
MSCI EAFE 26.96% 12.83% 11.62%
Morningstar Foreign Stock Average
(calculated from 9/30/93) 44.31% 15.11% 14.08%
Lipper International Average
(calculated from 9/30/93) 40.88% 15.05% 13.46%
Nvest International Equity Fund: Class C
(inception 12/30/94) 85.23% 14.37% 14.36%
MSCI EAFE 26.96% 12.83% 12.83%
Morningstar Foreign Stock Average 44.31% 15.11% 15.92%
Lipper International Average 40.88% 15.05% 15.05%
- ---------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
[graphic omitted] Fund Fees & Expenses
--------------------
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of each Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price)(1)(2) 5.75% None None
Maximum deferred sales charge (load)
(as a percentage of original purchase
price or redemption proceeds, as
applicable)(2) (3) 5.00% 1.00%
Redemption fees None* None* None*
(1) A reduced sales charge on Class A shares applies in some cases. See "Ways to
Reduce or Eliminate Sales Charge" within the section entitled "Fund
Services."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to certain
purchases of Class A shares greater than $1,000,000 redeemed within 1 year
after purchase, but not to any other purchases or redemptions of Class A
shares. See "How Sales Charges are Calculated" within the section entitled
"Fund Services."
* Generally, a transaction fee will be charged for expedited payment of
redemption proceeds such as by wire or overnight delivery.
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average daily net assets)
<CAPTION>
CAPITAL GROWTH FUND GROWTH FUND GROWTH AND INCOME FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.74% 0.74% 0.74% 0.67% 0.67% 0.67% 0.66% 0.66% 0.66%
Distribution and/or service
(12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses 0.40% 0.40% 0.40% 0.20% 0.20% 0.20% 0.30% 0.30% 0.30%
Total annual fund operating
expenses 1.39% 2.14% 2.14% 1.12% 1.87% 1.87% 1.21% 1.96% 1.96%
<CAPTION>
BALANCED FUND INTERNATIONAL EQUITY FUND**
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fees 0.73% 0.73% 0.73% 0.90% 0.90% 0.90%
Distribution and/or service
(12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses 0.35% 0.35% 0.35% 1.11% 1.11% 1.11%
Total annual fund operating
expenses 1.33% 2.08% 2.08% 2.26% 3.01% 3.01%
<CAPTION>
EQUITY INCOME FUND
CLASS A CLASS B CLASS C
- -------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.70% 0.70% 0.70%
Distribution and/or service
(12b-1) fees 0.25% 1.00%* 1.00%*
Other expenses 1.17% 1.17% 1.17%
Total annual fund operating
expenses 2.12% 2.87% 2.87%
Fee Waiver and/or expense
reimbursement 0.62%*** 0.62%*** 0.62%***
Net expenses 1.50% 2.25% 2.25%
* Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by rules of the National Association of Securities Dealers, Inc.
** Expense information in the table has been restated to reflect current fees.
*** Nvest Management has given a binding undertaking to the Fund to limit the amount of the Fund's total annual fund operating
expenses to 1.50%, 2.25% and 2.25% of the Fund's average daily net assets for Class A, B and C shares, respectively. This
undertaking is in effect until April 30, 2001 and will be reevaluated on an annual basis.
</TABLE>
<PAGE>
Fund Fees & Expenses [graphic omitted]
--------------------
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the Fund for the time periods indicated;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GROWTH FUND GROWTH AND INCOME FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 709 $ 719 $ 219 $ 319 $ 219 $ 683 $ 692 $ 192 $ 292 $ 192 $ 692 $ 701 $ 201 $ 301 $ 201
3 years $ 992 $ 977 $ 677 $ 677 $ 677 $ 912 $ 893 $ 593 $ 593 $ 593 $ 939 $ 921 $ 621 $ 621 $ 621
5 years $1,296 $1,360 $1,160 $1,160 $1,160 $1,159 $1,219 $1,019 $1,019 $1,109 $1,205 $1,266 $1,066 $1,066 $1,066
10 years* $2,156 $2,299 $2,299 $2,492 $2,492 $1,865 $2,008 $2,008 $2,206 $2,206 $1,963 $2,106 $2,106 $2,302 $2,302
<CAPTION>
BALANCED FUND EQUITY INCOME FUND INTERNATIONAL EQUITY FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 703 $ 713 $ 213 $ 313 $ 213 $ 720 $ 731 $ 231 $ 331 $ 231 $ 793 $ 809 $ 309 $ 409 $ 309
3 years $ 975 $ 958 $ 658 $ 658 $ 658 $1,150 $1,141 $ 841 $ 841 $ 841 $1,248 $1,243 $ 943 $ 943 $ 943
5 years $1,266 $1,329 $1,129 $1,129 $1,129 $1,604 $1,677 $1,477 $1,477 $1,477 $1,727 $1,803 $1,603 $1,603 $1,603
10 years* $2,092 $2,235 $2,235 $2,429 $2,429 $2,857 $3,002 $3,002 $3,184 $3,184 $3,042 $3,187 $3,187 $3,365 $3,365
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period
* Class B shares automatically convert to Class A shares after 8 years; therefore, Class B amounts are calculated using Class A
expenses in years 9 and 10.
</TABLE>
<PAGE>
MORE ABOUT RISK
The Funds have principal investment strategies that come with inherent risks.
The following is a list of risks to which each Fund may be subject by investing
in various types of securities or engaging in various practices.
MARKET RISK (All Funds) The risk that the market value of a security may move up
and down, sometimes rapidly and unpredictably based upon change in a company's
financial condition as well as overall market and economic conditions.
RISK OF SMALL CAPITALIZATION COMPANIES (Capital Growth and International Equity
Funds) These companies carry special risks, including narrower markets, limited
financial and management resources, less liquidity and greater volatility than
large company stocks.
MANAGEMENT RISK (All Funds) The risk that a strategy used by a Fund's portfolio
management may fail to produce the intended result.
CREDIT RISK (All Funds) The risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise become unable to honor a
financial obligation.
CURRENCY RISK (All Funds except Capital Growth and Growth and Income Funds) The
risk that fluctuations in the exchange rates between the U.S. dollar and foreign
currencies may negatively affect an investment.
EMERGING MARKETS RISK (International Equity Fund) The risk associated with
developing securities markets of smaller sizes or with short operating
histories. Emerging markets involve risks in addition to and greater than those
generally associated with investing in developed foreign markets. The extent of
economic development, political stability, market depth, infrastructure and
capitalization, and regulatory oversight in emerging market economies is
generally less than in more developed markets.
RISKS OF OPTIONS, FUTURES AND SWAP CONTRACTS (All Funds) These transactions are
subject to changes in the underlying security on which such transactions are
based. It is important to note that even a small investment in these types of
derivative securities can have a significant impact on a Fund's exposure to
stock market values, interest rates or the currency exchange rate. These types
of transactions will be used primarily for hedging purposes.
LEVERAGE RISK (All Funds) The risk associated with securities or practices (e.g.
borrowing) that multiply small index or market movements into large changes in
value. When a derivative security (a security whose value is based on another
security or index) is used as a hedge against an offsetting position that a Fund
also holds, any loss generated by the derivative security should be
substantially offset by gains on the hedged instrument, and vice versa. To the
extent that a Fund uses a derivative security for purposes other than as a
hedge, that Fund is directly exposed to the risks of that derivative security
and any loss generated by the derivative security will not be offset by a gain.
INTEREST RATE RISK (All Funds) The risk of market losses attributable to changes
in interest rates. In general, the prices of fixed-income securities rise when
interest rates fall, and fall when interest rates rise.
INFORMATION RISK (All Funds) The risk that key information about a security is
inaccurate or unavailable.
OPPORTUNITY RISK (All Funds) The risk of missing out on an investment
opportunity because the assets necessary to take advantage of it are tied up in
less profitable investments.
LIQUIDITY RISK (All Funds) The risk that certain securities may be difficult or
impossible to sell at the time and at the price that the seller would like. This
may result in a loss or may be costly to a Fund.
CORRELATION RISK (All Funds) The risk that changes in the value of a hedging
instrument will not match those of the asset being hedged.
EXTENSION RISK (Balanced and Equity Income Funds) The risk that an unexpected
rise in interest rates will extend the life of a mortgage- or asset-backed
security beyond the expected prepayment time, typically reducing the security's
value.
VALUATION RISK (All Funds) The risk that a Fund has valued certain securities at
a higher price than it can sell them for.
PREPAYMENT RISK (Balanced and Equity Income Funds) The risk that unanticipated
prepayments may occur, reducing the value of mortgage- or asset-backed
securities, or real estate investment trusts.
POLITICAL RISK (All Funds) The risk of losses directly attributable to
government or political actions.
EURO CONVERSION (All Funds except Capital Growth and Growth and Income Funds)
Many European countries have adopted a single European currency, the "euro." The
consequences of this conversion for foreign exchange rates, interest rates and
the value of European securities are unclear presently. Such consequences may
decrease the value and/or increase the volatility of securities held by a Fund.
<PAGE>
Management Team [graphic omitted]
---------------
MEET THE FUNDS' INVESTMENT ADVISERS
AND SUBADVISERS
The Nvest Funds family includes 25 mutual funds with a total of over $8 billion
in assets under management as of December 31, 1999. Nvest Funds are distributed
through Nvest Funds Distributor, L.P. (the "Distributor"). This Prospectus
covers Nvest Stock Funds (the "Funds" or each a "Fund"), which along with the
other Nvest Stock Funds, Nvest Bond Funds, Nvest Star Funds, Kobrick Funds and
Nvest State Tax-Free Funds, constitute the "Nvest Funds." Nvest Cash Management
Trust Money Market Series and Nvest Tax Exempt Money Market Trust constitute the
"Money Market Funds."
NVEST FUNDS MANAGEMENT, L.P.
NVEST MANAGEMENT, located at 399 Boylston Street, Boston, Massachusetts 02116,
serves as the adviser to each Fund except Growth Fund (for which CGM serves as
adviser). Nvest Management is a subsidiary of Nvest Companies, L.P. ("Nvest
Companies"), which is part of an affiliated group including Nvest, L.P., a
publicly-traded company listed on the New York Stock Exchange (the "Exchange").
Nvest Companies' 18 principal subsidiary or affiliated asset management firms,
collectively, had more than $133 billion in assets under management as of
December 31, 1999. Nvest Management oversees, evaluates and monitors the
subadvisory services provided to each Fund except Growth Fund. It also provides
general business management and administration to the Funds. Nvest Management
does not determine what investments will be purchased by the Funds. The
subadvisers listed below and CGM make the investment decisions for their
respective Funds.
The combined advisory and subadvisory fees paid by the Funds (except Growth
Fund) in 1999 as a percentage of each Fund's average daily net assets were 0.74%
for Capital Growth Fund, 0.66% for Growth and Income Fund, 0.73% for Balanced
Fund, 0.64% for International Equity Fund (after reimbursement)and 0.08% for
Equity Income Fund (after waiver or reimbursement).
SUBADVISERS
LOOMIS SAYLES, located at One Financial Center, Boston, Massachusetts 02111,
serves as subadviser to BALANCED AND INTERNATIONAL EQUITY Funds. Loomis Sayles
is a subsidiary of Nvest Companies. Founded in 1926, Loomis Sayles is one of
America's oldest investment advisory firms with over $67 billion in assets under
management as of December 31, 1999. Loomis Sayles is well known for its
professional research staff, which is one of the largest in the industry.
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH (VNSM), located at 6300 Chase Tower,
Houston, Texas 77002, serves as subadviser to EQUITY INCOME FUND. VNSM is a
subsidiary of Nvest Companies. Originally incorporated in 1970, VNSM focuses
primarily on managing equity and fixed-income funds for clients who consist of
foundations, university endowments and corporate retirement and
family/individual core funds. As of December 31, 1999, VNSM had approximately
$4.4 billion in assets under management.
WESTPEAK, located at 1011 Walnut Street, Boulder, Colorado 80302, serves as
subadviser to GROWTH AND INCOME Fund and CAPITAL GROWTH Fund. Westpeak is a
subsidiary of Nvest Companies. Founded in 1991, Westpeak has approximately $10
billion in assets under management as of December 31, 1999.
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP (ADVISER)
CGM, located at One International Place, Boston, Massachusetts 02110, has served
as adviser to GROWTH FUND since CGM's inception in 1989. It also serves as
investment adviser to eight additional mutual funds and various institutional
investors. CGM is an affiliate of Nvest Companies and has grown to manage over
$8.2 billion in assets as of December 31, 1999. In 1999, Growth Fund paid 0.67%
of its average daily net assets to CGM in advisory fees.
SUBADVISORY AGREEMENTS
Each Fund has received an exemptive order from the Securities and Exchange
Commission (the "SEC") which permits Nvest Management to amend or continue
existing subadvisory agreements when approved by the Fund's Board of Trustees,
without shareholder approval. The exemption also permits Nvest Management to
enter into new subadvisory agreements with subadvisers that are not affiliated
with Nvest Management, if approved by the Fund's Board of Trustees. Shareholders
will be notified of any subadviser changes.
PORTFOLIO TRADES
In placing portfolio trades, each Fund's adviser or subadviser may use brokerage
firms that market the Fund's shares or are affiliated with Nvest Companies,
Nvest Management, CGM, Loomis Sayles, Westpeak or VNSM. In placing trades, CGM ,
Loomis Sayles, Westpeak or VNSM will seek to obtain the best combination of
price and execution, which involves a number of judgmental factors. Such
portfolio trades are subject to applicable regulatory restrictions and related
procedures adopted by the Fund's Board of Trustees.
<PAGE>
[graphic omitted] Management Team
---------------
MEET THE FUNDS' PORTFOLIO MANAGERS
GERALD H. SCRIVER
Gerald Scriver has managed GROWTH AND INCOME FUND since May 1995 and CAPITAL
GROWTH FUND since February 1998. Mr. Scriver is the President and Chief
Executive Officer of Westpeak Investment Advisors which he founded in 1991.
He also manages the Westpeak segment of Nvest Star Value Fund. Mr. Scriver is
a graduate of the State University of N.Y. at Buffalo and has over 34 years
of investment experience.
G. KENNETH HEEBNER
G. Kenneth Heebner has managed GROWTH FUND since 1976. In 1989, Mr. Heebner
co-founded and is currently senior portfolio manager of CGM. He is also a
Chartered Financial Analyst. Mr. Heebner received a B.S. from Amherst
College and an M.B.A. from Harvard Business School, and is a highly regarded
35 year veteran of the investment industry.
JEFFREY W. WARDLOW
Jeffrey Wardlow has co-managed the value component of the equity portion of
BALANCED FUND since August 1998. Mr. Wardlow, Vice President of Loomis
Sayles, joined the company over 10 years ago. He also co-manages the Loomis
Sayles segment of Nvest Star Value Fund. Mr. Wardlow, a Chartered Financial
Analyst, received both his B.B.A. and his M.B.A. from Michigan State
University and has over 17 years of investment experience.
GREGG WATKINS
Gregg Watkins has co-managed the value component the equity portion of
BALANCED FUND since August 1998. Mr. Watkins, Vice President of Loomis
Sayles, joined the company in 1991. He is also a Chartered Financial
Analyst. Mr. Watkins received his B.A. from Yale University and his M.B.A.
from Wayne State University and has over 15 years of investment experience.
MARK B. BARIBEAU
Mark B. Baribeau has co-managed the growth component of the equity portion of
BALANCED FUND since March 2000. Mr. Baribeau, Vice President of Loomis
Sayles, joined the company in 1989. He also serves as portfolio manager of
Loomis Sayles Growth Fund. Mr. Baribeau, a Chartered Financial Analyst,
received a M.A. from University of Maryland, a B.A. from University of
Vermont and has 14 years of investment experience.
PAMELA N. CZEKANSKI
Pamela N. Czekanski has co-managed the growth component of the equity portion
of BALANCED FUND since March 2000. Ms. Czekanski, Vice President of Loomis
Sayles, joined the company in 1995. She also serves as a portfolio manager
of Loomis Sayles Growth Fund. Ms. Czekanski, a Chartered Financial Analyst,
received a B.A. from Middlebury College and has 16 years of investment
experience.
RICHARD D. SKAGGS
Richard D. Skaggs has co-managed the growth component of the equity portion
of BALANCED FUND since March 2000. Mr. Skaggs, Vice President of Loomis
Sayles, joined the company in 1994. He also serves as a portfolio manager of
Loomis Sayles Growth Fund. Mr. Skaggs, a Chartered Financial Analyst
received a M.S.M. and a B.S. from Oakland University and has 13 years of
investment experience.
JOHN HYLL
John Hyll has served the fixed-income portion of BALANCED FUND as co-manager
from 1994 until August 1999 and as manager thereafter. Mr. Hyll, Vice
President of Loomis Sayles, joined the company in 1989. He received his B.A.
and his M.B.A. from Baldwin-Wallace College and has over 16 years of
investment experience.
MARGARET M. BUESCHER
Margaret M. Buescher has co-managed the EQUITY INCOME FUND since June 1999.
Ms. Buescher, Principal of VNSM, joined the company in 1994. She also
co-manages the VNSM segment of Star Value Fund. From 1980 to 1994, she was a
Managing Director and Senior Portfolio Manager for the Texas Commerce
Investment Management Company. Ms. Buescher is also a Chartered Financial
Analyst. She received a B.A. from Vanderbilt University and has over 25 years
of investment experience.
JEAN MALO
Jean Malo has co-managed the EQUITY INCOME FUND since June 1999. Mr. Malo is
Chief Investment Officer and a Principal of VNSM. He also co-manages the
VNSM segment of Star Value Fund. Previously, he was a Senior Vice President
at Daniel Breen & Co., which was bought by VNSM in 1997. Mr. Malo joined
Daniel Breen & Co. in 1989. He is also a Chartered Financial Analyst. Mr.
Malo received his M.B.A. from ESSEC in Paris, France and has over 22 years of
investment experience.
ALEXANDER MUROMCEW
Alexander Muromcew serves as co-portfolio manager for INTERNATIONAL EQUITY FUND,
concentrating on Asian markets. Mr. Muromcew, Vice President of Loomis Sayles,
joined the company in 1999. He also co-manages the Loomis Sayles segment of
Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles
Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles
Emerging Markets 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 an
M.B.A. from Stanford University, a B.A. from Dartmouth College and has over 10
years of investment experience.
JOHN TRIBOLET
John Tribolet serves as co-portfolio manager for INTERNATIONAL EQUITY FUND,
concentrating on European markets. Mr. Tribolet, Vice President of Loomis
Sayles, joined the company in 1999. He also co-manages the Loomis Sayles segment
of Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles
Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles
Emerging Markets 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 MBA 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 and has over 8 years of investment experience."
ESWAR MENON
Eswar Menon serves as co-portfolio manager for INTERNATIONAL EQUITY FUND,
concentrating on emerging markets. Mr. Menon, Vice President of Loomis Sayles,
joined the company in 1999. He also co-manages the Loomis Sayles segment of
Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles
Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles
Emerging Markets 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 an M.B.A. from the University of Chicago,
an M.S. from the University of California, a B.S. from Indian Institute of
Technology, Madras, India and has over 10 years of investment experience.
<PAGE>
[graphic omitted] Fund Services
-------------
INVESTING IN THE FUNDS
CHOOSING A SHARE CLASS
Each Fund offers Class A, Class B and Class C shares to the public. Each class
has different costs associated with buying, selling and holding Fund shares,
which allow you to choose the class that best meets your needs. Which class you
choose will depend upon the size of your investment and how long you intend to
hold your shares. Class B shares, Class C shares and certain shareholder
features may not be available to you if you hold your shares in a street name
account. Your financial representative can help you decide which class of shares
is most appropriate for you.
CLASS A SHARES
o You pay a sales charge when you buy Fund shares. There are several ways to
reduce this charge. See the section entitled "Ways to Reduce or Eliminate
Sales Charges."
o You pay lower annual expenses than Class B and Class C shares, giving you the
potential for higher returns per share.
o You do not pay a sales charge on orders of $1 million or more, but you may pay
a charge on redemption if you redeem these shares within 1 year of purchase.
CLASS B SHARES
o You do not pay a sales charge when you buy Fund shares. All of your money goes
to work for you right away.
o You pay higher annual expenses than Class A shares.
o You will pay a charge on redemptions if you sell your shares within 6 years of
purchase, as described in the section "How Sales Charges are Calculated."
o Your Class B shares will automatically convert into Class A shares after 8
years, which reduces your annual expenses.
o We will not accept an order for $1 million or more of Class B shares. You may,
however, purchase $1 million or more of Class A shares, which will have no
sales charge as well as lower annual expenses. You may pay a charge on
redemption if you redeem these shares within 1 year of purchase.
CLASS C SHARES
o You do not pay a sales charge when you buy Fund shares. All of your money goes
to work for you right away.
o You pay higher annual expenses than Class A shares.
o You will pay a charge on redemptions if you sell your shares within 1 year of
purchase.
o Your Class C shares will not automatically convert into Class A shares. If you
hold your shares for longer than 8 years, you'll pay higher expenses than
other classes.
o We will not accept an order for $1 million or more of Class C shares. You may,
however, purchase $1 million or more of Class A shares, which will have no
sales charge as well as lower annual expenses. You may pay a charge on
redemption if you redeem these shares within 1 year of purchase.
For actual past expenses of Class A, B and C shares, see the section entitled
"Fund Fees & Expenses" in this Prospectus.
CERTIFICATES
Certificates will not be automatically issued for any class of shares. Upon
written request, you may receive certificates for Class A shares only.
<PAGE>
Fund Services [graphic omitted]
-------------
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price that you pay when you buy Class A shares (the "offering price") is
their net asset value plus a sales charge (sometimes called a "front-end sales
charge") which varies depending upon the size of your purchase.
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES
YOUR INVESTMENT AS A % OF OFFERING PRICE AS A % OF YOUR INVESTMENT
Less than $ 50,000 5.75% 6.10%
$ 50,000 - $ 99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0.00% 0.00%
- --------------------------------------------------------------------------------
* For purchases of Class A shares of the Funds of $1 million or more or
purchases by Retirement Plans (Plans under Sections 401(a) or 401(k) of the
Internal Revenue Code with investments of $1 million or more or that have 100
or more eligible employees), there is no front-end sales charge, but a
contingent deferred sales charge of 1.00% may apply to redemptions of your
shares within one year of the date of purchase. See the section entitled "Ways
to Reduce or Eliminate Sales Charges."
CLASS B SHARES
The offering price of Class B shares is their net asset value, without a
front-end sales charge. However, there is a contingent deferred sales charge
("CDSC") on shares that you sell within 6 years of buying them. The amount of
the CDSC, if any, declines each year that you own your shares. The holding
period for purposes of timing the conversion to Class A shares and determining
the CDSC will continue to run after an exchange to Class B shares of another
Nvest Fund. The CDSC equals the following percentages of the dollar amounts
subject to the charge:
- --------------------------------------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGES
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
thereafter 0.00%
- --------------------------------------------------------------------------------
CLASS C SHARES
The offering price of Class C shares is their net asset value, without a
front-end sales charge. However, Class C shares are subject to a CDSC of 1.00%
on redemptions made within one year of the date of purchase. The holding period
for determining the CDSC will continue to run after an exchange to Class C
shares of another Nvest Fund.
CLASS C CONTINGENT DEFERRED SALES CHARGES
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
1st 1.00%
thereafter 0.00%
- --------------------------------------------------------------------------------
HOW THE CDSC IS APPLIED TO YOUR SHARES
The CDSC is a sales charge you pay when you redeem certain Fund shares. The
CDSC:
o is calculated based on the number of shares you are selling;
o is based on either your original purchase price or the then-current net asset
value of the shares being sold, whichever is lower;
o is deducted from the proceeds of the redemption, not from the amount remaining
in your account; and
o for year one applies to redemptions through the day one year after the date on
which your purchase was accepted, and so on for subsequent years.
A CDSC WILL NOT BE CHARGED ON:
o increases in net asset value above the purchase price; or
o shares you acquired by reinvesting your dividends or capital gains
distributions.
To keep your CDSC as low as possible, each time that you place a request to sell
shares we will first sell any shares in your account that carry no CDSC. If
there are not enough of these shares available to meet your request, we will
sell the shares with the lowest CDSC.
EXCHANGES INTO SHARES OF A MONEY MARKET FUND
If you exchange shares of a Fund into shares of the Money Market Funds, the
holding period for purposes of determining the CDSC and conversion to Class A
shares stops until you exchange back into shares of another Nvest Fund. If you
choose to redeem those Money Market Fund shares, a CDSC may apply.
<PAGE>
[graphic omitted] Fund Services
-------------
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
CLASS A SHARES
REDUCING SALES CHARGES
There are several ways you can lower your sales charge utilizing the chart on
the previous page, including:
o LETTER OF INTENT -- allows you to purchase Class A shares of any Nvest Fund
over a 13-month period but pay sales charges as if you had purchased all
shares at once. This program can save you money if you plan to invest $50,000
or more over 13 months. Purchases in Class B and Class C shares may be used
toward meeting the letter of intent.
o COMBINING ACCOUNTS -- allows you to combine shares of multiple Nvest Funds and
classes for purposes of calculating your sales charge. You may combine your
purchases with those of qualified accounts of a spouse, parents, children,
siblings, grandparents, grandchildren, in-laws, individual fiduciary accounts,
sole proprietorships, single trust estates and any other group of individuals
acceptable to the Distributor.
These privileges do not apply to the Money Market Funds unless shares are
purchased through an exchange from another Nvest Fund.
ELIMINATING SALES CHARGES AND CDSC
Class A shares may be offered without front-end sales charges or a CDSC to the
following individuals and institutions:
o Any government entity that is prohibited from paying a sales charge or
commission to purchase mutual fund shares;
o Selling brokers, sales representatives or other intermediaries;
o Fund trustees and other individuals who are affiliated with any Nvest Fund or
Money Market Fund (this also applies to any spouse, parents, children,
siblings, grandparents, grandchildren and in-laws of those mentioned);
o Participants in certain Retirement Plans with at least 100 eligible employees
(one-year CDSC may apply);
o Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities; and
o Investments of $25,000 or more in the Nvest Funds or Money Market Funds by
clients of an adviser or subadviser to any Nvest Fund or Money Market Fund.
REPURCHASING FUND SHARES
You may apply proceeds from redeeming Class A shares of the Funds WITHOUT
PAYING A SALES CHARGE to repurchase Class A shares of any Nvest Fund. To
qualify, you must reinvest some or all of the proceeds within 120 days after
your redemption and notify Nvest Funds or your financial representative at the
time of reinvestment that you are taking advantage of this privilege. You may
reinvest your proceeds either by returning the redemption check or by sending a
new check for some or all of the redemption amount. Please note: For federal
income tax purposes, A REDEMPTION IS A SALE THAT INVOLVES TAX CONSEQUENCES, EVEN
IF THE PROCEEDS ARE LATER REINVESTED. Please consult your tax adviser for how a
redemption would affect you.
If you repurchase Class A shares of $1 million or more within 30 days after you
redeem such shares, the Distributor will rebate the amount of the CDSC charged
on the redemption.
CLASS A, B OR C SHARES
ELIMINATING THE CDSC
As long as we are notified at the time you sell, the CDSC for any share class
may generally be eliminated in the following cases:
o to make distributions from a retirement plan (a plan termination or total plan
redemption may incur a CDSC);
o to make payments through a systematic withdrawal plan; or
o due to shareholder death or disability.
If you think you may be eligible for a sales charge elimination or reduction,
contact your financial representative or Nvest Funds. Check the Statement of
Additional Information for details.
<PAGE>
Fund Services [graphic omitted]
-------------
IT'S EASY TO OPEN AN ACCOUNT
TO OPEN AN ACCOUNT WITH NVEST FUNDS:
1. Read this Prospectus carefully.
2. Determine how much you wish to invest. The following chart shows the
investment minimums for various types of accounts:
- --------------------------------------------------------------------------------
MINIMUM TO OPEN AN
MINIMUM TO ACCOUNT USING MINIMUM FOR
TYPE OF ACCOUNT OPEN AN ACCOUNT INVESTMENT BUILDER EXISTING ACCOUNTS
Any account other than
those listed below $2,500 $100 $100
Accounts registered under
the Uniform Gifts to
Minors Act or the Uniform
Transfers to Minors Act $2,500 $100 $100
Individual Retirement
Accounts (IRAs) $ 500 $100 $100
Retirement plans with tax
benefits such as corporate
pension, profit sharing
and Keogh plans $ 250 $100 $100
Payroll Deduction Investment
Programs for SARSEP*, SEP,
SIMPLE IRA, 403(b)(7) and
certain other retirement
plans $ 25 N/A $ 25
- --------------------------------------------------------------------------------
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP
plans established prior to January 1, 1997 may remain active and continue to
add new employees.
3. Complete the appropriate parts of the account application, carefully
tfollowing the instructions. If you have any questions, please call your
financial representative or Nvest Funds at 800-225-5478. For more information
on Nvest Funds' investment programs, refer to the section entitled
"Additional Investor Services" in this Prospectus.
4. Use the following sections as your guide for purchasing shares.
SELF-SERVICING YOUR ACCOUNT
Buying or selling shares is easy with the services described below:
NVEST FUNDS PERSONAL ACCESS LINE(R) NVEST FUNDS WEB SITE
800-225-5478, press 1 www.nvestfunds.com
You have access to your account 24 hours a day by calling Personal Access
Line(R) from a touch-tone telephone or by visiting us online.
By using these customer service options, you may:
o purchase, exchange or redeem shares in your existing accounts (certain
restrictions may apply);
o review your account balance, recent transactions, Fund prices and recent
performance;
o order duplicate account statements; and
o obtain tax information.
Please see the following pages for other ways to buy, exchange or sell your
shares.
<PAGE>
[graphic omitted] Fund Services
-------------
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for o Call your investment dealer for
information. information.
BY MAIL
[graphic omitted]
o Make out a check in U.S. dollars for o Make out a check in U.S. dollars for
the investment amount, payable to the investment amount, payable to
"Nvest Funds." Third party and "Nvest Funds." Third party and
"starter" checks will generally "starter" checks will generally
not be accepted. not be accepted.
o Mail the check with your completed o Fill out the detachable investment
application to Nvest Funds, P.O. Box slip from an account statement. If
8551, Boston, MA 02266-8551. no slip is available, include with
the check a letter specifying the
Fund name, your class of shares,
your account number and the
registered account name(s). To make
investing even easier, you can order
more investment slips by calling
800-225-5478.
BY EXCHANGE
[graphic omitted]
o The exchange must be for a minimum o The exchange must be for a minimum
of $1,000 or for all of your shares. of $1,000 or for all of your shares.
o Obtain a current prospectus for the o Call your investment dealer or Nvest
Fund into which you are exchanging Funds at 800-225-5478 or visit
by calling your investment dealer or nvestfunds.com to request an
Nvest Funds at 800-225-5478. exchange.
o Call your investment dealer or Nvest o See the section entitled "Exchanging
Funds to request an exchange. Shares"
o See the section entitled "Exchanging
Shares".
BY WIRE
[graphic omitted]
o Call Nvest Funds at 800-225-5478 to o Visit nvestfunds.com to add shares
obtain an account number and wire to your account by wire.
transfer instructions. Your bank may
charge you for such a transfer. o Instruct your bank to transfer funds
to State Street Bank & Trust
Company, ABA# 011000028, DDA#
99011538.
o Specify the Fund name, your class of
shares, your account number and the
registered account name(s). Your
bank may charge you for such a
transfer.
AUTOMATIC INVESTING THROUGH INVESTMENT BUILDER
[graphic omitted]
o Indicate on your application that o Please call Nvest Funds at
you would like to begin an automatic 800-225-5478 for a Service Options
investment plan through Investment Form. A signature guarantee may be
Builder and the amount of the required to add this privilege.
monthly investment ($100 minimum).
o See the section entitled "Additional
o Send a check marked "Void" or a Investor Services."
deposit slip from your bank account
along with your application.
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[graphic omitted]
o Ask your bank or credit union o Call Nvest Funds at 800-225-5478 or
whether it is a member of the ACH visit nvestfunds.com to add shares
system. to your account through ACH.
o Complete the "Telephone Withdrawal o If you have not signed up for the
and Exchange" and "Bank Information" ACH system, please call Nvest Funds
sections on your account for a Service Options Form. A
application. signature guarantee may be required
to add this privilege.
o Mail your completed application to
Nvest Funds, P.O. Box 8551, Boston,
MA 02266-8551.
<PAGE>
Fund Services [graphic omitted]
-------------
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
Certain restrictions may apply. See section entitled "Restrictions on Buying,
Selling and Exchanging Shares."
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for information.
BY MAIL
[graphic omitted]
o Write a letter to request a redemption specifying the name of the Fund, the
class of shares, your account number, the exact registered account name(s),
the number of shares or the dollar amount to be redeemed and the method by
which you wish to receive your proceeds. Additional materials may be required.
See the section entitled "Selling Shares in Writing."
o The request must be signed by all of the owners of the shares including the
capacity in which they are signing, if appropriate.
o Mail your request to Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551.
o Your proceeds (less any applicable CDSC) will be delivered by the method
chosen in your letter. If you choose to have your proceeds delivered by mail,
they will generally be mailed to you on the business day after the request is
received. You may also choose to redeem by wire or through ACH (see below).
BY EXCHANGE
[graphic omitted]
o Obtain a current prospectus for the Fund into which you are exchanging by
calling your investment dealer or Nvest Funds at 800-225-5478.
o Call Nvest Funds or visit nvestfunds.com to request an exchange.
o See the section entitled "Exchanging Shares" for more details.
BY WIRE
[graphic omitted]
o Fill out the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o Call Nvest Funds at 800-225-5478; visit nvestfunds.com or indicate in your
redemption request letter (see above) that you wish to have your proceeds
wired to your bank.
o Proceeds (less any applicable CDSC) will generally be wired on the next
business day. A wire fee (currently $5.00) will be deducted from the
proceeds.
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[graphic omitted]
o Ask your bank or credit union whether it is a member of the ACH system.
o Complete the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o If you have not signed up for the ACH system on your application, please call
Nvest Funds at 800-225-5478 for a Service Options Form.
o Call Nvest Funds or visit nvestfunds.com to request a redemption through this
system.
o Proceeds (less any applicable CDSC) will generally arrive at your bank within
three business days.
BY SYSTEMATIC WITHDRAWAL PLAN
[graphic omitted]
o Please refer to the section entitled "Additional Investor Services" or call
Nvest Funds at 800-225-5478 or your financial representative for information.
o Because withdrawal payments may have tax consequences, you should consult your
tax adviser before establishing such a plan.
BY TELEPHONE
[graphic omitted]
o You may receive your proceeds by mail, by wire or through ACH (see above).
o Call Nvest Funds at 800-225-5478 to choose the method you wish to use to
redeem your shares.
<PAGE>
[graphic omitted] Fund Services
-------------
SELLING SHARES IN WRITING
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations we also may require a signature guarantee or additional
documentation.
A signature guarantee protects you against fraudulent orders and is necessary
if:
o your address of record has been changed within the past 30 days;
o you are selling more than $100,000 worth of shares and you are requesting the
proceeds by check; or
o a proceeds check for any amount is mailed to an address other than the address
of record or not payable to the registered owner(s).
A notary public CANNOT provide a signature guarantee. A signature guarantee can
be obtained from one of the following sources:
o a financial representative or securities dealer;
o a federal savings bank, cooperative or other type of bank;
o a savings and loan or other thrift institution;
o a credit union; or
o a securities exchange or clearing agency.
The table shows situations in which additional documentation may be necessary.
Please call your financial representative or Nvest Funds regarding
requirements for other account types.
SELLER (ACCOUNT TYPE) REQUIREMENTS FOR WRITTEN REQUESTS
INDIVIDUAL, JOINT, SOLE o The signatures on the letter must include all
PROPRIETORSHIP, UGMA/UTMA persons authorized to sign, including title, if
(MINOR ACCOUNTS) applicable.
o Signature guarantee, if applicable (see above).
CORPORATE OR ASSOCIATION o The signatures on the letter must include all
ACCOUNTS persons authorized to sign, including title.
OWNERS OR TRUSTEES OF TRUST o The signature on the letter must include all
ACCOUNTS trustees authorized to sign, including title.
o If the names of the trustees are not
registered on the account, please provide a
copy of the trust document certified within
the past 60 days.
o Signature guarantee, if applicable (see above).
JOINT TENANCY WHOSE o The signatures on the letter must include all
CO-TENANTS ARE DECEASED surviving tenants of the account.
o Copy of the death certificate.
o Signature guarantee if proceeds check is
issued to other than the surviving tenants.
POWER OF ATTORNEY (POA) o The signatures on the letter must include the
attorney-in-fact, indicating such title.
o A signature guarantee.
o Certified copy of the POA document stating it
is still in full force and effect, specifying
the exact Fund and account number, and
certified within 30 days of receipt of
instructions.*
QUALIFIED RETIREMENT BENEFIT o The signature on the letter must include all
PLANS (EXCEPT NVEST FUNDS signatures of those authorized to sign,
PROTOTYPE DOCUMENTS) including title.
o Signature guarantee, if applicable (see
above).
EXECUTORS OF ESTATES, o The signature on the letter must include those
ADMINISTRATORS, GUARDIANS, authorized to sign, including capacity.
CONSERVATORS
o A signature guarantee.
o Certified copy of court document where signer
derives authority, e.g.: Letters of
Administration, Conservatorship, Letters
Testamentary.*
INDIVIDUAL RETIREMENT o Additional documentation and distribution
ACCOUNTS (IRAS) forms are required.
* Certification may be made on court documents by the court, usually certified
by the clerk of the court. POA certification may be made by a commercial bank,
broker/member of a domestic stock exchange or a practicing attorney.
<PAGE>
Fund Services [graphic omitted]
-------------
EXCHANGING SHARES
In general, you may exchange shares of your Fund for shares of the same class of
another Nvest Fund without paying a sales charge or a CDSC (see the sections
entitled "Buying Shares" and "Selling Shares"). The exchange must be for a
minimum of $1,000 (or the total net asset value of your account, whichever is
less), or $100 if made under the Automatic Exchange Plan (see the section
entitled "Additional Investor Services"). All exchanges are subject to the
eligibility requirements of the Nvest Fund or Money Market Fund into which you
are exchanging. The exchange privilege may be exercised only in those states
where shares of the Funds may be legally sold. For federal income tax purposes,
an exchange of Fund shares for shares of another Nvest Fund or Money Market Fund
is treated as a sale on which gain or loss may be recognized. Please refer to
the Statement of Additional Information (the "SAI") for more detailed
information on exchanging Fund shares.
RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES
PURCHASE AND EXCHANGE RESTRICTIONS
Although the Funds do not anticipate doing so, they reserve the right to suspend
or change the terms of purchasing or exchanging shares. The Funds and the
Distributor reserve the right to refuse or limit any purchase or exchange order
by a particular purchaser (or group of related purchasers) if the transaction
is deemed harmful to the best interest of the Fund's other shareholders or
would disrupt the management of the Fund. The Funds and the Distributor reserve
the right to restrict purchases and exchanges for the accounts of "market
timers" by limiting the transaction to a maximum dollar amount. An account will
be deemed to be one of a market timer if: (i) more than two exchange purchases
of a given Fund are made for the account in a calendar quarter or (ii) the
account makes one or more exchange purchases of a given Fund in a calendar
quarter in an aggregate amount in excess of 1% of the Fund's total net assets.
SELLING RESTRICTIONS
The table below describes restrictions placed on selling shares of any Fund
described in this Prospectus:
RESTRICTION SITUATION
The Fund may suspend the right of redemption or o When the New York Stock
postpone payment for more than 7 days: Exchange is closed (other
than a weekend/holiday)
o During an emergency
o Any other period permitted
by the SEC
The Fund reserves the right to suspend account o With a notice of a dispute
services or refuse transaction requests: between registered owners
o With suspicion/evidence of
a fraudulent act
The Fund may pay the redemption price in whole o When it is detrimental for
or part by a distribution in kind of readily a Fund to make cash
marketable securities in lieu of cash or may payments as determined in
take up to 7 days to pay a redemption request in the sole discretion of the
order to raise capital: adviser or subadviser
The Fund may close your account and send you the o When the Fund account
proceeds. You will have 60 days after being falls below a set minimum
notified of the Fund's intention to close your (currently $1,000 as set
account to increase the account to the set by the Fund's Board of
minimum. This does not apply to certain qualified Trustees)
retirement plans, automatic investment plans or
accounts that have fallen below the minimum
solely because of fluctuations in a Fund's net
asset value per share:
The Fund may withhold redemption proceeds until o When redemptions are made
the check or funds have cleared: within 10 calendar days of
purchase by check or ACH
of the shares being
redeemed
Telephone redemptions are not accepted for tax-qualified retirement accounts.
If you hold certificates representing your shares, they must be sent with your
request for it to be honored.
The Funds recommend that certificates be sent by registered mail.
<PAGE>
[graphic omitted] Fund Services
-------------
HOW FUND SHARES ARE PRICED
"Net asset value" is the price of one share of a Fund without a sales charge,
and is calculated each business day using this formula:
TOTAL MARKET VALUE OF SECURITIES + CASH AND
NET ASSET VALUE = OTHER ASSETS - LIABILITIES
-------------------------------------------
NUMBER OF OUTSTANDING SHARES
The net asset value of Fund shares is determined according to this schedule:
o A share's net asset value is determined at the close of regular trading on the
Exchange on the days the Exchange is open for trading. This is normally
4:00 p.m. Eastern time.
o The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated after your order is received
"in good order" by State Street Bank and Trust Company, the Fund's custodian
(plus or minus applicable sales charges as described earlier in this
Prospectus).
o Requests received by the Distributor after the Exchange closes will be
processed based upon the net asset value determined at the close of regular
trading on the next day that the Exchange is open, with the exception that
those orders received by your investment dealer before the close of the
Exchange and received by the Distributor before 5:00 p.m. Eastern time* on the
same day will be based on the net asset value determined on that day.
o A Fund heavily invested in foreign securities may have net asset value changes
on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 pm, but not later than 8:00 pm
Generally, during times of substantial economic or market change, it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
"Buying Shares" and "Selling Shares."
Generally, Fund securities are valued as follows:
o EQUITY SECURITIES -- most recent sales or quoted bid price as provided by a
pricing service.
o DEBT SECURITIES (OTHER THAN SHORT-TERM OBLIGATIONS) -- based upon pricing
service valuations.
o SHORT-TERM OBLIGATIONS (REMAINING MATURITY OF LESS THAN 60 DAYS) -- amortized
cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES -- most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the close of the exchange will
materially affect its value. In that case, it is given fair value as
determined by or under the direction of the Fund's Board of Trustees at the
close of regular trading on the Exchange.
o OPTIONS -- last sale price, or if not available, last offering price.
o FUTURES -- unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be valued
at their fair value as determined by or under the direction of the Fund's
Board of Trustees.
o ALL OTHER SECURITIES -- fair market value as determined by the adviser or
subadviser of the Fund under the direction of the Fund's Board of Trustees.
The effect of fair value pricing as described above under "Securities traded on
foreign exchanges" and "All other securities" is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded but rather, may be priced by another method that the Fund's Board of
Trustees believes accurately reflects fair value.
<PAGE>
Fund Services [graphic omitted]
-------------
DIVIDENDS AND DISTRIBUTIONS
The Funds generally distribute most or all of their net investment income (other
than capital gains) in the form of dividends. The following table shows when
each Fund expects to distribute dividends. Each Fund distributes all net
realized long- and short-term capital gains annually, after applying any
available capital loss carryovers. Each Fund's Board of Trustees may adopt a
different schedule as long as payments are made at least annually.
- --------------------------------------------------------------------------------
DIVIDEND PAYMENT SCHEDULE
ANNUALLY SEMI-ANNUALLY QUARTERLY
Capital Growth Growth and Income Balanced
Growth Equity Income
International Equity
- --------------------------------------------------------------------------------
Depending on your investment goals and priorities, you may choose to:
o participate in the Dividend Diversification Program, which allows you to
have all dividends and distributions automatically invested at net asset
value in shares of the same class of another Nvest Fund registered in your
name. Certain investment minimums and restrictions may apply. For more
information about this program, see the section entitled "Additional
Investor Services."
o receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares of the
same class of the Fund or in the same class of another Nvest Fund.
o receive all distributions in cash.
Unless you select one of the above options, distributions will automatically be
reinvested in shares of the same class of the Fund at net asset value.
For more information or to change your distribution option, contact Nvest Funds
in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a non-retirement plan
Fund, you will receive a Form 1099 to help you report the prior calendar year's
distributions on your federal income tax return. Be sure to keep the 1099 as a
permanent record. A fee may be charged for any duplicate information requested.
TAX CONSEQUENCES
Each Fund intends to meet all requirements of the Internal Revenue Code
necessary to qualify as a "regulated investment company" and thus does not
expect to pay any federal income tax on income and capital gains distributed to
shareholders.
Fund distributions paid to you either in cash or reinvested in additional shares
are generally taxable to you either as ordinary income or as capital gains.
Distributions derived from short-term capital gains or investment income are
generally taxable at ordinary income rates. If you are a corporation investing
in a Fund, a portion of these dividends may qualify for the dividends-received
deduction provided that you meet certain holding period requirements.
Distributions of gains from investments that a Fund owned for more than one year
that are designated by a Fund as capital gain dividends will generally be
taxable to a shareholder receiving such distributions as long-term capital gain,
regardless of how long the shareholder has held Fund shares.
An exchange of shares for shares of another Nvest Fund or Money Market Fund is
treated as a sale, and any resulting gain or loss may be subject to federal
income tax. If you purchase shares of a Fund shortly before it declares a
capital gain distribution or a dividend, a portion of the purchase price may be
returned to you as a taxable distribution.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive. Shareholders of Funds investing
in foreign securities should consult their tax advisers about consequences of
their investments under foreign laws.
<PAGE>
[graphic omitted] Fund Services
-------------
COMPENSATION TO SECURITIES DEALERS
As part of their business strategies, the Funds pay securities dealers that sell
their shares. This compensation originates from two sources: sales charges
(front-end or deferred) and 12b-1 fees (comprising the annual service and/or
distribution fees of a plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940). The sales charges are detailed in the section entitled
"How Sales Charges Are Calculated." Each class of Fund shares pays an annual
service fee of 0.25% of its average daily net assets. In addition to this
service fee, Class B shares pay an annual distribution fee of 0.75% of their
average daily net assets for 8 years (at which time they automatically convert
into Class A shares). Class C shares are subject to a distribution fee of 0.75%
of their average daily net assets. Generally, the 12b-1 fees are paid to
securities dealers on a quarterly basis. The Distributor retains the first year
of such fees for Class C shares. Because these distribution fees are paid out of
the Fund's assets on an ongoing basis, over time these fees for Class B and
Class C shares will increase the cost of your investment and may cost you more
than paying the front-end sales charge on Class A shares.
The Distributor may, at its expense, pay concessions in addition to the payments
described above to dealers which satisfy certain criteria established from time
to time by the Distributor relating to increasing net sales of shares of the
Nvest Funds over prior periods, and certain other factors. See the SAI for more
details.
<PAGE>
Fund Services [graphic omitted]
-------------
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
Nvest Funds offer a range of retirement plans, including IRAs, SEPs, SARSEPs*,
SIMPLE IRAs, 403(b) plans and other pension and profit sharing plans. Refer to
the section entitled "It's Easy to Open an Account" for investment minimums. For
more information about our Retirement Plans, call us at 800-225-5478.
INVESTMENT BUILDER PROGRAM
This is Nvest Funds' automatic investment plan. You may authorize automatic
monthly transfers of $100 or more from your bank checking or savings account to
purchase shares of one or more Nvest Funds. To join the Investment Builder
Program, please refer to the section entitled "Buying Shares."
DIVIDEND DIVERSIFICATION PROGRAM
This program allows you to have all dividends and any other distributions
automatically invested in shares of the same class of another Nvest Fund or
Money Market Fund, subject to the eligibility requirements of that other Fund
and to state securities law requirements. Shares will be purchased at the
selected Fund's net asset value without a front-end sales charge or CDSC on the
dividend record date. Before establishing a Dividend Diversification Program
into any other Nvest Fund or Money Market Fund, please read its Prospectus
carefully.
AUTOMATIC EXCHANGE PLAN
Nvest Funds have an automatic exchange plan under which shares of a class of a
Fund are automatically exchanged each month for shares of the same class of
other Nvest Funds or Money Market Funds. There is no fee for exchanges made
under this plan, but there may be a sales charge in certain circumstances.
Please refer to the SAI for more information on the Automatic Exchange Plan.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem shares and receive payments from your Fund on a
regular schedule. Redemption of shares that are part of the Systematic
Withdrawal Plan are not subject to a CDSC. However, the amount or percentage
that you specify in the plan may not exceed, on an annualized basis, 10% of the
value of your Fund account based upon the value of your Fund account on the day
you establish your plan. To establish a Systematic Withdrawal Plan, please refer
to the section entitled "Selling Shares."
NVEST FUNDS PERSONAL ACCESS LINE(R)
This automated customer service system allows you to have access to your account
24 hours a day by calling 800-225-5478, press 1. With a touch-tone telephone,
you can obtain information about your current account balance, recent
transactions, Fund prices and recent performance. You may also use Personal
Access Line(R) to purchase, exchange or redeem shares in any of your existing
accounts. Certain restrictions may apply.
NVEST FUNDS WEB SITE
Visit us at www.nvestfunds.com to review your account balance and recent
transactions, to view daily prices and performance information or to order
duplicate account statements and tax information. You may also go online to
purchase, exchange or redeem shares in any of your existing accounts. Certain
restrictions may apply.
ELECTRONIC MAIL DELIVERY
This delivery option allows you to receive important fund documents via the
Internet instead of in paper form through regular U.S. mail. Eligible documents
include confirmation statements, quarterly statements, prospectuses, annual and
semiannual reports and proxies. Electronic Delivery will cut down on the amount
of paper mail you receive; speed up the availability of your documents; and
lower expenses to your fund. To establish this option on your account(s),
complete the appropriate section of your new account application or visit us at
www.nvestfunds.com.
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP
plans established prior to January 1, 1997 may remain active and continue to
add new employees.
<PAGE>
[graphic omitted] Fund Performance
----------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the return that an investor
would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
each Fund's financial statements, are incorporated by reference in the Statement
of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
NVEST CAPITAL GROWTH FUND
CLASS A CLASS B
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Year $ 15.02 $ 18.41 $ 19.27 $ 19.95 $ 20.67 $ 14.89 $ 18.09 $ 18.74 $ 19.10 $ 19.37
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income (Loss) (0.11)(b) (0.14)(c) (0.18)(c) (0.13)(c) (0.13)(c) (0.16)(b) (0.28)(c) (0.32)(c) (0.27)(c) (0.27)(c)
Net Realized and
Unrealized Gain
(Loss) on
Investments 4.74 3.22 3.43 5.18 5.05 4.60 3.15 3.25 4.87 4.69
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 4.63 3.08 3.25 5.05 4.92 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) (1.24) (2.22) (2.57) (4.33) (2.73)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (1.24) (2.22) (2.57) (4.33) (2.73) (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 $ 18.09 $ 18.74 $ 19.10 $ 19.37 $ 21.06
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%) (a) 30.7 17.1 17.2 29.0 24.7 29.7 16.2 15.9 28.2 23.8
RATIOS/SUPPLEMENTAL
DATA
Ratio of Operating
Expenses to Average
Net Assets (%) 1.61 1.50 1.45 1.46 1.39 2.36 2.25 2.20 2.21 2.14
Ratio of Net
Investment Income
(Loss) to Average
Net Assets (%) (0.67) (0.71) (0.87) (0.62) (0.61) (1.42) (1.46) (1.62) (1.37) (1.36)
Portfolio Turnover
Rate (%) 69 74 48 136 124 69 74 48 136 124
Net Assets, End of
Year (000) $123,504 $141,326 $149,734 $175,511 $200,821 $ 26,234 $ 37,439 $ 45,546 $ 57,796 $ 74,774
<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 $ 14.89 $ 18.08 $ 18.74 $ 19.11 $ 19.37
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.09)(b) (0.28)(c) (0.34)(c) (0.27)(c) (0.27)(c)
Net Realized and Unrealized Gain (Loss) on Investments 4.52 3.16 3.28 4.86 4.69
-------- -------- -------- -------- --------
Total From Investment Operations 4.43 2.88 2.94 4.59 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 $ 18.08 $ 18.74 $ 19.11 $ 19.37 $ 21.06
======== ======== ======== ======== ========
TOTAL RETURN (%) (a) 29.7 16.2 15.9 28.1 23.8
RATIOS/SUPPLEMENTAL DATA
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 Year (000) $ 354 $ 504 $ 979 $ 1,609 $ 3,110
(a) A sales charge for Class A shares or a CDSC for Class B and C shares 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).
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
The Fund's current subadviser assumed that function on February 16, 1998. The highlights prior to this date reflect results
achieved by the previous subadviser under different investment policies.
</TABLE>
<PAGE>
<TABLE>
[graphic omitted] Fund Performance
----------------
NVEST GROWTH FUND
<CAPTION>
CLASS A CLASS B CLASS C
FEBRUARY 28(A) SEPTEMBER 1(A)
THROUGH YEAR ENDED THROUGH YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999 1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period $ 8.87 $10.55 $11.63 $10.41 $11.36 $12.47 $10.32 $11.15 $11.18 $11.15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.05 0.04 0.01 0.08(c) 0.02 (0.07) 0.00(c) (0.05) 0.00(c) (0.05)
Net Realized and Unrealized
Gain (Loss) on Investments 3.30 2.07 2.79 3.00 1.57 1.94 2.95 1.52 2.09 1.52
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations 3.35 2.11 2.80 3.08 1.59 1.87 2.95 1.47 2.09 1.47
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions From Net
Investment Income (0.05) (0.04) 0.00 (0.10) 0.00 0.00 (0.06) 0.00 (0.06) 0.00
Distributions From Net
Realized Gain on
Investments (1.62) (0.99) (4.02) (1.32) (1.95) (4.02) (1.32) (1.95) (1.32) (1.95)
Distributions in Excess
of Realized Gain on
Investments 0.00 0.00 0.00 (0.35) 0.00 0.00 (0.35) 0.00 (0.35) 0.00
Distributions from Return
of Capital 0.00 0.00 0.00 (0.36) 0.00 0.00 (0.39) 0.00 (0.39) 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (1.67) (1.03) (4.02) (2.13) (1.95) (4.02) (2.12) (1.95) (2.12) (1.95)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period $10.55 $11.63 $10.41 $11.36 $11.00 $10.32 $11.15 $10.67 $11.15 $10.67
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (b) 38.1 20.9 23.5 33.4 15.2 14.4 32.4 14.4 22.2 14.4
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets (%) 1.20 1.18 1.12 1.12 1.12 1.87(d) 1.87 (1.87) 1.87(d) 1.87
Ratio of Net Investment
Income to Average Net
Assets (%) 0.42 0.33 0.08 0.74 0.23 (0.67)(d) (0.01) (0.52) (0.01)(d) (0.52)
Portfolio Turnover Rate (%) 235 199 214 202 206 214(d) 202 206 202 206
Net Assets, End of Period
(000,000) $1,201 $1,297 $1,460 $1,825 $1,871 $ 18 $ 75 $ 136 $ 2 $ 9
(a) Commencement of Operations.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations. Periods of
less than one year are not annualized.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
(d) Computed on an annualized basis.
</TABLE>
<PAGE>
<TABLE>
[graphic omitted] Fund Performance
----------------
NVEST GROWTH AND INCOME FUND
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period $ 12.41 $ 14.39 $ 13.87 $ 15.35 $ 16.57 $ 12.42 $ 14.40 $ 13.87 $ 15.28 $ 16.37
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income (Loss) 0.18 0.13 0.07(d) 0.04 0.08 0.10 0.03 (0.05)(d (0.05) (0.04)
Net Realized and
Unrealized Gain
(Loss) on
Investments 4.01 2.07 4.40 3.29 1.40 4.01 2.07 4.40 3.24 1.36
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations 4.19 2.20 4.47 3.33 1.48 4.11 2.10 4.35 3.19 1.32
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions From
Net Investment
Income (0.18) (0.13) (0.06) (0.01) (0.06) (0.10) (0.04) (0.01) 0.00 0.00
Distributions From
Net Realized
Capital Gains (2.03) (2.59) (2.93) (2.10) (2.66) (2.03) (2.59) (2.93) (2.10) (2.66)
Distributions in
Excess of
Net Investment
Income 0.00 0.00 0.00 0.00 0.00(c) 0.00 0.00 0.00 0.00 0.00(c)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (2.21) (2.72) (2.99) (2.11) (2.72) (2.13) (2.63) (2.94) (2.10) (2.66)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of the Period $ 14.39 $ 13.87 $ 15.35 $ 16.57 $ 15.33 $ 14.40 $ 13.87 $ 15.28 $ 16.37 $ 15.03
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(b) 35.1 17.2 33.4 23.9 9.5 34.3 16.3 32.4 23.1 8.6
RATIOS/SUPPLEMENTAL
DATA
Ratio of Operating
Expenses to
Average Net
Assets (%) 1.38 1.30 1.25 1.23 1.21 2.11 2.05 2.00 1.98 1.96
Ratio of Net
Investment Income
to Average Net
Assets (%) 1.31 0.92 0.46 0.33 0.48 0.56 0.17 (0.29) (0.42) (0.27)
Portfolio Turnover
Rate (%) 69 127 103 114 133 69 127 103 114 133
Net Assets, End of
Period (000) $150,693 $166,963 $220,912 $304,139 $375,676 $ 29,026 $ 46,856 $ 81,066 $153,369 $216,457
<CAPTION>
CLASS C
MAY 1(A)
THROUGH
DEC. 31, YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 13.84 $ 14.39 $ 13.85 $ 15.28 $ 16.35
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.06 0.04 (0.05)(d (0.04) (0.04)
Net Realized and Unrealized Gain (Loss) on Investments 2.58 2.05 4.42 3.21 1.36
-------- -------- -------- -------- --------
Total From Investment Operations 2.64 2.09 4.37 3.17 1.32
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions From Net Investment Income (0.06) (0.04) (0.01) 0.00 0.00
Distributions From Net Realized Capital Gains (2.03) (2.59) (2.93) (2.10) (2.66)
Distributions in Excess of Net Investment Income 0.00 0.00 0.00 0.00 0.00(c)
-------- -------- -------- -------- --------
Total Distributions (2.09) (2.63) (2.94) (2.10) (2.66)
-------- -------- -------- -------- --------
Net Asset Value, End of the Period $ 14.39 $ 13.85 $ 15.28 $ 16.35 $ 15.01
======== ======== ======== ======== ========
TOTAL RETURN (%)(b) 20.2 16.3 32.6 22.9 8.6
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net Assets (%) 2.11(e) 2.05 2.00 1.98 1.96
Ratio of Net Investment Income to Average Net Assets (%) 0.56(e) 0.17 (0.29) (0.42) (0.27)
Portfolio Turnover Rate (%) 69 127 103 114 133
Net Assets, End of Period (000) $ 4,707 $ 3,912 $ 6,735 $ 18,288 $ 26,983
(a) Commencement of Operations.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations.
(c) Amount rounds to less than $0.01.
(d) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
(e) Computed on an annualized basis.
The Fund's current subadviser assumed that function on May 1, 1995. The highlights prior to this date reflect results
achieved by the previous subadviser under different investment policies.
</TABLE>
<PAGE>
<TABLE>
[graphic omitted] Fund Performance
----------------
NVEST BALANCED FUND
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Year $ 11.27 $ 13.14 $ 13.94 $ 14.25 $ 13.52 $ 11.24 $ 13.08 $ 13.86 $ 14.15 $ 13.40
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income 0.42 0.38 0.33 0.33 0.32 0.34 0.29 0.23 0.21 0.21
Net Realized and
Unrealized Gain
(Loss) on
Investments 2.49 1.76 2.05 0.74 (0.82) 2.46 1.74 2.03 0.74 (0.80)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- --------
Total From
Investment
Operations 2.91 2.14 2.38 1.07 (0.50) 2.80 2.03 2.26 0.95 (0.59)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- --------
LESS DISTRIBUTIONS
Distributions From
Net Investment
Income (0.40) (0.39) (0.33) (0.32) (0.32) (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) (0.64) (0.95) (1.74) (1.48) (1.01)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- --------
Total Distributions (1.04) (1.34) (2.07) (1.80) (1.33) (0.96) (1.25) (1.97) (1.70) (0.98)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- --------
Net Asset Value,
End of the Year $ 13.14 $ 13.94 $ 14.25 $ 13.52 $ 11.69 $ 13.08 $ 13.86 $ 14.15 $ 13.40 $ 11.58
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
======== ========
TOTAL RETURN (%)(a) 26.3 17.1 17.5 8.2 (3.8) 25.3 16.3 16.7 7.3 (4.4)
RATIOS/SUPPLEMENTAL
DATA
Ratio of Operating
Expenses to
Average Net
Assets (%) 1.36 1.33 1.29 1.30 1.33 2.11 2.08 2.04 2.05 2.08
Ratio of Net
Investment Income
to Average Net
Assets (%) 3.37 2.79 2.25 2.25 2.30 2.62 2.04 1.50 1.50 1.55
Portfolio Turnover
Rate (%) 54 70 69 81 61 54 70 69 81 61
Net Assets, End of
the Year (000) $196,514 $219,626 $233,421 $222,866 $167,943 $ 40,361 $ 58,367 $ 76,558 $ 84,255 $ 65,942
<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
Distributions 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)
RATIOS/SUPPLEMENTAL DATA
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
(a) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return
calculations.
</TABLE>
<PAGE>
<TABLE>
[graphic omitted] Fund Performance
----------------
NVEST EQUITY INCOME FUND
<CAPTION>
CLASS A
NOV. 28(a)
THROUGH
DEC. 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 $ 12.86 $ 15.15 $ 17.59 $ 17.62
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.31 0.25 0.26(b) 0.17
Net Realized and Unrealized Gains on
Investments 0.36 3.11 3.15 0.20(c) (0.51)
-------- -------- -------- -------- --------
Total From Investment Operations 0.40 3.42 3.40 0.46 (0.34)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions From Net Investment
Income (0.04) (0.30) (0.26) (0.26) (0.12)
Distributions From Net Realized
Capital Gains 0.00 (0.83) (0.70) (0.17) (0.00)(g)
-------- -------- -------- -------- --------
Total Distributions (0.04) (1.13) (0.96) (0.43) (0.12)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.86 $ 15.15 $ 17.59 $ 17.62 $ 17.16
======== ======== ======== ======== ========
TOTAL RETURN (%)(d) 3.2 26.6 22.6 2.7 (1.9)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets (%)(e) 1.50(f) 1.50 1.50 1.50 1.50
Ratio of Net Investment Income to
Average Net Assets (%) 3.58(f) 2.06 1.76 1.48 0.94
Portfolio Turnover Rate (%) 0 45 33 61 93
Net Assets, End of Period (000) $ 2,064 $ 2,613 $ 14,681 $ 17,839 $ 11,291
(a) Commencement of Operations.
(b) Per share net investment income has been calculated using the average shares outstanding during the year.
(c) The amount shown for a share outstanding does not correspond with the aggregate net gain/loss on investments for the period
ended December 31, 1998, due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market
values of the investments of the Fund.
(d) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations. Periods of
less than one year are not annualized.
(e) The ratio of operating expenses to average net assets without giving effect to the expense limitation in effect would have
been (%):
5.97(f) 3.67 3.10 1.92 2.12
(f) Computed on an annualized basis.
(g) Amount is to less than $0.01.
<CAPTION>
CLASS B CLASS C
SEPTEMBER 15(a) SEPTEMBER 15(a)
THROUGH YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period $ 17.06 $ 17.59 $ 17.62 $ 17.06 $ 17.59 $ 17.63
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.13(b) 0.03 0.03 0.13(b) 0.03
Net Realized and Unrealized Gains on
Investments 0.60 0.20(c) (0.50) 0.60 0.21(c) (0.50)
-------- -------- -------- -------- -------- --------
Total From Investment Operations 0.63 0.33 (0.47) 0.63 0.34 (0.47)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions From Net Investment
Income (0.04) (0.13) (0.05) (0.04) (0.13) (0.05)
Distributions From Net Realized
Capital Gains (0.06) (0.17) (0.00)(g) (0.06) (0.17) (0.00)(g)
-------- -------- -------- -------- -------- --------
Total Distributions (0.10) (0.30) (0.05) (0.10) (0.30) (0.05)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 17.59 $ 17.62 $ 17.10 $ 17.59 $ 17.63 $ 17.11
======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(d) 3.7 2.0 (2.7) 3.7 2.0 (2.7)
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets (%)(e) 2.25(f) 2.25 2.25 2.25(f) 2.25 2.25
Ratio of Net Investment Income to
Average Net Assets (%) 1.01(f) 0.73 0.19 1.01(f) 0.73 0.19
Portfolio Turnover Rate (%) 33 61 93 33 61 93
Net Assets, End of Period (000) $ 9,375 $ 16,623 $ 9,643 $ 1,596 $ 2,101 $ 1,336
(a) Commencement of Operations.
(b) Per share net investment income has been calculated using the average shares outstanding during the year.
(c) The amount shown for a share outstanding does not correspond with the aggregate net gain/loss on investments for the period
ended December 31, 1998, due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market
values of the investments of the Fund.
(d) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations. Periods of
less than one year are not annualized.
(e) The ratio of operating expenses to average net assets without giving effect to the expense limitation in effect would have
been (%):
3.85(f) 2.67 2.87 3.85(f) 2.67 2.87
(f) Computed on an annualized basis.
(g) Amount is to less than $0.01.
</TABLE>
<PAGE>
<TABLE>
[graphic omitted] Fund Performance
----------------
NVEST INTERNATIONAL EQUITY FUND
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Year $ 15.50 $ 16.13 $ 16.31 $ 14.06 $ 14.26 $ 15.35 $ 15.93 $ 16.00 $ 13.71 $ 13.98
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.27 0.02(c) 0.09(c) 0.15(c) (0.03)(c) 0.19 (0.10)(c) (0.03)(c) 0.04(c) (0.15)(c)
Net Realized and
Unrealized Gain
(Loss) on
Investments 0.63 0.51 (1.25) 0.77 12.31 0.58 0.50 (1.17) 0.75 12.01
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations 0.90 0.53 (1.16) 0.92 12.28 0.77 0.40 (1.20) 0.79 11.86
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions From
Net Investment
Income (0.27) (0.02) 0.00 (0.23) (0.02) (0.19) 0.00 0.00 (0.12) 0.00
Distributions in
Excess of Net
Investment Income 0.00 0.00 0.00 (0.21) 0.00 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) 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 0.00 0.00 (0.04) (0.09) 0.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (0.27) (0.35) (1.09) (0.72) (1.15) (0.19) (0.33) (1.09) (0.52) (1.13)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of the Year $ 16.13 $ 16.31 $ 14.06 $ 14.26 $ 25.39 $ 15.93 $ 16.00 $ 13.71 $ 13.98 $ 24.71
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(a) 5.8 3.3 (7.6) 6.7 87.6 5.0 2.5 (8.0) 5.8 86.3
RATIOS/SUPPLEMENTAL
DATA
Ratio of Operating
Expenses to Average
Net Assets (%)(b) 1.75 1.75 1.75 1.91 2.00 2.50 2.50 2.50 2.66 2.75
Ratio of Net
Investment Income
(Loss) to Average
Net Assets (%) 1.24 0.14 0.62 1.04 (0.15) 0.49 (0.61) (0.13) 0.29 (0.90)
Portfolio Turnover
Rate (%) 119 59 154 105 229 119 59 154 105 229
Net Assets, End of
the Year (000) $136,848 $109,773 $ 57,845 $ 47,444 $ 67,197 $ 52,895 $ 45,974 $ 25,216 $ 19,797 $ 29,045
(a) A sales charge for Class A shares or a CDSC for Class B and C shares are not reflected in total return calculations.
(b) The ratio of operating expenses to average net assets without giving effect to expense limitations would have been (%):
CLASS A CLASS B
------------------------------------------------ ------------------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
1.83 1.79 2.14 2.25 2.26 2.58 2.54 2.89 3.00 3.01
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
The Fund's current subadviser assumed that function on February 14, 1997. The highlights prior to this date reflect results
achieved by the previous subadviser under different investment policies.
<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)(c) (0.03)(c) 0.05(c) (0.15)(c)
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
Distributions From Net Investment Income (0.19) 0.00 0.00 (0.12) 0.00
Distributions 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
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to Average Net
Assets (%)(b) 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
(a) A sales charge for Class A shares or a CDSC for Class B and C shares are not reflected in total return calculations.
(b) The ratio of operating expenses to average net assets without giving effect to expense limitations would have been (%):
CLASS C
------------------------------------------------
1995 1996 1997 1998 1999
2.58 2.54 2.89 3.00 3.01
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
The Fund's current subadviser assumed that function on February 14, 1997. The highlights prior to this date reflect results
achieved by the previous subadviser under different investment policies.
</TABLE>
<PAGE>
GLOSSARY OF TERMS
BID PRICE -- The price a prospective buyer is ready to pay. This term is used by
traders who maintain firm bid and offer prices in a given security by standing
ready to buy or sell security units at publicly quoted prices.
BOTTOM-UP ANALYSIS -- The search for outstanding performance of individual
stocks before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS -- Payments to a Fund's shareholders of profits
earned from selling securities in a Fund's portfolio. Capital gain distributions
are usually paid once a year.
CREDIT RATING -- Independent evaluation of a bond's creditworthiness. This
measurement is usually calculated through an index compiled by companies such as
S&P, Moody's or Fitch Investor Services, Inc. ("Fitch"). Bonds with a credit
rating of BBB or higher by S&P, Baa or higher by Moody's or BBB by Fitch are
generally considered investment grade.
DERIVATIVE -- A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument.
DISCOUNTED PRICE -- The difference between a bond's current market price and its
face or redemption value.
DIVERSIFICATION -- The strategy of investing in a wide range of companies or
industries to reduce the risk if an individual company or one sector of the
market suffers losses.
DIVIDEND YIELD -- The current or estimated annual dividend divided by the market
price per share of a security.
DURATION -- A measure of how much a bond's price fluctuates with changes in
comparable interest rates.
EARNINGS GROWTH -- A pattern of increasing rate of growth in earnings per share
from one period to another, which usually causes a stock's price to rise.
FUNDAMENTAL ANALYSIS -- An analysis of the balance sheet and income statements
of a company in order to forecast its future stock price movements. Fundamental
analysis considers past records of assets, earnings, sales, products, management
and markets in predicting future trends in these indicators of a company's
success or failure. By appraising a company's prospects, analysts using such an
approach assess whether a particular stock or group of stocks is undervalued or
overvalued at its current market price.
GROWTH INVESTING -- An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from the net interest
or dividend income earned by a Fund's portfolio.
INFLATION -- A general increase in prices coinciding with a fall in the real
value of money, as measured by the Consumer Price Index.
INTEREST RATE -- Rate of interest charged for the use of money, usually
expressed at an annual rate.
MARKET CAPITALIZATION -- Market price multiplied by number of shares
outstanding. Large capitalization companies generally have over $5 billion in
market capitalization; medium cap companies between $1.5 billion and $5 billion;
and small cap companies less than $1.5 billion. These capitalization figures may
vary depending upon the index being used and/or the guidelines used by the
portfolio manager.
MATURITY -- The final date on which the payment of a debt instrument (e.g.
bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds
generally have maturities of up to 5 years; intermediate-term bonds between 5
and 15 years; and long-term bonds over 15 years.
NET ASSET VALUE (NAV) -- The market value of one share of a Fund on any given
day without taking into account any front-end sales charge or CDSC. It is
determined by dividing a Fund's total net assets by the number of shares
outstanding.
PRICE-TO-BOOK VALUE RATIO -- Current market price of a stock divided by its book
value, or net asset value.
PRICE-TO-EARNINGS RATIO -- Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price-to-earnings ratio
gives investors an idea of how much they are paying for a company's earning
power and is a useful tool for evaluating the costs of different securities.
Some firms use the inverse ratio for this calculation(i.e. earnings-to-price
ratio).
QUALITATIVE ANALYSIS -- An analysis of the qualities possessed by a company,
including its management, products and competitive positions, to help determine
if the company can execute its strategy.
RETURN ON EQUITY -- The amount, expressed as a percentage, earned on a company's
common stock investment for a given period. It is calculated by dividing common
stock equity (net worth) at the beginning of the accounting period into net
income for the period after preferred stock dividends but before common stock
dividends by the common stock equity (net worth) average for the accounting
period. This tells common shareholders how effectively their money is being
employed.
RULE 144A SECURITIES -- Rule 144A securities are privately offered securities
that can be resold only to certain qualified institutional buyers. Rule 144A
securities are treated as illiquid, unless a manager has determined, under
guidelines established by a Fund's trustees, that a particular issue of Rule
144A securities is liquid.
TARGET PRICE -- Price that an investor is hoping a stock he or she has just
bought will rise to within a specified period of time. An investor may buy XYZ
at $20, with a target price of $40 in one year's time, for instance.
TECHNICAL ANALYSIS -- The research into the demand and supply for securities,
options, mutual funds and commodities based on trading volume and price studies.
Technical analysis uses charts or computer programs to identify and project
price trends in a market, security, mutual fund or futures contract.
TOP-DOWN APPROACH -- The method in which an investor first looks at trends in
the general economy, and next selects attractive industries and then companies
that should benefit from those trends.
TOTAL RETURN -- The change in value of an investment in a Fund over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of a Fund.
VALUE INVESTING -- A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets are
not fully reflected in their stock prices. Value stocks will tend to have a
lower price-to-earnings ratio than growth stocks.
VOLATILITY -- The general variability of a portfolio's value resulting from
price fluctuations of its investments. In most cases, the more diversified a
portfolio is, the less volatile it will be.
YIELD -- The rate at which a fund earns income, expressed as a percentage.
Mutual fund yield calculations are standardized, based upon a formula developed
by the SEC.
YIELD-TO-MATURITY -- The concept used to determine the rate of return an
investor will receive if a long-term, interest-bearing investment, such as a
bond, is held to its maturity date. It takes into account purchase price,
redemption value, time to maturity, coupon yield (the interest rate on a debt
security the issuer promises to pay to the holder until maturity, expressed as
an annual percentage of face value) and the time between interest payments.
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
IF YOU WOULD LIKE MORE INFORMATION ABOUT THE
FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:
ANNUAL AND SEMIANNUAL REPORTS -- Provide
additional information about each Fund's
investments. Each report includes a discussion of
the market conditions and investment strategies
that significantly affected the Fund's performance
during its last fiscal year. To reduce costs, we
mail one copy per household. For more copies call
Nvest Funds Distributor, L.P. at the number below.
STATEMENT OF ADDITIONAL INFORMATION (SAI) --
Provides more detailed information about the
Funds, has been filed with the Securities and
Exchange Commission and is incorporated into this
Prospectus by reference.
TO ORDER A FREE COPY OF A FUND'S ANNUAL OR
SEMIANNUAL REPORT OR ITS SAI, CONTACT YOUR
FINANCIAL REPRESENTATIVE, OR THE FUNDS AT:
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Telephone: 800-225-5478
Internet: www.nvestfunds.com
Your financial representative or Nvest Funds will
also be happy to answer your questions or to
provide any additional information that you may
require.
You can review the Funds' reports and SAIs at the
Public Reference Room of the Securities and
Exchange Commission in Washington, D.C. Text-only
copies are available free from the Commission's
Web site at: www.sec.gov.
Copies of these publications are also available
for a fee and information on the operation of the
Public Reference Room may be obtained by
electronic request at the following E-mail
address: [email protected], or by writing or
calling the Public Reference Room of the SEC,
Washington, D.C. 20549-0102
Telephone: 1-202-942-8090
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.
NVEST FUNDS
STOCK FUNDS
Nvest Capital Growth Fund
Nvest Growth Fund
Nvest Growth and Income Fund
Nvest Balanced Fund
Nvest Equity Income Fund
Nvest International Equity Fund
(Investment Company Act File No. 811-4323)
(Investment Company Act File No. 811-242)
(Investment Company Act File No. 811-7345)
XS51-0500
<PAGE>
NVESTFUNDS(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
Nvest
BULLSEYE FUND
Jurika & Voyles, L.P.
[Graphic Omitted]
The Securities and Exchange Commission has not approved the Fund's shares or
determined whether this Prospectus is accurate or complete. Anyone who tells you
otherwise is committing a crime.
For general information on the Funds or any of their services and for assistance
in opening an account, contact your financial representative or call Nvest
Funds.
PROSPECTUS
May 1, 2000
WHAT'S INSIDE
Goals, Strategies & Risks
[GRAPHIC OMITTED] Page 1
- --------------------------------------------------------------------------------
Fund Fees & Expenses
[GRAPHIC OMITTED] Page 3
- --------------------------------------------------------------------------------
Management Team
[GRAPHIC OMITTED] Page 5
- --------------------------------------------------------------------------------
Fund Services
[GRAPHIC OMITTED] Page 6
- --------------------------------------------------------------------------------
Fund Performance
[GRAPHIC OMITTED] Page 18
- --------------------------------------------------------------------------------
Nvest Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
www.nvestfunds.com
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GOALS, STRATEGIES & RISKS
- --------------------------------------------------------------------------------
Nvest Bullseye Fund ....................................................... 1
- --------------------------------------------------------------------------------
FUND FEES & EXPENSES
- --------------------------------------------------------------------------------
Fund Fees & Expenses ...................................................... 3
- --------------------------------------------------------------------------------
MORE ABOUT RISK
- --------------------------------------------------------------------------------
More About Risk ........................................................... 4
- --------------------------------------------------------------------------------
MANAGEMENT TEAM
- --------------------------------------------------------------------------------
Meet the Fund's Investment Adviser and Subadviser ......................... 5
Meet the Fund's Portfolio Manager ......................................... 5
- --------------------------------------------------------------------------------
FUND SERVICES
- --------------------------------------------------------------------------------
Investing in the Fund ..................................................... 6
How Sales Charges Are Calculated .......................................... 7
Ways to Reduce or Eliminate Sales Charges ................................. 8
It's Easy to Open an Account .............................................. 9
Buying Shares ............................................................. 10
Selling Shares ............................................................ 11
Selling Shares in Writing ................................................. 12
Exchanging Shares ......................................................... 13
Restrictions on Buying, Selling and Exchanging Shares ..................... 13
How Fund Shares Are Priced ................................................ 14
Dividends and Distributions ............................................... 15
Tax Consequences .......................................................... 15
Compensation to Securities Dealers ........................................ 16
Additional Investor Services .............................................. 17
- --------------------------------------------------------------------------------
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Nvest Bullseye Fund ....................................................... 18
Glossary of Terms ......................................................... 19
If you have any questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
To learn more about the possible risks of investing in the Fund, please refer to
the section entitled "More About Risk." This section details the risks of
practices in which the Fund may engage. Please read this section carefully
before you invest.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
<PAGE>
<TABLE>
<S> <S> <C> <C> <C>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- -----------------------
NVEST BULLSEYE FUND Stability Income Growth
High X
ADVISER: Nvest Funds Management, L.P. ("Nvest Management") --------- ------ ------
SUBADVISER: Jurika & Voyles, L.P. ("Jurika & Voyles") Mod.
MANAGERS: Nicholas E. Moore --------- ------ ------
CATEGORY: All-Cap Equity Low X X
TICKER SYMBOL: CLASS A CLASS B CLASS C
-------------------------
NFBSX NFBBX NFBCX
</TABLE>
PRINCIPAL INVESTMENT GOAL
The Fund seeks long-term capital growth.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in a non-diversified portfolio of equity securities. The Fund primarily
invests in the common stock of 15 to 25 quality companies representing different
capitalization levels and industries. Jurika & Voyles believes that the
companies that it chooses to invest in are undervalued based upon their current
operations and have the potential for future earnings growth.
It uses this "growth at a reasonable price" philosophy to build a portfolio it
believes will produce higher long-term returns than the Standard & Poor's
Composite Index of 500 Stocks ("S&P 500"). It seeks companies with the following
characteristics, although not all of the companies selected will have these
attributes:
x discounted price compared to intrinsic value
x favorable earnings growth potential
x competitive advantages
x strong financial health
x positive cash flow
x strong management often with high insider ownership
Jurika & Voyles uses the following strategy to select its investments:
o It combines a bottom-up analysis and a top-down approach in managing the Fund.
A bottom-up approach analyzes individual companies on a case-by-case basis. A
top down approach analyzes the overall economic factors that may affect a
potential investment.
o The firm's analysts comb through the universe of publicly traded companies
seeking to identify stocks that meet their growth and value criteria.
o Analysts then perform comprehensive research to understand the dynamics of the
company's business model and drivers of profitability to arrive at a narrowed
universe.
o The Fund will sell a stock when it becomes overvalued, if a company's
fundamentals deteriorate, if its management loses focus or when another
company shows greater growth potential at a more advantageous price.
The Fund may:
o Invest in convertible preferred stock and convertible debt securities.
o Hold up to 20% of its assets in American Depositary Receipts ("ADRs"), which
are foreign investments issued by a U.S. bank.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower your return.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements,
limited markets and less liquidity than larger, more established companies,
which may adversely affect the value of the portfolio. Growth stocks are
generally more sensitive to market movements than the other types of stocks,
primarily because their stock prices are based heavily on future expectations.
Value stocks present the risk that they may fall out of favor with investors
and under perform growth stocks during given periods.
NON-DIVERSIFIED STATUS: Compared with other mutual funds, the Fund may invest a
greater percentage of its assets in a particular company. Therefore, the
Fund's return could be significantly affected by the performance of any one of
the small number of stocks in its portfolio.
FOREIGN SECURITIES: ADRs may be more volatile than U.S. securities and carry
political, economic and information risks that are associated with foreign
securities.
<PAGE>
Goals, Strategies & Risks [graphic omitted]
-------------------------
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Bullseye Fund by showing the Fund's performance for last year and
comparing the Fund's performance with a broad measure of market performance and
indices of funds with similar objectives. The Fund's past performance does not
necessarily indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for the calendar
year since its first year of operations. The returns for the other classes of
shares offered by this Prospectus differ from the Class A returns shown in the
bar chart, depending upon the respective expenses of each class. The chart does
not reflect any sales charge that you may be required to pay when you buy or
redeem the Fund's shares. A sales charge will reduce your return.
(total return)
1999 36.68%
/\ Highest Quarterly Return: Fourth Quarter 1999, up 43.96%
\/ Lowest Quarterly Return: Third Quarter 1998, down 12.49%
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the S&P 500, a market
value-weighted, unmanaged index of common stock prices for 500 selected stocks.
The returns are also compared to the Morningstar Mid Cap Growth and Lipper
Multi-Cap Core Averages, each an average of the total returns of all mutual
funds with an investment style similar to that of the Fund as calculated by
Morningstar , Inc. and Lipper, Inc. The Fund previously compared its returns to
the broad Lipper category in which the Fund was categorized. In 1999, Lipper
Inc. narrowed their existing categories and created additional categories and
the Fund falls within Lipper Multi-Cap Core Average, one of the newly created
categories. You may not invest directly in an index. The Fund's total returns
reflect its expenses and the maximum sales charge that you may pay when you buy
or redeem the Fund's shares. The S&P 500 returns have not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. The Morningstar Mid Cap Growth Average
and Lipper Multi-Cap Core Average returns have been adjusted for these expenses
but do not reflect any sales charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999) PAST 1 YEAR SINCE CLASS INCEPTION
Nvest Bullseye:Fund
Class A (inception 3/31/98) 28.84% 16.34%
Class B (inception 3/31/98) 30.71% 17.56%
Class C (inception 3/31/98) 34.74% 19.53%
S&P 500 21.04% 19.50%
Morningstar Mid Cap Growth Average 6.72% -0.96%
Lipper Multi-Cap Core Average 22.50% 14.08%
- --------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled
"Fund Fees & Expenses."
<PAGE>
[graphic omitted] FUND FEES & EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)(1)(2) 5.75% None None
Maximum deferred sales charge (load)
(as a percentage of original purchase
price or redemption proceeds, as
applicable)(2) (3) 5.00% 1.00%
Redemption fees None* None* None*
(1) A reduced sales charge on Class A shares applies in some cases. See "Ways to
Reduce or Eliminate Sales Charges" within the section entitled "Fund
Services."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to certain
purchases of Class A shares greater than $1,000,000 redeemed within 1 year
after purchase, but not to any other purchases or redemptions of Class A
shares. See "How Sales Charges are Calculated" within the section entitled
"Fund Services."
* Generally, a transaction fee will be charged for expedited payment of
redemption proceeds such as by wire or overnight delivery.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average daily
net assets)
BULLSEYE FUND
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Management fees 0.95% 0.95% 0.95%
Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%*
Other expenses 1.57% 1.57% 1.57%
Total annual fund operating expenses 2.77% 3.52% 3.52%
Fee waiver and/or expense reimbursement** 1.02% 1.02% 1.02%
Net expenses 1.75% 2.50% 2.50%
* Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
** Nvest Management has given a binding undertaking to the Fund to limit the
amount of the Fund's total annual fund operating expenses to 1.75%, 2.50%
and 2.50% of its average daily net assets for Class A, B and C shares,
respectively. This undertaking is in effect until April 30, 2001 and will be
reevaluated on an annual basis.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the Fund for the time periods indicated;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
BULLSEYE FUND
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
- --------------------------------------------------------------------------------
1 year $ 744 $ 756 $ 256 $ 356 $ 256
3 years $1,302 $1,301 $1.001 $1,001 $1,001
5 years $1,885 $1,966 $1,766 $1,766 $1,766
10 years* $3,456 $3,602 $3,602 $3,774 $3,774
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period
* Class B shares automatically convert to Class A shares after 8 years;
therefore, Class B amounts are calculated using Class A expenses in years 9
and 10.
<PAGE>
MORE ABOUT RISK
The Fund has principal investment strategies that come with inherent risks. The
following is a list of risks to which the Fund may be subject by investing in
various types of securities or engaging in various practices.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably based upon change in a company's financial
condition as well as overall market and economic conditions.
RISK OF SMALL CAPITALIZATION COMPANIES These companies carry special risks,
including narrower markets, limited financial and management resources, less
liquidity and greater volatility than large company stocks.
MANAGEMENT RISK The risk that a strategy used by the Fund's portfolio management
may fail to produce the intended result.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment.
RISKS OF OPTIONS, FUTURES AND SWAP CONTRACTS These transactions are subject to
changes in the underlying security on which such transactions are based. It is
important to note that even a small investment in these types of derivative
securities can have a significant impact on the Fund's exposure to stock market
values, interest rates or the currency exchange rate. These types of
transactions will be used primarily for hedging purposes.
LEVERAGE RISK The risk associated with securities or practices (e.g. borrowing)
that multiply small index or market movements into large changes in value. When
a derivative security (a security whose value is based on another security or
index) is used as a hedge against an offsetting position that the Fund also
holds, any loss generated by the derivative security should be substantially
offset by gains on the hedged instrument, and vice versa. To the extent that a
Fund uses a derivative security for purposes other than as a hedge, that Fund is
directly exposed to the risks of that derivative security and any loss generated
by the derivative security will not be offset by a gain.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. In general, the prices of fixed-income securities rise when interest
rates fall, and fall when interest rates rise.
INFORMATION RISK The risk that key information about a security is inaccurate or
unavailable.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less profitable
investments.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and at the price that the seller would like. This may result
in a loss or may be costly to the Fund.
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged.
EXTENSION RISK The risk that an unexpected rise in interest rates will extend
the life of a mortgage- or asset-backed security beyond the expected prepayment
time, typically reducing the security's value.
VALUATION RISK The risk that the Fund has valued certain securities at a higher
price than it can sell them for.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the
value of mortgage- or asset-backed securities, or real estate investment trusts.
POLITICAL RISK The risk of losses directly attributable to government or
political actions.
EURO CONVERSION Many European countries have adopted a single European currency,
the "euro." The consequences of this conversion for foreign exchange rates,
interest rates and the value of European securities are unclear presently. Such
consequences may decrease the value and/or increase the volatility of securities
held by the Fund.
<PAGE>
[graphic omitted] Management Team
---------------
MEET THE FUND'S INVESTMENT ADVISER
AND SUBADVISER
The Nvest Funds family includes 25 mutual funds with a total of over $8 billion
in assets under management as of December 31, 1999. Nvest Funds are distributed
through Nvest Funds Distributors, L.P. (the "Distributor"). This Prospectus
covers Nvest Bullseye Fund (the "Fund"), which along with the other Nvest Stock
Funds, Nvest Bond Funds, Nvest Star Funds, Kobrick Funds and Nvest State
Tax-Free Funds, constitute the "Nvest Funds." Nvest Cash Management Trust Money
Market Series and Nvest Tax Exempt Money Market Trust constitute the "Money
Market Funds."
NVEST FUNDS MANAGEMENT, L.P.
Nvest Management, located at 399 Boylston Street, Boston, Massachusetts 02116,
serves as the adviser to the Fund. Nvest Management is a subsidiary of Nvest
Companies, L.P. ("Nvest Companies"), which is part of an affiliated group
including Nvest, L.P., a publicly-traded company listed on the New York Stock
Exchange (the "Exchange"). Nvest Companies' 18 principal subsidiary or
affiliated asset management firms, collectively, had more than $133 billion in
assets under management as of December 31, 1999. Nvest Management oversees,
evaluates and monitors the subadvisory services provided to the Fund. It also
provides general business management and administration to the Fund. Nvest
Management does not determine what investments will be purchased by the Fund.
Jurika & Voyles makes the Fund's investment decisions.
The combined advisory and subadvisory fees paid by the Fund in 1999 as a
percentage of the Fund's average daily net assets was 0.00% (after waiver or
reimbursement.)
SUBADVISER
Jurika & Voyles, located at Lake Merritt Plaza, 1999 Harrison, Suite 700,
Oakland, California 94612, serves as subadviser to the Fund. Jurika & Voyles,
founded in 1983, has discretionary management authority with respect to over $3
billion of assets as of December 31, 1999 for various clients including
corporations, pension plans, 401(k) plans, profit sharing plans, trusts and
estates, foundations and charities, mutual funds and individuals. Jurika &
Voyles is a subsidiary of Nvest Companies. The combined advisory and subadvisory
fees paid by the Fund in 1999 as a percentage of the Fund's average daily net
assets was 0.00% (after waiver or reimbursement.)
SUBADVISORY AGREEMENTS
The Fund has received an exemptive order from the Securities and Exchange
Commission (the "SEC") which permits Nvest Management to amend or continue
existing subadvisory agreements when approved by the Fund's Board of Trustees,
without shareholder approval. The exemption also permits Nvest Management to
enter into new subadvisory agreements with subadvisers that are not affiliated
with Nvest Management, if approved by the Fund's Board of Trustees. Shareholders
will be notified of any subadviser changes.
PORTFOLIO TRADES
In placing portfolio trades, Nvest Management or Jurika & Voyles may use
brokerage firms that market the Fund's shares or are affiliated with Nvest
Companies, Nvest Management or Jurika & Voyles. In placing trades, Jurika &
Voyles will seek to obtain the best combination of price and execution, which
involves a number of judgmental factors. Such portfolio trades are subject to
applicable regulatory restrictions and related procedures adopted by the Fund's
Board of Trustees.
MEET THE FUND'S PORTFOLIO MANAGER
NICHOLAS E. MOORE
Nicholas Moore has managed Bullseye Fund since March 2000. Mr. Moore, Vice
President, Principal and Analyst, Equity Research of Jurika & Voyles, joined the
company in June 1998. Prior to joining Jurika & Voyles, Mr. Moore was a Vice
President and Portfolio Manager at Orbitex Management. He was formerly with the
Franklin Templeton Group. Mr. Moore has a B.A. from Menlo College in California
and 14 years of investment experience.
<PAGE>
Fund Services [graphic omitted]
-------------
INVESTING IN THE FUND
CHOOSING A SHARE CLASS
The Fund offers Class A, Class B and Class C shares to the public. Each class
has different costs associated with buying, selling and holding Fund shares,
which allow you to choose the class that best meets your needs. Which class you
choose will depend upon the size of your investment and how long you intend to
hold your shares. Class B shares, Class C shares and certain shareholder
features may not be available to you if you hold your shares in a street name
account. Your financial representative can help you decide which class of shares
is most appropriate for you.
CLASS A SHARES
o You pay a sales charge when you buy Fund shares. There are several ways to
reduce this charge. See the section entitled "Ways to Reduce or Eliminate
Sales Charges."
o You pay lower annual expenses than Class B and Class C shares, giving you the
potential for higher returns per share.
o You do not pay a sales charge on orders of $1 million or more, but you may pay
a charge on redemption if you redeem these shares within 1 year of purchase.
CLASS B SHARES
o You do not pay a sales charge when you buy Fund shares. All of your money goes
to work for you right away.
o You pay higher annual expenses than Class A shares.
o You will pay a charge on redemptions if you sell your shares within 6 years of
purchase, as described in the section "How Sales Charges are Calculated."
o Your Class B shares will automatically convert into Class A shares after 8
years, which reduces your annual expenses.
o We will not accept an order for $1 million or more of Class B shares. You may,
however, purchase $1 million or more of Class A shares, which will have no
sales charge as well as lower annual expenses. You may pay a charge on
redemption if you redeem these shares within 1 year of purchase.
CLASS C SHARES
o You do not pay a sales charge when you buy Fund shares. All of your money goes
to work for you right away.
o You pay higher annual expenses than Class A shares.
o You will pay a charge on redemptions if you sell your shares within 1 year of
purchase.
o Your Class C shares will not automatically convert into Class A shares. If you
hold your shares for longer than 8 years, you'll pay higher expenses than
other classes.
o We will not accept an order for $1 million or more of Class C shares. You may,
however, purchase $1 million or more of Class A shares, which will have no
sales charge as well as lower annual expenses. You may pay a charge on
redemption if you redeem these shares within 1 year of purchase.
For actual past expenses of Class A, B and C shares, see the section entitled
"Fund Fees & Expenses" in this Prospectus.
CERTIFICATES
Certificates will not be automatically issued for any class of shares. Upon
written request, you may receive certificates for Class A shares only.
<PAGE>
[graphic omitted] Fund Services
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HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price that you pay when you buy Class A shares (the "offering price") is
their net asset value plus a sales charge (sometimes called a "front-end sales
charge") which varies depending upon the size of your purchase.
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES
YOUR INVESTMENT AS A % OF OFFERING PRICE AS A % OF YOUR INVESTMENT
Less than $ 50,000 5.75% 6.10%
$ 50,000 - $ 99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0.00% 0.00%
- --------------------------------------------------------------------------------
* For purchases of Class A shares of the Fund of $1 million or more or purchases
by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal
Revenue Code with investments of $1 million or more or that have 100 or more
eligible employees), there is no front-end sales charge, but a contingent
deferred sales charge of 1.00% may apply to redemptions of your shares within
one year of the date of purchase. See the section entitled "Ways to Reduce or
Eliminate Sales Charges."
CLASS B SHARES
The offering price of Class B shares is their net asset value, without a
front-end sales charge. However, there is a contingent deferred sales charge
("CDSC") on shares that you sell within 6 years of buying them. The amount of
the CDSC, if any, declines each year that you own your shares. The holding
period for purposes of timing the conversion to Class A shares and determining
the CDSC will continue to run after an exchange to Class B shares of another
Nvest Fund. The CDSC equals the following percentages of the dollar amounts
subject to the charge:
- --------------------------------------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGES
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
thereafter 0.00%
- --------------------------------------------------------------------------------
CLASS C SHARES
The offering price of Class C shares is their net asset value, without a
front-end sales charge. However, Class C shares are subject to a CDSC of 1.00%
on redemptions made within one year of the date of purchase. The holding period
for determining the CDSC will continue to run after an exchange to Class C
shares of another Nvest Fund.
- --------------------------------------------------------------------------------
CLASS C CONTINGENT DEFERRED SALES CHARGES
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
1st 1.00%
thereafter 0.00%
- --------------------------------------------------------------------------------
HOW THE CDSC IS APPLIED TO YOUR SHARES
The CDSC is a sales charge you pay when you redeem certain Fund shares.
The CDSC:
o is calculated based on the number of shares you are selling;
o is based on either your original purchase price or the then-current net asset
value of the shares being sold, whichever is lower;
o is deducted from the proceeds of the redemption, not from the amount remaining
in your account; and
o for year one applies to redemptions through the day one year after the date on
which your purchase was accepted, and so on for subsequent years.
A CDSC WILL NOT BE CHARGED ON:
o increases in net asset value above the purchase price; or
o shares you acquired by reinvesting your dividends or capital gains
distributions.
To keep your CDSC as low as possible, each time that you place a request to sell
shares we will first sell any shares in your account that carry no CDSC. If
there are not enough of these shares available to meet your request, we will
sell the shares with the lowest CDSC.
EXCHANGES INTO SHARES OF A MONEY MARKET FUND
If you exchange shares of the Fund into shares of the Money Market Funds, the
holding period for purposes of determining the CDSC and conversion to Class A
shares stops until you exchange back into shares of another Nvest Fund. If you
choose to redeem those Money Market Fund shares, a CDSC may apply.
<PAGE>
Fund Services [graphic omitted]
-------------
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
CLASS A SHARES
REDUCING SALES CHARGES
There are several ways you can lower your sales charge utilizing the chart on
the previous page, including:
o LETTER OF INTENT -- allows you to purchase Class A shares of any Nvest Fund
over a 13-month period but pay sales charges as if you had purchased all
shares at once. This program can save you money if you plan to invest $50,000
or more over 13 months. Purchases in Class B and Class C shares may be used
toward meeting the letter of intent.
o COMBINING ACCOUNTS -- allows you to combine shares of multiple Nvest Funds and
classes for purposes of calculating your sales charge. You may combine your
purchases with those of qualified accounts of a spouse, parents, children,
siblings, grandparents, grandchildren, in-laws, individual fiduciary accounts,
sole proprietorships, single trust estates and any other group of individuals
acceptable to the Distributor.
These privileges do not apply to the Money Market Funds unless shares are
purchased through an exchange from another Nvest Fund.
ELIMINATING SALES CHARGES AND CDSC
Class A shares may be offered without front-end sales charges or a CDSC to the
following individuals and institutions:
o Any government entity that is prohibited from paying a sales charge or
commission to purchase mutual fund shares;
o Selling brokers, sales representatives or other intermediaries;
o Fund trustees and other individuals who are affiliated with any Nvest Fund or
Money Market Fund (this also applies to any spouse, parents, children,
siblings, grandparents, grandchildren and in-laws of those mentioned);
o Participants in certain Retirement Plans with at least 100 eligible employees
(one-year CDSC may apply);
o Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities; and
o Investments of $25,000 or more in the Nvest Funds or Money Market Funds by
clients of an adviser or subadviser to any Nvest Fund or Money Market Fund.
REPURCHASING FUND SHARES
You may apply proceeds from redeeming Class A shares of the Fund WITHOUT PAYING
A SALES CHARGE to repurchase Class A shares of any Nvest Fund. To qualify, you
must reinvest some or all of the proceeds within 120 days after your redemption
and notify Nvest Funds or your financial representative at the time of
reinvestment that you are taking advantage of this privilege. You may reinvest
your proceeds either by returning the redemption check or by sending a new
check for some or all of the redemption amount. Please note: For federal
income tax purposes, A REDEMPTION IS A SALE THAT INVOLVES TAX CONSEQUENCES,
EVEN IF THE PROCEEDS ARE LATER REINVESTED. Please consult your tax adviser for
how a redemption would affect you.
If you repurchase Class A shares of $1 million or more within 30 days after you
redeem such shares, the Distributor will rebate the amount of the CDSC charged
on the redemption.
CLASS A, B OR C SHARES
ELIMINATING THE CDSC
As long as we are notified at the time you sell, the CDSC for any share class
may generally be eliminated in the following cases:
o to make distributions from a retirement plan (a plan termination or total plan
redemption may incur a CDSC);
o to make payments through a systematic withdrawal plan; or
o due to shareholder death or disability.
If you think you may be eligible for a sales charge elimination or reduction,
contact your financial representative or Nvest Funds. Check the Statement of
Additional Information for details.
<PAGE>
[graphic omitted] Fund Services
-------------
IT'S EASY TO OPEN AN ACCOUNT
TO OPEN AN ACCOUNT WITH NVEST FUNDS:
1. Read this Prospectus carefully.
2. Determine how much you wish to invest. The following chart shows the
investment minimums for various types of accounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MINIMUM TO OPEN AN
MINIMUM TO ACCOUNT USING MINIMUM FOR
TYPE OF ACCOUNT OPEN AN ACCOUNT INVESTMENT BUILDER EXISTING ACCOUNTS
<S> <C> <C> <C>
Any account other than those
listed below $2,500 $ 100 $ 100
Accounts registered under the Uniform
Gifts to Minors Act or the Uniform $2,500 $ 100 $ 100
Transfers to Minors Act
Individual Retirement Accounts (IRAs) $ 500 $ 100 $ 100
Retirement plans with tax benefits such
as corporate pension, profit sharing $ 250 $ 100 $ 100
and Keogh plans
Payroll Deduction Investment Programs
for SARSEP*, SEP, SIMPLE IRA, $ 25 N/A $ 25
403(b)(7) and certain other retirement plans
- --------------------------------------------------------------------------------------------------------------------------------
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available
replacing SARSEP plans. SARSEP plans established prior to January 1, 1997 may remain active and continue to add new employees.
</TABLE>
3. Complete the appropriate parts of the account application, carefully
following the instructions. If you have any questions, please call your
financial representative or Nvest Funds at 800-225-5478. For more information
on Nvest Funds' investment programs, refer to the section entitled
"Additional Investor Services" in this Prospectus.
4. Use the following sections as your guide for purchasing shares.
Self-Servicing Your Account
Buying or selling shares is easy with the services described below:
Nvest Funds Personal Access Line(R) Nvest Funds Web site
800-225-5478, press 1 www.nvestfunds.com
You have access to your account 24 hours a day by calling Personal Access
Line(R) from a touch-tone telephone or by visiting us online.
By using these customer service options, you may:
o purchase, exchange or redeem shares in your existing accounts (certain
restrictions may apply);
o review your account balance, recent transactions, Fund prices and recent
performance;
o order duplicate account statements; and
o obtain tax information.
Please see the following pages for other ways to buy, exchange or sell your
shares.
<PAGE>
Fund Services [graphic omitted]
-------------
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for o Call your investment dealer for
information. information.
BY MAIL
[graphic omitted]
o Make out a check in U.S. dollars for o Make out a check in U.S. dollars for
the investment amount, payable to the investment amount, payable to
"Nvest Funds." Third party and "Nvest Funds." Third party and
"starter" checks will generally "starter" checks will generally
not be accepted. not be accepted.
o Mail the check with your completed o Fill out the detachable investment
application to Nvest Funds, P.O. Box slip from an account statement. If
8551, Boston, MA 02266-8551. no slip is available, include with
the check a letter specifying the
Fund name, your class of shares,
your account number and the
registered account name(s). To make
investing even easier, you can order
more investment slips by calling
800-225-5478.
BY EXCHANGE
[graphic omitted]
o The exchange must be for a minimum o The exchange must be for a minimum
of $1,000 or for all of your shares. of $1,000 or for all of your shares.
o Obtain a current prospectus for the o Call your investment dealer or Nvest
Fund into which you are exchanging Funds at 800-225-5478 or visit
by calling your investment dealer or nvestfunds.com to request an
Nvest Funds at 800-225-5478. exchange.
o Call your investment dealer or Nvest o See the section entitled "Exchanging
Funds to request an exchange. Shares".
o See the section entitled "Exchanging
Shares".
BY WIRE o Instruct your bank to transfer funds
[graphic omitted] to State Street Bank & Trust
o Call Nvest Funds at 800-225-5478 to Company, ABA# 011000028, DDA#
obtain an account number and wire 99011538.
transfer instructions. Your bank may
charge you for such a transfer. o Specify the Fund name, your class of
shares, your account number and the
registered account name(s). Your
bank may charge you for such a
transfer.
AUTOMATIC INVESTING THROUGH INVESTMENT BUILDER
[graphic omitted]
o Indicate on your application that o Visit nvestfunds.com to add shares
you would like to begin an automatic to your account by wire.
investment plan through Investment
Builder and the amount of the o Please call Nvest Funds at
monthly investment ($100 minimum). 800-225-5478 for a Service Options
Form. A signature guarantee may be
o Send a check marked "Void" or a required to add this privilege.
deposit slip from your bank account
along with your application. o See the section entitled "Additional
Investor Services."
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[graphic omitted]
o Ask your bank or credit union o Call Nvest Funds at 800-225-5478 or
whether it is a member of the ACH visit nvestfunds.com to add shares
system. to your account through ACH.
o Complete the "Telephone Withdrawal o If you have not signed up for the
and Exchange" and "Bank Information" ACH system, please call Nvest Funds
sections on your account application. for a Service Options Form. A
signature guarantee may be required
to add this privilege.
o Mail your completed application to
Nvest Funds, P.O. Box 8551, Boston,
MA 02266-8551.
<PAGE>
[graphic omitted] Fund Services
-------------
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
Certain restrictions may apply. See section entitled "Restrictions on Buying,
Selling and Exchanging Shares."
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for information.
BY MAIL
[graphic omitted]
o Write a letter to request a redemption specifying the name of the Fund, the
class of shares, your account number, the exact registered account name(s),
the number of shares or the dollar amount to be redeemed and the method by
which you wish to receive your proceeds. Additional materials may be required.
See the section entitled "Selling Shares in Writing."
o The request must be signed by all of the owners of the shares including the
capacity in which they are signing, if appropriate.
o Mail your request to Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551.
o Your proceeds (less any applicable CDSC) will be delivered by the method
chosen in your letter. If you choose to have your proceeds delivered by mail,
they will generally be mailed to you on the business day after the request is
received. You may also choose to redeem by wire or through ACH (see below).
BY EXCHANGE
[graphic omitted]
o Obtain a current prospectus for the Fund into which you are exchanging by
calling your investment dealer or Nvest Funds at 800-225-5478.
o Call Nvest Funds or visit nvestfunds.com to request an exchange.
o See the section entitled "Exchanging Shares" for more details.
BY WIRE
[graphic omitted]
o Fill out the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o Call Nvest Funds at 800-225-5478; visit nvestfunds.com or indicate in your
redemption request letter (see above) that you wish to have your proceeds
wired to your bank.
o Proceeds (less any applicable CDSC) will generally be wired on the next
business day. A wire fee (currently $5.00) will be deducted from the proceeds.
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[graphic omitted]
o Ask your bank or credit union whether it is a member of the ACH system.
o Complete the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o If you have not signed up for the ACH system on your application, please call
Nvest Funds at 800-225-5478 for a Service Options Form.
o Call Nvest Funds or visit nvestfunds.com to request a redemption through this
system.
o Proceeds (less any applicable CDSC) will generally arrive at your bank within
three business days.
BY SYSTEMATIC WITHDRAWAL PLAN
[graphic omitted]
o Please refer to the section entitled "Additional Investor Services" or call
Nvest Funds at 800-225-5478 or your financial representative for information.
o Because withdrawal payments may have tax consequences, you should consult your
tax adviser before establishing such a plan.
BY TELEPHONE
[graphic omitted]
o You may receive your proceeds by mail, by wire or through ACH (see above).
o Call Nvest Funds at 800-225-5478 to choose the method you wish to use to
redeem your shares.
<PAGE>
Fund Services [graphic omitted]
-------------
SELLING SHARES IN WRITING
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations we also may require a signature guarantee or additional
documentation.
A signature guarantee protects you against fraudulent orders and is necessary
if:
o your address of record has been changed within the past 30 days;
o you are selling more than $100,000 worth of shares and you are requesting the
proceeds by check; or
o a proceeds check for any amount is mailed to an address other than the address
of record or not payable to the registered owner(s).
A notary public cannot provide a signature guarantee. A signature guarantee can
be obtained from one of the following sources:
o a financial representative or securities dealer;
o a federal savings bank, cooperative or other type of bank;
o a savings and loan or other thrift institution;
o a credit union; or
o a securities exchange or clearing agency.
The table shows situations in which additional documentation may be necessary.
Please call your financial representative or Nvest Funds regarding requirements
for other account types.
SELLER (ACCOUNT TYPE) REQUIREMENTS FOR WRITTEN REQUESTS
INDIVIDUAL, JOINT, SOLE o The signatures on the letter must include all
PROPRIETORSHIP, UGMA/UTMA persons authorized to sign, including title, if
(MINOR ACCOUNTS) applicable.
o Signature guarantee, if applicable (see above).
CORPORATE OR ASSOCIATION o The signatures on the letter must include all
ACCOUNTS persons authorized to sign, including title.
OWNERS OR TRUSTEES OF TRUST o The signature on the letter must include all
ACCOUNTS trustees authorized to sign, including title.
o If the names of the trustees are not registered
on the account, please provide a copy of the
trust document certified within the past 60
days.
o Signature guarantee, if applicable (see above).
JOINT TENANCY WHOSE o The signatures on the letter must include all
CO-TENANTS ARE DECEASED surviving tenants of the account.
o Copy of the death certificate.
o Signature guarantee if proceeds check is issued
to other than the surviving tenants.
POWER OF ATTORNEY (POA) o The signatures on the letter must include the
attorney-in-fact, indicating such title.
o A signature guarantee.
o Certified copy of the POA document stating it
is still in full force and effect, specifying
the exact Fund and account number, and
certified within 30 days of receipt of
instructions.*
QUALIFIED RETIREMENT BENEFIT o The signature on the letter must include all
PLANS (EXCEPT NVEST FUNDS signatures of those authorized to sign,
PROTOTYPE DOCUMENTS) including title.
o Signature guarantee, if applicable (see above).
EXECUTORS OF ESTATES, o The signature on the letter must include those
ADMINISTRATORS, GUARDIANS, authorized to sign, including capacity.
CONSERVATORS
o A signature guarantee.
o Certified copy of court document where signer
derives authority, e.g.: Letters of
Administration, Conservatorship, Letters
Testamentary.*
INDIVIDUAL RETIREMENT o Additional documentation and distribution forms
ACCOUNTS (IRAs) are required.
* Certification may be made on court documents by the court, usually certified
by the clerk of the court. POA certification may be made by a commercial bank,
broker/member of a domestic stock exchange or a practicing attorney.
<PAGE>
[graphic omitted] Fund Services
-------------
EXCHANGING SHARES
In general, you may exchange shares of your Fund for shares of the same class of
another Nvest Fund without paying a sales charge or a CDSC (see the sections
entitled "Buying Shares" and "Selling Shares"). The exchange must be for a
minimum of $1,000 (or the total net asset value of your account, whichever is
less), or $100 if made under the Automatic Exchange Plan (see the section
entitled "Additional Investor Services"). All exchanges are subject to the
eligibility requirements of the Nvest Fund or Money Market Fund into which you
are exchanging. The exchange privilege may be exercised only in those states
where shares of the Fund may be legally sold. For federal income tax purposes,
an exchange of Fund shares for shares of another Nvest Fund or Money Market Fund
is treated as a sale on which gain or loss may be recognized. Please refer to
the Statement of Additional Information (the "SAI") for more detailed
information on exchanging Fund shares.
RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES
PURCHASE AND EXCHANGE RESTRICTIONS
Although the Fund does not anticipate doing so, it reserves the right to suspend
or change the terms of purchasing or exchanging shares. The Fund and the
Distributor reserve the right to refuse or limit any purchase or exchange order
by a particular purchaser (or group of related purchasers) if the transaction is
deemed harmful to the best interest of the Fund's other shareholders or would
disrupt the management of the Fund. The Fund and the Distributor reserve the
right to restrict purchases and exchanges for the accounts of "market timers" by
limiting the transaction to a maximum dollar amount. An account will be deemed
to be one of a market timer if: (i) more than two exchange purchases of a given
Fund are made for the account in a calendar quarter or (ii) the account makes
one or more exchange purchases of a given Fund in a calendar quarter in an
aggregate amount in excess of 1% of the Fund's total net assets.
SELLING RESTRICTIONS
The table below describes restrictions placed on selling shares of the Fund:
RESTRICTION SITUATION
The Fund may suspend the right of redemption or o When the New York Stock
postpone payment for more than 7 days: Exchange is closed (other
than a weekend/holiday)
o During an emergency
o Any other period permitted
by the SEC
The Fund reserves the right to suspend account o With a notice of a dispute
services or refuse transaction requests: between registered owners
o With suspicion/evidence of
a fraudulent act
The Fund may pay the redemption price in whole o When it is detrimental for
or part by a distribution in kind of readily a Fund to make cash
marketable securities in lieu of cash or may payments as determined in
take up to 7 days to pay a redemption request in the sole discretion of the
order to raise capital: adviser or subadviser
The Fund may close your account and send you the o When the Fund account
proceeds. You will have 60 days after being falls below a set minimum
notified of the Fund's intention to close your (currently $1,000 as set
account to increase the account to the set by the Fund's Board of
minimum. This does not apply to certain qualified Trustees)
retirement plans, automatic investment plans or
accounts that have fallen below the minimum
solely because of fluctuations in a Fund's net
asset value per share:
The Fund may withhold redemption proceeds until o When redemptions are made
the check or funds have cleared: within 10 calendar days of
purchase by check or ACH
of the shares being
redeemed
Telephone redemptions are not accepted for tax-qualified retirement accounts.
If you hold certificates representing your shares, they must be sent with your
request for it to be honored.
The Fund recommends that certificates be sent by registered mail.
<PAGE>
Fund Services [graphics omitted]
-------------
HOW FUND SHARES ARE PRICED
"Net asset value" is the price of one share of the Fund without a sales charge,
and is calculated each business day using this formula:
TOTAL MARKET VALUE OF SECURITIES + CASH AND
NET ASSET VALUE = OTHER ASSETS - LIABILITES
-------------------------------------------
NUMBER OF OUTSTANDING SHARES
The net asset value of Fund shares is determined according to this schedule:
o A share's net asset value is determined at the close of regular trading on the
Exchange on the days the Exchange is open for trading. This is normally
4:00 p.m. Eastern time.
o The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated after your order is received
"in good order" by State Street Bank and Trust Company, the Fund's custodian
(plus or minus applicable sales charges as described earlier in this
Prospectus).
o Requests received by the Distributor after the Exchange closes will be
processed based upon the net asset value determined at the close of regular
trading on the next day that the Exchange is open, with the exception that
those orders received by your investment dealer before the close of the
Exchange and received by the Distributor before 5:00 p.m. Eastern time* on the
same day will be based on the net asset value determined on that day.
o A Fund heavily invested in foreign securities may have net asset value changes
on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 pm, but not later than
8:00 pm.
Generally, during times of substantial economic or market change, it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
"Buying Shares" and "Selling Shares."
Generally, Fund securities are valued as follows:
o EQUITY SECURITIES -- most recent sales or quoted bid price as provided by a
pricing service.
o DEBT SECURITIES (OTHER THAN SHORT-TERM OBLIGATIONS) -- based upon pricing
service valuations.
o SHORT-TERM OBLIGATIONS (REMAINING MATURITY OF LESS THAN 60 DAYS) -- amortized
cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES -- most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the close of the exchange will
materially affect its value. In that case, it is given fair value as
determined by or under the direction of the Fund's Board of Trustees at the
close of regular trading on the Exchange.
o OPTIONS -- last sale price, or if not available, last offering price.
o FUTURES -- unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be valued
at their fair value as determined by or under the direction of the Fund's
Board of Trustees.
o ALL OTHER SECURITIES -- fair market value as determined by the adviser or
subadviser of the Fund under the direction of the Fund's Board of Trustees.
The effect of fair value pricing as described above under "Securities traded on
foreign exchanges" and "All other securities" is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded but rather, may be priced by another method that the Fund's Board of
Trustees believes accurately reflects fair value.
<PAGE>
[graphic omitted] Fund Services
-------------
DIVIDENDS AND DISTRIBUTIONS
The Fund generally distributes most or all of its net investment income (other
than capital gains) in the form of dividends. The Fund expects to distribute
dividends annually. The Fund distributes all net realized long- and short-term
capital gains annually, after applying any available capital loss carryovers.
The Fund's Board of Trustees may adopt a different schedule as long as payments
are made at least annually.
Depending on your investment goals and priorities, you may choose to:
o Participate in the Dividend Diversification Program, which allows you to
have all dividends and distributions automatically invested at net asset
value in shares of the same class of another Nvest Fund registered in your
name. Certain investment minimums and restrictions may apply. For more
information about this program, see the section entitled "Additional
Investor Services."
o Receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares of the
same class of the Fund or in the same class of another Nvest Fund.
o Receive all distributions in cash.
Unless you select one of the above options, distributions will automatically be
reinvested in shares of the same class of the Fund at net asset value.
For more information or to change your distribution option, contact Nvest Funds
in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a non-retirement plan
Fund, you will receive a Form 1099 to help you report the prior calendar year's
distributions on your federal income tax return. Be sure to keep the 1099 as a
permanent record. A fee may be charged for any duplicate information requested.
TAX CONSEQUENCES
The Fund intends to meet all requirements of the Internal Revenue Code necessary
to qualify as a "regulated investment company" and thus does not expect to pay
any federal income tax on income and capital gains distributed to shareholders.
Fund distributions paid to you either in cash or reinvested in additional shares
are generally taxable to you either as ordinary income or as capital gains.
Distributions derived from short-term capital gains or investment income are
generally taxable at ordinary income rates. If you are a corporation investing
in the Fund, a portion of these dividends may qualify for the dividends-received
deduction provided that you meet certain holding period requirements.
Distributions of gains from investments that the Fund owned for more than one
year that are designated by the Fund as capital gain dividends will generally be
taxable to a shareholder receiving such distributions as long-term capital gain,
regardless of how long the shareholder has held Fund shares.
An exchange of shares for shares of another Nvest Fund or Money Market Fund is
treated as a sale, and any resulting gain or loss may be subject to federal
income tax. If you purchase shares of the Fund shortly before it declares a
capital gain distribution or a dividend, a portion of the purchase price may be
returned to you as a taxable distribution.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive and about consequences of your
investments under foreign law.
<PAGE>
Fund Services [graphic omitted]
-------------
COMPENSATION TO SECURITIES DEALERS
As part of their business strategies, the Fund pays securities dealers that sell
its shares. This compensation originates from two sources: sales charges
(front-end or deferred) and 12b-1 fees (comprising the annual service and/or
distribution fees of a plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940). The sales charges are detailed in the section entitled
"How Sales Charges are Calculated." Each class of Fund shares pays an annual
service fee of 0.25% of its average daily net assets. In addition to this
service fee, Class B shares pay an annual distribution fee of 0.75% of their
average daily net assets for 8 years (at which time they automatically convert
into Class A shares). Class C shares are subject to a distribution fee of 0.75%
of their average daily net assets. Generally, the 12b-1 fees are paid to
securities dealers on a quarterly basis. The Distributor retains the first year
of such fees for Class C shares. Because these distribution fees are paid out of
the Fund's assets on an ongoing basis, over time these fees for Class B and
Class C shares will increase the cost of your investment and may cost you more
than paying the front-end sales charge on Class A shares.
The Distributor may, at its expense, pay concessions in addition to the payments
described above to dealers which satisfy certain criteria established from time
to time by the Distributor relating to increasing net sales of shares of the
Nvest Funds over prior periods, and certain other factors. See the SAI for more
details.
<PAGE>
[graphic omitted] Fund Services
-------------
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
Nvest Funds offer a range of retirement plans, including IRAs, SEPs, SARSEPs*,
SIMPLE IRAs, 403(b) plans and other pension and profit sharing plans. Refer to
the section entitled "It's Easy to Open an Account" for investment minimums. For
more information about our Retirement Plans, call us at 800-225-5478.
INVESTMENT BUILDER PROGRAM
This is Nvest Funds' automatic investment plan. You may authorize automatic
monthly transfers of $100 or more from your bank checking or savings account to
purchase shares of one or more Nvest Funds. To join the Investment Builder
Program, please refer to the section entitled "Buying Shares."
DIVIDEND DIVERSIFICATION PROGRAM
This program allows you to have all dividends and any other distributions
automatically invested in shares of the same class of another Nvest Fund or
Money Market Fund, subject to the eligibility requirements of that other Fund
and to state securities law requirements. Shares will be purchased at the
selected Fund's net asset value without a front-end sales charge or CDSC on the
dividend record date. Before establishing a Dividend Diversification Program
into any other Nvest Fund or Money Market Fund, please read its Prospectus
carefully.
AUTOMATIC EXCHANGE PLAN
Nvest Funds have an automatic exchange plan under which shares of a class of a
Fund are automatically exchanged each month for shares of the same class of
other Nvest Funds or Money Market Funds. There is no fee for exchanges made
under this plan, but there may be a sales charge in certain circumstances.
Please refer to the SAI for more information on the Automatic Exchange Plan.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem shares and receive payments from your Fund on a
regular schedule. Redemption of shares that are part of the Systematic
Withdrawal Plan are not subject to a CDSC. However, the amount or percentage
that you specify in the plan may not exceed, on an annualized basis, 10% of the
value of your Fund account based upon the value of your Fund account on the day
you establish your plan. To establish a Systematic Withdrawal Plan, please refer
to the section entitled "Selling Shares."
NVEST FUNDS PERSONAL ACCESS LINE(R)
This automated customer service system allows you to have access to your account
24 hours a day by calling 800-225-5478, press 1. With a touch-tone telephone,
you can obtain information about your current account balance, recent
transactions, Fund prices and recent performance. You may also use Personal
Access Line(R) to purchase, exchange or redeem shares in any of your existing
accounts. Certain restrictions may apply.
NVEST FUNDS WEB SITE
Visit us at www.nvestfunds.com to review your account balance and recent
transactions, to view daily prices and performance information or to order
duplicate account statements and tax information. You may also go online to
purchase, exchange or redeem shares in any of your existing accounts. Certain
restrictions may apply.
ELECTRONIC MAIL DELIVERY
This delivery option allows you to receive important fund documents via the
Internet instead of in paper form through regular U.S. mail. Eligible documents
include confirmation statements, quarterly statements, prospectuses, annual and
semiannual reports and proxies. Electronic Delivery will cut down on the amount
of paper mail you receive; speed up the availability of your documents; and
lower expenses to your fund. To establish this option on your account(s),
complete the appropriate section of your new account application or visit us at
www.nvestfunds.com.
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP
plans established prior to January 1, 1997 may remain active and continue to
add new employees.
<PAGE>
17
[graphic omitted] Fund Performance
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the return that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Fund's financial statements, are incorporated by reference in the Statement
of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
NVEST BULLSEYE FUND
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ------------------------------
March 31(a) March 31(a) March 31(a)
through Year Ended through Year Ended through Year Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1998 1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $12.50 $12.65 $12.50 $12.60 $12.50 $12.59
------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (b)
(0.02) (0.09) (0.08) (0.19) (0.08) (0.18)
Net Realized and Unrealized Gain
(Loss) on Investments 0.17 4.73 0.18 4.69 0.17 4.68
------ ------ ------ ------ ------ ------
Total From Investment Operations 0.15 4.64 0.10 4.50 0.09 4.50
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $12.65 $17.29 $12.60 $17.10 $12.59 $17.09
====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(c) 1.2 36.7 0.8 35.7 0.7 35.7
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets (%)(d) 1.75(e) 1.75(e) 2.50(e) 2.50 2.50(e) 2.50
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (0.28)(e) (0.71) (1.03)(e) (1.45) (1.03)(e) (1.45)
Portfolio Turnover Rate (%) 68 138 68 138 68 138
Net Assets, End of the Period (000) $9,653 $10,549 $8,618 $9,774 $2,987 $2,218
(a) Commencement of Operations.
(b) Per share net investment loss has been calculated using the average shares outstanding during the period.
(c) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B and Class C shares
is not reflected in total return calculations. Periods of less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the expense limitation would have been (%):
Class A Class B Class C
-------------------- -------------------- --------------------
3.14(e) 2.77 3.89(e) 3.52 3.89(e) 3.52
(e) Computed on an annualized basis.
</TABLE>
<PAGE>
GLOSSARY OF TERMS
BID PRICE -- The price a prospective buyer is ready to pay. This term is used by
traders who maintain firm bid and offer prices in a given security by standing
ready to buy or sell security units at publicly quoted prices.
BOTTOM-UP ANALYSIS -- The search for outstanding performance of individual
stocks before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS -- Payments to the Fund's shareholders of profits
earned from selling securities in the Fund's portfolio. Capital gain
distributions are usually paid once a year.
CREDIT RATING -- Independent evaluation of a bond's creditworthiness. This
measurement is usually calculated through an index compiled by companies such as
S&P, Moody's or Fitch Investor Services, Inc. ("Fitch"). Bonds with a credit
rating of BBB or higher by S&P, Baa or higher by Moody's or BBB by Fitch are
generally considered investment grade.
DERIVATIVE -- A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument.
DISCOUNTED PRICE -- The difference between a bond's current market price and its
face or redemption value.
DIVERSIFICATION -- The strategy of investing in a wide range of companies or
industries to reduce the risk if an individual company or one sector of the
market suffers losses.
DIVIDEND YIELD -- The current or estimated annual dividend divided by the market
price per share of a security.
DURATION -- A measure of how much a bond's price fluctuates with changes in
comparable interest rates.
EARNINGS GROWTH -- A pattern of increasing rate of growth in earnings per share
from one period to another, which usually causes a stock's price to rise.
FUNDAMENTAL ANALYSIS -- An analysis of the balance sheet and income statements
of a company in order to forecast its future stock price movements. Fundamental
analysis considers past records of assets, earnings, sales, products, management
and markets in predicting future trends in these indicators of a company's
success or failure. By appraising a company's prospects, analysts using such an
approach assess whether a particular stock or group of stocks is undervalued or
overvalued at its current market price.
GROWTH INVESTING -- An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from the net interest
or dividend income earned by the Fund's portfolio.
INFLATION -- A general increase in prices coinciding with a fall in the real
value of money, as measured by the Consumer Price Index.
INTEREST RATE -- Rate of interest charged for the use of money, usually
expressed at an annual rate.
MARKET CAPITALIZATION -- Market price multiplied by number of shares
outstanding. Large capitalization companies generally have over $5 billion in
market capitalization; medium cap companies between $1.5 billion and $5 billion;
and small cap companies less than $1.5 billion. These capitalization figures may
vary depending upon the index being used and/or the guidelines used by the
portfolio manager.
MATURITY -- The final date on which the payment of a debt instrument (e.g.
bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds
generally have maturities of up to 5 years; intermediate-term bonds between 5
and 15 years; and long-term bonds over 15 years.
NET ASSET VALUE (NAV) -- The market value of one share of the Fund on any given
day without taking into account any front-end sales charge or CDSC. It is
determined by dividing the Fund's total net assets by the number of shares
outstanding.
PRICE-TO-BOOK VALUE RATIO -- Current market price of a stock divided by its book
value, or net asset value.
PRICE-TO-EARNINGS VALUE RATIO -- Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price-to-earnings ratio
gives investors an idea of how much they are paying for a company's earning
power and is a useful tool for evaluating the costs of different securities.
Some firms use the inverse ratio for this calculation (i.e. earnings-to-price
ratio).
QUALITATIVE ANALYSIS -- An analysis of the qualities possessed by a company,
including its management, products and competitive positions, to help determine
if the company can execute its strategy.
RETURN ON EQUITY -- The amount, expressed as a percentage, earned on a company's
common stock investment for a given period. It is calculated by dividing common
stock equity (net worth) at the beginning of the accounting period into net
income for the period after preferred stock dividends but before common stock
dividends. This tells common shareholders how effectively their money is being
employed.
RULE 144A SECURITIES -- Rule 144A securities are privately offered securities
that can be resold only to certain qualified institutional buyers. Rule 144A
securities are treated as illiquid, unless a manager has determined, under
guidelines established by a Fund's trustees, that a particular issue of Rule
144A securities is liquid.
TARGET PRICE -- Price that an investor is hoping a stock he or she has just
bought will rise within a specified period of time. An investor may buy XYZ at
$20, with a target price of $40 in one year's time, for instance.
TECHNICAL ANALYSIS -- The research into the demand and supply for securities,
options, mutual funds and commodities based on trading volume and price studies.
Technical analysis uses charts or computer programs to identify and project
price trends in a market, security, mutual fund or futures contract.
TOP-DOWN APPROACH -- The method in which an investor first looks at trends in
the general economy, and next selects attractive industries and then companies
that should benefit from those trends.
TOTAL RETURN -- The change in value of an investment in the Fund over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of the Fund.
VALUE INVESTING -- A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets are
not fully reflected in their stock prices. Value stocks will tend to have a
lower price-to-earnings ratio than growth stocks.
VOLATILITY -- The general variability of a portfolio's value resulting from
price fluctuations of its investments. In most cases, the more diversified a
portfolio is, the less volatile it will be.
YIELD -- The rate at which a fund earns income, expressed as a percentage.
Mutual fund yield calculations are standardized, based upon a formula developed
by the SEC.
YIELD-TO-MATURITY -- The concept used to determine the rate of return an
investor will receive if a long-term, interest-bearing investment, such as a
bond, is held to its maturity date. It takes into account purchase price,
redemption value, time to maturity, coupon yield (the interest rate on a debt
security the issuer promises to pay to the holder until maturity, expressed as
an annual percentage of face value) and the time between interest payments.
<PAGE>
IF YOU WOULD LIKE MORE INFORMATION ABOUT THE
FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:
ANNUAL AND SEMIANNUAL REPORTS -- Provide
additional information about each Fund's
investments. Each report includes a discussion of
the market conditions and investment strategies
that significantly affected the Fund's performance
during its last fiscal year. To reduce costs, we
mail one copy per household. For more copies call
Nvest Funds Distributor, L.P. at the number below.
STATEMENT OF ADDITIONAL INFORMATION (SAI) --
Provides more detailed information about the
Funds, has been filed with the Securities and
Exchange Commission and is incorporated into this
Prospectus by reference.
TO ORDER A FREE COPY OF A FUND'S ANNUAL OR
SEMIANNUAL REPORT OR ITS SAI, CONTACT YOUR
FINANCIAL REPRESENTATIVE, OR THE FUNDS AT:
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Telephone: 800-225-5478
Internet: www.nvestfunds.com
Your financial representative or Nvest Funds will
also be happy to answer your questions or to
provide any additional information that you may
require.
You can review the Funds' reports and SAIs at the
Public Reference Room of the Securities and
Exchange Commission in Washington, D.C. Text-only
copies are available free from the Commission's
Web site at: www.sec.gov.
Copies of these publications are also available
for a fee and information on the operation of the
Public Reference Room may be obtained by
electronic request at the following E-mail
address: [email protected], or by writing or
calling the Public Reference Room of the SEC,
Washington, D.C. 20549-0102
Telephone: 1-202-942-8090
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.
NVEST BULLSEYE FUND
(Investment Company Act File No. 811-7345)
XBE51-0500
<PAGE>
NVESTFUNDS(SM)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
NVEST CAPITAL GROWTH FUND NVEST BALANCED FUND
NVEST GROWTH AND INCOME FUND NVEST GROWTH FUND
NVEST INTERNATIONAL EQUITY FUND NVEST BULLSEYE FUND
NVEST EQUITY INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION -- PART I
MAY 1, 2000
This Statement of Additional Information (the "Statement") contains
information which may be useful to investors but which is not included in the
Prospectus of the Nvest Funds listed above (the "Funds" and each a "Fund"). This
Statement is not a prospectus and is authorized for distribution only when
accompanied or preceded by the Prospectus of the Funds dated May 1, 2000 for
Class A, Class B and Class C shares or the Prospectus of the Funds dated May 1,
2000 for Class Y shares (the "Prospectus" or "Prospectuses"). The Statement
should be read together with the Prospectus. Investors may obtain a free copy of
the Prospectus from Nvest Funds Distributor, L.P., Prospectus Fulfillment Desk,
399 Boylston Street, Boston, Massachusetts 02116, by calling Nvest Funds at
800-225-5478 or by placing an order online at www.nvestfunds.com. Part I of this
Statement contains specific information about the Funds. Part II includes
information about the Funds as well as other Nvest Funds.
Nvest Growth Fund, Nvest Capital Growth Fund, Nvest Balanced Fund and Nvest
International Equity Fund are each a diversified fund of Nvest Funds Trust I, a
registered open-end management investment company that offers a total of twelve
funds; Nvest Growth and Income Fund is a diversified fund of Nvest Funds Trust
II, a registered open-end management investment company that offers a total of
six funds; and Nvest Equity Income Fund and Nvest Bullseye Fund are diversified
and non-diversified, respectively, funds of Nvest Funds Trust III, a registered
open-end management investment company that currently offers a total of two
funds. Nvest Funds Trust I, Nvest Funds Trust II and Nvest Funds Trust III are
collectively referred to in this Statement as the "Trusts" and are each referred
to as a "Trust." The Funds' financial statements and accompanying notes that
appear in the Funds' annual and semi-annual reports are incorporated by
reference into this Statement. Each Fund's annual and semiannual report contains
additional performance information and is available upon request and without
charge by calling 800-225-5478.
T A B L E O F C O N T E N T S
PART I Page
Investment Restrictions ii
Fund Charges and Expenses viii
Ownership of Fund Shares xvi
Investment Performance of the Funds xix
PART II
Miscellaneous Investment Practices 2
Management of the Trusts 22
Portfolio Transactions and Brokerage 36
Description of the Trusts and Ownership of Shares 43
How to Buy Shares 46
Net Asset Value and Public Offering Price 46
Reduced Sales Charges - Class A Shares Only 47
Shareholder Services 49
Redemptions 56
Standard Performance Measures 58
Income Dividends, Capital Gain Distributions and Tax Status 63
Financial Statements 65
Appendix A - Description of Bond Ratings 66
Appendix B - Publications That May Contain Fund Information 68
Appendix C - Advertising and Promotional Literature 71
Appendix D - Portfolio Composition of the High Income, Bond Income, 75
Strategic Income and Municipal Income Funds
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following is a description of restrictions on the investments to be
made by the Funds. The restrictions marked with an asterisk (*) may not be
changed without the vote of a majority of the outstanding voting securities of
the relevant Fund (as defined in the Investment Company Act of 1940, as amended
[the "1940 Act"]). Except in the case of restrictions marked with a dagger (+)
below, the percentages set forth below and the percentage limitations set forth
in the Prospectus will apply at the time of the purchase of a security and shall
not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of a purchase of such security.
NVEST GROWTH FUND AND NVEST BALANCED FUND
Nvest Growth Fund (the "Growth Fund") and Nvest Balanced Fund (the "Balanced
Fund") each will not:
*(1) Purchase any security (other than U.S. Government securities) if, as a
result, more than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer or 25% of the
Fund's total assets (taken at current value) would be invested in any one
industry;
*(2) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
the Fund will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales;
*(3) Acquire more than 10% of any class of securities of an issuer (taking all
preferred stock issues of an issuer as a single class and all debt issues
of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
*(4) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of
its total assets (taken at current value), whichever is lower, and then
only as a temporary measure for extraordinary or emergency purposes;
*(5) Pledge more than 15% of its total assets (taken at cost);
*(6) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;
*(7) Purchase or retain securities of any issuer if officers and trustees of
Nvest Funds Trust I or of the investment adviser of the Fund who
individually own more than 1/2 of 1% of the shares or securities of that
issuer together own more than 5%;
*(8) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes and similar evidences of indebtedness, which are a part of
an issue to the public or to financial institutions;
*(9) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
real estate or commodities or commodity contracts. (This restriction does
not prevent such Funds from purchasing securities of companies investing
in the foregoing);
*(10) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
*(11) Make investments for the purpose of exercising control or management;
*(12) Participate on a joint or joint and several basis in any trading account
in securities;
*(13) Purchase options or warrants if, as a result, more than 1% of its total
assets (taken at current value) would be invested in such securities;
*(14) Write options or warrants;
*(15) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers'
commissions. (Under the 1940 Act, the Growth Fund and the Balanced Fund
each may not (a) invest more than 10% of its total assets [taken at
current value] in such securities, (b) own securities of any one
investment company having a value in excess of 5% of the total assets of
such Fund [taken at current value], or (c) own more than 3% of the
outstanding voting stock of any one investment company);
*(16) Issue senior securities. For the purpose of this restriction, none of the
following is deemed to be a senior security: any borrowing permitted by
restriction (4) above; any pledge or other encumbrance of assets permitted
by restriction (5) above; any collateral arrangements with respect to
options, forward contracts, futures contracts, swap contracts and other
similar contracts and options on futures contracts and with respect to
initial and variation margin; the purchase or sale of options, forward
contracts, futures contracts, swap contracts and other similar contracts
or options on futures contracts; and the issuance of shares of beneficial
interest permitted from time to time by the provisions of Nvest Funds
Trust I's Agreement and Declaration of Trust and by the 1940 Act, the
rules thereunder, or any exemption therefrom; or
+(17) Invest more than 15% of the Fund's total net assets in illiquid securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by Nvest Funds Trust I's
trustees.)
The staff of the Securities and Exchange Commission (the "SEC") is
currently of the view that repurchase agreements maturing in more than
seven days are illiquid and thus subject to restriction (17) above.
NVEST CAPITAL GROWTH FUND
Nvest Capital Growth Fund (the "Capital Growth Fund") may not:
(1) With respect to 75% of its total assets, purchase any security (other than
U.S. Government securities) if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in securities
of a single issuer;
*(2) Purchase any security (other than U.S. Government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries, and each foreign country's government [together with
subdivisions thereof] will be considered to be a separate industry);
(3) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
the Fund will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales. (For this purpose,
the deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin);
(4) Acquire more than 10% of any class of securities of an issuer (other than
U.S. Government securities and taking all preferred stock issues of an
issuer as a single class and all debt issues of an issuer as a single
class) or with respect to 75% of its total assets, acquire more than 10%
of the outstanding voting securities of an issuer;
*(5) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of
its total assets (taken at current value), whichever is lower, and then
only as a temporary measure for extraordinary or emergency purposes;
(6) Pledge more than 15% of its total assets (taken at cost). (For the purpose
of this restriction, collateral arrangements with respect to options,
futures contracts and options on futures contracts and with respect to
initial and variation margin are not deemed to be a pledge of assets);
*(7) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's portfolio
securities;
*(8) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
real estate or commodities or commodity contracts, except that the Fund
may buy and sell futures contracts and related options. (This restriction
does not prevent the Fund from purchasing securities of companies
investing in the foregoing);
*(9) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
(10) Except to the extent permitted by rule or order of the SEC, participate on
a joint or joint and several basis in any trading account in securities.
(The "bunching" of orders for the purchase or sale of portfolio securities
with the Fund's adviser or subadviser or accounts under its management to
reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in
securities for purposes of this restriction);
(11) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities or securities indexes
and (b) enter into currency forward contracts;
+(12) Invest more than 15% of its net assets (taken at current value) in
illiquid securities (excluding Rule 144A securities and certain Section
4(2) commercial paper deemed to be liquid under guidelines established by
Nvest Funds Trust I's trustees); or
*(13) Issue senior securities. (For the purpose of this restriction, none of the
following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted
from time to time by the provisions of Nvest Funds Trust I's Agreement and
Declaration of Trust and by the 1940 Act, the rules thereunder, or any
exemption therefrom.)
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are illiquid and thus subject to
restriction (12) above.
NVEST INTERNATIONAL EQUITY FUND
Nvest International Equity Fund (the "International Equity Fund") may not:
(1) With respect to 75% of its total assets, purchase any security (other than
U.S. Government securities) if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in securities
of a single issuer;
*(2) Purchase any security (other than U.S. Government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries, and each foreign country's government (together with
subdivisions thereof) will be considered to be a separate industry);
(3) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and
the Fund will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales. (For this purpose,
the deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin);
(4) Acquire more than 10% of any class of securities of an issuer (other than
U.S. Government securities and taking all preferred stock issues of an
issuer as a single class and all debt issues of an issuer as a single
class) or with respect to 75% of its total assets, acquire more than 10%
of the outstanding voting securities of an issuer (such percentage
limitations apply to closed-end management investment companies as well);
*(5) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of
its total assets (taken at current value), whichever is lower, and then
only as a temporary measure for extraordinary or emergency purposes;
(6) Pledge more than 15% of its total assets (taken at cost). (For the purpose
of this restriction, collateral arrangements with respect to options,
futures contracts and options on futures contracts and with respect to
initial and variation margin are not deemed to be a pledge of assets);
*(7) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's portfolio
securities;
*(8) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
real estate or commodities or commodity contracts, except that the Fund
may buy and sell futures contracts and related options. (This restriction
does not prevent the Fund from purchasing securities of companies
investing in the foregoing);
*(9) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
(10) Except to the extent permitted by rule or order of the SEC, participate on
a joint or joint and several basis in any trading account in securities.
(The "bunching" of orders for the purchase or sale of portfolio securities
with the Fund's adviser or subadviser or accounts under its management to
reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in
securities for purposes of this restriction);
(11) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities, securities indexes,
currencies, futures contracts, swap contracts and other similar
instruments and (b) enter into currency forward contracts;
+(12) Purchase any illiquid security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in such securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by Nvest Funds Trust I's
trustees); or
*(13) Issue senior securities. For the purpose of this restriction none of the
following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts and
with respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted
from time to time by the provisions of Nvest Funds Trust I's Agreement and
Declaration of Trust and by the 1940 Act, the rules thereunder, or any
exemption therefrom.
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are illiquid and thus subject to
restriction (12) above.
NVEST GROWTH AND INCOME FUND
Nvest Growth and Income Fund (the "Growth and Income Fund") will not:
*(1) Purchase securities of an issuer if such purchase would cause more than 5%
of the market value of the total Fund assets to be invested in the
securities of such issuer (exclusive of United States or Canadian
government obligations), or if such purchase would cause more than 10% of
the securities of such issuer to be held by the Fund;
*(2) Purchase or retain the securities of any issuer if the officers and
trustees of Nvest Funds Trust II owning beneficially 1/2 of 1% of the
securities of such issuer together own beneficially more than 5% of the
securities of such issuer;
*(3) Purchase the securities issued by any other investment company, except
that a purchase involving no commission or profit to a sponsor or dealer
(other than a customary broker's commission) is permitted and except that
a purchase that is part of a plan of merger or consolidation is permitted;
*(4) Purchase securities issued by companies with a record (including that of
their predecessors) of less than three years of continuous operation;
*(5) Purchase securities for the portfolio on margin, make short sales or make
loans to persons affiliated with Nvest Funds Trust II;
*(6) Act as underwriter of securities of other issuers, or invest directly in
real estate or in commodities or commodity contracts;
*(7) Make loans to other persons, provided, however, that this restriction
shall not prohibit the Fund from entering into repurchase agreements with
respect to not more than 25% of the Fund's total assets taken at current
value. The purchase of a portion of an issue of bonds, notes or debentures
publicly distributed or of a type customarily purchased by institutional
investors does not constitute the making of loans within the meaning of
this restriction;
*(8) Borrow money, except that the Fund may make secured or unsecured bank
borrowings, provided that an asset coverage of at least 300% for all such
borrowings (including the amount then being borrowed) is maintained as
required by the 1940 Act;
*(9) Issue senior securities. For the purpose of this restriction, none of the
following is deemed to be a senior security; any borrowing permitted by
restriction (8) above; any collateral arrangements with respect to
options, futures contracts, swap contracts and other similar contracts and
options on futures contracts and with respect to initial and variation
margin; the purchase or sale of options, forward contracts, futures
contracts, swap contracts and other similar contracts or options on
futures contracts; and the issuance of shares of beneficial interest
permitted from time to time by the provisions of Nvest Funds Trust II's
Agreement and Declaration of Trust and by the 1940 Act, the rules
thereunder, or any exemption therefrom; or
+(10) Invest more than 15% of the Fund's total net assets in illiquid securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by Nvest Funds Trust II's
trustees).
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are illiquid and thus subject to
restriction (10) above.
It is a fundamental policy of the Fund that it will not concentrate its
assets in the securities of issuers in the same industry. The Fund intends to
abide by the views of the SEC staff on what constitutes industry concentration.
Accordingly, the Fund will not make an investment if, immediately thereafter,
the Fund would hold more than 25% of its total assets in securities of issuers
in any one industry. This limitation does not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund has no present intention of borrowing money except on a temporary
basis, as may be needed, to cover redemptions of shares. Should this intention
change, the Prospectus will be amended.
NVEST EQUITY INCOME FUND
Nvest Equity Income Fund (the "Equity Income Fund") will not:
*(1) Purchase any security (other than U.S. Government securities) if, as a
result, more that 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries, and each foreign country's government (together with
subdivisions thereof) will be considered to be a separate industry);
(2) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
considerations, securities equivalent in kind and amount to those sold,
and the Fund will not deposit or pledge more than 10% of its total assets
(taken at current value) as collateral for such sales. (For this purpose,
the deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin);
*(3) Borrow money in excess of 25% of its total assets, and then only as a
temporary measure for extraordinary or emergency purposes;
(4) Pledge more than 25% of its total assets (taken at cost). (For the purpose
of this restriction, collateral arrangements with respect to options,
futures contracts, options on futures contracts and swap contracts and
with respect to initial and variation margin are not deemed to be a pledge
of assets);
*(5) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's portfolio
securities;
*(6) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
real estate or commodities or commodity contracts, except that the Fund
may buy and sell futures contracts, swap contracts and related options.
(This restriction does not prevent the Fund from purchasing securities of
companies investing in the foregoing);
*(7) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
(8) Participate on a joint or joint and several basis in any trading account
in securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with the Fund's adviser or subadviser or accounts
under its management to reduce brokerage commissions, to average prices
among them or to facilitate such transactions is not considered a trading
account in securities for purposes of this restriction);
(9) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities, securities indexes
or futures contracts and (b) enter in to currency forward contracts;
+(10) Purchase any illiquid security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in such securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by Nvest Funds Trust
III's trustees);
*(11) Issue senior securities. (For the purpose of this restriction none of the
following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restrictions (2) or (4) above; any
borrowing permitted by restriction (3) above; any collateral arrangements
with respect to forward contracts, options, futures contracts, swap
contracts and options on futures contracts or swap contracts and with
respect to initial and variation margin, the purchase or sale of options,
forward contracts, future contracts, swap contracts or options on futures
contracts or swap contracts; and the issuance of shares of beneficial
interest permitted from time to time by the provisions of the Nvest Funds
Trust III's Agreement and Declaration of Trust and by the 1940 Act, the
rules thereunder, or any exemption therefrom);
(12) With respect to 75% of its total assets, purchase any security (other than
U.S. Government securities) if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in securities
of a single issuer; or
(13) Acquire more than 10% of any class of securities of an issuer (taking all
preferred stock issues of an issuer as a single class and all debt issues
of an issuer as a single class) or acquire more than 10% of the outstanding
voting securities of an issuer.
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are illiquid and thus subject to
restriction (10) above.
NVEST BULLSEYE FUND
Nvest Bullseye Fund (the "Bullseye Fund") may not:
*(1) Invest more than 25% of the Fund's total assets in the securities of
issuers engaged in any one industry (except securities issued by the U.S.
Government, its agencies or instrumentalities);
(2) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where it owns or, by virtue of
ownership of other securities, it has the right to obtain, without payment
of further consideration, securities equivalent in kind and amount to
those sold. (For this purpose, the deposit or payment by the Fund of
initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a security
on margin);
*(3) Borrow money in excess of 33 1/3% of its total assets;
*(4) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's portfolio
securities;
*(5) Buy or sell real estate or commodities or commodity contracts, except that
the Fund may buy and sell financial futures contracts and options, swap
contracts, currency forward contracts, structured notes and other similar
instruments. (This restriction does not prevent the Fund from purchasing
securities of issuers that invest in the foregoing);
*(6) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
+(7) Purchase any illiquid security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in such securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by Nvest Fund Trust III's
trustees);
*(8) Issue senior securities, except as permitted by the 1940 Act or any
relevant exemption thereunder. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets; any borrowing permitted by restriction (3) above;
any collateral arrangements with respect to options or futures contracts,
and with respect to initial and variation margin; and the purchase or sale
of options, forward contracts, futures contracts, swap contracts and other
similar instruments)
Although the Fund is permitted to borrow money to a limited extent, it
does not currently intend to do so.
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are illiquid and thus subject to
restriction (7) above.
- --------------------------------------------------------------------------------
FUND CHARGES AND EXPENSES
- --------------------------------------------------------------------------------
MANAGEMENT FEES
Pursuant to an advisory agreement dated August 30, 1996, as amended June 1,
1999, Capital Growth Management Limited Partnership ("CGM") has agreed to manage
the investment and reinvestment of the assets of the Growth Fund, subject to the
supervision of the Board of Trustees of Nvest Funds Trust I. Under the advisory
agreement, the Fund pays CGM an advisory fee at the annual rate of 0.75% of the
first $200 million of the Fund's average daily net assets, 0.70% of the next
$300 million of such assets, 0.65% of the next $1,500 million and 0.60% of such
assets in excess of $2 billion. Prior to June 1, 1999, CGM served as adviser to
the Growth Fund pursuant to an advisory agreement providing for an advisory fee
at the annual rate of 0.75% of the first $200 million of the Fund's average
daily net assets, 0.70% of the next $300 million of such assets and 0.65% of
such assets in excess of $500 million.
Pursuant to separate advisory agreements, each dated August 30, 1996 and
amended May 1, 1998 (dated March 16, 1998 in the case of Bullseye Fund), Nvest
Funds Management, L.P. ("Nvest Management") has agreed, subject to the
supervision of the Board of Trustees of the relevant Trust, to manage the
investment and reinvestment of the assets of the Capital Growth, Balanced,
International Equity, Growth and Income, Equity Income and Bullseye Funds and to
provide a range of administrative services to such Funds. For the services
described in the advisory agreements, each such Fund has agreed to pay Nvest
Management a gross management fee at the annual rate set forth in the following
table, reduced by the amount of any sub-advisory fees paid by the Fund to the
subadviser pursuant to any sub-advisory agreement:
Management fee payable by Fund to Nvest
Fund Management
(includes any subadviser fees paid)
(as a percentage of average daily net
assets of the Fund)
- -------------------------------- -----------------------------------------
Balanced Fund and 0.75% of the first $200 million
Capital Growth Fund 0.70% of the next $300 million
0.65% of amounts in excess of $500
million
Growth and Income Fund and 0.70% of the first $200 million
Equity Income Fund 0.65% of the next $300 million
0.60% of amounts in excess of $500
million
International Equity Fund 0.90% of the first $200 million
0.85% of the next $300 million
0.80% of amounts in excess of $500
million
Bullseye Fund 0.95% of the first $200 million
0.90% of the next $300 million
0.85% of amounts in excess of $500
million
The advisory agreements for the Capital Growth, Balanced, International
Equity, Growth and Income, Equity Income and Bullseye Funds each provide that
Nvest Management may delegate its responsibilities thereunder to other parties.
Pursuant to separate subadvisory agreements, each dated August 30, 1996 and
amended May 1, 1998 for Balanced and Growth and Income Funds, (February 14,
1997, and amended May 1, 1998 for International Equity Fund, March 16, 1998 for
Bullseye Fund, April 17, 1998 for Capital Growth Fund and July 27, 1999 for
Equity Income Fund, respectively), Nvest Management has delegated responsibility
for managing the investment and reinvestment of each of these Funds' assets to a
subadviser. The subadviser is Loomis, Sayles & Company, L.P. ("Loomis Sayles"),
in the case of the International Equity and Balanced Funds, Westpeak Investment
Advisors, L.P. ("Westpeak"), in the case of the Growth and Income and Capital
Growth Funds, Jurika & Voyles, L.P. ("Jurika & Voyles") in the case of the
Bullseye Fund and Vaughan, Nelson, Scarborough & McCullough ("VNSM") in the case
of the Equity Income Fund. For the services described in the subadvisory
agreements, each such Fund has agreed to pay its respective subadviser a
subadvisory fee at the annual rate set forth in the following table:
Subadvisory fee payable to subadviser
(as a percentage of average daily net
Fund Subadviser assets of the Fund)
- ------------------------- ---------- ------------------------------------
Balanced Fund Loomis 0.535% of the first $200 million
Sayles 0.350% of the next $300 million
0.300% of amounts in excess of $500
million
Capital Growth Fund Westpeak 0.40% of the first $200 million
0.35% of the next $300 million
0.30% of amounts in excess of $500
million
Growth and Income Fund Westpeak 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of the next $200 million
International Equity Fund Loomis 0.40% of the first $200 million
Sayles 0.35% of amounts in excess of $200
million
Equity Income Fund VNSM 0.400% of the first $200 million
0.325% of the next $300 million
0.275% of amounts in excess of $500
million
Bullseye Fund Jurika & 0.57% of the first $200 million
Voyles 0.50% of the next $300 million
0.43% of amounts in excess of $500
million
From August 30, 1996 to January 30, 1998, Loomis Sayles served as
subadviser to the Capital Growth Fund pursuant to a subadvisory agreement
between Nvest Management and Loomis Sayles providing for the same subadvisory
fee as is currently payable by the Capital Growth Fund to Westpeak.
From December 29, 1995 until February 14, 1997, Draycott Partners, Ltd.
("Draycott") served as subadviser to the International Equity Fund pursuant to
successive subadvisory agreements providing for a subadvisory fee payable by
Nvest Management to Draycott at the annual rate of 0.54% of the first $200
million of the Fund's average daily net assets, 0.49% of the next $300 million
of such assets and 0.44% of such assets in excess of $500 million.
From May 1, 1998 to April 30, 2000, Nvest Management gave either a
voluntary or a binding undertaking to International Equity Fund to reduce its
fees and, if necessary, to bear certain expenses related to operating the Fund
in order to limit the Fund's expenses to an annual rate of 2.00% of the average
daily net assets of the Fund's Class A shares, 2.75% of the average daily net
assets of the Fund's Class B shares, 2.75% of the average daily net assets of
the Fund's Class C shares and 1.75% (prior to August 23, 1999, 1.40%) of the
average daily net assets of the Fund's Class Y shares. Loomis Sayles voluntarily
agreed to waive in its entirety its subadvisory fee for the International Equity
Fund from February 14, 1997 through February 13, 1998. From December 29, 1995
until April 30, 1998, Nvest Management had voluntarily agreed to reduce its fees
and if necessary, to bear certain operating expenses in order to limit the
Fund's expenses to an annual rate of 1.75% for Class A shares, 2.50% for Class B
shares and 2.50% for Class C shares and 1.15% for Class Y shares (prior to
December 31, 1996, 1.00%) of the Fund's average daily net assets.
From August 30, 1996 to May 31, 1999, Loomis Sayles served as subadviser to
the Equity Income Fund pursuant to a subadvisory agreement between Nvest
Management and Loomis Sayles providing for the same subadvisory fee as is
currently payable by the Equity Income Fund to VNSM. For the period June 1, 1999
to July 27, 1999, VNSM served as subadviser to the Equity Income Fund under an
interim subadvisory agreement dated June 1, 1999 providing for the same fee that
was paid to Loomis Sayles. VNSM agreed to voluntarily waive its subadvisory fee
under the interim agreement until June 30, 1999, and during this period, the
Equity Income Fund continued to pay Loomis Sayles the subadvisory fee it would
have earned if it had continued to manage the Fund's portfolio. From September
1, 1997 to June 30, 1999, Loomis Sayles voluntarily agreed to waive its entire
subadvisory fee for such Fund. Since the Fund's inception Nvest Management has
given either a voluntary or a binding undertaking to Equity Income Fund to
reduce its management fee and, if necessary, to bear certain expenses associated
with operating the Fund to the extent necessary to limit the Fund's expenses to
the annual rate of 1.50% of average daily net assets for Class A shares, 2.25%
for Class B shares and 2.25% for Class C shares ("Expense Caps"). Beginning July
1, 1999, VNSM and Nvest Management split any fee waivers required in proportion
to the subadvisory and management fees collected. Nvest Management also bears
any additional expense reimbursement above the fee waivers required for the Fund
to meet the relevant Expense Cap. This undertaking will be binding on Nvest
Management for the life of the Fund's current Prospectus (subject to the
obligation of the Fund to pay such deferred fees or expense reimbursement in
later periods to the extent that the Fund's expenses fall below the annual rate
of 1.50% of average daily net assets for Class A shares, 2.25% for Class B
shares and 2.25% for Class C shares; provided, however, that the Fund is not
obligated to pay any such deferred fees or expense reimbursement more than one
year after the end of the fiscal year in which the fee was deferred. The
recapture period for expenses incurred prior to December 31, 1998 is two years.)
Nvest Management has given either a voluntary or a binding undertaking to
Bullseye Fund to reduce its management fee and, if necessary, to bear certain
expenses associated with the Fund, to the extent necessary to limit the Fund's
expenses to the annual rate of 1.75% for Class A shares, 2.50% for Class B
shares and 2.50% for Class C shares. This undertaking will be binding on Nvest
Management for the life of the Fund's current Prospectus (subject to the
obligation of the Fund to pay Nvest Management such deferred fees or expense
reimbursement in later periods to the extent that the Fund's expenses fall below
the annual rate of 1.75% for Class A shares, 2.50% for Class B shares and 2.50%
for Class C shares; provided, however, that the Fund is not obligated to pay any
such deferred fees or expense reimbursement more than one year after the end of
the fiscal year in which the fee or expense was deferred. The recapture period
for expenses incurred prior to December 31, 1998 is two years.)
As of May 1, 1998, each subadvisory agreement between Nvest Management and
Loomis Sayles or Westpeak was amended to add the relevant Fund as a party and to
provide that the subadvisory fees payable under such agreement are payable by
the Fund rather than by Nvest Management. Also as of May 1, 1998, the advisory
agreement for each Fund, except the Growth Fund and the Bullseye Fund, was
amended to provide that the management fees payable by the Fund to Nvest
Management are reduced by the amounts of any subadvisory fees paid directly by
the Fund to its subadviser (the advisory agreement for the Bullseye Fund already
provided for such payment arrangements). These amendments to the Funds' advisory
and subadvisory agreements did not change the management and subadvisory fee
rates under the agreements, nor the services to be provided to the Funds by
Nvest Management and the subadvisers under the agreements. Furthermore, these
amendments did not change the overall level of fees payable by any Fund.
For the last three fiscal years (or for the period from March 31, 1998 to
December 31, 1998 and the fiscal year ending December 31, 1999 in the case of
the Bullseye Fund), the advisory or management fees payable by the Funds (before
any voluntary fee reductions and any reduction by the amount of any subadvisory
fees paid by the Fund to its subadviser) were as follows.
FUND 1997** 1998*** 1999****
-------------------- ------ ------- --------
Growth Fund $9,757,792 $11,260,645 $12,879,997
Capital Growth Fund $1,436,893 $ 1,546,360 $ 1,826,043
Balanced Fund $2,830,754 $ 2,876,837 $ 2,517,100
International Equity Fund* $1,241,968 $ 734,344 $ 634,275
Growth and Income Fund $1,809,523 $ 2,586,482 $ 3,843,930
Equity Income Fund***** $ 41,756 $ 248,935 $ 196,897
Bullseye Fund****** N/A $ 115,268 $ 183,892
* As a result of the voluntary expense limitation in effect, the International
Equity Fund paid $734,003, $460,772 and $450,637, respectively, in advisory
or management fees for the fiscal years ended December 31, 1997, 1998 and
1999.
** For the fiscal year ended December 31, 1997, Nvest Management paid
subadvisory fees of $1,735,375 and $1,020,031 to Loomis Sayles for the
Balanced and Capital Growth Funds, respectively. For the fiscal year ended
December 31, 1997, Nvest Management paid subadvisory fees of $0 to Loomis
Sayles (after the waiver) and $964,009 to Westpeak for the Equity Income and
Growth and Income Funds, respectively. For the period January 1 to February
13, 1997, Nvest Management paid subadvisory fees of $77,259 to Draycott for
the International Equity Fund, and for the period February 14 to December
31, 1997, no subadvisory fees were paid by Nvest Management to Loomis Sayles
as a result of the voluntary fee waiver by Loomis Sayles. Without the
voluntary fee waiver, Nvest Management would have paid Draycott a
subadvisory fee for the International Equity Fund of $128,701 for the period
January 1, to February 13, 1997 and a subadvisory fee of $347,719 to Loomis
Sayles for the period February 14 to December 31, 1997.
***For the period January 1 to April 30, 1998, Nvest Management paid
subadvisory fees of $595,881 and $262,382 to Loomis Sayles for the Balanced
and Capital Growth Funds, respectively. Also, for the period January 1 to
April 30, 1998, Nvest Management paid a subadvisory fee of $91,245 to
Westpeak for the Capital Growth Fund. For the period May 1 to December 31,
1998, the Balanced and Capital Growth Funds paid subadvisory fees to Loomis
Sayles of $1,064,192 and $0, respectively. Also, for the period May 1 to
December 31, 1998, Nvest Management paid a subadvisory fee of $555,010 to
Westpeak for the Capital Growth Fund. For the period January 1 to April 30,
1998, Nvest Management paid subadvisory fees of $0 to Loomis Sayles (after
the waiver) and $396,979 to Westpeak for the Equity Income and Growth and
Income Funds, respectively. For the period May 1 to December 31, 1998, the
Equity Income Fund and Growth and Income Fund paid $0 to Loomis Sayles
(after the waiver) and $2,189,503 to Westpeak, respectively. Without the
voluntary fee waiver, Nvest Management and the Equity Income Fund would have
paid Loomis Sayles a subadvisory fee of $43,015 and $99,239, respectively,
for such periods. For the period January 1 to February 14, 1998, no
subadvisory fees were paid by Nvest Management to Loomis Sayles for
International Equity Fund as a result of the voluntary fee waiver by Loomis
Sayles. For the period February 15, 1998 to April 30, 1998, Nvest Management
paid Loomis Sayles a subadvisory fee of $73,345. For the period May 1, 1998
to December 31, 1998, the International Equity Fund paid a subadvisory fee
of $143,678 to Loomis Sayles. Without a voluntary fee waiver by Loomis
Sayles, the amount of the subadvisory fee that the Fund would have paid to
Loomis Sayles for the period May 1, 1998 to December 31, 1998 would have
been $326,375.
****For the fiscal year ended December 31, 1999, the Balanced and International
Equity Funds paid subadvisory fees of $1,469,622 and $200,283, respectively,
to Loomis Sayles. Without a voluntary fee waiver by Loomis Sayles for the
International Equity Fund, the amount of the subadvisory fee that the Fund
would have paid to Loomis Sayles for this period would have been $281,900.
For the fiscal year ended December 31, 1999, the Growth and Income and
Capital Growth Funds paid subadvisory fees of $1,922,351 and $963,811,
respectively, to Westpeak.
*****As a result of the voluntary expense limitations in effect, the Equity
Income Fund paid no management fees to Nvest Management and Nvest Management
paid no subadvisory fees to Loomis Sayles for the fiscal year ended December
31, 1997, the Fund paid no management fees to Nvest Management for the
fiscal year ended December 31, 1998 or subadvisory fees to Loomis Sayles for
the period from May to December 31, 1998 and Nvest Management paid no
subadvisory fees to Loomis Sayles for the period January 1 to April 30,
1998. Without the voluntary fee waiver, Nvest Management would have paid
Loomis Sayles subadvisory fees of $23,861 and $43,010 for the fiscal year
ended December 31, 1997 and for the period from January 1 to April 30, 1998,
respectively, and the Fund would have paid Loomis Sayles a subadvisory fee
of $99,239 for the period from May 1 to December 31, 1998. As a result of
the voluntary expense limitations in effect, the Fund paid no subadvisory
fees to Loomis Sayles or VNSM for the fiscal year ended December 31, 1999.
As a result of the binding fee waiver, the Fund paid $22,316 to Nvest
Management in advisory fees for the fiscal year ended December 31, 1999.
Without the voluntary fee waiver, the Fund would have paid $51,737 and
$60,775 to Loomis Sayles and VNSM, respectively, in subadvisory fees.
******The Bullseye Fund commenced operations on March 31, 1998. As a result of
the voluntary or binding fee deferral and expense limitations in effect, the
Fund paid no management fees to Nvest Management and no subadvisory fees to
Jurika & Voyles for the fiscal period ending December 31, 1998 and the
fiscal year ended December 31, 1999, respectively. Without the voluntary or
binding fee deferral and expense limitation, the Fund would have paid Nvest
Management management fees of $46,107 and $73,557 for the fiscal year ended
December 31, 1998 and for the fiscal year ended December 31, 1999,
respectively and Jurika & Voyles subadvisory fees of $69,161 and $110,335,
for the fiscal year ended December 31, 1998 and the fiscal year ended
December 31, 1999, respectively.
For more information about the Funds' advisory and subadvisory agreements,
see "Management of the Trusts" in Part II of this Statement.
BROKERAGE COMMISSIONS
In 1997, 1998 and 1999 brokerage transactions for Growth Fund aggregating
$782,645,000, $839,415,762, and $1,012,285,354 respectively, were allocated to
brokers providing research services, and $782,645, $925,576 and $1,195,756,
respectively, in commissions were paid on these transactions in such years.
During 1997, 1998 and 1999 the Fund paid total brokerage commissions of
$6,669,194, $6,163,593 and $8,113,289, respectively.
In 1997, 1998 and 1999, brokerage transactions for Balanced Fund
aggregating $17,718,990, $68,151,350 and $61,715,360, respectively, were
allocated to brokers providing research services, and $24,900, $107,472 and
$81,418, respectively, in commissions were paid on these transactions in such
years. During 1997, 1998 and 1999, the Fund paid total brokerage commissions of
$376,805, $563,035 and $441,089, respectively.
In 1997, 1998 and 1999, brokerage transactions for Growth and Income Fund
aggregating $531,986,567, $365,997,958 and $228,379,147, respectively, were
allocated to brokers providing research services and $162,980, $154,557 and
$215,531, respectively, in commissions were paid on these transactions in such
years. During 1997, 1998 and 1999, the Fund paid total brokerage commissions of
$351,050, $619,719 and $952,681, respectively.
In 1997, 1998 and 1999, brokerage transactions for International Equity
Fund aggregating $462,898,584, $15,145, and $7,568,359, respectively, were
allocated to brokers providing research services and $0, $0 and $7,758,
respectively, in commissions were paid on these transactions in such years.
During 1997, 1998 and 1999, the Fund paid total brokerage commissions of
$1,222,767, $506,328 and $751,900, respectively.
In 1997, 1998 and 1999, brokerage transactions for Capital Growth Fund
aggregating $105,213,412, $179,733,449 and $115,631,790, respectively, were
allocated to brokers providing research services and $4,000, $63,846 and
$101,489 respectively, in commissions were paid on these transactions in such
years. During 1997, 1998 and 1999, the Fund paid total brokerage commissions of
$103,244, $366,221 and $421,774, respectively.
In 1997, 1998 and 1999, brokerage transactions for Equity Income Fund
aggregating $0, $44,172 and $13,398,277, respectively, were allocated to brokers
providing research services and $0, $2,508 and $22,238, respectively, in
commissions were paid on these transactions in such years. During 1997, 1998 and
1999, the Fund paid total brokerage commissions of $29,840, $69,295 and $40,928,
respectively.
For the period from March 31, 1998 to December 31, 1998 and the fiscal year
ended December 31, 1999, brokerage transactions for Bullseye Fund aggregating
$4,560,101 and $9,010,123, respectively, were allocated to brokers providing
research services, and $4,375 and $10,667, respectively, in commissions were
paid on these transactions. During 1998 and 1999, the Bullseye Fund paid total
brokerage commissions of $35,314 and $63,487, respectively.
For more information about the Funds' portfolio transactions, see
"Portfolio Transactions and Brokerage" in Part II of this Statement.
SALES CHARGES AND 12B-1 FEES
As explained in Part II of this Statement, the Class A, Class B and Class
C shares of each Fund pay Nvest Funds Distributor, L.P. (the "Distributor") fees
under plans adopted pursuant to Rule 12b-1 under the 1940 Act. The following
table shows the amounts of Rule 12b-1 fees paid by each Fund during the fiscal
years ended December 31, 1997, 1998 and 1999:
FUND 1997 1998 1999
-------- ---- ---- ----
Growth Fund* $3,600,444 $4,095,985 $4,507,150 (Class A)
$71,751 $398,656 $1,130,273 (Class B)
$3,017 $67,804 (Class C)
Balanced Fund $567,385 $574,918 $500,098 (Class A)
$680,895 $810,837 $784,237 (Class B)
$36,277 $54,042 $52,722 (Class C)
Growth and Income Fund $487,914 $645,966 $876,555 (Class A)
$626,147 $1,126,326 $1,953,852 (Class B)
$52,226 $115,169 $244,663 (Class C)
International Equity $197,567 $132,001 $110,048 (Class A)
Fund $347,996 $255,391 $185,331 (Class B)
$8,625 $10,161 $7,292 (Class C)
Capital Growth Fund $370,087 $390,354 $449,506 (Class A)
$426,954 $496,089 $640,502 (Class B)
$9,279 $10,563 $24,404 (Class C)
Equity Income Fund** $11,355 $46,136 $35,201 (Class A)
$12,154 $149,076 $122,010 (Class B)
$2,076 $20,584 $17,052 (Class C)
Bullseye Fund*** N/A $14,605 $22,304 (Class A)
N/A $45,443 $81,204 (Class B)
N/A $17,474 $23,148 (Class C)
* Class B shares were first offered on February 28, 1997. Class C shares
were first offered on September 1, 1998.
** Class B and C shares first became available on September 15, 1997.
*** The Bullseye Fund commenced operations on March 31, 1998, offering Class A,
Class B and Class C shares.
During the fiscal year ended December 31, 1999, the Distributor's expenses
relating to each Fund's 12b-1 plans were as follows (Class B compensation to
investment dealers excludes advanced commissions sold to a third party):
GROWTH FUND
(Class A shares)
Compensation to Investment Dealers $4,489,175
Compensation to Distributor's Sales Personnel and Other $1,217,743
Related Costs
TOTAL $5,706,918
(Class B shares)
Compensation to Investment Dealers $101,593
Compensation to Distributor's Sales Personnel and Other $669,935
Related Costs
TOTAL $771,528
(Class C shares)
Compensation to Investment Dealers $72,416
Compensation to Distributor's Sales Personnel and Other $70,940
Related Costs
TOTAL $143,356
BALANCED FUND
(Class A shares)
Compensation to Investment Dealers $499,251
Compensation to Distributor's Sales Personnel and Other $137,732
Related Costs
TOTAL $636,983
(Class B shares)
Compensation to Investment Dealers $144,472
Compensation to Distributor's Sales Personnel and Other $111,842
Related Costs
TOTAL $256,314
(Class C shares)
Compensation to Investment Dealers $41,891
Compensation to Distributor's Sales Personnel and Other $10,509
Related Costs
TOTAL $52,400
GROWTH AND INCOME FUND
(Class A shares)
Compensation to Investment Dealers $868,966
Compensation to Distributor's Sales Personnel and Other $913,010
Related Costs
TOTAL $1,781,976
(Class B shares)
Compensation to Investment Dealers $281,958
Compensation to Distributor's Sales Personnel and Other $763,995
Related Costs
TOTAL $1,045,953
(Class C shares)
Compensation to Investment Dealers $209,471
Compensation to Distributor's Sales Personnel and Other $144,056
Related Costs
TOTAL $353,527
INTERNATIONAL EQUITY FUND
(Class A shares)
Compensation to Investment Dealers $111,105
Compensation to Distributor's Sales Personnel and Other $32,071
Related Costs
TOTAL $143,176
(Class B shares)
Compensation to Investment Dealers $40,459
Compensation to Distributor's Sales Personnel and Other $17,402
Related Costs
TOTAL $57,861
(Class C shares)
Compensation to Investment Dealers $8,651
Compensation to Distributor's Sales Personnel and Other $5,725
Related Costs
TOTAL $14,376
CAPITAL GROWTH FUND
(Class A shares)
Compensation to Investment Dealers $449,957
Compensation to Distributor's Sales Personnel and Other $190,601
Related Costs
TOTAL $640,558
(Class B shares)
Compensation to Investment Dealers $111,505
Compensation to Distributor's Sales Personnel and Other $103,130
Related Costs
TOTAL $214,635
(Class C shares)
Compensation to Investment Dealers $25,191
Compensation to Distributor's Sales Personnel and Other $15,911
Related Costs
TOTAL $41,102
EQUITY INCOME FUND
(Class A shares)
Compensation to Investment Dealers $34,982
Compensation to Distributor's Sales Personnel and Other $11,348
Related Costs
$46,330
TOTAL
(Class B shares)
Compensation to Investment Dealers $22,141
Compensation to Distributor's Sales Personnel and Other $9,305
Related Costs
$31,446
TOTAL
(Class C shares)
Compensation to Investment Dealers $14,089
Compensation to Distributor's Sales Personnel and Other $1,464
Related Costs
$15,553
TOTAL
BULLSEYE FUND
(Class A shares)
Compensation to Investment Dealers $22,296
Compensation to Distributor's Sales Personnel and Other $16,028
Related Costs
$38,324
TOTAL
(Class B shares)
Compensation to Investment Dealers $8,003
Compensation to Distributor's Sales Personnel and Other $18,667
Related Costs
$26,670
TOTAL
(Class C shares)
Compensation to Investment Dealers $11,060
Compensation to Distributor's Sales Personnel and Other $1,459
Related Costs
$12,519
TOTAL
Of the amounts listed above as compensation to investment dealers, the
amounts shown on the table below were paid by the Distributor to New England
Securities Corporation ("New England Securities"), MetLife Securities, Inc.
("MetLife Securities") and Nathan & Lewis Securities, Inc. ("Nathan & Lewis),
broker-dealer affiliates of the Distributor. New England Securities, MetLife
Securities and Nathan & Lewis paid substantially all of the fees they received
from the Distributor (a) in commissions to its sales personnel and (b) to defray
sales-related overhead costs.
New England Securities
Class A Class B Class C
Growth Fund $3,157,838 $ 47,965 $13,681
Balanced Fund $ 372,523 $ 93,855 $13,170
Growth and Income Fund $ 364,884 $143,755 $61,374
International Equity $ 72,386 $ 22,824 $ 2,589
Fund
Capital Growth Fund $ 319,744 $ 76,185 $ 9,784
Equity Income Fund $ 24,747 $ 10,857 $ 5,520
Bullseye Fund $ 12,184 $ 2,920 $ 2,977
MetLife Securities
Class A Class B Class C
Growth Fund $ 26,974 $ 17,767 --
Balanced Fund $ 2,541 $ 4,577 --
Growth and Income Fund $ 14,705 $ 16,821 $ 492
International Equity $ 267 $ 255 --
Fund
Capital Growth Fund $ 2,647 $ 1,770 --
Equity Income Fund $ 321 $ 234 --
Bullseye Fund $ 803 $ 1,259 --
Nathan & Lewis
Class A Class B Class C
Growth Fund $23,908 $ 130 --
Balanced Fund $ 1,469 $ 625 $ 11
Growth and Income Fund $ 1,712 $ 289 $ 111
International Equity Fund $ 389 $ 238 $ 2
Capital Growth Fund $ 1,250 $ 838 $ 138
Equity Income Fund $ 10 $ 11 --
Bullseye Fund $ 73 $ 6 --
- --------------------------------------------------------------------------------
OWNERSHIP OF FUND SHARES
- --------------------------------------------------------------------------------
As of March 31, 2000, to the Trusts' knowledge, the following persons
owned of record or beneficially 5% or more of the outstanding shares of the
indicated classes of the Funds set forth below.
OWNERSHIP
FUND SHAREHOLDER AND ADDRESS PERCENTAGE
---- ----------------------- ----------
CAPITAL GROWTH FUND
Class Y shares Diane Charpentier Milam
4578 Whimbel Place 99.83%
Winter Park, FL 32792-6358
GROWTH AND INCOME FUND
Class C Shares MLPF&S For the Sole Benefit of It's 11.75%
Customers
ATTN: Fund Administration ML#97UA2
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Forest County Potawatomi - Children 17.68%
P.O. Box 340
Crandon, WI 54520-0340
Class Y shares Metropolitan Life Insurance Company 5.24%
C/O MetLfie FBC/SFM
ATTN: Jay Langan
4100 W Boy Scout Blvd
Tampa, FL 33607-5793
Chase Manhattan Bank 52.77%
Directed Trustee for MetLife Defined
Contribution Group
770 Broadway - 10th Floor
New York, NY 10003-9522
Metropolitan Life Insurance 36.29%
GADC Dianne Lunny
501-6 Boylston Street
Boston, MA 02116-3706
INTERNATIONAL EQUITY FUND
Class C shares MLPF & S For the Sole Benefit of Its 20.84%
Customers
Attn Fund Administration ML#97UB0
4800 Deer Lake Drive East - 2nd Floor
Jacksonville, FL 32246-6484
Class Y shares Metropolitan Life Insurance Company 38.90%
C/O GADC-Gerald Hart Agency
Operations NELICO
501 Boylston Street, 10th Floor
Boston, MA 02116-3706
Metropolitan Life Insurance Company 9.35%
C/O MetLife FBC/SFM
ATTN: Jay Langan
4100 Boy Scout Blvd.
Tampa, FL 33607-5793
Chase Manhattan Bank Directed 48.52%
Trustee for MetLife Defined
Contribution Group
770 Broadway, 10th Floor
New York, NY 10003-9522
EQUITY INCOME FUND
Class C shares
Dorothy N. & Ronald P. Frudden & 8.54%
Susan T. Gilles
Trustees
Frudden Exempt Tax Deferral Trust
202 Villa Drive
King City, CA 93930-3014
Wexford Clearing Services Corp FBO 13.30%
Prudential Securities C/F
Doris McGinnis Butler
IRA Rollover DTD 07/07/97
PO Box 84
Scott, AR 72142-0084
Painewebber for the benefit of 9.37%
Robert Adam, Brian King, Robert
Campagnone & Kathleen Lomeli
Willimanic PST DTD 5/1/73
PO Box 23
Willimanic, CT 06226-0023
BALANCED FUND
Class C shares CNA Trust Corp 10.80%
FBO Dimension One Spas Inc.
PSP DTD 1/13/87 A/C # 1050534884
PO Box 5024
Costa Mesa, CA 92628-5024
NFSC FEBO # 041-773786 9.41%
EL Moody, CW MOODY as co-trustee
Elizabeth L. and Charles W. Moody
UDT, U/A 5/6/93
6865 Pacific Drive
Stuart, FL 34997-8604
BALANCED FUND
Class Y shares New England Mutual Life Insurance 82.18%
Company
Separate Investment Accounting
ATTN Brenda Harmon
501 Boylston Street, 6th Floor
Boston, MA 02116-3706
Metropolitan Life Insurance Company 9.67%
C/O GADC-Gerald Hart Agency
Operations NELICO
501 Boylston Street, 10th Floor
Boston, MA 02116-3706
Chase Manhattan Bank 7.55%
Directed Trustee for MetLife Define
Contribution Group
770 Broadway, 10th Floor
New York, NY 10003-9522
GROWTH FUND
Class B shares MLPF&S for the Sole Benefit of It's 6.73%
Customers
ATTN Fund Administration ML # 97CH1
4800 Deer Lake Drive East, 2nd floor
Jacksonville, FL 32246-6484
GROWTH FUND
Class C shares MLPF&S for the Sole Benefit of It's 29.51%
Customers
ATTN Fund Administration ML # 97UR8
4800 Deer Lake Drive East, 2nd floor
Jacksonville, FL 32246-6484
GROWTH FUND
Class Y shares Chase Manhattan Bank 99.99%
Directed Trustee MetLife Defined
Contribution Group
4 New York Plaza, 2nd Floor
New York, NY 10004-2413
BULLSEYE FUND
Class C shares MLPF&S for the Sole Benefit of It's 5.43%
Customers
ATTN Fund Administration ML # 97UR8
4800 Deer Lake Drive East, 2nd floor
Jacksonville, FL 32246-6484
State Street Bank & Trust Company 9.33%
Cust for IRA of Norma J. Plonkey
38101 Afton Drive
Sterling Heights, MI 48310-3305
NFSC FEBO # CL5-424757 5.25%
NFSC/FMTC IRA Rollover
FBO Stephen McCarthy
57 Brooklawn Drive
East Widsor, NJ 08520-2234
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUNDS
- --------------------------------------------------------------------------------
PERFORMANCE RESULTS - PERCENT CHANGE*
For The Periods Ended 12/31/99
GROWTH FUND**
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- ---------------------------- ------ ------- -------- ------- --------
Net Asset Value 15.18 216.80 404.75 25.94 17.57
Maximum Offering Price 8.59 198.62 375.62 24.46 16.88
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class B shares: As a % of 1 Year 2/28/97*** 2/28/97***
- ------------------------- ------ ---------- ----------
Net Asset Value 14.37 73.22 21.36
Redemption at End of Period 9.59 70.66 20.72
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class B shares: As a % of 1 Year 9/1/98*** 9/1/98***
- ------------------------- ------ ---------- ----------
Net Asset Value 14.37 39.77 28.59
Redemption at End of Period 13.42 39.77 28.59
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Class Y shares: As a % of Since 6/30/99*** Since 6/30/99***
- ------------------------- ---------------- ----------------
Net Asset Value 9.67 9.67
BALANCED FUND
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- -------------------------- ------ ------- -------- ------- --------
Net Asset Value -3.75 81.04 164.77 12.60 10.23
Maximum Offering Price -9.26 70.59 149.49 11.27 9.57
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93** 5 Years 9/13/93***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value -4.43 74.29 73.96 11.75 9.19
Redemption at End of Period -8.75 72.29 73.96 11.49 9.19
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class C shares: As a % of 1 Year 5 Years 12/30/94** 5 Years 12/30/94***
- -------------------------- ------ ------- -------- ------- ----------
Net Asset Value -4.45 74.01 74.01 11.72 11.71
Redemption at End of Period -5.31 74.01 74.01 11.72 11.71
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class Y shares: As a % of 1 Year 5 Years 3/8/94*** 5 Years 3/8/94***
- -------------------------- ------ ------- -------- ------- ----------
Net Asset Value -3.32 84.99 79.81 13.09 10.61
GROWTH AND INCOME FUND
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- -------------------------- ------ ------- -------- ------- ----------
Net Asset Value 9.45 186.60 326.98 23.44 15.62
Maximum Offering Price 3.16 170.07 302.56 21.98 14.94
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- -------------------------- ------ ------- -------- ------- ----------
Net Asset Value 8.62 176.73 179.93 22.58 17.75
Redemption at End of Period 4.03 174.73 179.93 22.40 17.75
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class C shares: As a % of 1 Year 5/1/95*** 5/1/95***
- -------------------------- ------ --------- ---------
Net Asset Value 8.63 147.43 21.42
Redemption at End of Period 7.71 147.43 21.42
Aggregate Annualized
Total Return Total Return
-------------------------- --------------------
Since Since
Class Y shares: As a % of 1 Year 11/18/98*** 11/18/98***
- -------------------------- ------ ----------- -----------
Net Asset Value 9.77 18.63 16.51
INTERNATIONAL EQUITY FUND
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class A shares: As a % of 1 Year 5 Years 5/21/92*** 5 Years 5/21/92***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 87.59 102.09 168.50 15.11 13.85
Maximum Offering Price 76.80 90.43 153.12 13.75 12.97
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 86.26 95.23 110.19 14.32 12.52
Redemption at End of Period 81.26 93.23 110.19 14.08 12.52
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class C shares: As a % of 1 Year 5 Years 12/30/94** 5 Years 12/30/94***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 86.23 95.70 95.70 14.37 14.36
Redemption at End of Period 85.23 95.70 95.70 14.37 14.36
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class Y shares: As a % of 1 Year 5 Years 9/9/93*** 5 Years 9/9/93***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 88.61 109.04 129.36 15.89 14.06
CAPITAL GROWTH FUND
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class A shares: As a % of 1 Year 5 Years 8/3/92*** 5 Years 8/3/92***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 24.74 188.88 252.28 23.64 18.52
Maximum Offering Price 17.57 172.20 232.09 22.17 17.58
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 23.81 176.81 180.20 22.58 17.77
Redemption at End of Period 18.81 174.81 180.20 22.41 17.77
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class C shares: As a % of 1 Year 5 Years 12/30/94** 5 Years 12/30/94***
- -------------------------- ------ ------- -------- ------- ---------
Net Asset Value 23.81 176.88 176.88 22.59 22.58
Redemption at End of Period 22.81 176.88 176.88 22.59 22.58
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class Y shares: As a % of 3/16/99*** 3/16/99***
- --------------------------- ---------- ----------
Net Asset Value 20.07 20.07
EQUITY INCOME FUND
Aggregate Average Annual
Total Return Total Return
-------------------------- --------------------
Since Since
Class A shares: As a % of 1 Year 11/28/95*** 11/28/95***
- -------------------------- ------ ----------- -----------
Net Asset Value -1.94 61.34 12.41
Maximum Offering Price -7.61 52.09 10.79
Aggregate Average Annual
Total Return Total Return
--------------------------- ------------------
Since Since
Class B shares: As a % of 1 Year 9/15/97*** 9/15/97***
- -------------------------- ------ ----------- -----------
Net Asset Value -2.66 2.93 1.27
Redemption at End of Period -7.51 -0.07 -0.03
Aggregate Average Annual
Total Return Total Return
--------------------------- ------------------
Since Since
Class C shares: As a % of 1 Year 9/15/97*** 9/15/97***
- -------------------------- ------ ----------- -----------
Net Asset Value -2.66 2.99 1.29
Redemption at End of Period -3.63 2.99 1.29
BULLSEYE FUND
Aggregate Average Annual
Total Return Total Return
--------------------------- ------------------
Since Since
Class A shares: As a % of 1 Year 3/31/98*** 3/31/98***
- -------------------------- ------ ----------- -----------
Net Asset Value 36.68 38.32 20.32
Maximum Offering Price 28.84 30.39 16.34
Aggregate Average Annual
Total Return Total Return
--------------------------- ------------------
Since Since
Class B shares: As a % of 1 Year 3/31/98*** 3/31/98***
- -------------------------- ------ ----------- -----------
Net Asset Value 35.71 36.80 19.57
Redemption at End of Period 30.71 32.80 17.56
Aggregate Average Annual
Total Return Total Return
--------------------------- ------------------
Since Since
Class C shares: As a % of 1 Year 3/31/98*** 3/31/98***
- -------------------------- ------ ----------- -----------
Net Asset Value 35.74 36.72 19.53
Redemption at End of Period 34.74 36.72 19.53
* Federal regulations require this example to be calculated using a $1,000
investment. The normal minimum initial investment in shares of the Funds is
$2,500, however.
** The numbers presented for Class A shares reflect the maximum front-end sales
charge currently in effect. Prior to March 3, 1997, a higher maximum
front-end sales charge was in effect, so that the total returns achieved by
investors may have been lower than those shown above.
*** Commencement of Fund operations or offering of specified class of shares.
The foregoing data represent past performance only and are not a
prediction as to the future returns of any Fund. The investment return and
principal value of an investment in any Fund will fluctuate so that the
investor's shares, when redeemed, may be worth more or less than their original
cost.
<PAGE>
[LOGO]
NVEST FUNDS(SM)
Where The Best Minds Meet(R)
- -------------------------------------------------------------------------------
NVEST FUNDS TRUST I
NVEST FUNDS TRUST II
NVEST FUNDS TRUST III
STATEMENT OF ADDITIONAL INFORMATION -- PART II
MAY 1, 2000
The following information applies generally to the funds listed below (the
"Funds" and each a "Fund"). The Funds constitute all of the series of Nvest
Funds Trust I, Nvest Funds Trust II and Nvest Funds Trust III (the "Trusts" and
each a "Trust), except for Nvest Access Shares (Nvest Core Equity Fund, Nvest
Select Fund, Nvest Stock and Bond Fund, Nvest Small Cap Value Fund, Nvest Small
Cap Growth Fund and Nvest Total Return Bond Fund), which are not currently being
offered to the public. In certain cases, the discussion applies to some but not
all of the Funds. Certain data applicable to particular Funds is found in Part I
of this Statement of Additional Information (the "Statement") as well as in the
Prospectuses of the Funds dated May 1, 2000 (the "Prospectus" or
"Prospectuses"). The following Funds are described in this Statement:
<TABLE>
SERIES OF NVEST FUNDS TRUST I
- -----------------------------
<S> <C>
Nvest Strategic Income Fund (the "Strategic Income Fund")
Nvest Bond Income Fund (the "Bond Income Fund")
Nvest Municipal Income Fund (the "Municipal Income Fund")
Nvest Government Securities Fund (the "Government Securities Fund")
Nvest International Equity Fund (the "International Equity Fund")
Nvest Growth Fund (the "Growth Fund")
Nvest Capital Growth Fund (the "Capital Growth Fund")
Nvest Balanced Fund (the "Balanced Fund")
Nvest Star Advisers Fund (the "Star Advisers Fund")
Nvest Star Worldwide Fund (the "Star Worldwide Fund")
Nvest Star Small Cap Fund (the "Star Small Cap Fund")
Nvest Star Value Fund (the "Star Value Fund")
SERIES OF NVEST FUNDS TRUST II
- ------------------------------
Nvest High Income Fund (the "High Income Fund")
Nvest Short Term Corporate Income Fund (the "Short Term Corporate Income
Fund")
Nvest Limited Term U.S. Government Fund (the "Limited Term U.S.
Government Fund")
Nvest Massachusetts Tax Free Income Fund (the "Massachusetts Fund")
Nvest Intermediate Term Tax Free Fund of California (the "California Fund")
Nvest Growth and Income Fund (the "Growth and Income Fund")
SERIES OF NVEST FUNDS TRUST III
- -------------------------------
Nvest Bullseye Fund (the "Bullseye Fund")
Nvest Equity Income Fund (the "Equity Income Fund")
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES
- -------------------------------------------------------------------------------
The following is a list of certain investment practices in which a Fund
may engage as SECONDARY investment strategies. A Fund's primary strategies are
detailed in its Prospectus.
<TABLE>
<S> <C> <C>
HIGH INCOME FUND STRATEGIC INCOME FUND BOND INCOME FUND
- ---------------- --------------------- ----------------
Various Equity Securities Various Equity Securities Various Equity Securities
U.S. Government Securities IPOs Asset-backed Securities
Mortgage-backed Securities When-issued Securities Collateralized Mortgage Obligations
Asset-backed Securities Asset-backed Securities When-issued Securities
Collateralized Mortgage Obligations Collateralized Mortgage Obligations Convertible Securities
Stripped Securities Repurchase Agreements Illiquid Securities
Repurchase Agreements Foreign Currency Hedging Loans of Portfolio Securities
When-issued Securities Transactions Short-term Investments
Convertible Securities Investments in Closed-end Investment Money Market Instruments
Foreign Currency Hedging Transactions Companies Repurchase Agreements
Illiquid Securities Futures, Options and Swap Contracts Structured Notes
Loans of Portfolio Securities Short Sales Against the Box Futures, Options and Swap Contracts
Short-term Investments Illiquid Securities Depositary Receipts
Money Market Instruments Rule 144A Securities (liquidity Pay-in-kind Securities
Structured Notes determination required) Stripped Securities
Step Coupon Bonds Loans of Portfolio Securities Zero Coupon Securities
Borrowing/Reverse Repurchase Agreements
Short-term Investments
Money Market Instruments
Step Coupon Bonds
MUNICIPAL INCOME FUND SHORT TERM CORPORATE INCOME FUND LIMITED TERM U.S. GOVERNMENT FUND
- --------------------- -------------------------------- ---------------------------------
Repurchase Agreements Convertible Bonds Mortgage-backed Securities
Stripped Securities Stripped Securities Collateralized Mortgage Obligations
When-issued Securities Repurchase Agreements Stripped Securities
Futures and Options When-issued Securities Repurchase Agreements
Short-term Investments Futures, Options and Swap Contracts When-issued Securities
Money Market Instruments Illiquid Securities Foreign Equity Securities
U.S. Government Securities Short-term Investments Foreign Currency Hedging Transactions
Rule 144A Securities (liquidity Money Market Instruments Futures and Options
determination required) Zero Coupon Securities Illiquid Securities
Structured Notes Rule 144A Securities (liquidity
Non-Convertible Preferred Stocks, determination required)
Notes or Bonds Loans of Portfolio Securities
Step Coupon Bonds Short-term Investments
Loans of Portfolio Securities Money Market Instruments
Foreign Bonds
GOVERNMENT SECURITIES FUND MASSACHUSETTS FUND CALIFORNIA FUND
Repurchase Agreements U.S. Government Securities U.S. Government Securities
When-issued Securities Mortgage-related Securities Mortgage-related Securities
Futures and Options Stripped Securities Stripped Securities
Money Market Instruments Repurchase Agreements Repurchase Agreements
When-issued Securities When-issued Securities
Futures and Options Futures and Options
Illiquid Securities Illiquid Securities
Rule 144A Securities (liquidity Rule 144A Securities (liquidity
Determination required) determination required)
Money Market Instruments Money Market Instruments
Pay-in-kind Securities Pay-in-kind Securities
Borrowing/Reverse Repurchase Borrowing/Reverse Repurchase
Agreements Agreements
BULLSEYE FUND INTERNATIONAL EQUITY FUND GROWTH FUND
- ------------- ------------------------- -----------
Various Equity Securities Various Foreign Equity Securities Various Equity Securities
IPOs Foreign IPOs IPOs
U.S. Government Securities Lower-quality Foreign Fixed Income Corporate Fixed Income Securities
Repurchase Agreements Securities (investment grade)
When-issued Securities Repurchase Agreements U.S. Government Securities
Foreign Securities (Equity Securities, Zero Coupon Securities Repurchase Agreements
Supranational Agencies) When-issued Securities Zero Coupon Securities
Securities of Emerging Markets Foreign Currency Hedging Transactions Convertible Securities
Foreign Currency Hedging Transactions Foreign Corporate Bonds Futures, Options and Swap Contracts
Futures, Options and Swap Contracts Foreign Convertible Bonds Short Sales Against the Box
Short Sales Against the Box Foreign Government Bonds Illiquid Securities
Illiquid Securities Supranational Agencies Rule 144A Securities (liquidity
Rule 144A Securities (liquidity Foreign Warrants determination required)
determination required) Investments in Other Investment Borrowing/Reverse Repurchase Agreements
Loans of Portfolio Securities Companies Short-term Investments
Borrowing/Reverse Repurchase Agreements Futures, Options and Swap Contracts Money Market Instruments
Short-term Investments Short Sales Against the Box
Money Market Instruments Illiquid Securities
Foreign Bonds Rule 144A Securities (liquidity
determination required)
Loans of Portfolio Securities
Borrowing/Reverse Repurchase Agreements
Short-term Investments
Money Market Instruments
GROWTH AND INCOME FUND CAPITAL GROWTH FUND BALANCED FUND
- ---------------------- ------------------- -------------
Various Equity Securities Various Equity Securities Various Equity Securities
IPOs IPOs IPOs
Corporate Fixed Income Securities Corporate Fixed Income Securities Non-Non-Convertible Preferred Stock
(investment grade) (investment grade) Lower Quality Corporate Fixed
U.S. Government Securities U.S. Government Securities Income Securities
Zero Coupon Securities Repurchase Agreements Repurchase Agreements
Repurchase Agreements Zero Coupon Securities Investments in Other Investment
Convertible Securities Convertible Securities Companies
Foreign Securities (Foreign Equity Foreign Securities (Foreign Equity Futures, Options and Swap
Securities, Supranational Agencies, Securities, Supranational Agencies, Contracts
Depositary Receipts) Depositary Receipts) Short Sales Against the Box
Foreign Currency Hedging Transactions Foreign Currency Hedging Transactions Illiquid Securities
Investments in Other Investment Investments in Other Investment Borrowing/Reverse Repurchase
Companies Companies Agreements
Futures, Options and Swap Contracts Futures, Options and Swap Contracts Short-term Investments
Illiquid Securities Rule 144A Short Sales Against the Box Money Market Instruments
Securities (liquidity determination Illiquid Securities Rule 144A Securities of Emerging Markets
required) Securities (liquidity determination
Borrowing required)
Short-term Investments Loans of Portfolio
Money Market Instruments Securities
Foreign Bonds Borrowing/Reverse Repurchase
Agreements
Short-term Investments
Money Market Instruments
Foreign Bonds
EQUITY INCOME FUND
- ------------------
Various Equity Securities
Lower Quality Corporate Fixed
Income Securities
U.S. Government Securities
Repurchase Agreements
Zero Coupon Securities
Securities of Emerging Markets
Foreign Currency Hedging Transactions
Investments in Other Investment
Companies
Futures, Options and Swap Contracts
Short Sales Against the Box
Illiquid Securities
Rule 144A Securities (liquidity
determination required)
Loans of Portfolio Securities
Borrowing/Reverse Repurchase Agreements
Short-term Investments
Money Market Instruments
Foreign Bonds
When-issued Securities
</TABLE>
The following is a list of some of the investment practices employed by the
various subadvisers of Nvest Star Funds as SECONDARY strategies. Due to the
multi-subadviser approach of Nvest Star Funds, investing in a certain security
may be a primary strategy for one segment of the Fund and a SECONDARY strategy
for another segment of such Fund.
<TABLE>
<S> <C> <C>
STAR ADVISERS FUND STAR WORLDWIDE FUND STAR SMALL CAP FUND
- ------------------ ------------------- -------------------
Various Equity Securities Various Equity Securities Various Equity Securities
IPOs IPOs IPOs
U.S. Government Securities U.S. Government Securities U.S. Government Securities
Repurchase Agreements Repurchase Agreements Repurchase Agreements
Structured Notes Structured Notes Structured Notes
Zero Coupon; Pay-in Kind; Zero Coupon and Strips When-issued Securities
Step Coupon and Strips When-issued Securities Foreign Currency Hedging Transactions
When-issued Securities Foreign Currency Hedging Transactions Privatizations
Foreign Currency Hedging Transactions Privatizations Investments in Other Investment
Privatizations Investments in Other Investment Companies
Investments in Other Investment Companies Futures, Options and Swap Contracts
Companies Futures, Options and Swap Contracts Short Sales Against the Box
Futures, Options and Swap Short Sales Against the Box Illiquid Securities Rule 144A
Contracts Illiquid Securities Rule 144A Securities (liquidity determination
Short Sales Against the Box Securities (liquidity determination required)
Illiquid Securities Rule 144A required) Borrowing/Reverse Repurchase
Securities (liquidity determination Borrowing/Reverse Repurchase Agreements
required) Agreements Short-term Investments
Borrowing/Reverse Repurchase Short-term Investments Money Market Instruments
Agreements Money Market Instruments Mortgage- and Asset-backed Securities
Short-term Investments Loans of Portfolio Securities Loans of Portfolio Securities
Money Market Instruments Mortgage- and Asset-backed Securities Foreign Bonds
Loans of Portfolio Securities Foreign Bonds Collateralized Mortgage Obligations
Mortgage- and Asset backed Securities Step Coupon Bonds Step Coupon Bonds
Foreign Bonds Pay-in-kind Securities Pay-in-kind Securities
Collateralized Mortgage Obligations Foreign Currency Speculation Foreign Currency Speculation Transaction
Foreign Securities (Equity Securities, Transactions Zero Coupon Securities
Supranational Agencies) Collateralized Mortgage Obligations Stripped Securities
Securities of Emerging Markets Foreign Securities (Supranational Convertible Bonds
Foreign Depositary Receipts Agencies, Emerging Markets) Foreign Securities (Equity Securities,
Foreign Currency Speculation Convertible Preferred Stocks Emerging Markets, Depositary Receipts,
Transactions Supranational Agencies)
STAR VALUE FUND
- ---------------
Various Equity Securities
IPOs
Corporate Fixed Income Securities
(investment grade)
U.S. Government Securities
Repurchase Agreements
Zero Coupon Securities
When-issued Securities
Convertible Securities
Foreign Currency Hedging Transactions
Foreign Securities (Depositary Receipts)
Investments in Other Investment
Companies
Futures, Options and Swap Contracts
Short Sales Against the Box
Illiquid Securities Rule 144A
Securities (liquidity determination
required)
Borrowing/Reverse Repurchase Agreements
Short-term Investments
Money Market Instruments
Foreign Bonds
Lower Quality Fixed-Income Securities
</TABLE>
The following is a description of the various investment practices in
which a Fund may engage, whether as a primary or secondary strategy:
Equity Securities Equity securities are securities that represent an ownership
interest (or the right to acquire such an interest) in a company and include
common and preferred stocks and securities exercisable for, or convertible into,
common or preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock). While offering greater potential for long-term
growth, equity securities are more volatile and more risky than some other forms
of investment. Therefore, the value of your investment in a Fund may sometimes
decrease instead of increase. A Fund may invest in equity securities of
companies with relatively small market capitalization. Securities of such
companies may be more volatile than the securities of larger, more established
companies and the broad equity market indices. See "Small Companies" below. A
Fund's investments may include securities traded "over-the-counter" as well as
those traded on a securities exchange. Some over-the-counter securities may be
more difficult to sell under some market conditions.
O Small Companies - A Fund may invest in companies with relatively small
capitalization. Such investments may involve greater risk than is usually
associated with more established companies. These companies often have sales
and earnings growth rates which exceed those of companies with larger
capitalization. Such growth rates may in turn be reflected in more rapid
share price appreciation. However, companies with smaller capitalization
often have limited product lines, markets or financial resources and may be
dependent upon a relatively small management group. The securities may have
limited marketability and may be subject to more abrupt or erratic movements
in price than securities of companies with larger capitalization or market
averages in general. The net asset value of Funds that invest in companies
with smaller capitalization therefore may fluctuate more widely than market
averages.
O Warrants - A Fund may invest in warrants. A warrant is an instrument that
gives the holder a right to purchase a given number of shares of a particular
security at a specified price until a stated expiration date. Buying a
warrant generally can provide a greater potential for profit or loss than an
investment of equivalent amounts in the underlying common stock. The market
value of a warrant does not necessarily move with the value of the underlying
securities. If a holder does not sell the warrant, it risks the loss of its
entire investment if the market price of the underlying security does not,
before the expiration date, exceed the exercise price of the warrant plus the
cost thereof. Investment in warrants is a speculative activity. Warrants pay
no dividends and confer no rights (other than the right to purchase the
underlying securities) with respect to the assets of the issuer.
O Real estate investment trusts (REITs) - Certain Funds may invest in REITs.
REITs are pooled investment vehicles that invest primarily in either real
estate or real estate related loans. The value of a REIT is affected by
changes in the value of the properties owned by the REIT or securing mortgage
loans held by the REIT. REITs are dependent upon cash flow from their
investments to repay financing costs and the ability of the REITs' managers.
REITs are also subject to risks generally associated with the investments in
real estate. A Fund will indirectly bear its proportionate share of expenses,
including management fees, paid by each REIT in which it invests.
Initial Public Offerings Funds may purchase securities of companies that are
offered pursuant to an initial public offering ("IPO"). An IPO is a company's
first offering of stock to the public in the primary market, typically to raise
additional capital. The Funds may purchase a "hot" IPO (also known as a "hot
issue"), which is an IPO that is oversubscribed and, as a result, is an
investment opportunity of limited availability. As a consequence, the price at
which these IPO shares open in the secondary market may be significantly higher
than the original IPO price. IPO securities tend to involve greater risk due, in
part, to public perception and the lack of publicly available information and
trading history. There is the possibility of losses resulting from the
difference between the issue price and potential diminished value of the stock
once traded in the secondary market. Although the Funds will make diligent
efforts to research a company prior to purchasing IPO securities, including
reviewing the company's prospectus, there is no guarantee against significant
losses. The Funds' investment in IPO securities may have a significant impact on
a Fund's performance and may result in significant capital gains.
Fixed-income Securities A Fund may invest in fixed-income securities. Because
interest rates vary, it is impossible to predict the income of a Fund for any
particular period. The net asset value of your shares will vary as a result of
changes in the value of the bonds and other securities in a Fund's portfolio.
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the securities, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities are subject to market and credit risk. Credit risk
relates to the ability of the issuer to make payments of principal and interest
and includes the risk of default. In the case of municipal bonds, the issuer may
make these payments from money raised through a variety of sources, including
(1) the issuer's general taxing power, (2) a specific type of tax such as a
property tax, or (3) a particular facility or project such as a highway. The
ability of an issuer of municipal bonds to make these payments could be affected
by litigation, legislation or other political events, or the bankruptcy of the
issuer. U.S. government securities do not involve the credit risks associated
with other types of fixed-income securities; as a result, the yields available
from U.S. government securities are generally lower than the yields available
from corporate fixed-income securities. Market risk is the risk that the value
of the security will fall because of changes in market rates of interest.
(Generally, the value of fixed-income securities falls when market rates of
interest are rising.) Some fixed-income securities also involve prepayment or
call risk. This is the risk that the issuer will repay a Fund the principal on
the security before it is due, thus depriving the Fund of a favorable stream of
future interest payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of a Fund's investments in fixed-income securities will cause the
Fund's net asset value to increase or decrease.
Lower Quality Fixed-income Securities Fixed-income securities rated BB or lower
by Standard & Poor's Ratings Group ("Standard & Poor's" or "S&P") or Ba or lower
by Moody's Investor's Service, Inc. ("Moody's") (and comparable unrated
securities) are of below "investment grade" quality. Lower quality fixed-income
securities generally provide higher yields, but are subject to greater credit
and market risk, than higher quality fixed-income securities, including U.S.
government and many foreign government securities. Lower quality fixed-income
securities are considered predominantly speculative with respect to the ability
of the issuer to meet principal and interest payments. Achievement of the
investment objective of a mutual fund investing in lower quality fixed-income
securities may be more dependent on the Fund's adviser's or subadviser's own
credit analysis than for a fund investing in higher quality bonds. The market
for lower quality fixed-income securities may be more severely affected than
some other financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation that
limits the ability of certain categories of financial institutions to invest in
these securities. In addition, the secondary market may be less liquid for lower
rated fixed-income securities. This lack of liquidity at certain times may
affect the valuation of these securities and may make the valuation and sale of
these securities more difficult. Securities of below investment grade quality
are considered high yield, high risk securities and are commonly known as "junk
bonds." For more information, including a detailed description of the ratings
assigned by S&P and Moody's, please refer to the Statement's "Appendix A --
Description of Bond Ratings" and "Appendix D - Average Monthly Portfolio
Composition Tables."
Structured Notes Certain Funds may invest in a broad category of instruments
known as "structured notes." These instruments are debt obligations issued by
industrial corporations, financial institutions or governmental or international
agencies. Traditional debt obligations typically obligate the issuer to repay
the principal plus a specified rate of interest. Structured notes, by contrast,
obligate the issuer to pay amounts of principal or interest that are determined
by reference to changes in some external factor or factors. For example, the
issuer's obligations could be determined by reference to changes in the value of
a commodity (such as gold or oil), a foreign currency, an index of securities
(such as the Standard & Poor's Composite Index of 500 Stocks ("S&P 500")) or an
interest rate (such as the U.S. Treasury bill rate). In some cases, the issuer's
obligations are determined by reference to changes over time in the difference
(or "spread") between two or more external factors (such as the U.S. prime
lending rate and the total return of the stock market in a particular country,
as measured by a stock index). In some cases, the issuer's obligations may
fluctuate inversely with changes in an external factor or factors (for example,
if the U.S. prime lending rate goes up, the issuer's interest payment
obligations are reduced). In some cases, the issuer's obligations may be
determined by some multiple of the change in an external factor or factors (for
example, three times the change in the U.S. Treasury bill rate). In some cases,
the issuer's obligations remain fixed (as with a traditional debt instrument) so
long as an external factor or factors do not change by more than the specified
amount (for example, if the value of a stock index does not exceed some
specified maximum), but if the external factor or factors change by more than
the specified amount, the issuer's obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of a mutual
fund. For example, they can be used to increase the fund's exposure to changes
in the value of assets that the fund would not ordinarily purchase directly
(such as stocks traded in a market that is not open to U.S. investors). They can
also be used to hedge the risks associated with other investments the fund
holds. For example, if a structured note has an interest rate that fluctuates
inversely with general changes in a country's stock market index, the value of
the structured note would generally move in the opposite direction to the value
of holdings of stocks in that market, thus moderating the effect of stock market
movements on the value of the fund's portfolio as a whole.
Structured notes involve special risks. As with any debt obligation, structured
notes involve the risk that the issuer will become insolvent or otherwise
default on its payment obligations. This risk is in addition to the risk that
the issuer's obligations (and thus the value of the Fund's investment) will be
reduced because of adverse changes in the external factor or factors to which
the obligations are linked. The value of structured notes will in many cases be
more volatile (that is, will change more rapidly or severely) than the value of
traditional debt instruments. Volatility will be especially high if the issuer's
obligations are determined by reference to some multiple of the change in the
external factor or factors. Many structured notes have limited or no liquidity,
so that the Fund would be unable to dispose of the investment prior to maturity.
(The Funds are not permitted to invest more than 15% of their net assets in
illiquid investments.) As with all investments, successful use of structured
notes depends in significant part on the accuracy of the relevant adviser's or
subadviser's analysis of the issuer's creditworthiness and financial prospects,
and of the adviser's or subadviser's forecast as to changes in relevant economic
and financial market conditions and factors. In instances where the issuer of a
structured note is a foreign entity, the usual risks associated with investments
in foreign securities (described below) apply.
U.S. Government Securities Certain Funds may invest in some or all of the
following U.S. government securities:
O U.S. Treasury Bills - Direct obligations of the United States Treasury which
are issued in maturities of one year or less. No interest is paid on Treasury
bills; instead, they are issued at a discount and repaid at full face value
when they mature. They are backed by the full faith and credit of the United
States government.
O U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with
interest normally payable every six months. These obligations are backed by
the full faith and credit of the United States government.
O "Ginnie Maes" - Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmer's Home Administration or
guaranteed by the Veterans Administration. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of principal and interest
when such payments are due, whether or not these amounts are collected by the
issuer of these certificates on the underlying mortgages. An assistant
attorney general of the United States has rendered an opinion that the
guarantee by GNMA is a general obligation of the United States backed by its
full faith and credit. Mortgages included in single, family or multi-family
residential mortgage pools backing an issue of Ginnie Maes have a maximum
maturity of up to 30 years. Scheduled payments of principal and interest are
made to the registered holders of Ginnie Maes (such as the Fund) each month.
Unscheduled prepayments may be made by homeowners, or as a result of a
default. Prepayments are passed through to the registered holder (such as the
Fund, which reinvests any prepayments) of Ginnie Maes along with regular
monthly payments of principal and interest.
O "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers.
Fannie Maes are pass-through securities issued by FNMA that are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States government.
O "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
government.
U.S. government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. government securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may, for temporary defensive
purposes, accept lower current income from short-term investments rather than
investing in higher yielding long-term securities.
Tax Exempt Bonds Certain Funds may invest in tax exempt bonds. Tax exempt bonds
include debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, hospitals, housing, mass transportation, schools, streets, and water
and sewer works. Other public purposes for which tax exempt bonds may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses, and obtaining funds to lend to other public institutions and
facilities. In addition, prior to the Tax Reform Act of 1986, certain debt
obligations known as industrial development bonds could be issued by or on
behalf of public authorities to obtain funds to provide privately operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Such obligations are included
within the term "tax exempt bonds" if the interest paid thereon is, in the
opinion of bond counsel, exempt from federal income tax. Interest on certain
industrial development bonds used to fund the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities may also
be exempt from federal income tax. The Tax Reform Act of 1986 eliminated some
types of tax exempt industrial revenues bonds but retains others under the
general category of "private activity bonds." The interest on so-called "private
activity bonds" is exempt from ordinary federal income taxation but is treated
as a tax preference item in computing a shareholder's alternative minimum tax
liability, as noted in relevant Prospectuses.
These Funds may not be a desirable investment for "substantial users" of
facilities financed by industrial development bonds or for "related persons" of
substantial users.
The two principal classifications of tax exempt bonds are general
obligation bonds and limited obligation (or revenue) bonds. General obligation
bonds are obligations involving the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon an appropriation by the issuer's
legislative body. The characteristics and methods of general obligation bonds
vary according to the law applicable to the particular issuer. Limited
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities, or in some cases from the proceeds of a special
excise or other specific revenue source such as the user of the facility. Tax
exempt industrial development bonds and private activity bonds are in most cases
revenue bonds and generally are not payable from the unrestricted revenues of
the issuer. The credit and quality of such bonds is usually directly related to
the credit standing of the corporate user of the facilities. Principal and
interest on such bonds is the responsibility of the corporate user (and any
guarantor).
Prices and yields on tax exempt bonds are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the tax exempt bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of tax exempt bonds may not be as extensive as that made available
by corporations whose securities are publicly traded.
The ratings of Moody's and S&P represent their opinions and are not
absolute standards of quality. Tax exempt bonds with the same maturity, interest
rate and rating may have different yields while tax exempt bonds of the same
maturity and interest rate with different ratings may have the same yield.
Although the yield of a tax-exempt Fund generally will be lower than that
of a taxable income Fund, the net after-tax return to investors may be greater.
The table below illustrates what tax-free investing can mean. It shows what you
must earn from a taxable investment to equal a tax-free yield ranging from 4% to
8%, under current federal tax rates. You can see that as your tax rate goes up,
so do the benefits of tax-free income. For example, a married couple with a
taxable income of $40,000 filing a joint return would have to earn a taxable
yield of 7.06% to equal a tax-free yield of 6.0%. This example and the following
table do not take into account the effect of state or local income taxes, if
any, or federal income taxes on social security benefits which may arise as a
result of receiving tax-exempt income, or the federal alternative minimum tax
that may be payable to the extent that Fund dividends are derived from interest
on "private activity" bonds (see the section entitled "Income Dividends, Capital
Gains Distributions and Tax Status"). Also, a portion of the Fund's
distributions may consist of ordinary income or short-term or long-term capital
gains and will be taxable to you as such.
<TABLE>
TAXABLE EQUIVALENT YIELDS - MUNICIPAL INCOME FUND
<CAPTION>
TAXABLE INCOME* IF TAX EXEMPT YIELD IS
- ----------------------------------- FEDERAL -------------------------------------------
MARGINAL 4.0% 5.0% 6.0% 7.0% 8.0%
SINGLE RETURN($) JOINT RETURN($) TAX RATE** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 - 26,250 0 - 43,850 15.00% 4.71% 5.88% 7.06% 8.24% 9.41%
26,251 - 43,851 - 28.00% 5.56% 6.94% 8.33% 9.72% 11.11%
63,550 105,950
63,551 - 105,951 - 31.00% 5.80% 7.25% 8.70% 10.14% 11.59%
132,600 161,450
132,601 - 161,451 - 36.00% 6.25% 7.81% 9.38% 10.94% 12.50%
288,350 288,350
288,351 and 288,351 and 39.60% 6.62% 8.28% 9.93% 11.59% 13.25%
over over
* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as
amended (the "Code").
** These rates do not reflect any potential state income tax.
</TABLE>
Obligations of issuers of tax exempt bonds are subject to the provisions
of bankruptcy, insolvency and other laws, such as the Bankruptcy Reform Act of
1978, affecting the rights and remedies of creditors. Congress or state
legislatures may seek to extend the time for payment of principal or interest,
or both, or to impose other constraints upon enforcement of such obligations.
There is also the possibility that, as a result of litigation or other
conditions, the power or ability of issuers to meet their obligations for the
payment of interest and principal on their tax exempt bonds may be materially
affected, or their obligations may be found to be invalid or unenforceable. Such
litigation or conditions may from time to time have the effect of introducing
uncertainties in the market for tax exempt bonds or certain segments thereof, or
materially affecting the credit risk with respect to particular bonds. Adverse
economic, business, legal or political developments might affect all or a
substantial portion of the Fund's tax exempt bonds in the same manner.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on debt obligations issued by states and their political subdivisions
and similar proposals may well be introduced in the future. If such a proposal
were enacted, the availability of tax exempt securities for investment by the
Fund and the value of the Fund's portfolio could be materially affected, in
which event the Fund would reevaluate its investment objective and policies and
consider changes in the structure of the Fund or dissolution.
All debt securities, including tax exempt bonds, are subject to credit and
market risk. Generally, for any given change in the level of interest rates,
prices for longer maturity issues tend to fluctuate more than prices for shorter
maturity issues. The ability of the Fund to invest in securities other than tax
exempt bonds is limited by a requirement of the Code that at least 50% of the
Fund's total assets be invested in tax exempt bonds at the end of each calendar
quarter.
State Tax Exempt Securities Certain Funds may invest in "State Tax Exempt
Securities" which term refers to debt securities the interest from which is, in
the opinion of bond counsel, exempt from federal income tax and state personal
income taxes (other than the possible incidence of any alternative minimum
taxes). State Tax Exempt Securities consist primarily of bonds of the Fund's
named state, their political subdivisions (for example, counties, cities, towns,
villages and school districts) and authorities issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which certain State Tax Exempt Securities may be issued include the
refunding of outstanding obligations, obtaining funds for general operating
expenses, or obtaining funds to lend to public or private institutions for the
construction of facilities such as educational, hospital and housing facilities.
In addition, certain types of industrial development bonds and private activity
bonds have been or may be issued by public authorities or on behalf of state or
local governmental units to finance privately operated housing facilities,
sports facilities, convention or trade facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Other types of industrial
development and private activity bonds are used to finance the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities. Industrial development bonds and private activity bonds are included
within the term "State Tax Exempt Securities" if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and State
personal income taxes (other than the possible incidence of any alternative
minimum taxes). The Fund may invest more than 25% of the value of its total
assets in such bonds, but not more than 25% in bonds backed by non-governmental
users in any one industry (see "Investment Restrictions" in Part I of this
Statement). However, as described in the Fund's Prospectus, the income from
certain private activity bonds is an item of tax preference for purposes of the
federal alternative minimum tax, and it is a fundamental policy of the Fund that
distributions from interest income on such private activity bonds, together with
distributions of interest income on investments other than State Tax Exempt
Securities, will normally not exceed 10% of the total amount of the Fund's
income distributions.
In addition, the term "State Tax Exempt Securities" includes debt
obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax and State personal income taxes (other than any
alternative minimum taxes).
There are, of course, variations in the quality of State Tax Exempt
Securities, both within a particular classification and between classifications,
depending on numerous factors (see Appendix A).
The yields on State Tax Exempt Securities are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the State Tax Exempt Securities market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of Moody's and S&P represent their opinions as to the
quality of the State Tax Exempt Securities which they undertake to rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, State Tax Exempt Securities with the same
maturity, interest rate and rating may have different yields while State Tax
Exempt Securities of the same maturity and interest rates with different ratings
may have the same yield. Subsequent to its purchase by the Fund, an issue of
State Tax Exempt Securities or other investments may cease to be rated or the
rating may be reduced below the minimum rating required for purchase by the
Fund. Neither event will require the elimination of an investment from the
Fund's portfolio, but the Fund's subadviser will consider such an event as part
of its normal, ongoing review of all the Fund's portfolio securities.
Although the yield of a tax exempt Fund generally will be lower than that
of a taxable income Fund, the net after-tax return to investors may be greater.
The tables below illustrate what tax-free investing can mean for you. It does
not take into account the effect of income taxes on social security benefits
which may arise as a result of receiving tax-exempt income, or any alternative
minimum tax. Also, a portion of the Funds' distributions may consist of ordinary
income, short-term capital gain or long-term capital gain and will be taxable to
you as such. The tables show, for different assumed levels of taxable income and
marginal tax rates, the equivalent taxable yield that would be required to
achieve certain levels of tax exempt yield. Yields shown do not represent actual
yields achieved by the Fund and are not intended as a prediction of future
yields.
<TABLE>
TAX FREE INVESTING
<CAPTION>
MASSACHUSETTS FUND 2000
COMBINED
TAXABLE INCOME* MA AND IF TAX EXEMPT YIELD IS
- ------------------------------------ FEDERAL --------------------------------------------
SINGLE JOINT TAX 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN ($) RETURN($) BRACKET** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 - 26,250 0 - 43,850 20.06% 5.00% 6.25% 7.50% 8.75% 10.00%
26,251 - 43,851 - 32.28% 5.90% 7.38% 8.85% 10.33% 11.80%
63,550 105,950
63,551 - 132,600 105,951 - 35.11% 6.16% 7.71% 9.24% 10.78% 12.31%
161,450
132,601 - 161,451 - 39.81% 6.64% 8.30% 9.96% 11.62% 13.28%
288,350 288,350
288,351 and over 288,351 and over 43.19% 7.03% 8.79% 10.55% 12.31% 14.07%
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA FUND 2000
COMBINED
TAXABLE INCOME* FEDERAL AND IF TAX EXEMPT YIELD IS
- ------------------------------------ CALIFORNIA --------------------------------------------
SINGLE JOINT MARGINAL 4.00% 5.00% 6.00% 7.00 % 8.00%
RETURN ($) RETURN ($) TAX RATE** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0-5,264 0-10,528 15.85% 4.75% 5.94% 7.13% 8.32% 9.51%
5,265-12,477 10,529-24,954 16.70% 4.80% 6.00% 7.20% 8.40% 9.60%
12,478-19,692 24,955-39,384 18.40% 4.90% 6.13% 7.35% 8.58% 9.80%
19,693-25,750 39,385-43,050 20.10% 5.01% 6.26% 7.51% 8.76% 10.01%
25,751-27,337 43,051-54,674 32.32% 5.91% 7.39% 8.87% 10.34% 11.82%
27,338-34,548 54,675-69,096 33.76% 6.04% 7.55% 9.06% 10.57% 12.08%
34,549-62,450 69,097-104,050 34.70% 6.13% 7.66% 9.19% 10.72% 12.25%
62,451-130,250 104,051-158,550 37.42% 6.39% 7.99% 9.59% 11.19% 12.78%
130,251-283,150 158,551-283,150 41.95% 6.89% 8.61% 10.34% 12.06% 13.78%
283,151 and 283,151 and 45.22% 7.30% 9.13% 10.95% 12.78% 14.60%
over over
* This amount represents taxable income as defined in the Code and the Massachusetts and
California tax law. Note that Massachusetts and California taxable income and federal
taxable income may differ due to differences in exemptions, itemized deductions, and other
items.
** For federal tax purposes, these combined rates reflect the applicable marginal rates for
1999. These rates include the effect of deducting state taxes on a federal return.
</TABLE>
These Funds do not currently intend to invest in so-called "moral
obligation" bonds, in which repayment is backed by a moral commitment of an
entity other than the issuer, unless the credit of the issuer itself, without
regard to the "moral obligation," meets the investment criteria established for
investments by the Fund.
Securities in which the Fund may invest, including State Tax Exempt
Securities, are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations. There is
also the possibility that as a result of litigation or other conditions the
power or ability of issuers to meet their obligations for the payment of
interest and principal on their State Tax Exempt Securities may be materially
affected or that their obligations may be found to be invalid and unenforceable.
The Fund's named state and certain of its cities and towns and public
bodies have from time to time encountered financial difficulties which have
adversely affected their respective credit standings and borrowing abilities.
Such difficulties could, of course, affect outstanding obligations of such
entities, including obligations held by the Fund.
Mortgage-related Securities Mortgage-related securities, such as GNMA or FNMA
certificates, differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a result, if
a Fund purchases these assets at a premium, a faster-than-expected prepayment
rate will reduce yield to maturity, and a slower-than-expected prepayment rate
will have the opposite effect of increasing yield to maturity. If a Fund
purchases mortgage-related securities at a discount, faster-than-expected
prepayments will increase, and slower-than-expected prepayments will reduce,
yield to maturity. Prepayments, and resulting amounts available for reinvestment
by the Fund, are likely to be greater during a period of declining interest
rates and, as a result, are likely to be reinvested at lower interest rates.
Accelerated prepayments on securities purchased at a premium may result in a
loss of principal if the premium has not been fully amortized at the time of
prepayment. Although these securities will decrease in value as a result of
increases in interest rates generally, they are likely to appreciate less than
other fixed-income securities when interest rates decline because of the risk of
prepayments. In addition, an increase in interest rates would also increase the
inherent volatility of the Fund by increasing the average life of the Fund's
portfolio securities.
An Adjustable Rate Mortgage security ("ARM"), like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in the
underlying mortgage pool are paid off by the borrowers. ARMs have interest rates
that are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. Although the rate adjustment feature may act as a
buffer to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rates are reset only periodically, changes in the interest rate on ARMs may lag
changes in prevailing market interest rates. Also, some ARMs (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security. As a
result, changes in the interest rate on an ARM may not fully reflect changes in
prevailing market interest rates during certain periods. Because of the
resetting of interest rates, ARMs are less likely than non-adjustable rate
securities of comparable quality and maturity to increase significantly in value
when market interest rates fall.
Asset-backed Securities The securitization techniques used to develop mortgage
securities are also being applied to a broad range of other assets. Through the
use of trusts and special purpose corporations, assets such as automobile and
credit card receivables are being securitized in pass- through structures
similar to mortgage pass-through structures or in a pay-through structure
similar to a Collateralized Mortgage Obligation structure. Generally the issuers
of asset-backed bonds, notes or pass-through certificates are special purpose
entities and do not have any significant assets other than the receivables
securing such obligations. In general, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans. Instruments backed by
pools of receivables are similar to mortgage-backed securities in that they are
subject to unscheduled prepayments of principal prior to maturity. When the
obligations are pre-paid, the Fund will ordinarily reinvest the prepaid amounts
in securities the yields of which reflect interest rates prevailing at the time.
Therefore, the Fund's ability to maintain a portfolio which includes
high-yielding asset-backed securities will be adversely affected to the extent
that prepayments of principal must be reinvested in securities which have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
Collateralized Mortgage Obligations ("CMO") A CMO is a security backed by a
portfolio of mortgages or mortgage securities held under an indenture. The
underlying mortgages or mortgage securities are issued or guaranteed by the U.S.
government or an agency or instrumentality thereof. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage securities. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage
pass-through security. CMOs may be considered derivative securities.
"Stripped" Securities Stripped securities are usually structured with two or
more classes that receive different proportions of the interest and principal
distribution on a pool of U.S. government or foreign government securities or
mortgage assets. In some cases, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, a Fund may fail to
recoup fully its investments in IOs. The staff of the Securities and Exchange
Commission (the "SEC") has indicated that it views stripped mortgage securities
as illiquid unless the securities are issued by the U.S. government or its
agencies and are backed by fixed-rate mortgages. The Funds intend to abide by
the staff's position. Stripped securities may be considered derivative
securities.
Zero-coupon Securities; Pay-in-kind and Step Coupon Zero-coupon securities are
debt obligations that do not entitle the holder to any periodic payments of
interest either for the entire life of the obligation or for an initial period
after the issuance of the obligations. Pay-in-kind securities pay dividends or
interest in the form of additional securities of the issuer, rather than in
cash. These securities are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the time
remaining until maturity of the securities, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. The
market prices of zero-coupon and pay-in-kind securities generally are more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to changes in interest rates to a greater degree than do
non-zero-coupon securities having similar maturities and credit quality. In
order to satisfy a requirement for qualification as a "regulated investment
company" under the Code, a Fund must distribute each year at least 90% of its
net investment income, including the original issue discount accrued on
zero-coupon securities. Because the Fund will not on a current basis receive
cash payments from the issuer of a zero-coupon security in respect of accrued
original issue discount, in some years the Fund may have to distribute cash
obtained from other sources in order to satisfy the 90% distribution requirement
under the Code. Such cash might be obtained from selling other portfolio
holdings of the Fund. In some circumstances, such sales might be necessary in
order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for the Fund to sell such
securities at such time. Step coupon bonds trade at a discount from their face
value and pay coupon interest. The coupon rate is low for an initial period and
then increases to a higher coupon rate thereafter. Market values of these types
of securities generally fluctuate in response to changes in interest rates to a
greater degree than do conventional interest-paying securities of comparable
term and quality. Under many market conditions, investments in such securities
may be illiquid, making it difficult for the Fund to dispose of them or
determine their current value.
When-issued Securities Each Fund may purchase "when-issued" equity securities,
which are traded on a price basis prior to actual issuance. Such purchases will
only be made to achieve a Fund's investment objective and not for leverage. The
when-issued trading period generally lasts from a few days to months, or a year
or more; during this period dividends on equity securities are not payable. No
dividend income accrues to the Fund prior to the time it takes delivery. A
frequent form of when-issued trading occurs when corporate securities to be
created by a merger of companies are traded prior to the actual consummation of
the merger. Such transactions may involve a risk of loss if the value of the
securities fall below the price committed to prior to actual issuance. Each
Trust's custodian will establish a segregated account for each Fund when it
purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by each
Fund.
Repurchase Agreements Certain Funds may enter into repurchase agreements, by
which the Fund purchases a security and obtains a simultaneous commitment from
the seller to repurchase the security at an agreed-upon price and date. The
resale price is in excess of the purchase price and reflects an agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford the Fund the opportunity to earn a return on temporarily
available cash at relatively low market risk. While the underlying security may
be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States government, the obligation of
the seller is not guaranteed by the United States government and there is a risk
that the seller may fail to repurchase the underlying security. In such event,
the Fund would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However, the Fund may be
subject to various delays and risks of loss, including (a) possible declines in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce rights and the
expenses involved in the attempted enforcement.
Reverse Repurchase Agreements Each Fund may enter into reverse repurchase
agreements. However, a Fund may not engage in reverse repurchase agreements in
excess of 5% of the applicable Fund's total assets. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed-upon rate.
The ability to use reverse repurchase agreements may enable, but does not ensure
the ability of, a Fund to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous. When effecting reverse repurchase
agreements, assets of the applicable Fund in a dollar amount sufficient to make
payment of the obligations to be purchased are segregated on the applicable
Fund's records at the trade date and maintained until the transaction is
settled.
Convertible Securities Certain Funds may invest in convertible securities,
including corporate bonds, notes or preferred stocks of U.S. or foreign issuers
that can be converted into (that is, exchanged for) common stocks or other
equity securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
Foreign Securities Investments in foreign securities present risks not typically
associated with investments in comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because a Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution.
In addition, although a Fund's income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after a Fund's income has been earned in that currency,
translated into U.S. dollars and declared as a dividend, but before payment of
such dividend, the Fund could be required to liquidate portfolio securities to
pay such dividend. Similarly, if the value of a currency relative to the U.S.
dollar declines between the time a Fund incurs expenses in U.S. dollars and the
time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater than the equivalent amount in such currency of such expenses at the
time they were incurred.
There may be less information publicly available about a foreign corporate
or government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
Investments in foreign securities may include investments in emerging or
developing countries, whose economies or securities markets are not yet highly
developed. Special considerations associated with these investments (in addition
to the considerations regarding foreign investments generally) may include,
among others, greater political uncertainties, an economy's dependence on
revenues from particular commodities or on international aid or development
assistance, currency transfer restrictions, highly limited numbers of potential
buyers for such securities and delays and disruptions in securities settlement
procedures.
Certain Funds may invest in foreign equity securities either by purchasing
such securities directly or by purchasing "depository receipts." Depository
receipts are instruments issued by a bank that represent an interest in equity
securities held by arrangement with the bank. Depository receipts can be either
"sponsored" or "unsponsored." Sponsored depository receipts are issued by banks
in cooperation with the issuer of the underlying equity securities. Unsponsored
depository receipts are arranged without involvement by the issuer of the
underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
In addition, certain Funds may invest in securities issued by
supranational agencies. Supranational agencies are those agencies whose member
nations determine to make capital contributions to support the agencies'
activities, and include such entities as the International Bank of
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Coal and Steel Community and the Inter-American Development Bank.
In determining whether to invest in securities of foreign issuers, Nvest
Funds Management, L.P. ("Nvest Management") or the subadviser of each Fund will
consider the likely effects of foreign taxes on the net yield available to the
Fund and its shareholders. Compliance with foreign tax law may reduce the Fund's
net income available for distribution to shareholders.
Foreign Currency Most foreign securities in the Funds' portfolios will be
denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Similarly, any income on such
securities is generally paid to the Fund in foreign currencies. The value of
these foreign currencies relative to the U.S. dollar varies continually, causing
changes in the dollar value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and changes in the dollar
value of the Fund's income available for distribution to its shareholders. The
effect of changes in the dollar value of a foreign currency on the dollar value
of the Fund's assets and on the net investment income available for distribution
may be favorable or unfavorable.
A Fund may incur costs in connection with conversions between various
currencies. In addition, a Fund may be required to liquidate portfolio assets,
or may incur increased currency conversion costs, to compensate for a decline in
the dollar value of a foreign currency occurring between the time when the Fund
declares and pays a dividend, or between the time when the Fund accrues and pays
an operating expense in U.S. dollars.
Foreign Currency Hedging Transactions To protect against a change in the foreign
currency exchange rate between the date on which a Fund contracts to purchase or
sell a security and the settlement date for the purchase or sale, or to "lock
in" the equivalent of a dividend or interest payment in another currency, a Fund
might purchase or sell a foreign currency on a spot (i.e., cash) basis at the
prevailing spot rate. If conditions warrant, a Fund may also enter into
contracts with banks or broker-dealers to purchase or sell foreign currencies at
a future date ("forward contracts"). A Fund will maintain cash or other liquid
assets eligible for purchase by the Fund in a segregated account with the
custodian in an amount at least equal to the lesser of (i) the difference
between the current value of the Fund's liquid holdings that settle in the
relevant currency and the Fund's outstanding obligations under currency forward
contracts, or (ii) the current amount, if any, that would be required to be paid
to enter into an offsetting forward currency contract which would have the
effect of closing out the original forward contract. The Fund's use of currency
hedging transactions may be limited by tax considerations. The Fund may also
purchase or sell foreign currency futures contracts traded on futures exchanges.
Foreign currency futures contract transactions involve risks similar to those of
other futures transactions. See "Futures, Options and Swap Contracts" below.
Privatizations In a number of countries around the world, governments have
undertaken to sell to investors interests in enterprises that the government has
historically owned or controlled. These transactions are known as
"privatizations" and may in some cases represent opportunities for significant
capital appreciation. In some cases, the ability of U.S. investors, such as the
Funds, to participate in privatizations may be limited by local law, or the
terms of participation may be less advantageous than for local investors. Also,
there is no assurance that privatized enterprises will be successful, or that an
investment in such an enterprise will retain its value or appreciate in value.
Investments in Other Investment Companies Because of restrictions on direct
investment by U.S. entities in certain countries, investing indirectly in such
countries (by purchasing shares of another fund that is permitted to invest in
such countries) may be the most practical or efficient way for a Fund to invest
in such countries. In other cases, where a Fund's subadviser desires to make
only a relatively small investment in a particular country, investing through
another fund that holds a diversified portfolio in that country may be more
effective than investing directly in issuers in that country. As an investor in
another investment company, the Fund will indirectly bear its share of the
expenses of that investment company. These expenses are in addition to the
Fund's own costs of operations. In some cases, investing in an investment
company may involve the payment of a premium over the value of the assets held
in that investment company's portfolio.
Futures, Options and Swap Contracts
FUTURES CONTRACTS A futures contract is an agreement between two parties to buy
and sell a particular commodity (e.g., an interest-bearing security) for a
specified price on a specified future date. In the case of futures on an index,
the seller and buyer agree to settle in cash, at a future date, based on the
difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to $1000
multiplied by the Bond Buyer Municipal Bond Index, and S&P 500 futures trade in
contracts equal to $500 multiplied by the S&P 500.
When a trader, such as a Fund, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker as "initial margin"
an amount of cash or short-term high-quality securities (such as U.S. Treasury
Bills or high-quality tax exempt bonds acceptable to the broker) equal to
approximately 2% to 5% of the delivery or settlement price of the contract
(depending on applicable exchange rules). Initial margin is held to secure the
performance of the holder of the futures contract. As the value of the contract
changes, the value of futures contract positions increases or declines. At the
end of each trading day, the amount of such increase and decline is received and
paid respectively by and to the holders of these positions. The amount received
or paid is known as "variation margin." If the Fund has a long position in a
futures contract it will establish a segregated account with the Fund's
custodian containing cash or liquid securities eligible for purchase by the Fund
equal to the purchase price of the contract (less any margin on deposit). For
short positions in futures contracts, the Fund will establish a segregated
account with the custodian with cash or liquid securities eligible for purchase
by the Fund that, when added to the amounts deposited as margin, equal the
market value of the instruments or currency underlying the futures contracts.
Although futures contracts by their terms require actual delivery and
acceptance of securities (or cash in the case of index futures), in most cases
the contracts are closed out before settlement. A futures sale is closed by
purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or commodity and with the same delivery date. Similarly,
the closing out of a futures purchase is closed by the purchaser selling an
offsetting futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
OPTIONS An option on a futures contract obligates the writer, in return for the
premium received, to assume a position in a futures contract (a short position
if the option is a call and a long position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying contract, the remaining term of
the option, supply and demand and interest rates. Options on futures contracts
traded in the United States may only be traded on a United States board of trade
licensed by the Commodity Futures Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the case of a
call option) or to sell (in the case of a put option) a particular security at a
specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by a Fund is considered by the
Fund to be covered if the Fund owns the security subject to the underlying
futures contract or other securities whose values are expected to move in tandem
with the values of the securities subject to such futures contract, based on
historical price movement volatility relationships. A call option on a security
written by the Fund is considered to be covered if the Fund owns a security
deliverable under the option. A written call option is also covered if the Fund
holds a call on the same futures contract or security as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash or liquid securities
eligible for purchase by the Fund in a segregated account with its custodian.
A put option on a futures contract written by a Fund, or a put option on a
security written by the Fund, is covered if the Fund maintains cash or liquid
securities eligible for purchase by the Fund with a value equal to the exercise
price in a segregated account with the Fund's custodian, or else holds a put on
the same futures contract (or security, as the case may be) as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
If the writer of an option wishes to terminate its position, it may effect
a closing purchase transaction by buying an option identical to the option
previously written. The effect of the purchase is that the writer's position
will be canceled. Likewise, the holder of an option may liquidate its position
by selling an option identical to the option previously purchased.
Closing a written call option will permit the Fund to write another call
option on the portfolio securities used to cover the closed call option. Closing
a written put option will permit the Fund to write another put option secured by
the segregated assets used to secure the closed put option. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any futures contract or securities subject to the option to be used for other
Fund investments. If the Fund desires to sell particular securities covering a
written call option position, it will close out its position or will designate
from its portfolio comparable securities to cover the option prior to or
concurrent with the sale of the covering securities.
The Fund will realize a profit from closing out an option if the price of
the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Fund will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the value of
the underlying securities or futures contracts usually have a time value
component (i.e., a value that diminishes as the time within which the option can
be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be enhanced. Likewise, the
profit or loss from writing put options may or may not be offset in whole or in
part by changes in the market value of securities acquired by the Fund when the
put options are closed.
As an alternative to purchasing call and put options on index futures, a
Fund may purchase or sell call or put options on the underlying indices
themselves. Such options would be used in a manner identical to the use of
options on index futures.
Certain Funds may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by banks or
other financial institutions and give the holder the right, at any time during
the term of the warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the time of
exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
a time when, in the case of a call warrant, the exercise price is less than the
value of the underlying index, or in the case of a put warrant, the exercise
price is less than the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund would lose the
amount of the purchase price paid by it for the warrant.
A Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of the Fund's use of index warrants are
generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Fund will normally
invest only in exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing agency. In
addition, the terms of index warrants may limit the Fund's ability to exercise
the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
Certain Funds may buy and write options on foreign currencies in a manner
similar to that in which futures or forward contracts on foreign currencies will
be utilized. For example, a decline in the U.S. dollar value of a foreign
currency in which portfolio securities are denominated will reduce the U.S.
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
the portfolio securities, the Fund may buy put options on the foreign currency.
If the value of the currency declines, the Fund will have the right to sell such
currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in
part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Fund could sustain losses on transactions in foreign
currency options that would require the Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
Certain Funds may also write options on foreign currencies. For example,
to hedge against a potential decline in the U.S. dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates,
the Fund could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of portfolio securities be offset
at least in part by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates move in
the manner projected, will expire unexercised and allow the Fund to hedge the
increased cost up to the amount of the premium. If exchange rates do not move in
the expected direction, the option may be exercised and the Fund would be
required to buy or sell the underlying currency at a loss, which may not be
fully offset by the amount of the premium. Through the writing of options on
foreign currencies, the Fund also may lose all or a portion of the benefits
which might otherwise have been obtained from favorable movements in exchange
rates.
All call options written by a Fund on foreign currencies will be
"covered." A call option written on a foreign currency by the Fund is "covered"
if the Fund owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if the Fund has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by the Fund in cash or liquid
securities eligible to be purchased by the Fund in a segregated account with the
Fund's custodian. For this purpose, a call option is also considered covered if
the Fund owns securities denominated in (or which trade principally in markets
where settlement occurs in) the same currency, which securities are readily
marketable, and the Fund maintains in a segregated account with its custodian
cash or liquid securities eligible to be purchased by the Fund in an amount that
at all times at least equals the excess of (x) the amount of the Fund's
obligation under the call option over (y) the value of such securities.
FUTURES AND OPTIONS ON TAX-EXEMPT BONDS AND BOND INDICES Municipal Income Fund,
Massachusetts Fund and California Fund may also purchase and sell interest rate
futures contracts and tax-exempt bond index futures contracts and may write and
purchase related options. Transactions involving futures and options on futures
may help to reduce the volatility of the Fund's net asset value, and the writing
of options on futures may yield additional income for the Fund, but these
results cannot be assured. Income from options and futures transactions is not
tax-exempt.
SWAP CONTRACTS Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange cash
flows on a notional amount based on changes in the relative values of the
specified currencies. An index swap is an agreement to make or receive payments
based on the different returns that would be achieved if a notional amount were
invested in a specified basket of securities (such as the S&P 500 or in some
other investment (such as U.S. Treasury securities). The Fund will maintain at
all times in a segregated account with its custodian cash or liquid securities
eligible to be purchased by the Fund in amounts sufficient to satisfy its
obligations under swap contracts.
RISKS The use of futures contracts, options and swap contracts involves risks.
One risk arises because of the imperfect correlation between movements in the
price of futures contracts and movements in the price of the securities that are
the subject of the hedge. A Fund's hedging strategies will not be fully
effective unless the Fund can compensate for such imperfect correlation. There
is no assurance that the Fund will be able to effect such compensation.
Options, futures and swap contracts fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use of
options, futures or swaps for other than hedging purposes may be considered a
speculative activity, involving greater risks than are involved in hedging.
The correlation between the price movement of the futures contract and the
hedged security may be distorted due to differences in the nature of the
markets. For example, to the extent that the Municipal Income Fund enters into
futures contracts on securities other than tax exempt bonds, the value of such
futures may not vary in direct proportion to the value of tax exempt bonds that
the Fund owns or intends to acquire, because of an imperfect correlation between
the movement of taxable securities and tax exempt bonds. If the price of the
futures contract moves more than the price of the hedged security, the relevant
Fund would experience either a loss or a gain on the future that is not
completely offset by movements in the price of the hedged securities. In an
attempt to compensate for imperfect price movement correlations, the Fund may
purchase or sell futures contracts in a greater dollar amount than the hedged
securities if the price movement volatility of the hedged securities is
historically greater than the volatility of the futures contract. Conversely,
the Fund may purchase or sell fewer contracts if the volatility of the price of
hedged securities is historically less than that of the futures contracts.
The price of index futures may not correlate perfectly with movement in
the relevant index due to certain market distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the index and futures markets. Secondly, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. In addition, trading hours for
foreign stock index futures may not correspond perfectly to hours of trading on
the foreign exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and the value
of the relevant index due to the lack of continuous arbitrage between the index
futures price and the value of the underlying index. Finally, hedging
transactions using stock indices involve the risk that movements in the price of
the index may not correlate with price movements of the particular portfolio
securities being hedged.
Price movement correlation also may be distorted by the illiquidity of the
futures and options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users may
not deal in futures contracts or options because they do not want to assume the
risk that they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices may be
driven by different forces than those driving the market in the underlying
securities, and price spreads between these markets may widen. The participation
of speculators in the market enhances its liquidity. Nonetheless, speculators
trading spreads between futures markets may create temporary price distortions
unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be
established or closed out only on an exchange or board of trade. There is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. The liquidity of markets in
futures contracts and options on futures contracts may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures or options price during a single trading
day. Once the daily limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent the liquidation of
open futures or options positions. Prices have in the past exceeded the daily
limit on a number of consecutive trading days. If there is not a liquid market
at a particular time, it may not be possible to close a futures or options
position at such time, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin.
However, if futures or options are used to hedge portfolio securities, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract.
An exchange-traded option may be closed out only on a national securities
or commodities exchange which generally provides a liquid secondary market for
an option of the same series. If a liquid secondary market for an
exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option with the result that the
Fund would have to exercise the option in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will be not be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise. Reasons for the absence of
a liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Because the specific procedures for trading foreign stock index futures on
futures exchanges are still under development, additional or different margin
requirements as well as settlement procedures may be applicable to foreign stock
index futures at the time the International Equity Fund purchases foreign stock
index futures.
The successful use of transactions in futures and options depends in part
on the ability of a Fund's adviser or subadviser(s) to forecast correctly the
direction and extent of interest rate movements within a given time frame. To
the extent interest rates move in a direction opposite to that anticipated, the
Fund may realize a loss on the hedging transaction that is not fully or
partially offset by an increase in the value of portfolio securities. In
addition, whether or not interest rates move during the period that the Fund
holds futures or options positions, the Fund will pay the cost of taking those
positions (i.e., brokerage costs). As a result of these factors, the Fund's
total return for such period may be less than if it had not engaged in the
hedging transaction.
Options trading involves price movement correlation risks similar to those
inherent in futures trading. Additionally, price movements in options on futures
may not correlate with price movements in the futures underlying the options.
Like futures, options positions may become less liquid because of adverse
economic circumstances. The securities covering written option positions are
expected to offset adverse price movements if those options positions cannot be
closed out in a timely manner, but there is no assurance that such offset will
occur. Also, an option writer may not effect a closing purchase transaction
after it has been notified of the exercise of an option.
OVER-THE-COUNTER OPTIONS An over-the-counter option (an option not traded on a
national securities exchange) may be closed out only with the other party to the
original option transaction. While the Fund will seek to enter into
over-the-counter options only with dealers who agree to or are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an over-the-counter option at
a favorable price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order to realize
any profit thereon and thereby would incur transactions costs on the purchase or
sale of the underlying assets. If the Fund cannot close out a covered call
option written by it, it will not be able to sell the underlying security until
the option expires or is exercised. Furthermore, over-the-counter options are
not subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation or other clearing organizations.
The staff of the SEC has taken the position that over-the-counter options
on U.S. government securities and the assets used as cover for written
over-the-counter options on U.S. government securities should generally be
treated as illiquid securities for purposes of the investment restrictions
prohibiting the Government Securities Fund from investing more than 15% of its
net assets in illiquid securities. However, if a dealer recognized by the
Federal Reserve Bank of New York as a "primary dealer" in U.S. government
securities is the other party to an option contract written by the Fund, and the
Fund has the absolute right to repurchase the option from the dealer at a
formula price established in a contract with the dealer, the SEC staff has
agreed that the Fund only needs to treat as illiquid that amount of the "cover"
assets equal to the amount at which (i) the formula price exceeds (ii) any
amount by which the market value of the securities subject to the options
exceeds the exercise price of the option (the amount by which the option is
"in-the-money"). Although Back Bay Advisors, L.P. ("Back Bay Advisors"), the
Government Securities Fund's subadviser, does not believe that over-the-counter
options on U.S. government securities are generally illiquid, the Fund has
agreed that pending resolution of this issue it will conduct its operations in
conformity with the views of the SEC staff on such matters.
Back Bay Advisors has established standards for the creditworthiness of
the primary dealers with which the Government Securities Fund may enter into
over-the-counter option contracts having the formula-price feature referred to
above. Those standards, as modified from time to time, are implemented and
monitored by Back Bay Advisors. Such contracts will provide that the Fund has
the absolute right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by the Fund for writing the option, plus the amount, if any, by
which the option is "in-the-money." The formula will also include a factor to
account for the difference between the price of the securities and the exercise
price of the option if the option is written out-of-the-money. Although each
agreement will provide that the Fund's repurchase price shall be determined in
good faith (and that it shall not exceed the maximum determined pursuant to the
formula), the formula price will not necessarily reflect the market value of the
option written, and therefore the Fund might pay more to repurchase the option
contract than the Fund would pay to close out a similar exchange-traded option.
ECONOMIC EFFECTS AND LIMITATIONS Income earned by a Fund from its hedging
activities will be treated as capital gain and, if not offset by net recognized
capital losses incurred by the Fund, will be distributed to shareholders in
taxable distributions. Although gain from futures and options transactions may
hedge against a decline in the value of the Fund's portfolio securities, that
gain, to the extent not offset by losses, will be distributed in light of
certain tax considerations and will constitute a distribution of that portion of
the value preserved against decline. If the Municipal Income Fund is required to
use taxable fixed-income securities as margin, the portion of the Fund's
dividends that is taxable to shareholders will be larger than if that Fund is
permitted to use tax exempt bonds for that purpose.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
FUTURE DEVELOPMENTS The above discussion relates to the Fund's proposed use of
futures contracts, options and options on futures contracts currently available.
The relevant markets and related regulations are still in the developing stage.
In the event of future regulatory or market developments, the Fund may also use
additional types of futures contracts or options and other investment techniques
for the purposes set forth above.
Short Sales Certain Funds may sell securities short against the box, that is:
(1) enter into short sales of securities that it currently owns or has the right
to acquire through the conversion or exchange of other securities that it owns
without additional consideration; and (2) enter into arrangements with the
broker-dealers through which such securities are sold short to receive income
with respect to the proceeds of short sales during the period the Fund's short
positions remain open. A Fund may make short sales of securities only if at all
times when a short position is open the Fund owns at least an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and in
equal amount to, the securities sold short.
In a short sale against the box, a Fund does not deliver from its
portfolio securities sold and does not receive immediately the proceeds from the
short sale. Instead, the Fund borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Fund, to the purchaser of such
securities. Such broker-dealer is entitled to retain the proceeds from the short
sale until the Fund delivers to such broker-dealer the securities sold short. In
addition, the Fund is required to pay the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the Fund must deposit
and continuously maintain in a separate account with the Fund's custodian an
equivalent amount of the securities sold short or securities convertible into or
exchangeable for such securities without the payment of additional
consideration. A Fund is said to have a short position in the securities sold
until it delivers to the broker-dealer the securities sold, at which time the
Fund receives the proceeds of the sale. A Fund may close out a short position by
purchasing on the open market and delivering to the broker-dealer an equal
amount of the securities sold short, rather than by delivering portfolio
securities.
Short sales may protect a Fund against risk of losses in the value of its
portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
on the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a loss, and if the
price declines during this period, the Fund will realize a short-term capital
gain. Any realized short-term capital gain will be decreased, and any incurred
loss increased, by the amount of transaction costs and any premium, dividend or
interest which the Fund may have to pay in connection with such short sale.
Certain provisions of the Code may limit the degree to which a Fund is able to
enter into short sales. There is no limitation on the amount of each Fund's
assets that, in the aggregate, may be deposited as collateral for the obligation
to replace securities borrowed to effect short sales and allocated to segregated
accounts in connection with short sales. Star Advisers Fund, Star Small Cap Fund
and Star Worldwide Fund currently expect that no more than 20%, 25% and 20% of
their total assets, respectively, would be involved in short sales against the
box.
Illiquid Securities (Rule 144 and Section 4(2) Commercial Paper) Illiquid
securities are those which are not readily resaleable, which may include
securities whose disposition is restricted by federal securities laws.
Rule 144A securities are privately offered securities that can be resold
only to certain qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933. Certain Funds may also purchase commercial paper issued
under Section 4(2) of the Securities Act of 1933. Investing in Rule 144A
securities and Section 4(2) commercial paper could have the effect of increasing
the level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. Rule
144A securities and Section 4(2) commercial paper are treated as illiquid,
unless a subadviser has determined, under guidelines established by each Trust's
Board of Trustees, that the particular issue of Rule 144A securities is liquid.
Investment in restricted or other illiquid securities involves the risk that a
Fund may be unable to sell such a security at the desired time. Also, a Fund may
incur expenses, losses or delays in the process of registering restricted
securities prior to resale.
Loans of Portfolio Securities Certain Funds may lend up to 33 1/3% of their
total assets (taken at current value) in the form of their portfolio securities
to broker-dealers under contracts calling for collateral equal to at least the
market value of the securities loaned, marked to market on a daily basis. These
Funds will continue to benefit from interest or dividends on the securities
loaned and may also receive interest through investment of the cash collateral
in short-term liquid investments, which may include shares of money market funds
subject to any investment restriction listed in Part I of this Statement. Any
voting rights, or rights to consent, relating to securities loaned pass to the
borrower. However, if a material event affecting the investment occurs, such
loans will be called so that the securities may be voted by the Fund. The Fund
pays various fees in connection with such loans, including shipping fees and
reasonable custodian and placement fees approved by the Boards of Trustees of
the Trusts or persons acting pursuant to the direction of the Boards.
These transactions must be fully collateralized at all times, but involve
some credit risk to the Fund if the other party should default on its obligation
and the Fund is delayed in or prevented from recovering the collateral.
Short-Term Trading Certain Funds may, consistent with their investment
objectives, engage in portfolio trading in anticipation of, or in response to,
changing economic or market conditions and trends. These policies may result in
higher turnover rates in the Fund's portfolio, which may produce higher
transaction costs and a higher level of taxable capital gains. Portfolio
turnover considerations will not limit any subadviser's investment discretion in
managing its segment or segments of a Fund's assets.
Money Market Instruments A Fund may seek to minimize risk by investing in money
market instruments, which are high-quality, short-term securities. Although
changes in interest rates can change the market value of a security, a Fund
expects those changes to be minimal and that the Fund will be able to maintain
the net asset value of its shares at $1.00, although this value cannot be
guaranteed.
Money market obligations of foreign banks or of foreign branches or
subsidiaries of U.S. banks may be subject to different risks than obligations of
domestic banks, such as foreign economic, political and legal developments and
the fact that different regulatory requirements apply.
Temporary Strategies A Fund has the flexibility to respond promptly to changes
in market and economic conditions. In the interest of preserving shareholders'
capital, the adviser may employ a temporary defensive strategy if it determines
such a strategy to be warranted. Pursuant to such a defensive strategy a Fund
temporarily may hold cash (U. S. dollars, foreign currencies, or multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U. S. or foreign issuers. It is
impossible to predict whether, when or for how long a Fund will employ defensive
strategies.
In addition, pending investment of proceeds from new sales of Fund shares
or to meet ordinary daily cash needs, a Fund may temporarily hold cash (U.S.
dollars, foreign currencies or multinational currency units) and may invest any
portion of its assets in money instruments. The use of defensive strategies may
prevent a Fund from achieving its goal.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUSTS
- --------------------------------------------------------------------------------
The Funds are governed by a Board of Trustees, which is responsible for
generally overseeing the conduct of Fund business and for protecting the
interests of the shareholders. The trustees meet periodically throughout the
year to oversee the Funds' activities, review contractual arrangements with
companies that provide services to the Funds and review the Funds' performance.
Trustees
Trustees of the Trusts and their ages (in parentheses), addresses and
principal occupations during at least the past five years are listed below.
Those marked with an asterisk (*) may be deemed to be an "interested person" of
the Trusts as defined in the Investment Company Act of 1940 (the "1940 Act").
GRAHAM T. ALLISON, JR. -- Trustee (60); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138; Member of the Contract Review and Governance
Committee for the Trusts; Douglas Dillon Professor and Director for the
Center of Science and International Affairs, John F. Kennedy School of
Government; Special Advisor to the United States Secretary of Defense;
formerly, Assistant Secretary of Defense; formerly, Dean, John F. Kennedy
School of Government.
DANIEL M. CAIN - Trustee (55); 452 Fifth Avenue, New York, New York 10018;
Member of the Audit Committee for the Trusts; President and CEO, Cain
Brothers & Company, Incorporated (investment banking); Trustee, Universal
Health Realty Income Trust (Exchange), Norman Rockwell Museum, Sharon
Health Corporation and National Committee for Quality Healthcare (all
not-for-profit organizations);
KENNETH J. COWAN -- Trustee (68); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Chairman of the Contract Review and Governance Committee
for the Trusts; Retired; formerly, Senior Vice President-Finance and Chief
Financial Officer, Blue Cross of Massachusetts, Inc. and Blue Shield of
Massachusetts, Inc.; formerly, Director, Neworld Bank for Savings and
Neworld Bancorp.
RICHARD DARMAN - Trustee (56); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Member of the Contract Review and Governance Committee for the
Trusts; Partner, The Carlyle Group (investments); Public Service
Professor, Harvard Graduate School of Government; Trustee, Council for
Excellence in Government (not for profit); Director, Frontier Ventures
(personal investment); Director, Telcom Ventures (telecommunications);
Director, Prime Communications (cable communications); Director, Neptune
Communications (undersea cable systems); formerly, Director of the U.S.
Office of Management and Budget and a member of President Bush's Cabinet;
formerly, Managing Director, Shearson Lehman Brothers (Investments).
SANDRA O. MOOSE -- Trustee (58); Exchange Place, Boston, Massachusetts 02109;
Member of the Audit Committee for the Trusts; Senior Vice President and
Director, The Boston Consulting Group, Inc. (management consulting);
Director, GTE Corporation (communications services); Director, Rohm and
Haas Company (specialty chemicals); Trustee, Boston Public Library
Foundation; Board of Overseers, Museum of Fine Arts and Beth Israel/New
England Deaconess Hospital; Director, Harvard Graduate School Society
Council; Member, Visiting Committee, Harvard School of Public Health.
JOHN A. SHANE -- Trustee (67); 200 Unicorn Park Drive, Woburn, Massachusetts
01801; Member of the Audit Committee for the Trusts; President, Palmer
Service Corporation (venture capital organization); General Partner,
Palmer Partners L.P.; Director, Arch Communications Group, Inc. (paging
service); Director, Eastern Bank Corporation; Director, Gensym Corporation
(developer of expert system software); Director, Overland Data, Inc.
(manufacturer of computer tape drives); Director, United Asset Management
Corporation (holding company for institutional money management firms).
*PETER S. VOSS -- Chairman of the Board, Chief Executive Officer and
Trustee (53); Chairman of the Board and Director, President and Chief
Executive Officer, Nvest, L.P. and Nvest Companies, L.P. ("Nvest
Companies"); Chairman of the Board and Director, President and Chief
Executive Officer, Nvest Corporation; Director, Nvest Services Company;
Director, Nvest Distribution Corporation; Director of various affiliates
of Nvest Management; formerly, Director, New England Financial; Board
Member, Investment Company Institute and United Way of Massachusetts Bay;
Committee Member, New York Stock Exchange Listed Company Advisory
Committee.
PENDLETON P. WHITE -- Trustee (69); 6 Breckenridge Lane, Savannah, Georgia
31411; Member of the Contract Review and Governance Committee for the
Trusts; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants); formerly,
Trustee, The Faulkner Corporation (community hospital corporation).
The Contract Review and Governance Committee of the Nvest Funds is comprised
solely of disinterested Trustees and considers matters relating to advisory,
subadvisory and distribution arrangements, potential conflicts of interest
between the adviser or subadviser and the Funds, and governance matters
relating to the Funds.
The Audit and Transfer Agent and Shareholders Services Committee of the Nvest
Funds is comprised solely of disinterested trustees and considers matters
relating to the scope and results of the Funds' audits and serves as a forum in
which the independent accountants can raise any issues or problems identified in
the audit with the Board of Trustees. This Committee also reviews and monitors
compliance with stated investment objectives and polices, regulations of the SEC
and Internal Revenue Service (the "IRS") as well as operational issues relating
to the transfer agent.
Officers
Officers of the Trusts, in addition to Mr. Voss, and their ages (in
parentheses) and principal occupations during at least the past five years are
listed below.
THOMAS P. CUNNINGHAM - Treasurer (54); Senior Vice President, Nvest Services
Company; Senior Vice President, Nvest Management; formerly, Vice President,
Allmerica Financial Life Insurance and Annuity Company, formerly,
Treasurer, Allmerica Investment Trust; formerly, Vice President, First Data
Investor Services Group.
JOHN E. PELLETIER - Secretary and Clerk (35); Director, Nvest Distribution
Corporation; Senior Vice President, General Counsel, Secretary and Clerk,
Nvest Funds Distributor, L.P.; Senior Vice President, General Counsel,
Secretary and Clerk, Nvest Management; Executive Vice President, General
Counsel, Secretary and Clerk, Nvest Services Company; formerly, Senior Vice
President and General Counsel, Funds Distributor, Inc. (mutual funds
service company); formerly, Vice President and General Counsel, Boston
Institutional Group (mutual funds service company); formerly, Senior Vice
President and General Counsel, Financial Research Corporation.
Each person listed above holds the same position(s) with all three Trusts.
Previous positions during the past five years with New England Financial or
Metropolitan Life Insurance Company ("MetLife"), Nvest Funds Distributor, L.P.
or Nvest Management are omitted, if not materially different from a trustee's or
officer's current position with such entity. As indicated below under "Trustee
Fees," each of the Trusts' trustees is also a trustee of certain other
investment companies for which Nvest Funds Distributor, L.P. acts as principal
underwriter. Except as indicated above, the address of each trustee and officer
of the Trusts is 399 Boylston Street, Boston, Massachusetts 02116.
Trustee Fees
The Trusts pay no compensation to their officers or to their trustees who
are interested persons thereof.
Each trustee who is not an interested person of the Trusts receives, in
the aggregate for serving on the Board of Trustees of the Trusts and Nvest Cash
Management Trust and Nvest Tax Exempt Money Market Trust (all five trusts
collectively, the "Nvest Funds Trusts"), comprising as of March 31, 2000 a total
of 22 mutual fund portfolios, a retainer fee at the annual rate of $40,000 and
meeting attendance fees of $3,500 for each meeting of the Board of Trustees that
he or she attends. Each committee member receives an additional retainer fee at
the annual rate of $6,000. Furthermore, each committee chairman receives an
additional retainer fee (beyond the $6,000 fee) at the annual rate of $4,000.
These fees are allocated among the mutual fund portfolios in the Nvest Funds
Trusts based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
During the fiscal year ended December 31, 1999, the trustees of the Trusts
received the amounts set forth in the following table for serving as a trustee
of the Trusts and for also serving as trustees of the other Nvest Funds Trusts.
<TABLE>
<CAPTION>
Pension or
Aggregate Aggregate Aggregate Retirement
Compensation Compensation Compensation Benefits Total
from from from Accrued as Estimated Compensation
Nvest Nvest Nvest Part of Annual from the
Funds Funds Funds Fund Benefits Nvest Funds
Trust I Trust II Trust III Expenses Upon Trusts
Name of Trustee in 1999* in 1999* in 1999* in 1999 Retirement in 1999*
--------------- ----------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Graham T. Allison, Jr. $40,775 $11,090 $1,552 $0 $0 $60,000
Daniel M. Cain $43,623 $11,740 $1,597 $0 $0 $64,000
Kenneth J. Cowan $43,623 $11,740 $1,597 $0 $0 $64,000
Richard Darman $40,775 $11,090 $1,552 $0 $0 $60,000
Sandra O. Moose $40,775 $11,090 $1,552 $0 $0 $60,000
John A. Shane $40,775 $11,090 $1,552 $0 $0 $60,000
Pendleton P. White $40,775 $11,090 $1,552 $0 $0 $60,000
* Amounts include payments deferred by Trustees for 1999. The total amount of deferred compensation for all
periods to date accrued for the Trustees follows: Allison ($810, 057); Cain ($16,000); Cowan ($55,777);
Darman ($15,000).
</TABLE>
The Funds provide no pension or retirement benefits to trustees, but have
adopted a deferred payment arrangement under which each trustee may elect not to
receive fees from the Funds on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have been if they had
been invested in a Fund or Funds selected by the Trustee on the normal payment
date for such fees. Each Fund will make an investment in the selected Fund (s)
in an amount equal to its pro rata share of the deferred fees. [ As a result of
this arrangement, each Fund, upon making the deferred payments, will be in
substantially the same financial position as if the deferred fees had been paid
on the normal payment dates.
At April 1, 2000, the officers and trustees of the Trusts as a group owned
less than 1% of the outstanding shares of each Fund.
Advisory and Subadvisory Agreements
Each Fund's advisory agreement between the Fund and Nvest Management
(between the Fund and Capital Growth Management Limited Partnership ("CGM"), in
the case of Growth Fund) provides that the adviser (Nvest Management or CGM)
will furnish or pay the expenses of the applicable Fund for office space,
facilities and equipment, services of executive and other personnel of the Trust
and certain administrative services. Nvest Management is responsible for
obtaining and evaluating such economic, statistical and financial data and
information and performing such additional research as is necessary to manage
each Fund's assets in accordance with its investment objectives and policies.
Each Fund pays all expenses not borne by its adviser or subadviser(s)
including, but not limited to, the charges and expenses of the Fund's custodian
and transfer agent, independent auditors and legal counsel for the Fund and the
Trusts' independent trustees, 12b-1 fees, all brokerage commissions and transfer
taxes in connection with portfolio transactions, all taxes and filing fees, the
fees and expenses for registration or qualification of its shares under federal
and state securities laws, all expenses of shareholders' and trustees' meetings
and of preparing, printing and mailing reports to shareholders and the
compensation of trustees who are not directors, officers or employees of the
Fund's adviser, subadviser(s) or their affiliates, other than affiliated
registered investment companies. In the case of Funds with Class Y shares,
certain expenses may be allocated differently between the Fund's Class A, Class
B and Class C shares, on the one hand, and Class Y shares on the other hand.
Each Fund's advisory agreement and (except in the case of Growth Fund)
each Fund's subadvisory agreement(s) provides that it will continue in effect
for two years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees of the
relevant Trust or by vote of a majority of the outstanding voting securities of
the relevant Fund and (ii) by vote of a majority of the trustees who are not
"interested persons" of the relevant Trust, as that term is defined in the 1940
Act, cast in person at a meeting called for the purpose of voting on such
approval. Each Trust has received an exemptive order from the SEC which permits
Nvest Management to amend or continue existing subadvisory agreements when
approved by the Fund's Board of Trustees, without shareholder approval. The
exemption also permits Nvest Management to enter into new subadvisory agreements
with subadvisers that are not affiliated with Nvest Management, if approved by
the Fund's Board of Trustees. Shareholders will be notified of any subadviser
changes. Each advisory and subadvisory agreement may be terminated without
penalty by vote of the Board of Trustees of the relevant Trust or by vote of a
majority of the outstanding voting securities of the relevant Fund, upon 60
days' written notice, or by the Fund's adviser upon 90 days' written notice, and
each terminates automatically in the event of its assignment. Each subadvisory
agreement also may be terminated by the subadviser upon 90 days' notice and
automatically terminates upon termination of the related advisory agreement.
Each advisory and subadvisory agreement provides that the adviser or
subadviser shall not be subject to any liability in connection with the
performance of its services thereunder in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and duties.
Nvest Management, formed in 1995, is a limited partnership whose sole
general partner, Nvest Distribution Corporation, is a wholly-owned subsidiary of
Nvest Holdings, L.P. ("Nvest Holdings"), which in turn is a wholly-owned
subsidiary of Nvest Companies. Nvest Distribution Corporation is also the sole
general partner of Nvest Funds Distributor, L.P. (the "Distributor") and the
sole shareholder of Nvest Services Company, Inc. the transfer and dividend
disbursing agent of the Funds. Nvest Companies owns the entire limited
partnership interest in each of Nvest Management and the Distributor Nvest
Services Company has subcontracted certain of its obligations as the transfer
and dividend disbursing agent of the Funds to Boston Financial Data Services,
Inc. Nvest Services Company, Inc. will also do business as Nvest Services
Company and Nvest Services Co.
Nvest Companies' managing general partner, Nvest Corporation, is a
wholly-owned subsidiary of MetLife New England Holdings, Inc., which in turn is
a wholly-owned subsidiary of MetLife, a stock life insurance company, which is
wholly-owned by MetLife, Inc., a publicly traded corporation. MetLife owns
approximately 47% (and in the aggregate, directly and indirectly, approximately
48%) of the outstanding limited partnership interests in Nvest Companies. Nvest
Companies' advising general partner, Nvest, L.P., is a publicly-traded company
listed on the New York Stock Exchange. Nvest Corporation is the sole general
partner of Nvest, L.P.. The eighteen principal subsidiary or affiliated asset
management firms of Nvest Companies, collectively, have more than $133 billion
of assets under management or administration as of December 31, 1999.
Back Bay Advisors, formed in 1986, is a limited partnership whose sole
general partner, Back Bay Advisors, Inc., is a wholly-owned subsidiary of Nvest
Holdings. Nvest Companies owns the entire limited partnership interest in Back
Bay Advisors. Back Bay Advisors specializes in fixed-income management and
provides investment management services to institutional clients, including
other registered investment companies and accounts of New England Financial and
its affiliates.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") was organized in 1926 and
is one of the oldest investment management firms in the country. An important
feature of the Loomis Sayles investment approach is its emphasis on investment
research. Recommendations and reports of the Loomis Sayles research department
are circulated throughout the Loomis Sayles organization and are available to
the individuals in the Loomis Sayles organization who are responsible for making
investment decisions for the Funds' portfolios as well as numerous other
institutional and individual clients to which Loomis Sayles provides investment
advice. These clients include some accounts of New England Financial and MetLife
and their affiliates. Loomis Sayles is a limited partnership whose sole general
partner, Loomis, Sayles & Company, Inc., is a wholly-owned subsidiary of Nvest
Holdings. Nvest Companies owns the entire limited partnership interest in Loomis
Sayles.
CGM is a limited partnership whose sole general partner, Kenbob, Inc., is
a corporation owned in equal shares by Robert L. Kemp and G. Kenneth Heebner.
Nvest Companies owns a majority limited partnership interest in CGM. Prior to
March 1, 1990, Growth Fund was managed by Loomis Sayles' Capital Growth
Management Division. On March 1, 1990, Loomis Sayles reorganized its Capital
Growth Management Division into CGM. In addition to advising the Growth Fund,
CGM acts as investment adviser of CGM Capital Development Fund, CGM Trust, Nvest
Zenith Fund's Capital Growth Series and Nvest Variable Annuity Fund I. CGM also
provides investment advice to other mutual funds and other institutional and
individual clients.
Westpeak Investment Advisors, L.P. ("Westpeak"), organized in 1991,
provides investment management services to institutional clients, including
accounts of New England Financial and its affiliates. Westpeak is a limited
partnership whose sole general partner, Westpeak Investment Advisors, Inc., is a
wholly-owned subsidiary of Nvest Holdings. Nvest Companies owns the entire
limited partnership interest in Westpeak.
Kobrick Funds LLC ("Kobrick"), a Delaware limited liability company, was
formed to succeed to the business a predecessor limited liability company also
named Kobrick Funds LLC (the "Kobrick Predecessor"). The Kobrick Predecessor was
formed in 1998 as the result of a reorganization of its predecessor,
Kobrick-Cendant Funds, Inc., an investment manager. Kobrick is a wholly-owned
subsidiary of Nvest Companies engaged in the business of investment management.
Janus Capital Corporation ("Janus Capital") serves as investment adviser
to the Janus mutual funds and to other mutual funds, individual, charitable,
corporate and retirement accounts. Kansas City Southern Industries, Inc.
("KCSI"), a publicly traded holding company, owns approximately 82% of the
outstanding voting stock of Janus Capital, indirectly through its wholly-owned
subsidiary, Stilwell Financial, Inc. Thomas H. Bailey, President and Chairman of
the Board of Janus Capital, owns approximately 12% of Janus Capital's voting
stock and by agreement with KCSI, selects a majority of Janus Capital's Board.
KSCI has announced its intention to spin off its financial services
subsidiaries, which it expects to complete in the first half of 2000.
Jurika & Voyles, L.P., ("Jurika & Voyles") founded in 1983, has
discretionary management authority with respect to assets for various clients
including corporations, pension plans, 401(k) plans, profit sharing plans,
trusts and estates, foundations and charities, mutual funds and individuals.
Jurika & Voyles is a wholly-owned subsidiary of Nvest Companies engaged in the
business of investment management.
Harris Associates L.P. ("Harris Associates") was organized in 1995
to succeed to the business of a predecessor limited partnership also named
Harris Associates L.P., which together with its predecessor had advised and
managed mutual funds since 1970. Harris Associates is a limited partnership
whose sole general partner is Harris Associates Inc., a wholly-owned subsidiary
of Nvest Holdings. Nvest Companies owns the entire limited partnership interest
in Harris Associates. Harris Associates also serves as investment adviser to
individuals, trusts, retirement plans, endowments and foundations, and manages
numerous private partnerships.
Montgomery Asset Management, LLC ("Montgomery"), a Delaware limited
liability company, was formed in 1997 as an investment adviser. Montgomery is
the successor to Montgomery Asset Management, L.P., a California limited
partnership formed in 1990. Montgomery is a wholly-owned subsidiary of
Commerzbank AG, a German commercial bank.
RS Investment Management, L.P. ("RS Investment Management") (formerly,
Robertson, Stephens & Company Investment Management, L.P.) was formed in 1993
and provides investment advisory services to both private and public investment
funds. On February 26, 1999, Robertson Stephens Investment Management Co. LLC
purchased Robertson Stephens Investment Management Co. and its subsidiary, RS
Investment Management, from BankAmerica Corporation.
Vaughan, Nelson, Scarborough & McCullough, L.P. ("VNSM") was formed in
1970 and provides investment advisory services to foundations, university
endowments, corporate retirement plans and individuals. VNSM is a limited
partnership whose sole general partner Vaughan, Nelson, Scarborough &
McCullough, Inc., is a wholly-owned subsidiary of Nvest Holdings. Nvest
Companies owns the entire limited partnership interest in VNSM.
Certain officers and employees of Back Bay Advisors have responsibility
for portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Back Bay Advisors)
that may invest in securities in which the Funds may invest. Where Back Bay
Advisors determines that an investment purchase or sale opportunity is
appropriate and desirable for more than one advisory account, purchase and sale
orders may be executed separately or may be combined and, to the extent
practicable, allocated by Back Bay Advisors to the participating accounts. Where
advisory accounts have competing interests in a limited investment opportunity,
Back Bay Advisors will allocate an investment purchase opportunity based on the
relative time the competing accounts have had funds available for investment,
and the relative amounts of available funds, and will allocate an investment
sale opportunity based on relative cash requirements and the time the competing
accounts have had investments available for sale. It is Back Bay Advisors'
policy to allocate, to the extent practicable, investment opportunities to each
client over a period of time on a fair and equitable basis relative to its other
clients. It is believed that the ability of the Funds for which Back Bay
Advisors acts as subadviser to participate in larger volume transactions in this
manner will in some cases produce better executions for the Funds. However, in
some cases, this procedure could have a detrimental effect on the price and
amount of a security available to a Fund or the price at which a security may be
sold. The Trusts' trustees are of the view that the benefits of retaining Back
Bay Advisors as investment manager outweigh the disadvantages, if any, that
might result from participating in such transactions.
Certain officers of Loomis Sayles have responsibility for the management
of other client portfolios. The Pasadena, Boston and Detroit offices of Loomis
Sayles make the investment decisions for the Balanced Fund. The Detroit office
of Loomis Sayles makes the investment decisions for the segments of the Star
Advisers and Star Value Funds' portfolios that are managed by Loomis Sayles. The
Boston office makes the investment decisions for Strategic Income Fund and the
segment of the Star Small Cap Fund portfolio that is managed by Loomis Sayles.
The San Francisco office makes the investment decisions for the International
Equity Fund and the segment of the Star Worldwide portfolio that is managed by
Loomis Sayles. The New York office makes the investment decisions for High
Income Fund. These offices make investment decisions for the relevant Fund
independently of one another. The other investment companies and clients served
by Loomis Sayles sometimes invest in securities in which Balanced, Star
Advisers, Star Small Cap, Star Value, Star Worldwide, High Income, Strategic
Income and International Equity Funds also invest. If one of these Funds and
such other clients advised by the same office of Loomis Sayles desire to buy or
sell the same portfolio securities at about the same time, purchases and sales
will be allocated, to the extent practicable, on a pro rata basis in proportion
to the amounts desired to be purchased or sold for each. It is recognized that
in some cases the practices described in this paragraph could have a detrimental
effect on the price or amount of the securities which each of the Funds
purchases or sells. In other cases, however, it is believed that these practices
may benefit the relevant Fund. It is the opinion of the Trusts' trustees that
the desirability of retaining Loomis Sayles as subadviser for Strategic Income,
Balanced, Star Advisers, Star Small Cap, Star Value, Star Worldwide, High Income
and International Equity Funds outweighs the disadvantages, if any, which might
result from these practices.
Certain officers and trustees of the Growth Fund also serve as officers,
directors or trustees of other investment companies advised by CGM. The other
investment companies and clients served by CGM sometimes invest in securities in
which the Growth Fund also invests. If the Growth Fund and such other investment
companies or clients advised by CGM desire to buy or sell the same portfolio
securities at the same time, purchases and sales will be allocated to the extent
practicable on a pro rata basis in proportion to the amounts desired to be
purchased or sold for each. It is recognized that in some cases the practices
described in this paragraph could have a detrimental effect on the price or
amount of the securities which the Growth Fund purchases or sells. In other
cases, however, it is believed that these practices may benefit Growth Fund. It
is the opinion of the trustees of Trust I that the desirability of retaining CGM
as adviser for the Growth Fund outweighs the disadvantages, if any, which might
result from these practices.
The segment of the Star Advisers Fund managed by Kobrick and one or more
of the other mutual funds or clients to which Kobrick serves as investment
adviser, may from time to time, purchase or sell the same securities or have the
same securities under consideration for purchase or sale. In those instances
when securities transactions are carried on at the same time on behalf of the
Fund and such other mutual funds and accounts, transactions in such securities
for such accounts may be grouped with securities transactions carried out on
behalf of the Fund. The practice of grouping orders of various accounts will be
followed in order to obtain benefit of best prices or commission rates. In
certain cases where the aggregate order may be executed in a series of
transactions at various prices, the transactions will be allocated as to amount
and price in a manner considered equitable to each account so that each
receives, to the extent practicable, the average price for such transactions.
Transactions will not be grouped unless it is Kobrick's judgment that such
aggregation is consistent with its duty to seek best execution (which includes
the duty to seek best price) for the Fund. The books and records of the Fund and
any such other account will separately reflect, for each account, the orders of
which are aggregated and the securities held by and bought and sold for that
account.
Janus Capital performs investment advisory services for other mutual
funds, individual, charitable, corporate and retirement accounts, as well as for
its segment of Star Advisers Fund. Although the overall investment objectives of
the Fund may differ from the objectives of the other investment accounts and
other funds served by Janus Capital, there may be securities that are suitable
for the portfolio of the Fund as well as for one or more of the other funds or
the other investment accounts. Therefore, purchases and sales of the same
investment securities may be recommended for the Fund and for one or more of the
other funds or other investment accounts. To the extent that the Fund and one or
more of the other funds or other investment accounts seek to acquire or sell the
same security at the same time, either the price obtained by the Fund or the
amount of securities that may be purchased or sold by the Fund at one time may
be adversely affected. In such cases, the purchase and sale transactions are
allocated among the Fund, the other funds and the other investment accounts in a
manner believed by the management of Janus Capital to be equitable to each. It
is the opinion of the trustees of Trust I that the desirability of retaining
Janus Capital as a subadviser to Star Advisers Fund outweighs the disadvantages,
if any, which might result from these procedures.
Certain officers of Westpeak have responsibility for portfolio management
for other clients (including affiliates of Westpeak), some of which may invest
in securities in which Growth and Income Fund, Capital Growth Fund, and Star
Value Fund (Westpeak segment) also may invest. When the Funds and other clients
desire to purchase or sell the same security at or about the same time, the
purchase and sale orders are ordinarily placed and confirmed separately but may
be combined to the extent practicable and allocated as nearly as practicable on
a pro rata basis in proportion to the amounts desired to be purchased or sold
for each (or if filled over the course of more than one day, allocated randomly
using algorithms generated by its trade order management system). It is believed
that the ability of those clients to participate in larger volume transactions
will in some cases produce better executions for the Funds. However, in some
cases this procedure could have a detrimental effect on the price and amount of
a security available to the Funds or the price at which a security may be sold.
It is the opinion of the trustees of the Trusts that the desirability of
retaining Westpeak as subadviser for the Funds outweighs the disadvantages, if
any, which might result from these practices.
Certain officers and employees of Jurika & Voyles have responsibility for
portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Jurika & Voyles)
that may invest in securities in which the Bullseye Fund may invest. Where
Jurika & Voyles determines that an investment purchase or sale opportunity is
appropriate and desirable for more than one advisory account, purchase and sale
orders may be executed separately or may be combined and, to the extent
practicable, allocated by Jurika & Voyles to the participating accounts. Where
advisory accounts have competing interests in a limited investment opportunity,
Jurika & Voyles will allocate investment opportunities based on numerous
considerations, including the time the competing accounts have had funds
available for investment, and the relative amounts of available funds, an
account's cash requirements and the time the competing accounts have had
investments available for sale. It is Jurika & Voyles' policy to allocate, to
the extent practicable, investment opportunities to each client over a period of
time on a fair and equitable basis relative to its other clients. It is believed
that the ability of the Fund to participate in larger volume transactions in
this manner will in some cases produce better executions for the Fund. However,
in some cases, this procedure could have a detrimental effect on the price and
amount of a security available to the Fund or the price at which a security may
be sold. The trustees are of the view that the benefits of retaining Jurika &
Voyles as investment manager outweigh the disadvantages, if any, that might
result from participating in such transactions.
Certain officers and employees of Harris Associates have
responsibility for portfolio management of other advisory accounts and clients
(including other registered investment companies and accounts of affiliates of
Harris Associates) that may invest in securities in which Star Advisers Fund,
Star Worldwide Fund, Star Value Fund and/or Star Small Cap Fund may invest.
Where Harris Associates determines that an investment purchase or sale
opportunity is appropriate and desirable for more than one advisory account,
purchase and sale orders may be executed separately or may be combined and, to
the extent practicable, allocated by Harris Associates to the participating
accounts. Where advisory accounts have competing interests in a limited
investment opportunity, Harris Associates will allocate investment opportunities
based on numerous considerations, including the time the competing accounts have
had funds available for investment, the amounts of available funds, an account's
cash requirements and the time the competing accounts have had investments
available for sale. It is Harris Associates' policy to allocate, to the extent
practicable, investment opportunities to each client over a period of time on a
fair and equitable basis relative to its other clients. It is believed that the
ability of Star Advisers Fund, Star Worldwide Fund, Star Value Fund and Star
Small Cap Fund to participate in larger volume transactions in this manner will
in some cases produce better executions for these Funds. However, in some cases,
this procedure could have a detrimental effect on the price and amount of a
security available to these Funds or the price at which a security may be sold.
The trustees of Trust I are of the view that the benefits of retaining Harris
Associates as a subadviser to Star Advisers Fund, Star Worldwide Fund, Star
Value Fund and Star Small Cap Fund outweigh the disadvantages, if any, that
might result from participating in such transactions.
In addition to managing segments of Star Worldwide Fund and Star
Small Cap Fund portfolios, Montgomery serves as investment adviser to other
mutual funds, pension and profit-sharing plans, and other institutional and
private investors. At times, Montgomery may effect purchases and sales of the
same investment securities for Star Worldwide Fund and/or Star Small Cap Fund
and for one or more other investment accounts. In such cases, it will be the
practice of Montgomery to allocate the purchase and sale transactions among the
Funds and the accounts in such manner as it deems equitable. In making such
allocation, the main factors to be considered are the respective investment
objectives of the Funds and the accounts, the relative size of portfolio
holdings of the same or comparable securities, the current availability of cash
for investment by the Funds and each account, the size of investment commitments
generally held by the Funds and each account and the opinions of the persons at
Montgomery responsible for selecting investments for the Funds and the accounts.
It is the opinion of the trustees of Trust I that the desirability of retaining
Montgomery as a subadviser to Star Worldwide Fund and Star Small Cap Fund
outweighs the disadvantages, if any, which might result from these procedures.
In addition to managing a segment of Star Value Fund portfolio and Equity
Income Fund, VNSM serves as investment adviser to foundations, university
endowments and corporate retirement and family/individual core funds. Portfolio
transactions for each client account are generally completed independently,
except when decisions are made to purchase or sell the same securities for a
number of client accounts simultaneously. In this event, the transactions are
averaged as to the price and allocated as to amount in accordance with the daily
purchase or sale orders actually placed for each client account. Such orders are
combined when possible to facilitate best execution, as well as for the purpose
of negotiating more favorable brokerage commissions. It is the opinion of the
trustees of the Trusts that the desirability of retaining VNSM as a subadviser
to Star Value Fund and Equity Income Fund outweighs the disadvantages, if any,
which might result from these procedures.
Investment decisions for its segment of Star Small Cap Fund and for other
investment advisory clients of RS Investment Management and its affiliates are
made with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could be bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the same security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in RS Investment Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each client. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients. RS Investment Management
employs staffs of portfolio managers who draw upon a variety of resources for
research information. It is the opinion of the trustees of Trust I that the
desirability of retaining RS Investment Management as a subadviser to Star Small
Cap Fund outweighs the disadvantages, if any, which could result from these
procedures.
Nvest Management believes that Star Funds' multi-adviser approach to
equity investing -- one that combines the varied styles of the subadvisers in
selecting securities for the Funds' portfolios -- offers a different investment
opportunity than funds managed by a single adviser using a single style. Nvest
Management believes that assigning portfolio management responsibility for a
Fund to several subadvisers, whose varying management styles have resulted in
records of success, may increase the likelihood that the Fund may produce
superior results for its shareholders, with less variability of return and less
risk of persistent under-performance than a fund managed by a single adviser. Of
course, past results should not be considered a prediction of future
performance, and there is no assurance that a Fund will in fact achieve superior
results over any period of time.
On a daily basis, capital activity will be allocated equally by Nvest
Management among the segments of each Star Fund. However, Nvest Management may,
subject to review of the Trust's Board of Trustees, allocate net investment
capital differently among any of the subadvisers. This action may be necessary,
if, for example, a subadviser determines that it desires no additional
investment capital. Similarly, because each segment of each Fund will perform
differently from the other segments of the Fund depending upon the investments
it holds and changing market conditions, one segment may be larger or smaller at
various times than other segments. For example, as of March 31, 2000, the
percentages of Star Advisers Fund's net assets held in the segments of the Fund
managed by Harris Associates, Kobrick, Janus Capital and Loomis Sayles were 11%,
32%, 42% and 15%, respectively. As of March 31, 2000, the percentages of Star
Worldwide Fund's net assets held in the segments of the Fund managed by Harris
Associates (international segment), Harris Associates (domestic segment),
Montgomery, and Loomis Sayles were 20%, 16%, 25% and 39%, respectively. As of
March 31, 2000, the percentages of the Star Small Cap Fund's net assets held in
the segment of the Fund managed by RS Investment Management, Montgomery, Loomis
Sayles and Harris Associates were 42%, 16%, 30%, and 12%, respectively. As of
March 31, 2000, the percentages of Star Value Fund's net assets held in the
segments of the Fund managed by Harris Associates, VNSM, Loomis Sayles and
Westpeak were 25%, 25%, 25% and 25%, respectively.
Although it reserves the right to do so, subject to the review of the
Trust's trustees, Nvest Management does not intend to reallocate the assets of
any Fund among the segments to reduce differences in size.
Nvest Management oversees the portfolio management services provided to
the Funds by each of the subadvisers. Subject to the review of the Trust's
trustees, Nvest Management monitors each subadviser to assure that the
subadviser is managing its segment of a Fund consistently with the Fund's
investment objective and restrictions and applicable laws and guidelines,
including, but not limited to, compliance with the diversification requirements
set forth in the 1940 Act and Subchapter M of the Code. In addition, Nvest
Management and Nvest Services Company also provide each Fund with administrative
services which include, among other things, day-to-day administration of matters
related to the Fund's existence, maintenance of its records, preparation of
reports and assistance in the preparation of the Fund's registration statement
under federal and state laws. Nvest Management does not, however, determine what
investments will be purchased or sold for any Fund. Because each subadviser
manages its portfolio independently from the others, the same security may be
held in two different segments of a Star Fund or may be acquired for one segment
of the Star Fund at a time when the subadviser of another segment deems it
appropriate to dispose of the security from that other segment. Similarly, under
some market conditions, one or more of the subadvisers may believe that
temporary, defensive investments in short-term instruments or cash are
appropriate when another subadviser or subadvisers believe continued exposure to
the equity markets is appropriate. Because each subadviser directs the trading
for its segment of a Star Fund, and does not aggregate its transactions with
those of the other subadvisers, the Fund may incur higher brokerage costs than
would be the case if a single adviser or subadviser were managing the entire
Star Fund.
Nvest Management may terminate any subadvisory agreement without
shareholder approval. In such case, Nvest Management may either enter into an
agreement with another subadviser to manage the Fund or Star Fund segment or
will allocate the segment's assets among the other segments of the Star Fund.
Distribution Agreements and Rule 12b-1 Plans. Under a separate agreement
with each Fund, the Distributor serves as the principal distributor of each
class of shares of the Funds. Under these agreements (the "Distribution
Agreements"), the Distributor conducts a continuous offering and is not
obligated to sell a specific number of shares. The Distributor bears the cost of
making information about the Funds available through advertising and other means
and the cost of printing and mailing Prospectuses to persons other than
shareholders. Each Fund pays the cost of registering and qualifying its shares
under state and federal securities laws and the distribution of Prospectuses to
existing shareholders.
The Distributor is compensated under each agreement through receipt of the
sales charges on Class A shares described below under "Net Asset Value and
Public Offering Price" and is paid by the Funds the service and distribution
fees described in the Prospectus. The Distributor may, at its discretion,
reallow the entire sales charge imposed on the sale of Class A shares of each
Fund to investment dealers from time to time. The SEC is of the view that
dealers receiving all or substantially all of the sales charge may be deemed
underwriters of a Fund's shares.
Each Fund has adopted Rule 12b-1 plans (the "Plans") for its Class A,
Class B and Class C shares which, among other things, permit it to pay the
Fund's distributor (Nvest Funds Distributor, L.P.) monthly fees out of its net
assets. These fees consist of a service fee and a distribution fee. Any such
fees that are paid by the distributor to securities dealers are known as "trail
commissions." Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved
by the shareholders of each Fund, and (together with the related Distribution
Agreement) by the Board of Trustees, including a majority of the trustees who
are not interested persons of the relevant Trust (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of the
Plan or the Distribution Agreement (the "Independent Trustees").
Under the Plans, each Fund pays the Distributor a monthly service fee at
an annual rate not to exceed 0.25% of the Fund's average daily net assets
attributable to the Class A, Class B and Class C shares. In the case of the
Class B shares, the Distributor pays investment dealers the first year's service
fee at the time of sale, in the amount of up to 0.25% of the amount invested. In
the case of Class C shares, the Distributor retains the first year's service fee
of 0.25% assessed against such shares. After the first year for Class A, Class B
and Class C shares, the Distributor may pay up to the entire amount of this fee
to securities dealers who are dealers of record with respect to the Fund's
shares, on a quarterly basis, unless other arrangements are made between the
Distributor and the securities dealer, for providing personal services to
investors in shares of the Fund and/or the maintenance of shareholder accounts.
The Service Fee may be paid only to reimburse the Distributor for expenses
of providing personal services to investors, including, but not limited to, (i)
expenses (including overhead expenses) of the Distributor for providing personal
services to investors in connection with the maintenance of shareholder accounts
and (ii) payments made by the Distributor to any securities dealer or other
organization (including, but not limited to, any affiliate of the Distributor)
with which the Distributor has entered into a written agreement for this
purpose, for providing personal services to investors and/or the maintenance of
shareholder accounts, which payments to any such organization may be in amounts
in excess of the cost incurred by such organization in connection therewith.
To the extent that the Distributor's reimbursable expenses in any year
exceed the maximum amount payable under the relevant Plan for that year, such
expenses may be carried forward for reimbursement in future years in which the
Plan remains in effect. The amounts of unreimbursed Class A expenses carried
over into 1999 from previous plan years for the Stock Funds were as follows:
$563,284 for Capital Growth Fund, $2,041,399 for Balanced Fund, $2,030,882 for
Growth Fund, $514,256 for International Equity Fund and $1,651,994 for Star
Value Fund. The Class B and C service fees for all Funds which have such classes
of shares, and the Class A service fee for Growth and Income Fund, are payable
regardless of the amount of the Distributor's related expenses. The amounts of
unreimbursed expenses carried over into 1999 from previous plan years with
respect to the Class A shares of the Bond Funds are as follows: $1,583,658 for
Government Securities Fund; $2,272,723 for the Limited Term U.S. Government
Fund; $1,929,283 for Short Term Corporate Income Fund; $1,919,349 for Bond
Income Fund; and $1,700,600 for Municipal Income Fund.
Class A shares of Limited Term U.S. Government Fund and Massachusetts Tax
Free Income Fund pay a monthly distribution fee at an annual rate not to exceed
0.10% of each Fund's average daily net assets. This fee is payable only to
reimburse the Distributor for expenses incurred in connection with the
distribution of each Fund's shares, but unreimbursed expenses can be carried
forward into future years.
Each Fund's Class B and Class C shares also pay the Distributor a monthly
distribution fee at an annual rate not to exceed 0.75% of the average net assets
of the respective Fund's Class B and Class C shares. The Distributor retains the
0.75% distribution fee assessed against both Class B and Class C shares during
the first year of investment. After the first year for Class B shares, the
Distributor retains the annual distribution fee as compensation for its services
as distributor of such shares. After the first year for Class C shares, the
Distributor may pay up to the entire amount of this fee to securities dealers
who are dealers of record with respect to the Fund's shares, as distribution
fees in connection with the sale of the Fund's shares on a quarterly basis,
unless other arrangements are made between the Distributor and the securities
dealer.
Each Plan may be terminated by vote of a majority of the relevant
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the relevant class of shares of the relevant Fund. Each Plan may
be amended by vote of the relevant trustees, including a majority of the
relevant Independent Trustees, cast in person at a meeting called for that
purpose. Any change in any Plan that would materially increase the fees payable
thereunder by the relevant class of shares of the relevant Fund requires
approval by vote of the holders of a majority of such shares outstanding. The
Trusts' trustees review quarterly a written report of such costs and the
purposes for which such costs have been incurred. For so long as a Plan is in
effect, selection and nomination of those trustees who are not interested
persons of the relevant Trust shall be committed to the discretion of such
disinterested persons.
The Distributor has entered into selling agreements with investment
dealers, including New England Securities, MetLife Securities,and Nathan & Lewis
Securities, Inc., affiliates of the Distributor, for the sale of the Funds'
shares. The Distributor may at its expense pay an amount not to exceed 0.50% of
the amount invested to dealers who have selling agreements with the Distributor.
Class Y shares of the Funds may be offered by registered representatives of New
England Securities, MetLife Securities and Nathan & Lewis Securities, Inc. who
are also employees of Nvest Associates, Inc. ("Nvest Associates"), an indirect,
wholly-owned subsidiary of Nvest Companies. Nvest Associates may receive
compensation from each Fund's adviser or subadviser with respect to sales of
Class Y shares.
The Distribution Agreement for any Fund may be terminated at any time on
60 days' written notice without payment of any penalty by the Distributor or by
vote of a majority of the outstanding voting securities of the relevant Fund or
by vote of a majority of the relevant Independent Trustees.
The Distribution Agreements and the Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the relevant Independent Trustees and
(ii) by the vote of a majority of the entire Board of Trustees cast in person at
a meeting called for that purpose or by a vote of a majority of the outstanding
securities of a Fund (or the relevant class, in the case of the Plans).
With the exception of the Distributor, New England Securities and their
direct and indirect parent companies, no interested person of the Trusts or any
trustee of the Trusts had any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Funds and their shareholders resulting from the Plans are
believed to include (1) enhanced shareholder service, (2) asset retention, (3)
enhanced bargaining position with third party service providers and economies of
scale arising from having higher asset levels and (4) portfolio management
opportunities arising from having an enhanced positive cash flow.
The Distributor controls the words "Nvest" in the names of the Trusts and
the Funds and if it should cease to be the principal distributor of the Funds'
shares, Nvest Funds Trust I, Nvest Funds Trust II, Nvest Funds Trust III or the
affected Fund may be required to change their names and delete these words or
letters. The Distributor also acts as principal distributor for Kobrick Capital
Fund, Kobrick Emerging Growth Fund, Kobrick Growth Fund, Nvest Cash Management
Trust and Nvest Tax Exempt Money Market Trust.
The portion of the various fees and expenses for Class A, B, and with
respect to certain Funds, C shares that are paid (reallowed) to securities
dealers are shown below:
BOND FUNDS
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares of the
Bond Funds that are paid to securities dealers are shown below:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
ALL FUNDS EXCEPT SHORT TERM CORPORATE INCOME FUND AND LIMITED TERM U.S. GOVERNMENT FUNDS
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C> <C>
Less than $100,000 4.50% 4.00% 0.25% 4.25%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
INVESTMENTS OF $1 MILLION OR MORE
First $3 million none 1.00%(2) 1.25% 0.25%
Excess over $3 million (1) none 0.50%(2) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE (3) none 0.00% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM CORPORATE INCOME AND LIMITED TERM U.S. GOVERNMENT FUNDS
Less than $100,000 3.00% 2.70% 0.25% 2.95%
$100,000 - $249,999 2.50% 2.15% 0.25% 2.40%
$250,000 - $499,999 2.00% 1.70% 0.25% 1.95%
$500,000 - $999,999 1.25% 1.00% 0.25% 1.25%
INVESTMENTS OF $1 MILLION OR MORE
First $3 million none 1.00%(2) 0.25% 1.25%
Excess over $3 million (1) none 0.50%(2) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE (3) none 0.00% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more
that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million
and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of the Funds
(except Municipal Income Fund), which are described in a separate prospectus.
(2) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12
calendar months.
(3)Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as described earlier
in the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
The Class B and Class C service fees are payable regardless of the amount
of the Distributor's related expenses. The portion of the various fees and
expenses for Class B and Class C shares of the Bond Funds that are paid to
securities dealers are shown below:
<TABLE>
- -------------------------------------------------------------------------------------------------
HIGH INCOME, STRATEGIC INCOME, BOND INCOME, MUNICIPAL INCOME AND GOVERNMENT SECURITIES FUNDS
(class B only for Municipal Income and Government Securities Funds)
- -------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM REALLOWANCE MAXIMUM FIRST YEAR MAXIMUM FIRST YEAR
OR COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C>
All amounts for Class B 3.75% 0.25% 4.00%
All amounts for Class C 1.00% 0.00% 1.00%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SHORT TERM CORPORATE INCOME AND LIMITED TERM U.S. GOVERNMENT FUNDS
- -------------------------------------------------------------------------------------------------
All amounts for Class B 2.75% 0.25% 3.00%
All amounts for Class C 1.00% 0.00% 1.00%
- -------------------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS TAX FREE INCOME FUND
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares of the
Massachusetts Fund that are paid to securities dealers are shown below:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C> <C>
Less than $50,000 4.25% 3.75% 0.25% 4.00%
$50,000 - $99,999 4.00% 3.50% 0.25% 3.75%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
INVESTMENTS OF $1 MILLION OR MORE
First $3 Million none 1.00%(1) 0.25% 1.25%
Excess over $3 Million none 0.50%(1) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE(2) none 0.00% 0.25% 0.25%
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12
calendar months.
(2) Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as described earlier
in the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
The Class B service fees are payable regardless of the amount of the
Distributor's related expenses. The portion of the various fees and expenses for
Class B shares of the State Tax Free Funds that are paid to securities dealers
are shown below:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM REALLOWANCE MAXIMUM FIRST YEAR MAXIMUM FIRST YEAR
OR COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C>
All amounts for Class B 3.75% 0.25% 4.00%
- ---------------------------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares of the
California Fund that are paid to securities dealers are shown below:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C> <C>
Less than $100,000 2.50% 2.15% 0.25% 2.40%
$100,000 - $249,999 2.00% 1.70% 0.25% 1.95%
$250,000 - $499,999 1.50% 1.25% 0.25% 1.50%
$500,000 - $999,999 1.25% 1.00% 0.25% 1.25%
INVESTMENTS OF $1 MILLION OR MORE
First $3 Million none 1.00%(1) 0.25% 1.25%
Excess over $3 Million none 0.50%(1) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE(2) none 0.00% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12
calendar months.
(2) Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as described earlier
in the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
The Class B service fees are payable regardless of the amount of the
Distributor's related expenses. The portion of the various fees and expenses for
Class B shares of the Fund that are paid to securities dealers are shown below:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM REALLOWANCE MAXIMUM FIRST YEAR MAXIMUM FIRST YEAR
OR COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C>
All amounts for Class B 3.75% 0.25% 4.00%
- ---------------------------------------------------------------------------------------------------
</TABLE>
STOCK FUNDS AND STAR FUNDS
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares of the
Stock and Star Funds that are paid to securities dealers are shown below:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C> <C>
Less than $50,000* 5.75% 5.00% 0.25% 5.25%
$50,000 - $99,999 4.50% 4.00% 0.25% 4.25%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
INVESTMENTS OF $1 MILLION OR MORE
First $3 Million none 1.00%(2) 0.25% 1.25%
Excess over $3 Million (1) none 0.50%(2) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE(3) none 0.00% 0.25% 0.25%
* (Growth Fund only) For accounts established prior to February 28, 1997 having a total investment value of between (and
including) $25,000 and $49,000, a reduced sales charge of 5.50% of the offering price (or 5.82% of the net amount invested),
with a dealer's concession of 4.25% as a percentage of offering price, will be charged on the sale of additional Class A shares
of Growth Fund if the total investment value of Growth Fund account after such sale is between (and including) $25,000 and
$49,000.
(1) For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more
that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million
and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of the funds,
which are described in a separate prospectus.
(2) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12
calendar months.
(3) Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as described
earlier in the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
The Class B and Class C service fees are payable regardless of the amount
of the Distributor's related expenses. The portion of the various fees and
expenses for Class B and Class C shares of the Stock and Star Funds that are
paid to securities dealers are shown below:
<TABLE>
- -------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM REALLOWANCE MAXIMUM FIRST YEAR MAXIMUM FIRST YEAR
OR COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C>
All amounts for Class B 3.75% 0.25% 4.00%
All amounts for Class C 1.00% 0.00% 1.00%
- -------------------------------------------------------------------------------------------------
</TABLE>
ALL FUNDS
Each transaction receives the net asset value next determined after an
order is received on sales of each class of shares. The sales charge is
allocated between the investment dealer and the Distributor. The Distributor
receives the Contingent Deferred Sales Charge (the "CDSC"). Proceeds from the
CDSC on Class A and C shares are paid to the Distributor and are used by the
Distributor to defray the expenses for services the Distributor provides the
Trusts. Proceeds from the CDSC on Class B shares are paid to the Distributor and
are remitted to FEP Capital, L.P. to compensate FEP Capital, L.P. for financing
the sale of Class B shares pursuant to certain Class B financing and servicing
agreements between the Distributor and FEP Capital, L.P. The Distributor may, at
its discretion, pay (reallow) the entire sales charge imposed on the sale of
Class A shares to investment dealers from time to time.
For new amounts invested at net asset value by an eligible governmental
authority, the Distributor may, at its expense, pay investment dealers a
commission of 0.025% of the average daily net assets of an account at the end of
each calendar quarter for up to one year. These commissions are not payable if
the purchase represents the reinvestment of redemption proceeds from any other
Nvest Fund or if the account is registered in street name.
The Distributor may at its expense provide additional concessions to
dealers who sell shares of the Funds, including: (i) full reallowance of the
sales charge of Class A shares, (ii) additional compensation with respect to the
sale of Class A, B and C shares and (iii) financial assistance programs to firms
who sell or arrange for the sale of Fund shares including, but not limited to,
remuneration for: the firm's internal sales contests and incentive programs,
marketing and sales fees, expenses related to advertising or promotional
activity and events, and shareholder record keeping or miscellaneous
administrative services. Payment for travel, lodging and related expenses may be
provided for attendance at Nvest Funds' seminars and conferences, e.g., due
diligence meetings held for training and educational purposes. The payment of
these concessions and any other compensation offered will conform with state and
federal laws and the rules of any self-regulatory organization, such as the
National Association of Securities Dealers, Inc. The participation of such firms
in financial assistance programs is at the discretion of the firm.
During the fiscal years ended December 31, 1997, 1998 and 1999, the
Distributor received commissions on the sale of Class A shares of Nvest Funds
Trust I aggregating $11,172,220, $8,591,707 and $7,955,714, respectively, of
which $9,669,150, $7,375,844 and $6,807,853, respectively, was reallowed to
other securities dealers and the balance retained by the Distributor. During the
fiscal years ended December 31,1997, 1998 and 1999, the Distributor received
CDSCson the redemption of Class A, Class B and Class C shares of Nvest Funds
Trust I aggregating $2,391,360, $3,195,287 and $3,862,850, respectively, of
which $2,286,280, $3,124,921 and $3,603,038, respectively, was paid to FEP
Capital, L.P. and the balance retained by the Distributor. See "Other
Arrangements" for information about amounts received by the Distributor from
Nvest Funds Trust I's investment advisers and subadvisers or the Funds directly
for providing certain administrative services relating to Nvest Funds Trust I.
During the fiscal years ended December 31, 1997, 1998 and 1999, the
Distributor received commissions on the sale of the Class A shares of Nvest
Funds Trust II aggregating $1,493,346, $2,348,271 and $2,466,104, respectively,
of which $1,286,296, $2,206,752 and $2,113,378, respectively, was reallowed to
other securities dealers and the balance retained by the Distributor. During the
fiscal years ended December 31, 1997, 1998 and 1999, the Distributor received
CDSCs on the redemption of Class A, Class B and Class C shares of Nvest Funds
Trust II aggregating $375,973, $540,167 and $857,306, respectively, of which
$343,457, $497,662 and $789,072, respectively, was paid to FEP Capital, L.P. and
the balance retained by the Distributor. See "Other Arrangements" for
information about amounts received by the Distributor from Nvest Funds Trust
II's investment advisers and subadvisers or the Funds directly for providing
certain administrative services relating to Nvest Funds Trust II.
During the fiscal years ended December 31, 1997, 1998 and 1999, the
Distributor received commissions on the sales of the Class A shares of Nvest
Funds Trust III aggregating $262,310, $561,929 and $79,050, respectively, of
which $236,902, $502,693 and $67,250, respectively, was reallowed to other
securities dealers and the balance retained by the Distributor. During the
fiscal years ended December 31, 1997, 1998 and 1999, the Distributor received
CDSCs on the redemption of Class A, Class B and Class C shares of Nvest Funds
Trust III aggregating $1,953, $51,773 and $128,244, respectively, of which
$1,953, $49,553 and $123,951, respectively, was paid to FEP Capital, L.P. and
the balance retained by the Distributor. See "Other Arrangements" for
information about amounts received by the Distributor from Nvest Funds Trust
III's investment advisers and subadvisers or the Funds directly for providing
certain administrative services relating to Nvest Funds Trust III.
Custodial Arrangements. State Street Bank and Trust Company ("State Street
Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Trusts'
custodian. As such, State Street Bank holds in safekeeping certificated
securities and cash belonging to each Fund and, in such capacity, is the
registered owner of securities in book-entry form belonging to each Fund. Upon
instruction, State Street Bank receives and delivers cash and securities of each
Fund in connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Trusts and calculates the
total net asset value, total net income and net asset value per share of each
Fund on a daily basis.
Independent Accountants. The Trusts' independent accountants are
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110. The
independent accountants conduct an annual audit of each Trust's financial
statements, assist in the preparation of federal and state income tax returns
and consult with the Trusts as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectuses, and financial statements contained in the Funds' annual reports
for the year ended December 31, 1999 and incorporated by reference into this
Statement, have been so included in reliance on the reports of each Trusts'
independent accountants, given on the authority of such firms as experts in
auditing and accounting.
Other Arrangements
Pursuant to a contract between the Funds and Nvest Services Company, Nvest
Services Company acts as shareholder servicing and transfer agent for the Funds
and is responsible for services in connection with the establishment,
maintenance and recording of shareholder accounts, including all related tax and
other reporting requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Funds' shares. For
Classes A, B and C the Funds pay an annual per-account fee to Nvest Services
Company for these services in the amount of [$20.10 for Bullseye Fund, Balanced
Fund, Growth Fund, Capital Growth Fund, International Equity Fund, Equity Income
Fund, Star Advisers Fund, Star Worldwide Fund, Star Small Cap Fund, Star Value
Fund and Growth and Income Fund, and $17.35 for High Income Fund, Massachusetts
Fund, Limited Term U.S. Government Fund, Short Term Corporate Income Fund,
California Fund, Bond Income Fund, Municipal Income Fund, Strategic Income Fund
and Government Securities Fund. For Class Y, each Fund pays a fee of 0.10% of
average daily net assets of such class. Nvest Services Company has subcontracted
with State Street Bank for it to provide, through its subsidiary, Boston
Financial Data Services, Inc. ("BFDS"), transaction processing, mail and other
services. For these services, Nvest Services Company pays BFDS a monthly per
account fee.
In addition, during the fiscal year ended December 31, 1999 Nvest Services
Company performed certain accounting and administrative services for the Funds,
pursuant to an Administrative Services Agreement (the "Administrative
Agreement"). Under the Administrative Agreement, Nvest Services Company provides
the following services to the Funds: (i) expenses for personnel performing
bookkeeping, accounting, internal auditing and financial reporting functions and
clerical functions relating to the Fund, (ii) expenses for services required in
connection with the preparation of registration statements and prospectuses,
registration of shares in various states, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance, and (iii)
registration, filing and other fees in connection with requirements of
regulatory authorities. For these services, the Funds pay Nvest Services Company
a fee equal to the annual rate of 0.035% of the first $5 billion of the Funds'
average daily net assets, 0.0325% of the next $5 billion of the Funds' average
daily net assets and 0.03% of the Funds' average daily net assets in excess of
$10 billion.
For these services Nvest Management received fees from the Funds for the
following fiscal years ending December 31, 1997, 1998 and 1999:
Fiscal Year Ended December 31,
--------------------------------
Fund 1997 1998 1999
---------------------------- -------- -------- --------
Strategic Income $ 50,979 $ 72,358 $ 87,873
Bond Income $ 43,165 $ 60,796 $ 93,528
Municipal Income $ 38,598 $ 47,566 $ 57,743
Government Securities $ 30,213 $ 34,398 $ 39,373
International Equity $ 32,743 $ 28,617 $ 29,210
Growth $194,847 $298,419 $485,101
Capital Growth $ 38,845 $ 50,067 $ 74,071
Balanced $ 63,400 $ 82,246 $ 99,614
Star Advisers $129,628 $191,247 $310,812
Star Worldwide $ 43,298 $ 58,980 $ 74,470
Star Small Cap $ 23,420 $ 35,775 $ 47,197
Star Value $ 66,675 $ 90,930 $103,852
High Income $ 24,855 $ 37,309 $ 50,720
Short Term Corporate Income $ 44,817 $ 45,463 $ 34,629
Limited Term U.S. Government $ 50,735 $ 56,908 $ 64,717
Massachusetts $ 29,915 $ 35,876 $ 41,880
California $ 20,168 $ 22,493 $ 23,808
Growth and Income $ 47,565 $ 80,888 $153,450
Bullseye NA $ 13,737 $ 18,707
Equity Income $ 3,543 $ 21,298 $ 22,000
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
All Fixed-income Funds. In placing orders for the purchase and sale of
portfolio securities for each Fund, Back Bay Advisors and Loomis Sayles always
seek the best price and execution. Some of each Fund's portfolio transactions
are placed with brokers and dealers that provide Back Bay Advisors or Loomis
Sayles with supplementary investment and statistical information or furnish
market quotations to that Fund, the other Funds or other investment companies
advised by Back Bay Advisors or Loomis Sayles. The business would not be so
placed if the Funds would not thereby obtain the best price and execution.
Although it is not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce the expenses of Back Bay Advisors
or Loomis Sayles. The services may also be used by Back Bay Advisors or Loomis
Sayles in connection with their other advisory accounts and in some cases may
not be used with respect to the Funds.
All Equity Funds. In placing orders for the purchase and sale of equity
securities, each Fund's adviser or subadviser selects only brokers that it
believes are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge commission
rates that, when combined with the quality of the foregoing services, will
produce the best price and execution for the transaction. This does not
necessarily mean that the lowest available brokerage commission will be paid.
However, the commissions are believed to be competitive with generally
prevailing rates. Each Fund's adviser or subadviser will use its best efforts to
obtain information as to the general level of commission rates being charged by
the brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account.
Star Advisers Fund (Segment Advised by Janus Capital). Decisions as to the
assignment of portfolio business for the segment of Star Advisers Fund's
portfolio advised by Janus Capital and negotiation of its commission rates are
made by Janus Capital, whose policy is to obtain the "best execution" (prompt
and reliable execution at the most favorable securities price) of all portfolio
transactions. In placing portfolio transactions for its segments, Janus Capital
may agree to pay brokerage commissions for effecting a securities transaction in
an amount higher than another broker or dealer would have charged for effecting
that transaction as authorized, under certain circumstances, by the Securities
Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including, but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the securities being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with which it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting that transaction if Janus Capital determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall responsibilities of Janus
Capital. Research may include furnishing advice, either directly or through
publications or writing, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services, and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Janus Capital in carrying out its responsibilities. Research received
from brokers or dealers is supplemental to Janus Capital's own research efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to Star Advisers Fund. If Janus Capital determines that any
research product or service has a mixed use, such that it also serves functions
that do not assist in the investment decision-making process, Janus Capital may
allocate the costs of such service or product accordingly. Only that portion of
the product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital may also consider sales of shares of mutual funds advised by
Janus Capital by a broker-dealer or the recommendation of a broker-dealer to its
customers that they purchase shares of such funds as a factor in the selection
of broker-dealers to execute portfolio transactions for Star Advisers Fund. In
placing portfolio business with such broker-dealers, Janus Capital will seek the
best execution of each transaction.
Star Advisers Fund (Segment Advised by Kobrick). Kobrick's policy is to
seek for its clients, including its segment of the Fund managed by Kobrick, what
in Kobrick's judgment will be the best overall execution of purchase or sale
orders and the most favorable net prices in securities transactions consistent
with its judgment as to the business qualifications of the various broker or
dealer firms with which Kobrick may do business, and Kobrick may not necessarily
choose the broker offering the lowest available commission rate. Decisions with
respect to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency) and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. Kobrick makes
every effort to keep informed of commission rate structures and prevailing
bid/ask spread characteristics of the markets and securities in which
transactions for its segment of the Fund occurs. Against this background,
Kobrick evaluates the reasonableness of a commission or a net price with respect
to a particular transaction by considering such factors as difficulty of
execution or security positioning by the executing firm. Kobrick may or may not
solicit competitive bids based on its judgment of the expected benefit or harm
to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given to services other than execution services which certain of such firms have
provided in the past or may provide in the future. Negotiated commission rates
and prices, however, are based upon Kobrick's judgment of the rate which
reflects the execution requirements of the transaction without regard to whether
the broker provides services in addition to execution. Among such other services
are the supplying of supplemental investment research; general economic,
political and business information; analytical and statistical data; relevant
market information, quotation equipment and services; reports and information
about specific companies, industries and securities; purchase and sale
recommendations for stocks and bonds; portfolio strategy services; historical
statistical information; market data services providing information on specific
issues and prices; financial publications; proxy voting data and analysis
services; technical analysis of various aspects of the securities markets,
including technical charts; computer hardware used for brokerage and research
purposes; computer software and databases, including those used for portfolio
analysis and modeling; and portfolio evaluation services and relative
performance of accounts. Certain nonexecution services provided by
broker-dealers may in turn be obtained by the broker-dealers from third parties
that are paid for such services by the broker-dealers.
Kobrick regularly reviews and evaluates the services furnished by
broker-dealers. Some services may be used for research and investment
decision-making purposes, and also for marketing or administrative purposes.
Under these circumstances, Kobrick allocates the cost of such services to
determine the appropriate proportion of the cost which is allocable to purposes
other than research or investment decision-making and is therefore paid directly
by Kobrick. Some research and execution services may benefit Kobrick's clients
as a whole, while others may benefit a specific segment of clients. Not all such
services will necessarily be used exclusively in connection with the accounts
which pay the commissions to the broker-dealer producing the services.
Kobrick has no fixed agreements or understanding with any broker-dealer as
to the amount of brokerage business which that firm may expect to receive for
services supplied to Kobrick or otherwise. There may be, however, understandings
with certain firms that in order for such firms to be able to continuously
supply certain services, they need to receive allocation of a specified amount
of brokerage business. These understandings are honored to the extent possible
in accordance with Kobrick's obligation to obtain best execution and the
policies set forth above.
It is not Kobrick's policy to intentionally pay a firm a brokerage
commission higher that that which another firm would charge for handling the
same transaction in recognition of services (other than execution services);
provided, however, that Kobrick is aware that this is an area where differences
of opinion as to fact and circumstances may exist, and in such circumstances, if
any, Kobrick relies on the provisions of Section 28(e) of the Securities Act of
1934, to the extent applicable.
All Equity Funds Advised by Loomis Sayles. In placing orders for the
purchase and sale of securities for Balanced Fund, International Equity Fund and
the segments of Star Advisers Fund, Star Small Cap Fund, Star Worldwide Fund and
Star Value Fund advised by Loomis Sayles, Loomis Sayles follows the same
policies as for the other Funds for which it acts as subadviser, except that
Loomis Sayles may cause these Funds or segments to pay a broker-dealer that
provides brokerage and research services to Loomis Sayles an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount another broker-dealer would have charged for effecting that transaction.
Loomis Sayles must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of that particular
transaction or Loomis Sayles' overall responsibilities to the Fund and its other
clients. Loomis Sayles' authority to cause these Funds or segments to pay such
greater commissions is also subject to such policies as the trustees of the
Trusts may adopt from time to time.
Growth Fund Advised by CGM. In placing orders for the purchase and sale of
portfolio securities for the Fund, CGM always seeks the best price and
execution. Transactions in unlisted securities will be carried out through
broker-dealers that make the primary market for such securities unless, in the
judgment of CGM, a more favorable price can be obtained by carrying out such
transactions through other brokers.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker that CGM believes will provide the best price and execution
for a transaction. These research services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce CGM's expenses. Such services may be used by CGM in servicing
other client accounts and in some cases may not be used with respect to the
Fund. Receipt of services or products other than research from brokers is not a
factor in the selection of brokers.
Growth and Income Fund, Capital Growth Fund and Star Value Fund Segment
(Advised by Westpeak). In placing orders for the purchase and sale of
securities, Westpeak always seeks best execution. Westpeak selects only brokers
or dealers that it believes are financially responsible, will provide efficient
and effective services in executing, clearing and settling an order and will
charge commission rates that, when combined with the quality of the foregoing
services, will produce best price and execution. This does not necessarily mean
that the lowest available brokerage commission will be paid. Westpeak will use
its best efforts to obtain information as to the general level of commission
rates being charged by the brokerage community from time to time and will
evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account. Westpeak may cause the Fund to pay a broker-dealer that provides
brokerage and research services to Westpeak an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged effecting that transaction. Westpeak must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or Westpeak's
overall responsibilities to the Fund and its other clients. Westpeak's authority
to cause the Fund it manages to pay such greater commissions is also subject to
such policies as the trustees of the Trusts may adopt from time to time.
Bullseye Fund (Advised by Jurika & Voyles). In placing orders for the
purchase and sale of portfolio securities for the Fund, Jurika & Voyles always
seeks best execution, subject to the considerations set forth below.
Transactions in unlisted securities are carried out through broker-dealers who
make the market for such securities unless, in the judgment of Jurika & Voyles,
a more favorable execution can be obtained by carrying out such transactions
through other brokers or dealers.
Jurika & Voyles selects only brokers or dealers that it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best execution for the transaction. This does not necessarily mean that the
lowest available brokerage commission will be paid. However, the commissions are
believed to be competitive with generally prevailing rates. Jurika & Voyles will
use its best efforts to obtain information as to the general level of commission
rates being charged by the brokerage community from time to time and will
evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
Receipt of brokerage or research services from brokers may sometimes be a
factor in selecting a broker which Jurika & Voyles believes will provide best
execution for a transaction. These services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce Jurika & Voyles' expenses. Such services may be used by Jurika &
Voyles in servicing other client accounts and in some cases may not be used with
respect to the Fund. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
Jurika & Voyles may, however, consider purchases of shares of the Fund by
customers of broker-dealers as a factor in the selection of broker-dealers to
execute the Fund's securities transactions.
Jurika & Voyles may cause the Fund to pay a broker-dealer that provides
brokerage and research services to Jurika & Voyles an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. Jurika & Voyles
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or Jurika
& Voyles' overall responsibilities to the Fund and its other clients. Jurika &
Voyles' authority to cause the Fund to pay such greater commissions is also
subject to such policies as the trustees of the Trust may adopt from time to
time.
Star Advisers, Star Worldwide, Star Value Fund and Star Small Cap Funds
(Segments Advised by Harris Associates). In placing orders for the purchase and
sale of portfolio securities for the segments of Star Advisers Fund, Star
Worldwide Fund, Star Value Fund and Star Small Cap Fund advised by Harris
Associates, Harris Associates always seeks best execution, subject to the
considerations set forth below. Transactions in unlisted securities are carried
out through broker-dealers that make the market for such securities unless, in
the judgment of Harris Associates, a more favorable execution can be obtained by
carrying out such transactions through other brokers or dealers. Subject to the
above standard, portfolio transactions for each Fund may be executed through
Harris Associates Securities L.P., a registered broker-dealer and an affiliate
of Harris Associates.
Harris Associates selects only brokers or dealers that it believes
are financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best execution for the transaction. This does not necessarily mean that the
lowest available brokerage commission will be paid. However, the commissions are
believed to be competitive with generally prevailing rates. Harris Associates
will use its best efforts to obtain information as to the general level of
commission rates being charged by the brokerage community from time to time and
will evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
Receipt of brokerage or research services from brokers may sometimes
be a factor in selecting a broker which Harris Associates believes will provide
best execution for a transaction. These services include not only a wide variety
of reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce Harris Associates' expenses. Such services may be used by Harris
Associates in servicing other client accounts and in some cases may not be used
with respect to the Funds. Consistent with the Rules of the National Association
of Securities Dealers, Inc., and subject to seeking best execution, Harris
Associates may, however, consider purchases of shares of Star Advisers Fund,
Star Worldwide Fund and Star Small Cap Fund by customers of broker-dealers as a
factor in the selection of broker-dealers to execute Fund portfolio
transactions.
Harris Associates may cause its segments of Star Advisers Fund, Star
Worldwide Fund, Star Value Fund and Star Small Cap Fund to pay a broker-dealer
that provides brokerage and research services to Harris Associates an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount another broker-dealer would have charged for effecting that transaction.
Harris Associates must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of that particular
transaction or Harris Associates' overall responsibilities to the Funds and its
other clients. Harris Associates' authority to cause the Funds to pay such
greater commissions is also subject to such policies as the trustees of the
Trusts may adopt from time to time.
Star Worldwide and Star Small Cap Funds (Segments Advised by
Montgomery). In all purchases and sales of securities for its segments of the
Funds, Montgomery's primary consideration is to obtain the most favorable
execution available. Pursuant to the subadvisory agreements between Nvest
Management and Montgomery, Montgomery determines which securities are to be
purchased and sold by its segments and which broker-dealers are eligible to
execute its segments' portfolio transactions, subject to the instructions of,
and review by, Nvest Management and the trustees. Purchases and sales of
securities within the U.S. other than on a securities exchange will generally be
executed directly with a market-maker unless, in the opinion of Montgomery, a
better price and execution can otherwise be obtained by using a broker for the
transaction.
For Star Worldwide Fund, Montgomery contemplates purchasing most
equity securities directly in the securities markets located in emerging or
developing countries or in the over-the-counter markets. In purchasing American
Depository Receipts ("ADRs") and European Depository Receipts ("EDRs") (and
other similar instruments), Montgomery's segments of Star Worldwide Fund may
purchase those listed on stock exchanges, or traded in the over-the-counter
markets in the U.S. or Europe, as the case may be. ADRs, like other securities
traded in the U.S., will be subject to negotiated commission rates. The foreign
and domestic debt securities and money market instruments in which Montgomery's
segment of Star Worldwide Fund may invest may be traded in the over-the-counter
markets.
Purchases of portfolio securities for the segments also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which this segment will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principals for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, Montgomery will use its best
efforts to choose a broker-dealer capable of providing the services necessary
generally to obtain the most favorable execution available. The full range and
quality of services available will be considered in making these determinations,
such as the firm's ability to execute trades in a specific market required by
the segment of the Fund, such as in an emerging market, the size of the order,
the difficulty of execution, the operational facilities of the firm involved,
the firm's risk in positioning a block of securities, and other factors.
Montgomery may also consider the sale of Star Worldwide Fund and
Star Small Cap Fund shares as a factor in the selection of broker-dealers to
execute portfolio transactions for its segments. The placement of portfolio
transactions with broker-dealers who sell shares of the Funds is subject to
rules adopted by the National Association of Securities Dealers, Inc.
While Montgomery's general policy is to seek first to obtain the
most favorable execution available, in selecting a broker-dealer to execute
portfolio transactions, weight may also be given to the ability of a
broker-dealer to furnish brokerage, research and statistical services to
Montgomery, even if the specific services were not imputed just to the Fund and
may be lawfully and appropriately used by Montgomery in advising other clients.
Montgomery considers such information, which is in addition to, and not in lieu
of, the services required to be performed by it under its subadvisory agreements
with Nvest Management, to be useful in varying degrees, but of indeterminable
value. In negotiating any commissions with a broker or evaluating the spread to
be paid to a dealer, the segments of the Funds may therefore pay a higher
commission or spread than would be the case if no weight were given to the
furnishing of these supplemental services, provided that the amount of such
commission or spread has been determined in good faith by Montgomery to be
reasonable in relation to the value of the brokerage and/or research services
provided by such broker-dealer, which services either produce a direct benefit
to the segments of the Funds or assist Montgomery in carrying out its
responsibilities to the segments of the Funds. The standard of reasonableness is
to be measured in light of Montgomery's overall responsibilities to its
segments. The trustees of the Trusts review all brokerage allocations where
services other than best execution capabilities are a factor to ensure that the
other services provided meet the criteria outlined above and produce a benefit
to the Fund.
On occasion, situations may arise in which legal and regulatory
considerations will preclude trading for the segments' accounts by reason of
activities of Montgomery Securities, a broker-dealer affiliated with Montgomery,
or its affiliates. It is the judgment of the trustees that the Funds will not be
materially disadvantaged by any such trading preclusion and that the
desirability of continuing their subadvisory arrangements with Montgomery and
Montgomery's affiliation with Montgomery Securities and other affiliates of
Montgomery Securities outweigh any disadvantages that may result from the
foregoing.
Montgomery's sell discipline for the segments' investments is based
on the premise of a long-term investment horizon; however, sudden changes in
valuation levels arising from, for example, new macroeconomic policies,
political developments, and industry conditions could change the assumed time
horizon. Liquidity, volatility, and overall risk of a position are other factors
considered by Montgomery in determining the appropriate investment horizon.
At the company level, sell decisions are influenced by a number of
factors, including current stock valuation relative to the estimated fair value
range, or a high price-to-earnings ratio relative to expected growth. Negative
changes in the relevant industry sector, or a reduction in international
competitiveness and declining financial flexibility, may also signal a sell.
Star Small Cap Fund (Segment Advised by RS Investment Management).
It is the policy of RS Investment Management, in effecting transactions in
portfolio securities, to seek the best execution of orders. The determination of
what may constitute best execution in a securities transaction involves a number
of judgmental considerations, including, without limitation, the overall direct
net economic result to this segment of the Fund (involving both price paid or
received and any commissions and other costs), the efficiency with which the
transaction is effected, the ability to effect the transaction at all when a
large block is involved, the availability of the broker to stand ready to
execute possibly difficult transactions for this segment in the future, and the
financial strength and stability of the broker.
Subject to the policy of seeking best execution of orders at the
most favorable prices, RS Investment Management may execute transactions with
brokerage firms which provide research services and products to RS Investment
Management. The phrase "research services and products" includes advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or purchasers or sellers of
securities, the furnishing of analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts, and the obtainment of products such as third-party
publications, computer and electronic access equipment, software programs, and
other information and accessories that may assist RS Investment Management in
furtherance of its investment advisory responsibilities to its advisory clients.
Such services and products permit RS Investment Management to supplement its own
research and analysis activities, and provide it with information from
individuals and research staffs of many securities firms. Generally, it is not
possible to place a dollar value on the benefits derived from specific research
services and products. RS Investment Management may receive a benefit from these
research services and products which is not passed on, in the form of a direct
monetary benefit, to this segment of the Fund. If RS Investment Management
determines that any research product or service has a mixed use, such that it
also serves functions that do not assist in the investment decision-making
process, RS Investment Management may allocate the cost of such service or
product accordingly. The portion of the product or service that RS Investment
Management determines will assist it in the investment decision-making process
may be paid for in brokerage commission dollars. Any such allocation may create
a conflict of interest for RS Investment Management. Subject to the standards
outlined in this and the preceding paragraph, RS Investment Management may
arrange to execute a specified dollar amount of transactions through a broker
that has provided research products or services. Such arrangements do not
constitute commitments by RS Investment Management to allocate portfolio
brokerage upon any prescribed basis, other than upon the basis of seeking best
execution of orders.
Research services and products may be useful to RS Investment
Management in providing investment advice to any of the funds or clients it
advises. Likewise, information made available to RS Investment Management from
brokers effecting securities transactions for such other funds and clients may
be utilized on behalf of another fund. Thus, there may be no correlation between
the amount of brokerage commissions generated by a particular fund or client and
the indirect benefits received by that fund or client.
Subject to the policy of seeking the best execution of orders, sales
of shares of the Fund may also be considered as a factor in the selection of
brokerage firms to execute portfolio transactions for this segment of the Fund.
Because selection of executing brokers is not based solely on net
commissions, the segment of the Fund advised by RS Investment Management may pay
an executing broker a commission higher than that which might have been charged
by another broker for that transaction. RS Investment Management will not
knowingly pay higher mark-ups on principal transactions to brokerage firms as
consideration for receipt of research services or products. While it is not
practicable for RS Investment Management to solicit competitive bids for
commissions on each portfolio transaction, consideration is regularly given to
available information concerning the level of commissions charged in comparable
transactions by various brokers. Transactions in over-the-counter securities are
normally placed with principal market makers, except in circumstances where, in
the opinion of RS Investment Management, better prices and execution are
available elsewhere.
Equity Income Fund and Star Value Fund Segment Advised by VNSM. In
placing orders for the purchase and sale of securities for Equity Income Fund,
VNSM selects only brokers or dealers which it believes are financially
responsible and will provide efficient and effective services in executing,
clearing and settling an order. VNSM will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account. Transactions in
unlisted securities are carried out through broker-dealers who make the primary
market for such securities unless, in the judgment of VNSM, a more favorable
price can be obtained by carrying out such transactions through other brokers or
dealers.
Receipt of research services from brokers may sometimes be a factor
in selecting a broker which VNSM believes will provide best execution for a
transaction. These research services include not only a wide variety of reports
on such matters as economic and political developments, industries, companies,
securities, portfolio strategy, account performance, daily prices of securities,
stock and bond market conditions and projections, asset allocation and portfolio
structure, but also meetings with management representatives of issuers and with
other analysts and specialists. Although it is not possible to assign an exact
dollar value to these services, they may, to the extent used, tend to reduce
VNSM's expenses. Such services may be used by VNSM in servicing other client
accounts and in some cases may not be used with respect to the Fund. Receipt of
services or products other than research from brokers is not a factor in the
selection of brokers. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., VNSM may, however, consider purchases
of shares of the Fund and other funds managed by VNSM by customers of
broker-dealers as a factor in the selection of broker-dealers to execute the
Fund's securities transactions.
In placing orders for the purchase and sale of securities for the
Fund, VNSM may cause the Fund to pay a broker-dealer that provides the brokerage
and research services to VNSM an amount of commission for effecting a securities
transaction for the Fund in excess of the amount another broker-dealer would
have charged for effecting that transaction. VNSM must determine in good faith
that such greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker-dealer viewed
in terms of that particular transaction or VNSM's overall responsibilities to
the Trust and its other clients. VNSM's authority to cause the Fund to pay such
greater commissions is also subject to such policies as the Trustees of the
Trust may adopt from time to time.
Portfolio Trades of All Subadvisers Subject to the overriding objective of
obtaining the best possible execution of orders, each of the subadvisers may
allocate brokerage transactions to affiliated brokers. In order for the
affiliated broker to effect portfolio transactions for the Fund, the
commissions, fees or other remuneration received by the affiliated broker must
be reasonable and fair compared to the commissions, fees and other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period. Furthermore, the trustees of the Trusts, including a majority
of those trustees who are not "interested persons" of the Trusts, as defined in
the 1940 Act, have adopted procedures which are reasonably designed to provide
that any commissions, fees or other remuneration paid to an affiliated broker
are consistent with the foregoing standard.
General
Portfolio turnover is not a limiting factor with respect to investment
decisions. The Funds anticipate that their portfolio turnover rates will vary
significantly from time to time depending on the volatility of economic and
market conditions. Portfolio turnover rates for the Massachusetts Fund and the
California Fund differed significantly over the two most recently completed
fiscal years due to changes in the number of securities transactions made by
these Funds.
Subject to procedures adopted by the Board of Trustees of the Trusts, the
Funds' brokerage transactions may be executed by brokers that are affiliated
with Nvest Companies or the Funds' advisers or subadvisers. Any such
transactions will comply with Rule 17e-1 under the 1940 Act.
Under the 1940 Act, persons affiliated with each Trust are prohibited from
dealing with each Trust's Funds as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts,
affiliated persons of the Trusts, such as New England Securities, may not serve
as the Funds' dealer in connection with such transactions.
To the extent permitted by applicable law, and in all instances subject to
the foregoing policy of best execution, the adviser or subadviser may allocate
brokerage transactions in a manner that takes into account the sale of shares of
one or more Funds distributed by the Distributor. In addition, the adviser or
subadviser may allocate brokerage transactions to broker-dealers (including
affiliates of the Distributor) that have entered into arrangements in which the
broker-dealer allocates a portion of the commissions paid by a Fund toward the
reduction of that Fund's expenses, subject to the requirement that the adviser
or subadviser will seek best execution.
It is expected that the portfolio transactions in fixed-income securities
will generally be with issuers or dealers on a net basis without a stated
commission. Securities firms may receive brokerage commissions on transactions
involving options, futures and options on futures and the purchase and sale of
underlying securities upon exercise of options. The brokerage commissions
associated with buying and selling options may be proportionately higher than
those associated with general securities transactions.
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DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES
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Nvest Funds Trust I is organized as a Massachusetts business trust under
the laws of Massachusetts by an Agreement and Declaration of Trust (a
"Declaration of Trust") dated June 7, 1985, as amended, and is a "series"
company as described in Section 18(f)(2) of the 1940 Act. Until September 1986,
the name of the Trust was "New England Life Government Securities Trust"; from
September 1986 to March 1994, its name was "The New England Funds." Its name was
"New England Funds Trust I" from April 1994 to January 2000, at which time its
name was changed to "Nvest Funds Trust I." Prior to January 5, 1996, the name of
the Municipal Income Fund was "New England Tax Exempt Income Fund." The initial
Fund of the Trust (the Fund now called Nvest Government Securities Fund)
commenced operations on September 16, 1985. International Equity Fund commenced
operations on May 22, 1992. The Capital Growth Fund was organized in 1992 and
commenced operations on August 3, 1992. Star Advisers Fund was organized in 1994
and commenced operations on July 7, 1994. Strategic Income Fund was organized in
1995 and commenced operations on May 1, 1995. Star Worldwide Fund was organized
in 1995 and commenced operations on December 29, 1995. Star Small Cap Fund was
organized in 1996 and commenced operations on December 31, 1996. The remaining
Funds in the Trust are successors to the following corporations which commenced
operations in the years indicated:
Corporation Date of Commencement
----------- --------------------
NEL Growth Fund, Inc.* 1968
NEL Retirement Equity Fund, Inc.** 1970
NEL Equity Fund, Inc.*** 1968
NEL Income Fund, Inc.**** 1973
NEL Tax Exempt Bond Fund, Inc.***** 1977
* Predecessor of the Growth Fund
** Predecessor of the Star Value Fund (prior
to February 28, 2000 the name of the Fund
was "Nvest Value Fund")
*** Predecessor of the Balanced Fund
**** Predecessor of the Bond Income Fund
***** Predecessor of the Municipal Income Fund
Nvest Funds Trust II is organized as a Massachusetts business trust
pursuant to a Declaration of Trust dated May 6, 1931, as amended, and consisted
of a single Fund (now the Growth and Income Fund) until January 1989, when the
Trust was reorganized as a "series" company as described in Section 18(f)(2) of
the 1940 Act. The Trust has six separate portfolios. Until December 1988, the
name of the Trust was "Investment Trust of Boston"; from December 1988 until
April 1992, its name was "Investment Trust of Boston Funds"; from April 1992
until March 1994, its name was "TNE Funds Trust." Its name was "New England
Funds Trust II" from April 1994 to January 2000, at which time its name was
changed to "Nvest Funds Trust II." High Income Fund and Massachusetts Fund are
successors to separate investment companies that were organized in 1983 and
1984, respectively, and reorganized as series of the Trust in January 1989.
Limited Term U.S. Government Fund was organized in 1988 and commenced operations
in January 1989. Short Term Corporate Income Fund was organized in 1991 and
commenced operations on October 18 of that year. California Fund was organized
in 1993 and commenced operations on April 23 of that year. Prior to December 1,
1998, the name of Short Term Corporate Income Fund was "Adjustable Rate U.S.
Government Fund." Prior to May 1, 1999, the name of Growth and Income Fund,
which was organized in 1931 and commenced operations on May 6th of that year,
was "Growth Opportunities Fund."
Nvest Funds Trust III was organized as a Massachusetts business trust
pursuant to a Declaration of Trust dated August 22, 1995. The Trust has eight
separate funds (Nvest Bullseye Fund, Nvest Equity Income Fund, Nvest Core Equity
Fund, Nvest Stock and Bond Fund, Nvest Select Fund, Nvest Small Cap Value Fund,
Nvest Small Cap Growth Fund and Nvest Total Return Bond Fund). Nvest Equity
Income Fund was organized in 1995 and commenced operations on November 28, 1995.
Nvest Bullseye Fund, Nvest Core Equity Fund, Nvest Stock and Bond Fund, Nvest
Select Fund, Nvest Small Cap Value Fund, Nvest Small Cap Growth Fund and Nvest
Total Return Bond Fund were organized in 1998. Nvest Bullseye Fund commenced
operations on March 31, 1998. Nvest Core Equity Fund, Nvest Stock and Bond Fund,
Nvest Select Fund, Nvest Small Cap Value Fund, Nvest Small Cap Growth Fund and
Nvest Total Return Bond Fund are not currently offered to the public.
The Declarations of Trust of Nvest Funds Trust I, Nvest Funds Trust II and
Nvest Funds Trust III permit each Trust's trustees to issue an unlimited number
of full and fractional shares of each series. Each Fund is represented by a
particular series of shares. The Declarations of Trust further permit each
Trust's Board of Trustees to divide the shares of each series into any number of
separate classes, each having such rights and preferences relative to other
classes of the same series as each Trust's Board of Trustees may determine. When
you invest in a Fund, you acquire freely transferable shares of beneficial
interest that entitle you to receive annual or quarterly dividends as determined
by the respective Trust's Board of Trustees and to cast a vote for each share
you own at shareholder meetings. The shares of each Fund do not have any
preemptive rights. Upon termination of any Fund, whether pursuant to liquidation
of the Trust or otherwise, shareholders of each class of the Fund are entitled
to share pro rata in the net assets attributable to that class of shares of the
Fund available for distribution to shareholders. The Declarations of Trust also
permit the Board of Trustees to charge shareholders directly for custodial,
transfer agency and servicing expenses.
The shares of all the Funds (except as noted in each of the Fund's
Prospectuses) are divided into four classes: Class A, Class B, Class C and Class
Y. Each Fund offers such classes of shares as set forth in such Fund's
Prospectus. Class Y shares are available for purchase only by certain eligible
institutional investors and have higher minimum purchase requirements than
Classes A, B and C. All expenses of each Fund (excluding transfer agency fees
and expenses of printing and mailing Prospectuses to shareholders ("Other
Expenses")) are borne by its Class A, B, C and Y shares on a pro rata basis,
except for 12b-1 fees, which are borne only by Classes A, B and C and may be
charged at a separate rate to each such class. Other Expenses of Classes A, B
and C are borne by such classes on a pro rata basis, but Other Expenses relating
to the Class Y shares may be allocated separately to the Class Y shares. The
Class A, Class B, Class C and Class Y structure could be terminated should
certain IRS rulings be rescinded.
The assets received by each class of a Fund for the issue or sale of its
shares and all income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of the creditors, are allocated to, and constitute the
underlying assets of, that class of a Fund. The underlying assets of each class
of a Fund are segregated and are charged with the expenses with respect to that
class of a Fund and with a share of the general expenses of the relevant trust.
Any general expenses of the Trust that are not readily identifiable as belonging
to a particular class of a Fund are allocated by or under the direction of the
trustees in such manner as the trustees determine to be fair and equitable.
While the expenses of each Trust are allocated to the separate books of account
of each Fund, certain expenses may be legally chargeable against the assets of
all of the Funds in a Trust.
The Declarations of Trust also permit each Trust's Board of Trustees,
without shareholder approval, to subdivide any Fund or series or class of shares
into various sub-series or sub-classes with such dividend preferences and other
rights as the trustees may designate. While each Trust's Board of Trustees has
no current intention to exercise this power, it is intended to allow them to
provide for an equitable allocation of the impact of any future regulatory
requirements that might affect various classes of shareholders differently. Each
Trust's Board of Trustees may also, without shareholder approval, establish one
or more additional series or classes or merge two or more existing series or
classes.
The Declarations of Trust provide for the perpetual existence of the
Trusts. Any Trust or any Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of each Fund affected. Similarly,
any class within a Fund may be terminated by vote of at least two-thirds of the
outstanding shares of such class. While each Declaration of Trust further
provides that the Board of Trustees may also terminate the relevant Trust upon
written notice to its shareholders, the 1940 Act requires that the Trust receive
the authorization of a majority of its outstanding shares in order to change the
nature of its business so as to cease to be an investment company.
Voting Rights
Shareholders are entitled to one vote for each full share held (with
fractional votes for each fractional share held) and may vote (to the extent
provided therein) in the election of trustees and the termination of the Trust
and on other matters submitted to the vote of shareholders.
The Declarations of Trust provide that on any matter submitted to a vote
of all shareholders of a Trust, all Trust shares entitled to vote shall be voted
together irrespective of series or class unless the rights of a particular
series or class would be adversely affected by the vote, in which case a
separate vote of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreement relating to that series, and shareholders of each
class within a series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) a Trust will
hold a shareholders' meeting for the election of trustees at such time as less
than a majority of the trustees holding office have been elected by
shareholders, and (ii) if there is a vacancy on the Board of Trustees, such
vacancy may be filled only by a vote of the shareholders unless, after filing
such vacancy by other means, at least two-thirds of the trustees holding office
shall have been elected by the shareholders. In addition, trustees may be
removed from office by a written consent signed by the holders of two-thirds of
the outstanding shares and filed with a Trust's custodian or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for
that purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value of
at least $25,000 or at least 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Trusts have undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold office and
may appoint successor trustees. Shareholder voting rights are not cumulative.
No amendment may be made to a Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the relevant Trust except (i) to
change the Trust's or a Fund's name or to cure technical problems in the
Declaration of Trust, (ii) to establish and designate new series or classes of
Trust shares and (iii) to establish, designate or modify new and existing series
or classes of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations. If one or more new series of a Trust
is established and designated by the trustees, the shareholders having
beneficial interests in the Funds described in this Statement shall not be
entitled to vote on matters exclusively affecting such new series, such matters
including, without limitation, the adoption of or any change in the investment
objectives, policies or restrictions of the new series and the approval of the
investment advisory contracts of the new series. Similarly, the shareholders of
the new series shall not be entitled to vote on any such matters as they affect
the Funds.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of a Trust. However, the
Declarations of Trust disclaim shareholder liability for acts or obligations of
a Trust and require that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by a Trust or the trustees.
The Declarations of Trust provide for indemnification out of each Fund's
property for all loss and expense of any shareholder held personally liable for
the obligations of the Fund by reason of owning shares of such Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and a Fund itself would be unable to meet its
obligations.
The Declarations of Trust further provide that the relevant Board of
Trustees will not be liable for errors of judgment or mistakes of fact or law.
However, nothing in the Declarations of Trust protects a trustee against any
liability to which the trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. The By-Laws of each Trust provide
for indemnification by the Trust of trustees and officers of the relevant Trust,
except with respect to any matter as to which any such person did not act in
good faith in the reasonable belief that his or her action was in or not opposed
to the best interests of the Trust. Such persons may not be indemnified against
any liability to the Trust or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. Each Trust offers only its own Funds' shares for sale, but it is
possible that a Trust might become liable for any misstatements in a Prospectus
that relate to another Trust. The trustees of each Trust have considered this
possible liability and approved the use of the combined Prospectus for Funds of
all three Trusts.
Code of Ethics
The Funds, their advisers and the Distributor have adopted Codes of Ethics
pursuant to Rule 17j-1 under the 1940 Act. The Codes of Ethics permits employees
to invest in securities for their own accounts. The Codes of Ethics is on public
file with, and is available from, the SEC.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Funds are summarized in the
Prospectuses. All purchases made by check should be in U.S. dollars and made
payable to Nvest Funds, or, in the case of a retirement account, the custodian
or trustee.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange (the
"Exchange") on a day when the Exchange is open; otherwise the settlement date is
the following business day. For telephone orders, the settlement date is the
third business day after the order is made.
Shares may also be purchased either in writing, by phone or, in the case
of Class A, B and C shares, by electronic funds transfer using Automated
Clearing House ("ACH"), or by exchange as described in the Prospectuses through
firms that are members of the National Association of Securities Dealers, Inc.
and that have selling agreements with the Distributor. You may also use Nvest
Funds Personal Access Line(TM) (800-225-5478, press 1) or Nvest Funds Web site
(www.nvestfunds.com) to purchase Fund shares. For more information, see the
section entitled "Shareholder Services" in this Statement.
A shareholder may purchase additional shares electronically through the
ACH system so long as the shareholder's bank or credit union is a member of the
ACH system and the shareholder has a completed, approved ACH application on
file. Banks may charge a fee for transmitting funds by wire. With respect to
shares purchased by federal funds, shareholders should bear in mind that wire
transfers may take two or more hours to complete.
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of a Fund's Class A, B and C shares. Payment must be
received by the Distributor within three business days following the transaction
date or the order will be subject to cancellation. Telephone orders must be
placed through the Distributor or your investment dealer.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules as summarized in the
Prospectus may apply.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset value
per share is summarized in the Prospectus.
The total net asset value of each class of shares of a Fund (the excess of
the assets of such Fund attributable to such class over the liabilities
attributable to such class) is determined as of the close of regular trading
(normally 4:00 p.m. Eastern time) on each day that the Exchange is open for
trading. The weekdays that the Exchange is expected to be closed are New Year's
Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities
listed on a national securities exchange or on the NASDAQ National Market System
are valued at their last sale price, or, if there is no reported sale during the
day, the last reported bid price estimated by a broker. Unlisted securities
traded in the over-the-counter market are valued at the last reported bid price
in the over-the-counter market or on the basis of yield equivalents as obtained
from one or more dealers that make a market in the securities. U.S. government
securities are traded in the over-the-counter market. Options, interest rate
futures and options thereon that are traded on exchanges are valued at their
last sale price as of the close of such exchanges. Securities for which current
market quotations are not readily available and all other assets are taken at
fair value as determined in good faith by the Board of Trustees, although the
actual calculations may be made by persons acting pursuant to the direction of
the Board.
Generally, trading in foreign government securities and other fixed-income
securities, as well as trading in equity securities in markets outside the
United States, is substantially completed each day at various times prior to the
close of the Exchange. Securities traded on a non-U.S. exchange will be valued
at their last sale price (or the last reported bid price, if there is no
reported sale during the day), on the exchange on which they principally trade,
as of the close of regular trading on such exchange except for securities traded
on the London Stock Exchange ("British Equities"). British Equities will be
valued at the mean between the last bid and last asked prices on the London
Stock Exchange. The value of other securities principally traded outside the
United States will be computed as of the completion of substantial trading for
the day on the markets on which such securities principally trade. Securities
principally traded outside the United States will generally be valued several
hours before the close of regular trading on the Exchange, generally 4:00 p.m.
Eastern time, when the Funds compute the net asset value of their shares.
Occasionally, events affecting the value of securities principally traded
outside the United States may occur between the completion of substantial
trading of such securities for the day and the close of the Exchange, which
events will not be reflected in the computation of a Fund's net asset value. If
events materially affecting the value of a Fund's securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or in accordance with procedures approved by the Trusts'
trustees. The effect of fair value pricing is that securities may not be priced
on the basis of quotations from the primary market in which they are traded but
rather, may be priced by another method that the Board of Trustees believes
accurately reflects fair value.
Trading in some of the portfolio securities of some of the Funds takes
place in various markets outside the United States on days and at times other
than when the Exchange is open for trading. Therefore, the calculation of these
Funds' net asset value does not take place at the same time as the prices of
many of its portfolio securities are determined, and the value of the Fund's
portfolio may change on days when the Fund is not open for business and its
shares may not be purchased or redeemed.
The per share net asset value of a class of a Fund's shares is computed by
dividing the number of shares outstanding into the total net asset value
attributable to such class. The public offering price of a Class A share of a
Fund is the net asset value per share next-determined after a properly completed
purchase order is accepted by Nvest Services Company or State Street Bank, plus
a sales charge as set forth in the Fund's Prospectus. The public offering price
of a Class B, C or Y share of a Fund is the next-determined net asset value.
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REDUCED SALES CHARGES
CLASS A SHARES ONLY
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The following special purchase plans are summarized in the Prospectuses and are
described in greater detail below.
CUMULATIVE PURCHASE DISCOUNT. A Fund shareholder may make an initial or an
additional purchase of Class A shares and be entitled to a discount on the sales
charge payable on that purchase. This discount will be available if the
shareholder's "total investment" in the Fund reaches the breakpoint for a
reduced sales charge in the table under "How Sales Charges Are Calculated-Class
A shares" in the Prospectus. The total investment is determined by adding the
amount of the additional purchase, including sales charge, to the current public
offering price of all series and classes of shares of the Nvest Trusts held by
the shareholder in one or more accounts. If the total investment exceeds the
breakpoint, the lower sales charge applies to the entire additional investment
even though some portion of that additional investment is below the breakpoint
to which a reduced sales charge applies. For example, if a shareholder who
already owns shares of one or more Funds or other of the Nvest Funds with a
value at the current public offering price of $30,000 makes an additional
purchase of $20,000 of Class A shares of another Fund or Nvest Fund, the reduced
sales charge of 4.5% of the public offering price will apply to the entire
amount of the additional investment.
LETTER OF INTENT. A Letter of Intent (a "Letter"), which can be effected
at any time, is a privilege available to investors which reduces the sales
charge on investments in Class A shares. Ordinarily, reduced sales charges are
available for single purchases of Class A shares only when they reach certain
breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a shareholder
indicates an intention to invest enough money in Class A shares within 13 months
to reach a breakpoint. If the shareholder's intended aggregate purchases of all
series and classes of the Trusts over a defined 13-month period will be large
enough to qualify for a reduced sales charge, the shareholder may invest the
smaller individual amounts at the public offering price calculated using the
sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be
increased, decreased or canceled at any time. The effective date of a Letter is
the date it is received in good order by the Distributor, or, if communicated by
a telephone exchange or order, at the date of telephoning provided a signed
Letter, in good order, reaches the Distributor within five business days.
A reduced sales charge is available for aggregate purchases of all series
and classes of shares of the Trusts pursuant to a written Letter effected within
90 days after any purchase. In the event the account was established prior to 90
days before the effective date of the Letter, the account will be credited with
the Rights of Accumulation ("ROA") towards the breakpoint level that will be
reached upon the completion of the 13 months' purchases. The ROA credit is the
value of all shares held as of the effective dates of the Letter based on the
"public offering price computed on such date."
The cumulative purchase discount, described above, permits the aggregate
value at the current public offering price of Class A shares of any accounts
with the Trusts held by a shareholder to be added to the dollar amount of the
intended investment under a Letter, provided the shareholder lists them on the
account application.
State Street Bank will hold in escrow shares with a value at the current
public offering price of 5% of the aggregate amount of the intended investment.
The amount in escrow will be released when the commitment stated in the Letter
is completed. If the shareholder does not purchase shares in the amount
indicated in the Letter, the shareholder agrees to remit to State Street Bank
the difference between the sales charge actually paid and that which would have
been paid had the Letter not been in effect, and authorizes State Street Bank to
redeem escrowed shares in the amount necessary to make up the difference in
sales charges. Reinvested dividends and distributions are not included in
determining whether the Letter has been completed.
COMBINING ACCOUNTS. Purchases of all series and classes of the Nvest Funds
(excluding the Nvest Cash Management Trust and Nvest Tax Exempt Money Market
Trust (the "Money Market Funds") unless the shares were purchased through an
exchange another Nvest Fund) by or for an investor, the investor's spouse,
parents, children, siblings, in-laws, grandparents or grandchildren and any
other account of the investor, including sole proprietorships, in any Trust may
be treated as purchases by a single individual for purposes of determining the
availability of a reduced sales charge. Purchases for a single trust estate or a
single fiduciary account may also be treated as purchases by a single individual
for this purpose, as may purchases on behalf of a participant in a tax-qualified
retirement plan and other employee benefit plans, provided that the investor is
the sole participant in the plan. Any other group of individuals acceptable to
the Distributor may also combine accounts for such purpose. The values of all
accounts are combined to determine the sales charge.
COMBINING WITH OTHER SERIES AND CLASSES OF THE NVEST FUNDS. A
shareholder's total investment for purposes of the cumulative purchase discount
includes the value at the current public offering price of any shares of series
and classes of the Trusts that the shareholder owns (which excludes shares of
the Money Market Funds unless such shares were purchased by exchanging shares of
any other Nvest Fund). Shares owned by persons described in the preceding
paragraph may also be included.
UNIT HOLDERS OF UNIT INVESTMENT TRUSTS. Unit investment trust
distributions may be invested in Class A shares of any Fund at a reduced sales
charge of 1.50% of the public offering price (or 1.52% of the net amount
invested); for large purchases on which a sales charge of less than 1.50% would
ordinarily apply, such lower charge also applies to investments of unit
investment trust distributions.
CLIENTS OF ADVISERS OR SUBADVISERS. No front-end sales charge or CDSC
applies to investments of $25,000 or more in Class A shares of the Funds by (1)
clients of an adviser or subadviser to any series of the Trusts; any director,
officer or partner of a client of an adviser or subadviser to any series of the
Trusts; or the spouse, parents, children, siblings, in-laws, grandparents or
grandchildren of the foregoing; (2) any individual who is a participant in a
Keogh or IRA Plan under a prototype of an adviser or subadviser to any series of
the Trusts if at least one participant in the plan qualifies under category (1)
above; and (3) an individual who invests through an IRA and is a participant in
an employee benefit plan that is a client of an adviser or subadviser to any
series of the Trusts. Any investor eligible for this arrangement should so
indicate in writing at the time of the purchase.
OFFERING TO EMPLOYEES OF METLIFE AND ASSOCIATED ENTITIES. There is no
front-end sales charge, CDSC or initial investment minimum related to
investments in Class A shares of the Funds by any of the Trusts' advisers or
subadvisers, the Distributor or any other company affiliated with New England
Financial or MetLife; current and former directors and trustees of the Trusts;
agents and general agents of New England Financial or MetLife and their
insurance company subsidiaries; current and retired employees of such agents and
general agents; registered representatives of broker-dealers who have selling
arrangements with the Distributor; the spouse, parents, children, siblings,
in-laws, grandparents or grandchildren of the persons listed above and any
trust, pension, profit sharing or other benefit plans for any of the foregoing
persons and any separate account of New England Financial or MetLife or any
insurance company affiliated with New England Financial or MetLife.
ELIGIBLE GOVERNMENTAL AUTHORITIES. There is no sales charge or CDSC
related to investments in Class A shares of any Fund by any state, county or
city or any instrumentality, department, authority or agency thereof that has
determined that a Fund is a legally permissible investment and that is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
investment company.
INVESTMENT ADVISORY ACCOUNTS. Shares of any Fund may be purchased at net
asset value by investment advisers, financial planners or other intermediaries
who place trades for their own accounts or the accounts of their clients and who
charge a management, consulting or other fee for their services; clients of such
investment advisers, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment adviser, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Sections 401(a), 403(b), 401(k) and 457 of the Code and "rabbi
trusts." Investors may be charged a fee if they effect transactions through a
broker or agent.
CERTAIN BROKER-DEALERS AND FINANCIAL SERVICES ORGANIZATIONS. Shares of any
Fund also may be purchased at net asset value through certain broker-dealers
and/or financial services organizations without any transaction fee. Such
organizations may also receive compensation based upon the average value of the
Fund shares held by their customers. This compensation may be paid by Nvest
Management, Loomis Sayles and/or Harris Associates out of its own assets, and/or
be paid indirectly by the Fund in the form of servicing, distribution or
transfer agent fees.
CERTAIN RETIREMENT PLANS. Shares of the Funds are available at net asset
value for investments by participant-directed 401(a) and 401(k) plans that have
100 or more eligible employees or by retirement plans whose third party
administrator or dealer has entered into a service agreement with the
Distributor to perform certain administrative services, subject to certain
operational and minimum size requirements specified from time to time by the
Distributor. This compensation may be paid indirectly by the Fund in the form of
service and/or distribution fees.
BANK TRUST DEPARTMENTS OR TRUST COMPANIES. Shares of the Funds are
available at net asset value for investments by non-discretionary and
non-retirement accounts of bank trust departments or trust companies, but are
unavailable if the trust department or institution is part of an organization
not principally engaged in banking or trust activities.
SHAREHOLDERS OF REICH AND TANG GOVERNMENT SECURITIES TRUST. Shareholders
of Reich and Tang Government Securities Trust may exchange their shares of that
fund for Class A shares of the Funds at net asset value and without imposition
of a sales charge.
CERTAIN ACCOUNTS OF GROWTH FUND. For accounts established prior to
February 28, 1997 having a total investment value of between (and including)
$25,000 and $49,000, a reduced sales charge of 5.50% of the offering price (or
5.82% of the net amount invested), with a dealer's concession of 4.25% as a
percentage of offering price, will be charged on the sale of additional Class A
shares of Growth Fund if the total investment value of Growth Fund account after
such sale is between (and including) $25,000 and $49,000.
The reduction or elimination of the sales charges in connection with
special purchase plans described above reflects the absence or reduction of
expenses associated with such sales.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. Nvest Services Company may charge a fee for
providing duplicate information.
The open account system provides for full and fractional shares expressed
to three decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates. Certificates will not be issued for Class B or Class C shares.
The costs of maintaining the open account system are paid by the Funds and
no direct charges are made to shareholders. Although the Funds have no present
intention of making such direct charges to shareholders, they each reserve the
right to do so. Shareholders will receive prior notice before any such charges
are made.
Automatic Investment Plans (Class A, B and C Shares)
Subject to each Fund's investor eligibility requirements, investors may
automatically invest in additional shares of a Fund on a monthly basis by
authorizing the Distributor to draw checks on an investor's bank account. The
checks are drawn under the Investment Builder Program, a program designed to
facilitate such periodic payments, and are forwarded to Nvest Services Company
for investment in the Fund. A plan may be opened with an initial investment of
$100 or more and thereafter regular monthly checks of $100 or more will be drawn
on the investor's account. The reduced minimum initial investment pursuant to an
automatic investment plan is referred to in the Prospectus. An Investment
Builder application must be completed to open an automatic investment plan. An
application may be found in the Prospectus or may be obtained by calling the
Distributor at 800-225-5478 or your investment dealer.
This program is voluntary and may be terminated at any time by Nvest
Services Company upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by the
investor by written notice to Nvest Services Company, which must be received at
least five business days prior to any payment date. The plan may be discontinued
by State Street Bank at any time without prior notice if any check is not paid
upon presentation; or by written notice to the shareholder at least thirty days
prior to any payment date. State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits (Class A, B and C Shares)
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the Funds or with certain
other investments. The plans include H.R. 10 (Keogh) plans for self-employed
individuals and partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans, and retirement
plans for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the Prospectus. For these plans, initial
investments in a Fund must be at least $250 for each participant in corporate
pension and profit sharing plans and Keogh plans, at least $500 for IRAs and at
least $100 for any subsequent investments. There is a special initial and
subsequent investment minimum of $25 for payroll deduction investment programs
for 401(k), SARSEP, SEP, SIMPLE Plans, 403(b) and certain other retirement
plans. Income dividends and capital gain distributions must be reinvested
(unless the investor is over age 59 1/2 or disabled). These types of accounts
may be subject to fees. Plan documents and further information can be obtained
from the Distributor.
An investor should consult a competent tax or other adviser as to the
suitability of a Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and as to the eligibility requirements for a specific plan and its
state as well as federal tax aspects.
Certain retirement plans may also be eligible to purchase Class Y shares.
See the Prospectus relating to Class Y shares.
Systematic Withdrawal Plans (Class A, B and C Shares)
An investor owning a Fund's shares having a value of $5,000 or more at the
current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or the Distributor.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or, to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in your account. No CDSC applies to a redemption pursuant to
the Plan.
All shares under the Plan must be held in an open (uncertificated)
account. Income dividends and capital gain distributions will be reinvested
(without a sales charge in the case of Class A shares) at net asset value
determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, a
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The
Funds and the Distributor make no recommendations or representations in this
regard. It may be appropriate for a shareholder to consult a tax adviser before
establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a regular basis
additional Fund shares with a sales charge while redeeming shares under a
Systematic Withdrawal Plan. Accordingly, the Funds and the Distributor do not
recommend additional investments in Class A shares by a shareholder who has a
withdrawal plan in effect and who would be subject to a sales load on such
additional investments. Nvest Funds may modify or terminate this program at any
time.
Because of statutory restrictions this plan is not available to pension or
profit-sharing plans, IRAs or 403(b) plans that have State Street Bank as
trustee.
Dividend Diversification Program
You may also establish a Dividend Diversification Program, which allows
you to have all dividends and any other distributions automatically invested in
shares of the same class of another Nvest Fund, subject to the investor
eligibility requirements of that other Fund and to state securities law
requirements. Shares will be purchased at the selected Fund's net asset value
(without a sales charge or CDSC) on the dividend record date. A dividend
diversification account must be in the same registration (shareholder name) as
the distributing Fund account and, if a new account in the purchased Fund is
being established, the purchased Fund's minimum investment requirements must be
met. Before establishing a Dividend Diversification Program into any other Nvest
Fund, you must obtain and carefully read a copy of that Fund's Prospectus.
Exchange Privilege
A shareholder may exchange the shares of any Fund (except that Class A
shares of the California Fund may only be exchanged if such shares have been
held for at least six months) for shares of the same class of any other Nvest
Fund (subject to the investor eligibility requirements, if any, of the Nvest
Fund into which the exchange is being made) on the basis of relative net asset
values at the time of the exchange without any sales charge. An exchange of
shares in one Fund for shares of another Fund is a taxable event on which gain
or loss may be recognized. In the case of Class A shares of the California Fund
held less than six months, if exchanged for shares of any other Fund that has a
higher sales charge, shareholders will pay the difference between any sales
charge already paid on their shares and the higher sales charge of the Fund into
which they are exchanging at the time of the exchange. Exchanges of Class A
shares of Short Term Corporate Income Fund (formerly Adjustable Rate U.S.
Government Fund) purchased before December 1, 1998 will also pay the difference
between any sales charge already paid on their shares and the higher sales
charge of the Fund into which they are exchanging. When an exchange is made from
the Class A, Class B or Class C shares of one Fund to the same class of shares
of another Fund, the shares received by the shareholder in the exchange will
have the same age characteristics as the shares exchanged. The age of the shares
determines the expiration of the CDSC and, for the Class B shares, the
conversion date. If you own Class A, Class B or Class C shares, you may also
elect to exchange your shares of any Fund for shares of the same class of the
Money Market Funds. On all exchanges of Class A or C shares subject to a CDSC
and Class B shares into the Money Market Funds, the exchange stops the aging
period relating to the CDSC, and, for Class B shares only, conversion to Class A
shares. The aging period resumes only when an exchange is made back into Class B
shares of a Fund. In addition, you may also exchange Class A shares of the Money
Market Funds that have not previously paid a sales charge to Class B or Class C
shares of any Nvest Fund. If you own Class Y shares, you may exchange those
shares for Class Y shares of other Funds or for Class A shares of the Money
Market Funds. These options are summarized in the Prospectus. An exchange may be
effected, provided that neither the registered name nor address of the accounts
are different and provided that a certificate representing the shares being
exchanged has not been issued to the shareholder, by (1) a telephone request to
the Fund or Nvest Services Company at 800-225-5478 or (2) a written exchange
request to the Fund or Nvest Services Company, P.O. Box 8551, Boston, MA
02266-8551. You must acknowledge receipt of a current Prospectus for a Fund
before an exchange for that Fund can be effected. The minimum amount for an
exchange is $1,000.
Agents, general agents, directors and senior officers of New England
Financial and its insurance company subsidiaries may, at the discretion of New
England Financial, elect to exchange Class A shares of any series of the Trusts
acquired in connection with deferred compensation plans offered by New England
Financial for Class Y shares of any series of the Trusts which offers Class Y
shares. To obtain a prospectus and more information about Class Y shares, please
call the Distributor toll free at 800-225-5478.
Except as otherwise permitted by SEC rule, shareholders will receive at
least 60 days advance notice of any material change to the exchange privilege.
The investment objectives of the Nvest Funds (including the Kobrick Funds) and
the Money Market Funds as set forth in the Prospectuses are as follows:
STOCK FUNDS:
NVEST GROWTH FUND seeks long-term growth of capital through investments in
equity securities of companies whose earnings are expected to grow at a faster
rate than the United States economy.
NVEST CAPITAL GROWTH FUND seeks long-term growth of capital.
NVEST BALANCED FUND seeks a reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
NVEST GROWTH AND INCOME FUND (FORMERLY GROWTH OPPORTUNITIES FUND) seeks
opportunities for long-term growth of capital and income.
NVEST INTERNATIONAL EQUITY FUND seeks total return from long-term growth
of capital and dividend income primarily through investment in a diversified
portfolio of marketable international equity securities.
NVEST STAR ADVISERS FUND seeks long-term growth of capital.
NVEST STAR WORLDWIDE FUND seeks long-term growth of capital.
NVEST STAR SMALL CAP FUND seeks capital appreciation.
NVEST STAR VALUE FUND seeks a reasonable long-term investment return from
a combination of market appreciation and dividend income from equity securities.
NVEST EQUITY INCOME FUND seeks current income and capital growth.
NVEST BULLSEYE FUND seeks long-term growth of capital.
KOBRICK FUNDS:
KOBRICK CAPITAL FUND seeks maximum capital appreciation by investing
primarily in equity securities of companies with small, medium and large
capitalizations.
KOBRICK EMERGING GROWTH FUND seeks to provide growth of capital by
investing primarily in equity securities of emerging growth companies, with an
emphasis on companies with small capitalizations.
KOBRICK GROWTH FUND seeks long-term growth of capital by investing
primarily in equity securities of companies with large capitalizations that may
have better than average long-term growth potential.
BOND FUNDS:
NVEST GOVERNMENT SECURITIES FUND seeks a high level of current income
consistent with safety of principal by investing in U.S. government securities
and engaging in transactions involving related options, futures and options on
futures.
NVEST LIMITED TERM U.S. GOVERNMENT FUND seeks a high current return
consistent with preservation of capital.
NVEST SHORT TERM CORPORATE INCOME FUND seeks a high level of current
income consistent with preservation of capital.
NVEST STRATEGIC INCOME FUND seeks high current income with a secondary
objective of capital growth.
NVEST BOND INCOME FUND seeks a high level of current income consistent
with what the Fund considers reasonable risk.
NVEST HIGH INCOME FUND seeks high current income plus the opportunity for
capital appreciation to produce a high total return.
NVEST MUNICIPAL INCOME FUND seeks as high a level of current income exempt
from federal income taxes as is consistent with reasonable risk and protection
of shareholders' capital.
NVEST MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of current
income exempt from federal income tax and Massachusetts personal income taxes as
the Fund's subadviser believes is consistent with preservation of capital.
NVEST INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high a level
of current income exempt from federal income tax and its state personal income
tax as is consistent with preservation of capital.
ACCESS SHARES (NOT CURRENTLY OFFERED):
NVEST CORE EQUITY FUND seeks long-term capital appreciation by investing
all or substantially all of its assets in The Oakmark Fund.
NVEST STOCK AND BOND FUND seeks high current income as well as
preservation and growth of capital by investing all or substantially all of its
assets in The Oakmark Equity and Income Fund.
NVEST SELECT FUND seeks long-term capital appreciation by investing all or
substantially all of its assets in The Oakmark Select Fund.
NVEST SMALL CAP VALUE FUND seeks long-term capital appreciation by
investing all or substantially all of its assets in The Oakmark Small Cap Fund.
NVEST SMALL CAP GROWTH FUND seeks long-term capital growth by investing
all or substantially all of its assets in the Loomis Sayles Small Cap Growth
Fund.
NVEST TOTAL RETURN BOND FUND seeks high total investment return through a
combination of current income and capital appreciation by investing all or
substantially all of its assets in the Loomis Sayles Bond Fund.
MONEY MARKET FUNDS:
NVEST CASH MANAGEMENT TRUST - MONEY MARKET SERIES seeks maximum current
income consistent with preservation of capital and liquidity.
NVEST TAX EXEMPT MONEY MARKET TRUST - seeks current income exempt from
federal income taxes consistent with preservation of capital and liquidity.
As of March 31, 2000, the net assets of the Nvest Funds (including the Kobrick
Funds) and the Money Market Funds totaled over $8 billion.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the Prospectus following the caption "Additional Investor
Services," a shareholder may establish an Automatic Exchange Plan under which
shares of a Fund are automatically exchanged each month for shares of the same
class of one or more of the other funds. Registration on all accounts must be
identical. The two dates each month on which exchanges may be made are the 15th
and 28th (or the first business day thereafter if either the 15th or the 28th is
not a business day) until the account is exhausted or until Nvest Services
Company is notified in writing to terminate the plan. Exchanges may be made in
amounts of $100 or more. The Service Options Form is available from Nvest
Services Company or your financial representative to establish an Automatic
Exchange Plan.
Broker Trading Privileges
The Distributor may, from time to time, enter into agreements with one or
more brokers or other intermediaries to accept purchase and redemption orders
for Fund shares until the close of regular trading on the Exchange (normally,
4:00 p.m. Eastern Time on each day that the Exchange is open for trading); such
purchase and redemption orders will be deemed to have been received by the Fund
when the authorized broker or intermediary accepts such orders; and such orders
will be priced using that Fund's net asset value next computed after the orders
are placed with and accepted by such brokers or intermediaries. Any purchase and
redemption orders received by a broker or intermediary under these agreements
will be transmitted daily to the Distributor no later than the time specified in
such agreement; but, in any event, no later than 6:00 a.m. following the day
that such purchase or redemption orders are received by the broker or
intermediary.
Self-Servicing Your Account with Nvest Funds Personal Access Line(R) and Web
site
Nvest Funds shareholders may access account information, including share
balances and recent account activity online, by visiting our Web site at
www.nvestfunds.com. Transactions may also be processed online for certain
accounts (restrictions may apply). Such transactions include purchases,
redemptions and exchanges, and shareholders are automatically eligible for these
features. Nvest Funds has taken measures to ensure the security of shareholder
accounts, including the encryption of data and the use of personal
identification (PIN) numbers. In addition, you may restrict these privileges
from your account by calling Nvest Funds at 800-225-5478, or writing to us at
P.O. Box 8551, Boston, MA 02116. More information regarding these features may
be found on our Web site at www.nvestfunds.com.
Investor activity through these mediums are subject to the terms and conditions
outlined in the following NVEST FUNDS ONLINE AND TELEPHONIC CUSTOMER AGREEMENT.
This agreement is also posted on our Web site. The initiation of any activity
through the Nvest Funds Personal Access Line(R), or Web site at
www.nvestfunds.cOm by an investor shall indicate agreement with the following
terms and conditions:
NVEST FUNDS ONLINE AND TELEPHONIC CUSTOMER AGREEMENT NOTE:
ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS SITE
CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS AND
CONDITIONS.
The accuracy, completeness and timeliness of all mutual fund information
provided is the sole responsibility of the mutual fund company which provides
the information. No party which provides a connection between this web site and
a mutual fund or its transfer agency system can verify or ensure the receipt of
any information transmitted to or from a mutual fund or its transfer agent, or
the acceptance by, or completion of any transaction with, a mutual fund.
The online acknowledgments or other messages which appear on your screen for
transactions entered do not mean that the transactions have been received,
accepted or rejected by the mutual fund. These acknowledgments are only an
indication that the transactional information entered by you has either been
transmitted to the mutual fund, or that it cannot be transmitted. It is the
responsibility of the mutual fund to confirm to you that it has received the
information and accepted or rejected a transaction. It is the responsibility of
the mutual fund to deliver to you a current prospectus, confirmation statement
and any other documents or information required by applicable law.
NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION
FROM THE FUND COMPANY.
You are responsible for reviewing all mutual fund account statements received by
you in the mail in order to verify the accuracy of all mutual fund account
information provided in the statement and transactions entered through this
site. You are also responsible for promptly notifying the mutual fund of any
errors or inaccuracies relating to information contained in, or omitted from
your mutual fund account statements, including errors or inaccuracies arising
from the transactions conducted through this site.
TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH
IN THE PROSPECTUS OF THE SELECTED FUND.
THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS
TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH
THE NVEST FUNDS PERSONAL ACCESS LINE(R).
You are responsible for the confidentiality and use of your personal
identification numbers, account numbers, social security numbers and any other
personal information required to access the site or transmit telephonically. Any
individual that possesses the information required to pass through all security
measures will be presumed to be you. All transactions submitted by an individual
presumed to be you will be solely your responsibility.
You agree that Nvest Funds does not have the responsibility to inquire as to the
legitimacy or propriety of any instructions received from you or any person
believed to be you, and is not responsible or liable for any losses that may
occur from acting on such instructions.
Nvest Funds is not responsible for incorrect data received via the Internet or
telephonically from you or any person believed to be you. Transactions submitted
over the Internet and telephonically are solely your responsibility and Nvest
Funds makes no warranty as to the correctness, completeness, or the accuracy of
any transmission. Similarly Nvest Funds bears no responsibility for the
performance of any computer hardware, software, or the performance of any
ancillary equipment and services such as telephone lines, modems, or Internet
service providers.
The processing of transactions over this site or telephonically will involve the
transmission of personal data including social security numbers, account numbers
and personal identification numbers. While Nvest Funds has taken reasonable
security precautions including data encryption designed to protect the integrity
of data transmitted to and from the areas of our Web site that relate to the
processing of transactions, we disclaim any liability for the interception of
such data.
You agree to immediately notify Nvest Funds if any of the following occurs:
1. You do not receive confirmation of a transaction submitted via the Internet
or telephonically within five (5) business days.
2. You receive confirmation of a transaction of which you have no knowledge and
was not initiated or authorized by you.
3. You transmit a transaction for which you do not receive a confirmation
number.
4. You have reason to believe that others may have gained access to your
personal identification number (PIN) or other personal data.
5. You notice an unexplained discrepancy in account balances or other changes to
your account, including address changes, and banking instructions on any
confirmations or statements.
Any costs incurred in connection with the use of the Nvest Funds Personal Access
Line(R) or the Nvest Funds Internet site including telephone line costs, and
Internet service provider costs are solely your responsibility. Similarly Nvest
Funds makes no warranties concerning the availability of Internet services, or
network availability.
Nvest Funds reserves the right to suspend, terminate or modify the Internet
capabilities offered to shareholders without notice.
YOU HAVE THE ABILITY TO RESTRICT INTERNET AND TELEPHONIC ACCESS TO YOUR ACCOUNTS
BY NOTIFYING NVEST FUNDS OF YOUR DESIRE TO DO SO.
Written notifications to Nvest Funds should be sent to:
Nvest Funds
P O Box 8551
Boston, MA 02266-8551
Notification may also be made by calling 800-225-5478 during normal business
hours.
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REDEMPTIONS
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The procedures for redemption of shares of a Fund are summarized in the
Prospectus. As described in the Prospectus, a CDSC may be imposed on certain
purchases of Class A, Class B and Class C shares. For purposes of the CDSC, an
exchange of shares from one fund to another fund is not considered a redemption
or a purchase. For federal tax purposes, however, such an exchange is considered
a sale and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or loss. In determining whether a CDSC is
applicable to a redemption of Class A, Class B or Class C shares, the
calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, for Class B shares it will be assumed that the
redemption is first of any Class A shares in the shareholder's Fund account,
second of shares held for over six years, third of shares issued in connection
with dividend reinvestment and fourth of shares held longest during the six-year
period. For Class C shares and Class A shares subject to CDSC, it will be
assumed that the redemption is first of any shares that have been in the
shareholder's Fund account for over a year, and second of any shares that have
been in the shareholder's Fund account for under a year. The charge will not be
applied to dollar amounts representing an increase in the net asset value of
shares since the time of purchase or reinvested distributions associated with
such shares. Unless you request otherwise at the time of redemption, the CDSC is
deducted from the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 Class B shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares under dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4%
(the applicable rate in the second year after purchase).
For Class B shares purchased prior to May 1, 1997, the CDSC will be
calculated as follows: 4% if redemption occurs within the first year, 3% if
redemption occurs within the second year or third year, 2% if redemption occurs
within the fourth year, 1% if redemption occurs within the 5th year and no CDSC
for redemptions after the fifth year. Class C shares purchased prior to March 1,
1998 are not subject to a CDSC on redemption.
Signatures on redemption requests must be guaranteed by an
"Eligible Guarantor Institution," as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934. However, a signature guarantee will not be
required if the proceeds of the redemption do not exceed $100,000 and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address.
If you select the telephone redemption service in the manner described in
the next paragraph, shares of a Fund may be redeemed by calling toll free
800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds.
Telephone redemption requests must be received by the close of regular trading
on the Exchange. Requests made after that time or on a day when the Exchange is
not open for business cannot be accepted and a new request on a later day will
be necessary. The proceeds of a telephone withdrawal will normally be sent on
the first business day following receipt of a proper redemption request.
In order to redeem shares by telephone, a shareholder must either select
this service when completing the Fund application or must do so subsequently on
the Service Options Form, available from Nvest Services Company or your
investment dealer. When selecting the service, a shareholder must designate a
bank account to which the redemption proceeds should be sent. Any change in the
bank account so designated may be made by furnishing to Nvest Services Company
or your investment dealer a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone redemptions may only
be made if the designated bank is a member of the Federal Reserve System or has
a correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Funds, the Distributor and State Street Bank are not responsible for
the authenticity of withdrawal instructions received by telephone, subject to
established verification procedures.
Checkwriting is available on Class A shares of Limited Term U.S.
Government Fund and Short Term Corporate Income Fund. To elect checkwriting for
your account, select the checkwriting option on your application and complete
the attached signature card. To add checkwriting to an existing account, please
call 800-225-5478 for our Service Options Form. The Funds will send you checks
drawn on State Street Bank. You will continue to earn dividends on shares
redeemed by check until the check clears. Each check must be written for $500 or
more. The checkwriting privilege does not apply to shares for which you have
requested share certificates to be issued. Checkwriting is not available for
investor accounts containing Class A shares subject to a CDSC. If you use
withdrawal checks, you will be subject to State Street Bank's rules governing
checking accounts. Limited Term U.S. Government Fund, Short Term Corporate
Income Fund and the Distributor are in no way responsible for any checkwriting
account established with State Street Bank. You may not close your account by
withdrawal check because the exact balance of your account will not be known
until after the check is received by State Street Bank.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Funds reserve the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than ten
calendar days prior to the redemption request (unless the Fund is aware that the
check has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59 1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59 1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include payment made due to death,
disability, separation from service, normal or early retirement as defined in
the plan document, loans from the plan and hardship withdrawals, return of
excess contributions, required minimum distributions at age 70 1/2 (waivers only
apply to amounts necessary to meet the required minimum amount), certain
withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually
of the value of your account, and redemptions made from qualified retirement
accounts or Section 403(b)(7) custodial accounts necessary to pay custodial
fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
Nvest Funds, including IRA and 403(b)(7) participant-directed transfers of
assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
In order to redeem shares electronically through the ACH system, a
shareholder's bank or credit union must be a member of the ACH system and the
shareholder must have a completed, approved ACH application on file. In
addition, the telephone request must be received no later than 4:00 p.m.
(Eastern Time). Upon receipt of the required information, the appropriate number
shares will be redeemed and the monies forwarded to the bank designated on the
shareholder's application through the ACH system. The redemption will be
processed the day the telephone call is made and the monies generally will
arrive at the shareholder's bank within three business days. The availability of
these monies will depend on the individual bank's rules.
The Funds will normally redeem shares for cash; however, the Funds reserve
the right to pay the redemption price wholly or partly in kind if the relevant
Trust's Board of Trustees determines it to be advisable and in the interest of
the remaining shareholders of a Fund. The redemptions in kind will be selected
by the Fund's subadviser in light of the Fund's objective and will not generally
represent a pro rata distribution of each security held in the Fund's portfolio.
If portfolio securities are distributed in lieu of cash, the shareholder will
normally incur brokerage commissions upon subsequent disposition of any such
securities. However, the Funds have elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which the Funds are obligated to redeem shares solely
in cash for any shareholder during any 90-day period up to the lesser of
$250,000 or 1% of the total net asset value of the relevant Fund at the
beginning of such period. The Funds do not currently intend to impose any
redemption charge (other than the CDSC imposed by the Funds' distributor),
although it reserves the right to charge a fee not exceeding 1% of the
redemption price. A redemption constitutes a sale of shares for federal income
tax purposes on which the investor may realize a long- or short-term capital
gain or loss. See also "Income Dividends, Capital Gain Distributions and Tax
Status," below.
The Funds may also close your account and send you the proceeds if the
balance in your account falls below a minimum amount set by each Trust's Board
of Trustees (currently $1,000 for all accounts except Keogh, pension and profit
sharing plans, automatic investment plans and accounts that have fallen below
the minimum solely because of fluctuations in the net asset value per share).
Shareholders who are affected by this policy will be notified of the Fund's
intention to close the account and will have 60 days immediately following the
notice to bring the account up to the minimum.
Reinstatement Privilege (Class A shares only)
The Prospectus describes redeeming shareholders' reinstatement privileges
for Class A shares. Written notice and the investment check from persons wishing
to exercise this reinstatement privilege must be received by your investment
dealer within 120 days after the date of the redemption. The reinstatement or
exchange will be made at net asset value next determined after receipt of the
notice and the investment check and will be limited to the amount of the
redemption proceeds or to the nearest full share if fractional shares are not
purchased.
Even though an account is reinstated, the redemption will constitute a
sale for federal income tax purposes. Investors who reinstate their accounts by
purchasing shares of the Funds should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
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STANDARD PERFORMANCE MEASURES
- --------------------------------------------------------------------------------
Calculations of Yield
Each Fund (except Growth, Growth and Income, Star Advisers, Star
Worldwide, Star Small Cap, Star Value, International Equity, Equity Income,
Bullseye and Capital Growth Funds) may advertise the yield of its Class A, Class
B, Class C and Class Y shares. Yield for each class will be computed by
annualizing net investment income per share for a recent 30-day period and
dividing that amount by the maximum offering price per share of the relevant
class (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed-income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. Each Fund's yield will vary from time to
time depending upon market conditions, the composition of its portfolio and
operating expenses of the relevant Trust allocated to each Fund. These factors,
possible differences in the methods used in calculating yield and the tax exempt
status of distributions should be considered when comparing a Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of the Fund's
shares and to the relative risks associated with the investment objectives and
policies of the Fund. Yields do not take into account any applicable sales
charges or CDSC. Yield may be stated with or without giving effect to any
expense limitations in effect for a Fund. For those funds that present yields
reflecting an expense limitation or waiver, its yield would have been lower if
no limitation or waiver were in effect.
Each Fund may also present one or more distribution rates for each class
in its sales literature. These rates will be determined by annualizing the
class's distributions from net investments income and net short-term capital
gain over a recent 12-month, 3-month or 30-day period and dividing that amount
by the maximum offering price or the net asset value, rather than the maximum
offering price, is used to calculate the distribution rate, the rate will be
higher.
The Municipal Income Fund, the Massachusetts Fund and the California Fund
each may also advertise a taxable equivalent yield, calculated as described
above except that, for any given tax bracket, net investment income will be
calculated using as gross investment income an amount equal to the sum of (i)
any taxable income of the Fund plus (ii) the tax-exempt income of the Fund
divided by the difference between 1 and the effective federal (or combined
federal and state) income tax rate for taxpayers in that tax bracket. To see the
taxable equivalent yield calculation charts for these Funds, see the section
entitled "Miscellaneous Investment Practices of the Funds."
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results will
continue.
Investors in the Funds are specifically advised that share prices,
expressed as the net asset values per share, will vary just as yield will vary.
An investor's focus on the yield of a Fund to the exclusion of the consideration
of the share price of that Fund may result in the investor's misunderstanding
the total return he or she may derive from the Fund.
Calculation of Total Return. Total return is a measure of the change in
value of an investment in a Fund over the period covered, which assumes that any
dividends or capital gains distributions are automatically reinvested in shares
of the same class of that Fund rather than paid to the investor in cash. Each
Fund may show each class's average annual total return for the one-year,
five-year and ten-year periods (or for the life of the class, if shorter)
through the end of the most recent calendar quarter. The formula for total
return used by the Funds is prescribed by the SEC and includes three steps: (1)
adding to the total number of shares of the particular class that would be
purchased by a hypothetical $10,000 investment in the Fund (with or without
giving effect to the deduction of sales charge or CDSC, if applicable) all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total of shares owned at the end of
the period by the net asset value per share of the relevant class on the last
trading day of the period; (3) dividing this account value for the hypothetical
investor by the amount of the initial investment, and annualizing the result for
periods of less than one year. Total return may be stated with or without giving
effect to any expense limitations in effect for a Fund. For those funds that
present returns reflecting an expense limitation or waiver, its total return
would have been lower if no limitation or waiver were in effect.
Performance Comparisons
Yield and Total Return. Yields and total returns will generally be higher
for Class A shares than for Class B and Class C shares of the same Fund, because
of the higher levels of expenses borne by the Class B and Class C shares.
Because of its lower operating expenses, Class Y shares of each Fund can be
expected to achieve a higher yield and total return than the same Fund's Class
A, Class B and Class C shares. The Funds may from time to time include their
yield and total return in advertisements or in information furnished to present
or prospective shareholders. The Funds may from time to time include in
advertisements its total return and the ranking of those performance figures
relative to such figures for groups of mutual funds categorized by Morningstar,
Inc. ("Morningstar") or Lipper, Inc. ("Lipper") as having similar investment
objectives or styles.
Total return may also be used to compare the performance of the Fund
against certain widely acknowledged standards or indices for stock and bond
market performance or against the U.S. Bureau of Labor Statistics' Consumer
Price Index.
The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is a
market capitalization-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The
S&P 500 is composed almost entirely of common stocks of companies listed on the
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included.
The Standard & Poor's Composite Index of 400 Stocks (the "S&P 400") is a
market capitalization-weighted and unmanaged index that includes approximately
10% of the capitalization of U.S. equity securities. This index is comprised of
stocks in the middle capitalization range. Any midcap stocks already included in
the S&P 500 are excluded from this index.
The Lehman Aggregate Bond Index is a market capitalization-weighted
aggregate index that includes nearly all debt issued by the U.S. Treasury, U.S.
government agencies, U.S. corporations rated investment grade, and U.S. agency
debt backed by mortgage pools.
The Lehman U.S. Government Bond Index (the "Lehman Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury which
must have at least one year to final maturity; all publicly issued debt of all
agencies of the U.S. government and all quasi-federal corporations; and all
corporate debt guaranteed by the U.S. government.
The Lehman Intermediate U.S. Government Bond Index (the "Lehman Int.
Government Index") is a market capitalization-weighted and unmanaged index of
bonds issued by the U.S. government and its agencies having maturities between
one and ten years.
The Lehman Government/Corporate Bond Index (the "Lehman G/C Index")
includes securities in the Government and Corporate Indices. The Government
Index includes treasuries (i.e., public obligations of the U.S. Treasury that
have remaining maturities of more than one year) and agencies (i.e., publicly
issued debt of U.S. Government agencies, quasi-federal corporations, and
corporate or foreign debt guaranteed by the U.S. Government). The Corporate
Index includes publicly issued U.S. corporate and Yankee debentures and secured
notes that meet specified maturity, liquidity, and quality requirements.
The Lehman Intermediate Government/Corporate Bond Index (the "Lehman Int.
G/C Index") is a market capitalization-weighted and unmanaged index composed of
the Lehman Government and Corporate Bond indices which include bonds with
maturities of up to ten years.
The Lehman High Yield Corporate Bond Index is a market
capitalization-weighted and unmanaged index of fixed-rate, noninvestment grade,
and coupon-bearing bonds with an outstanding par value of at least $150 million.
Generally securities in the index must be rated Ba1 or lower by Moody's
Investors Service, including defaulted issues. If no Moody's rating is
available, bonds must be rated BB+ or lower by S&P; and if no S&P rating is
available, bonds must be rated below investment grade by Fitch Investor's
Service. A small number of unrated bonds is included in the index; to be
eligible they must have previously held a high yield rating or have been
associated with a high yield issuer, and must trade accordingly.
The Lehman 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 Corporate Bond Index, 4% of the Lehman Brothers Emerging
Market Index, 5% of Eurodollar instruments and 1% of 144A Commercial Paper.
The Lehman Brothers Municipal Bond Index is a composite measure of the
total return performance of the municipal bond market. This index is computed
from prices on approximately 42,000 bonds.
The Lehman Mutual Fund Short (1-5) Investment Grade Debt Index is an
unmanaged index composed of publicly issued, fixed-rate, nonconvertible
investment grade domestic corporate debt with maturities of 1 to 5 years.
The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the Exchange.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices of
goods and services in major expenditure groups.
The Funds may cite their ratings, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on
risk-adjusted total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk score (which
is a function of the fund's monthly returns less the 3-month Treasury Bill
return) from the fund's load adjusted total return score. This numerical score
is then translated into rating categories with the top 10% labeled five star,
the next 22.5% labeled four star, the next 35% labeled three star, the next
22.5% labeled two star and the bottom 10% one star. A high rating reflects
either above-average returns or below-average risk or both. Each Fund may also
compare its performance or ranking against all funds tracked by Morningstar or
another independent service, including Lipper.
Lipper Indices and Averages are calculated and published by Lipper,
an independent service that monitors the performance of more than 1,000 funds.
The Funds may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another independent
service. Should Lipper or another service reclassify a Fund to a different
category or develop (and place a Fund into) a new category, the Fund may compare
its performance or ranking against other funds in the newly assigned category,
as published by the service.
The Russell 3000 Index is a market capitalization-weighted index
which comprises 3,000 of the largest capitalized U.S. companies whose common
stock is traded in the United States on the Exchange, the American Stock
Exchange and NASDAQ. The Russell 2000 Index represents the smallest 2,000
companies within the Russell 3000 Index as measured by market capitalization.
The Russell 1000 Index represents the largest 1,000 companies within the Russell
3000 Index. The Russell 1000 Growth Index is an unmanaged subset of stocks from
the larger Russell 1000 Index, selected for their greater growth orientation.
The Russell 1000 Value Index is an unmanaged subset of stocks from the larger
Russell 1000 Index, selected for their greater value orientation.
The Morgan Stanley Capital International Europe, Australasia and Far East
Index (the "MSCI EAFE Index") is a market capitalization-weighted and unmanaged
index of common stocks traded outside the United States. The stocks in the index
are selected with reference to national and industry representation and weighted
in the EAFE Index according to their relative market values (market price per
share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australasia and Far East
(Gross Domestic Product) Index (the "EAFE (GDP) Index") is a market
capitalization-weighted and unmanaged index of common stocks traded outside the
United States. The stocks in the index are selected with reference to national
and industry representation and weighted in the EAFE (GDP) Index according to
their relative market values. The relative market value of each country is
further weighted with reference to the country's relative gross domestic
product.
The Morgan Stanley Capital International World ND Index (the "MSCI World
Index") is a market capitalization-weighted and unmanaged index that includes
common stock from all 23 MSCI developed market countries. The "ND" indicates
that the index is listed in U.S. dollars, with net dividends reinvested.
International Equity and Star Worldwide Funds may compare their
performance to the Salomon-Russell Broad Market Index Global X-US and to
universes of similarly managed investment pools compiled by Frank Russell
Company and Intersec Research Corporation.
Advertising and promotional materials may refer to the maturity and
duration of the Bond Funds. Maturity refers to the period of time before a bond
or other debt instrument becomes due. Duration is a commonly used measure of the
price responsiveness of a fixed-income security to an interest rate change
(i.e., the change in price one can expect from a given change in yield).
Articles and releases, developed by the Funds and other parties, about the
Funds regarding performance, rankings, statistics and analyses of the individual
Funds' and the fund group's asset levels and sales volumes, numbers of
shareholders by Fund or in the aggregate for Nvest Funds, statistics and
analyses of industry sales volumes and asset levels, and other characteristics
may appear in advertising, promotional literature, publications, including, but
not limited to, those publications listed in Appendix B to this Statement, and
on various computer networks, for example, the Internet. In particular, some or
all of these publications may publish their own rankings or performance reviews
of mutual funds, including, but not limited to, Lipper and Morningstar.
References to these rankings or reviews or reprints of such articles may be used
in the Funds' advertising and promotional literature. Such advertising and
promotional material may refer to Nvest Companies, its structure, goals and
objectives and the advisory subsidiaries of Nvest Companies, including their
portfolio management responsibilities, portfolio managers and their categories
and background; their tenure, styles and strategies and their shared commitment
to fundamental investment principles and may identify specific clients, as well
as discuss the types of institutional investors who have selected the advisers
to manage their investment portfolios and the reasons for that selection. The
references may discuss the independent, entrepreneurial nature of each advisory
organization and allude to or include excerpts from articles appearing in the
media regarding Nvest Companies, its advisory subsidiaries and their personnel.
For additional information about the Funds' advertising and promotional
literature, see Appendix C.
The Funds may use the accumulation charts below in their advertisements to
demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
------------------------------------------------------------------
$50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
------------------------------------------------------------------
$50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Funds' advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the Nvest Funds. The Funds' advertising and sales literature may include
historical and current performance and total returns of investment alternatives
to the Nvest Funds. For example, the advertising and sales literature of any of
the Nvest Funds, but particularly that of Star Worldwide Fund and International
Equity Fund, may discuss all of the above international developments, including,
but not limited to, international developments involving Europe, North and South
America, Asia, the Middle East and Africa, as well as events and issues
affecting specific countries that directly or indirectly may have had
consequences for the Nvest Funds or may have influenced past performance or may
influence current or prospective performance of the Nvest Funds. Articles,
releases, advertising and literature may discuss the range of services offered
by the Trusts, the Distributor, and the transfer agent of the Funds, with
respect to investing in shares of the Funds and customer service. Such materials
may discuss the multiple classes of shares available through the Trusts and
their features and benefits, including the details of the pricing structure.
The Distributor may make reference in its advertising and sales literature
to awards, citations and honors bestowed on it by industry organizations and
other observers and raters including, but not limited to, Dalbar's Quality
Tested Service Seal and Key Honors Award. Such reference may explain the
criteria for the award, indicate the nature and significance of the honor and
provide statistical and other information about the award and the Distributor's
selection including, but not limited to, the scores and categories in which the
Distributor excelled, the names of funds and fund companies that have previously
won the award and comparative information and data about those against whom the
Distributor competed for the award, honor or citation.
The Distributor may publish, allude to or incorporate in its advertising
and sales literature testimonials from shareholders, clients, brokers who sell
or own shares, broker-dealers, industry organizations and officials and other
members of the public, including, but not limited to, Fund performance, features
and attributes, or service and assistance provided by departments within the
organization, employees or associates of the Distributor.
Advertising and sales literature may also refer to the beta coefficient of
the Nvest Funds. A beta coefficient is a measure of systematic or
undiversifiable risk of a stock. A beta coefficient of more than 1 means that
the company's stock has shown more volatility than the market index (e.g., the
S&P 500) to which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If it equals 1,
its risk is the same as the market index. High variability in stock price may
indicate greater business risk, instability in operations and low quality of
earnings. The beta coefficients of the Nvest Funds may be compared to the beta
coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
broker-dealer registration under the Securities Exchange Act of 1934.
Advertising and sales literature developed to publicize such arrangements will
explain the relationship of the bank to the Nvest Funds and the Distributor as
well as the services provided by the bank relative to the Funds. The material
may identify the bank by name and discuss the history of the bank including, but
not limited to, the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Funds' prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning and reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus, it is the policy of each Fund to pay its
shareholders, as dividends, substantially all net investment income and to
distribute annually all net realized long-term capital gains, if any, after
offsetting any capital loss carryovers.
Ordinary income dividends and capital gain distributions are payable in
full and fractional shares of the relevant class of the particular Fund based
upon the net asset value determined as of the close of the Exchangeon the record
date for each dividend or distribution. Shareholders, however, may elect to
receive their ordinary income dividends or capital gain distributions, or both,
in cash. The election may be made at any time by submitting a written request
directly to Nvest Funds. In order for a change to be in effect for any dividend
or distribution, it must be received by Nvest Funds on or before the record date
for such dividend or distribution.
If you elect to receive your dividends in cash and the dividend checks
sent to you are returned "undeliverable" to the Fund or remain uncashed for six
months, your cash election will automatically be changed and your future
dividends will be reinvested. No interest will accrue on amounts represented by
uncashed dividend or redemption checks.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order to qualify, each Fund must, among other
things, (i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to certain securities loans, gains
from the sale of securities or foreign currencies, or other income (including,
but not limited to, gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies; (ii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iii) diversify its holdings so that at the
end of each fiscal quarter, (a) at least 50% of the value of its total assets
consists of cash, U.S. government securities, securities of other regulated
investment companies, and other securities limited generally, with respect to
any one issuer, to no more than 5% of the value of the Fund's total assets and
10% of the outstanding voting securities of such issuer, and (b) not more than
25% of the value of its assets is invested in the securities (other than those
of the U.S. government or other regulated investment companies) of any one
issuer or of two or more issuers which the Fund controls and which are engaged
in the same, similar or related trades or businesses. So long as it qualifies
for treatment as a regulated investment company, a Fund will not be subject to
federal income tax on income paid to its shareholders in the form of dividends
or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
each Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund is so permitted to elect and so elects) plus undistributed amounts from
prior years. Each Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Distributions declared and payable by a Fund
during October, November or December to shareholders of record on a date in any
such month and paid by the Fund during the following January will be treated for
federal tax purposes as paid by the Fund and received by shareholders on
December 31 of the year in which declared.
Fund distributions paid to you either in cash or reinvested in additional
shares (other than "exempt-interest dividends" paid by the Municipal Income,
Massachusetts and California Funds, as described in the relevant Prospectuses)
are generally taxable to you either as ordinary income or as capital gains.
Distributions derived from short-term capital gains or investment income are
generally taxable at ordinary income rates. If you are a corporation investing
in a Fund, a portion of these dividends may qualify for the dividends-received
deduction provided that you meet certain holding period requirements.
Distributions of net long-term capital gains (i.e., the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) that are designated by a Fund as capital gain
dividends will generally be taxable to a shareholder receiving such
distributions as long-term capital gain (generally taxed at a 20% tax rate for
noncorporate shareholders) regardless of how long the shareholder has held Fund
shares. To avoid an excise tax, each Fund intends to distribute dividends prior
to calendar year-end. Some dividends paid in January may be taxable as if they
were received in the previous December.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Under the Code, the interest on so-called "private activity" bonds is an
item of tax preference, which, depending on the shareholder's particular tax
situation, might subject the shareholder to an alternative minimum tax with a
maximum rate of 28%. The interest on tax exempt bonds issued after certain dates
in 1986 is retroactively taxable from the date of issuance if the issuer does
not comply with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.
Each Fund's transactions, if any, in foreign currencies and foreign
currency denominated bonds and its hedging activities are likely to result in a
difference between the Fund's book income and taxable income. This difference
may cause a portion of the Fund's income distributions to constitute a return of
capital or capital gain for tax purposes or require the Fund to make
distributions exceeding book income to avoid excise tax liability and to qualify
as a regulated investment company.
Funds investing in foreign securities may own shares in certain foreign
investment entities, referred to as "passive foreign investment companies." In
order to avoid U.S. federal income tax, and an additional charge on a portion of
any "excess distribution" from such companies or gain from the disposition of
such shares, each Fund has elected to "mark to market" annually its investments
in such entities and to distribute any resulting net gain to shareholders. Each
Fund may also elect to treat the passive foreign investment company as a
"qualified electing fund." As a result, each Fund may be required to sell
securities it would have otherwise continued to hold in order to make
distributions to shareholders to avoid any Fund-level tax.
Funds investing in foreign securities may be liable to foreign governments
for taxes relating primarily to investment income or capital gains on foreign
securities in the Fund's portfolio. Each Fund may in some circumstances be
eligible to, and in its discretion may, make an election under the Code which
would allow Fund shareholders who are U.S. citizens or U.S. corporations to
claim a foreign tax credit or deduction (but not both) on their U.S. income tax
return. If a Fund makes the election, the amount of each shareholder's
distribution reported on the information returns filed by such Fund with the
Internal Revenue Service must be increased by the amount of the shareholder's
portion of the Fund's foreign tax paid.
Redemptions and exchanges of each Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
Currently, if shares have been held for more than one year, gain or loss
realized will be taxed at long-term federal tax rates (generally 20% for
noncorporate shareholders), provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the same Fund within 30
days prior to the sale of the loss shares or 30 days after such sale.
A loss on the sale of shares held for six months or less will be
disallowed for federal income tax purposes to the extent of exempt-interest
dividends received with respect to such shares and thereafter treated as a
long-term capital loss to the extent of any long-term capital gain dividend paid
to the shareholder with respect to such shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
Each Fund (possibly excepting Municipal Income Fund, Massachusetts Fund
and California Fund) is required to withhold 31% of all income dividends and
capital gains distributions it pays to you if you do not provide a correct,
certified taxpayer identification number, if a Fund is notified that you have
underreported income in the past or if you fail to certify to a Fund that you
are not subject to such withholding. If you are a tax-exempt shareholder,
however, these backup withholding rules will not apply so long as you furnish
the Fund with an appropriate certification.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Funds and the related reports of
independent accountants included in the Funds' annual reports for the year ended
December 31, 1999 are incorporated herein by reference. Each Fund's annual and
semi-annual report is available upon request and without charge. Each Fund will
send a single copy of its annual and semi-annual reports to an address at which
more than one shareholder of record with the same last name has indicated that
mail is to be delivered. Shareholders may request additional copies of any
annual or semi-annual report by telephone at (800) 225-5478 or by writing to the
Funds at: Nvest Funds Distributor, L.P., 399 Boylston Street, Boston,
Massachusetts 02116.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note:Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, and B1.
FITCH INVESTOR SERVICES, INC.
AAA -- This is the highest rating assigned by Fitch to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
APPENDIX B
MEDIA THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America OnLine
Anchorage Daily News
Arizona Republic
Atlanta Constitution
Atlanta Journal
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
B'nai B'rith Jewish Monthly
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Business Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
<PAGE>
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in Nvest Funds' advertising and promotional
literature to Nvest Companies and its affiliates that perform advisory and
subadvisory functions for Nvest Funds also including, but not limited to: Back
Bay Advisors, Harris Associates, Loomis Sayles, CGM, Westpeak, Jurika & Voyles,
L.P., Vaughan, Nelson, Scarborough & McCullough, L.P. and Kobrick Funds LLC.
Reference also may be made to the Funds of their respective fund groups, namely,
the Loomis Sayles Funds and the Oakmark Family of Funds advised by Harris
Associates.
References may be included in Nvest Funds' advertising and promotional
literature to other Nvest Companies affiliates including, but not limited to
Nvest Corporation, AEW Capital Management, L.P., Snyder Capital Management, L.P,
Reich & Tang Capital Management, Reich & Tang Funds and their fund groups.
References to subadvisers unaffiliated with Nvest Companies that perform
subadvisory functions on behalf of Nvest Funds and their respective fund groups
may be contained in Nvest Funds' advertising and promotional literature
including, but not limited to, Janus Capital, Montgomery and RS Investment
Management.
Nvest Funds' advertising and promotional material will include, but is not
limited to, discussions of the following information about both affiliated and
unaffiliated entities:
[] Specific and general assessments and forecasts regarding U.S. and world
economies, and the economies of specific nations and their impact on the
Nvest Funds;
[] Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions;
[] Specific and general investment philosophies, strategies, processes,
techniques and types of analysis;
[] Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services;
[] The corporate histories, founding dates and names of founders of the
entities;
[] Awards, honors and recognition given to the entities;
[] The names of those with ownership interest and the percentage of ownership
interest;
[] The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans;
[] Current capitalizations, levels of profitability and other financial and
statistical information;
[] Identification of portfolio managers, researchers, economists, principals
and other staff members and employees;
[] The specific credentials of the above individuals, including, but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and degrees,
awards and honors;
[] Specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments;
[] Current and historical statistics regarding:
-total dollar amount of assets managed
-Nvest Funds' assets managed in total and by fund
-the growth of assets -asset types managed
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers, economists,
technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or sub-adviser;
[] The general and specific strategies applied by the advisers in the
management of Nvest Funds portfolios including, but not limited to:
-the pursuit of growth, value, income oriented, risk management or other
strategies
-the manner and degree to which the strategy is pursued
-whether the strategy is conservative, moderate or extreme and an
explanation of other features and attributes
-the types and characteristics of investments sought and specific
portfolio holdings
-the actual or potential impact and result from strategy implementation
-through its own areas of expertise and operations, the value added by
sub-advisers to the management process
-the disciplines it employs, e.g., in the case of Loomis Sayles, the
strict buy/sell guidelines and focus on sound value it employs, and goals
and benchmarks that it establishes in management, e.g., CGM pursues
growth 50% above the S&P 500
-the systems utilized in management, the features and characteristics of
those systems and the intended results from such computer analysis, e.g.,
Westpeak's efforts to identify overvalued and undervalued issues; and
[] Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than Nvest Funds, and those families of
funds, other than Nvest Funds. Any such references will indicate that Nvest
Funds and the other funds of the managers differ as to performance,
objectives, investment restrictions and limitations, portfolio composition,
asset size and other characteristics, including fees and expenses.
References may also be made to industry rankings and ratings of the Funds
and other funds managed by the Funds' advisers and sub-advisers, including,
but not limited to, those provided by Morningstar, Lipper, Forbes and Worth.
In addition, communications and materials developed by Nvest Funds will
make reference to the following information about Nvest Companies and its
affiliates:
Nvest Companies is part of an affiliated group including Nvest, L.P. a
publicly traded company listed on theExchange. Nvest Companies has 18 principal
subsidiary or affiliated asset management firms, which collectively had $134
billion of assets under management as of March 31, 2000. In addition,
promotional materials may include:
[] Specific and general references to Nvest Funds multi-manager approach
through Nvest Companies affiliates and outside firms including, but not
limited to, the following:
-that each adviser/manager operates independently on a day-to-day basis
and maintains an image and identity separate from Nvest Companies and the
other investment managers
-other fund companies are limited to a "one size fits all" approach but
Nvest Funds draws upon the talents of multiple managers whose expertise
best matches the fund objective
-in this and other contexts reference may be made to Nvest Funds' slogan
"Where The Best Minds Meet"(R) and that Nvest Funds' ability to match the
talent to the task is one more reason it is becoming known as "Where The
Best Minds Meet."
-Nvest Management may distribute sales and advertising materials that
illustrate the Star Concept by using historical category comparisons of a
general nature. Categories from mutual fund ranking services, such as
Morningstar, Inc., are selected for each of the Fund segments based on
current investment styles and are subject to change with market
conditions. There will be differences between the performance of the
categories and the Nvest Star Fund being illustrated. The illustrations
are used for hypothetical purposes only as a general demonstration of how
the Star Concept works.
Nvest Managed Account Services ("NMAS"), Nvest Advisor Services ("NAS")
and Nvest Retirement Services ("NRS"), divisions of Nvest Companies, may be
referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest Companies affiliated fund groups
including: Nvest Funds, Loomis Sayles Funds, Jurika & Voyles, Back Bay Advisors,
Oakmark Funds, Delafield Fund and Kobrick Funds.
NMAS, NAS and NRS will provide marketing support to Nvest Companies
affiliated fund groups targeting financial advisers, financial intermediaries
and institutional clients who may transact purchases and other fund-related
business directly with these fund groups. Communications will contain
information including, but not limited to: descriptions of clients and the
marketplaces to which it directs its efforts; the mission and goals of NAS and
NRS and the types of services it provides which may include: seminars; its 1-800
number, web site, Internet or other electronic facilities; qualitative
information about the funds' investment methodologies; information about
specific strategies and management techniques; performance data and features of
the funds; institutional oriented research and portfolio manager insight and
commentary. Additional information contained in advertising and promotional
literature may include: rankings and ratings of the funds including, but not
limited to, those of Morningstar and Lipper; statistics about the advisers',
fund groups' or a specific fund's assets under management; the histories of the
advisers and biographical references to portfolio managers and other staff
including, but not limited to, background, credentials, honors, awards and
recognition received by the advisers and their personnel; and commentary about
the advisers, their funds and their personnel from third-party sources including
newspapers, magazines, periodicals, radio, television or other electronic media.
References may be included in Nvest Funds' advertising and promotional
literature about its 401(k) and retirement plans. The information may include,
but is not limited to:
[] Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information, industry trends and
forecasts regarding the growth of assets, numbers of plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and other organizations involved in 401(k) and
retirement programs with whom Nvest Funds may or may not have a
relationship.
[] Specific and general references to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the Nvest Funds as a
401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Investment Company Institute and other industry authorities,
research organizations and publications.
[] Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
-past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and other
relevant forms and documents, Department of Labor rules and standards and
other regulations. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about the
past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of 401(k) and
retirement plans;
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs; and
-current and prospective ERISA regulation and requirements.
[] Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the Nvest Funds 401(k) and retirement
plans, to the participant and plan sponsor, including explanations,
statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers and
other personnel.
[] Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and Nvest Funds as a 401(k) or retirement
plan funding vehicle.
[] Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during enrollment
and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
<PAGE>
APPENDIX D
For the fiscal year ended December 31, 1999, Short Term Corporate Income
Fund invested 2.3%, and Balanced Fund invested 2.7%, of their respective
portfolios in securities rated below investment grade (those rated "BB" or lower
by Standard & Poor's or "Ba" or lower by Moody's). Massachusetts Tax Free Income
Fund, Intermediate Term Tax Free Fund of California and Limited Term U.S.
Government Fund did not invest in securities rated below investment grade for
the fiscal year ended December 31, 1999. The following tables show the portfolio
composition of those funds that invested at least 5% of their respective
portfolios in securities below investment grade for the fiscal year ended
December 31, 1999.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
HIGH INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Common Stock .......................... 0.0%
Preferred Stock ....................... 11.1%
Short-term Obligations and Other Assets 10.7%
Debt - Unrated ........................ 0.0%
Debt -- Standard and Poor's Rating
AAA ............................... 0.0%
BBB ............................... 0.0%
BB ................................ 15.4%
B ................................. 53.1%
CCC ............................... 8.8%
D ................................. 0.9%
The chart above indicates the composition of the High Income Fund for the fiscal
year ended December 31, 1999, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the High
Income Fund's net assets invested in each category as of the end of each month
during the year. Loomis Sayles does not rely primarily on ratings designed by
any rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
STRATEGIC INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Common Stock .......................... 5.7%
Preferred Stock ....................... 3.0%
Short-term Obligations and Other Assets 1.8%
Debt - Unrated ........................ 14.4%
Debt - Standard and Poor's Rating
AAA ............................... 6.0%
AA ................................ 11.8%
A ................................. 2.4%
BBB ............................... 12.0%
BB ................................ 13.6%
B ................................. 22.2%
CCC and lower ..................... 7.1%
The chart above indicates the composition of the Strategic Income Fund for the
fiscal year ended December 31, 1999, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Strategic Income Fund's net assets invested in each category as of the end of
each month during the year. Loomis Sayles does not rely primarily on ratings
designed by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Fund's portfolio will be in
subsequent fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
BOND INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PERCENTAGE
OF NET
SECURITY ASSETS
-------- ------
Short-term Obligations and Other Assets 1.6%
Debt -- Unrated ....................... 2.7%
Debt -- Standard & Poor's Rating
AAA ............................... 20.9%
AA ................................ 9.4%
A ................................. 15.2%
BBB ............................... 34.5%
BB ................................ 14.0%
B ................................. 1.7%
CCC ............................... 0.0%
C/D ............................... 0.0%
The chart above indicates the composition of the Bond Income Fund for the fiscal
year ended December 31, 1999, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Back Bay Advisors does not rely primarily on ratings designed by any
rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF
MUNICIPAL INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PERCENTAGE
OF NET
SECURITY ASSETS
-------- ------
Common Stock .......................... 0.0%
Short-term Obligations and Other Assets 0.5%
Debt -- Unrated ....................... 5.0%
Debt -- Standard & Poor's Rating
AAA ............................... 19.4%
AA ................................ 6.0%
A ................................. 27.4%
BBB ............................... 35.7%
BB ................................ 6.0%
B ................................. 0.0%
CCC ............................... 0.0%
C/D ............................... 0.0%
The chart above indicates the composition of Municipal Income Fund for the
fiscal year ended December 31, 1999, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Back Bay does not rely primarily on ratings designed by any rating
agency in making investment decisions. The chart does not necessarily indicate
what the composition of the Fund's portfolio will be in subsequent fiscal years.
<PAGE>
Registration Nos. 33-62061
811-7345
NVEST FUNDS TRUST III
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation.
(1) The Registrant's Agreement and Declaration of Trust dated August
22, 1995 is filed herewith.
(2) Amendment No. 1 dated March 2, 1998 to Registrant's Agreement and
Declaration of Trust is filed herewith.
(3) Amendment No. 2 dated February 22, 1999 to Registrant's Agreement
and Declaration of Trust is filed herewith.
(4) Amendment No. 3 dated November 12, 1999 to Registrant's Agreement
and Declaration of Trust is incorporated by reference to exhibit
(a)(4) to Post-Effective Amendment ("PEA") PEA No. 10 to the
Registration Statement filed on February 18, 2000.
(b) By-Laws.
The Registrant's By-Laws are incorporated by reference to exhibit
(b)(2) the initial Registration Statement filed on August 23,
1995 (the "Registration Statement").
(c) Instruments Defining Rights of Security Holders.
Rights of shareholders are described in Article III, Section 6 of
the Agreement and Declaration of Trust incorporated by reference
to exhibit (a)(1) to this PEA No. 11 to the Registration
Statement.
(d) Investment Advisory Contracts.
(1)(i) Advisory Agreement dated August 30, 1996 as amended May 1, 1998
between the Registrant, on behalf of Nvest Equity Income Fund,
and Nvest Funds Management, L.P. ("NFM") is incorporated by
reference to exhibit (d)(1)(i) to PEA No. 9 to the Registration
Statement filed on January 31, 2000.
(ii) Advisory Agreement dated March 31, 1998 between the Registrant,
on behalf of Nvest Bullseye Fund, and NFM is incorporated by
reference to exhibit (d)(1)(ii) to PEA No. 9 to the Registration
Statement filed on January 31, 2000.
(2)(i) Subadvisory Agreement dated July 29, 1999 between the Registrant,
on behalf of Nvest Equity Income Fund, NFM and Vaughan, Nelson,
Scarborough & McCullough, L.P. is incorporated by reference to
exhibit (d)(2)(i) to PEA No. 9 filed on January 31, 2000.
(ii) Subadvisory Agreement dated March 31, 1998 between the
Registrant, on behalf of Nvest Bullseye Fund, NFM and Jurika &
Voyles, L.P. is incorporated by reference to exhibit (d)(2)(ii)
filed on January 31, 2000.
(3) Form of Advisory Agreement between the Registrant, on behalf of
Nvest Core Equity Fund, Nvest Stock and Bond Fund, Nvest Select
Fund, Nvest Small Cap Value Fund, Nvest Small Cap Growth Fund and
Nvest Total Return Bond Fund, and NFM, is incorporated by
reference to exhibit (d)(3) to PEA No. 7 to the Registration
Statement filed on February 16, 1999.
(e) Underwriting Contracts.
(1) Distribution Agreement dated August 30, 1996 between the
Registrant on behalf of Nvest Equity Income Fund and Nvest Funds
Distributor, L.P. is filed herewith.
(2) Distribution Agreement dated March 31, 1998 between the
Registrant, on behalf of Nvest Bullseye Fund, and the Distributor
is incorporated by reference to exhibit (e)(3) to PEA No. 9 to
the Registration Statement filed on January 31, 2000.
(3) Form of Distribution Agreement between the Registrant, on behalf
of Nvest Core Equity Fund, Nvest Stock and Bond Fund, Nvest
Select Fund, Nvest Small Cap Value Fund, Nvest Small Cap Growth
Fund and Nvest Total Return Bond Fund, and the Distributor is
incorporated by reference to exhibit (e)(3) to PEA No. 6 to the
Registration Statement filed on December 2, 1998.
(4) Form of Dealer Agreement used by Nvest Funds Distributor, L.P. is
filed herewith.
(f) Bonus or Profit Sharing Contracts.
Not applicable.
(g) Custodian Agreements.
(1) Form of Custodian Agreement between the Registrant and State
Street Bank and Trust Company ("State Street Bank") is
incorporated by reference to Pre-Effective Amendment ("PreEA")
No. 2 to the Registration Statement filed on October 30, 1995.
(2) Letter Agreement dated March 16, 1998 between Registrant and
State Street Bank relating to the applicability of the Custodian
Contract to Nvest Bullseye Fund is filed herewith.
(3) Letter Agreement between the Registrant and State Street Bank
relating to the applicability of the Custodian Contract and the
Sub-Transfer and Service Agreement to Nvest Core Equity Fund,
Nvest Stock and Bond Fund, Nvest Select Fund, Nvest Small Cap
Value Fund, Nvest Small Cap Growth Fund and Nvest Total Return
Bond Fund is incorporated by reference to exhibit (g)(2) to PEA
No. 7 to the Registration Statement filed on February 16, 1999.
(4) Amendment dated February 28, 2000 to the Custody Contract dated
November 15, 1995 is filed herewith.
(h) Other Material Contracts.
(1) Transfer Agency and Service Agreement dated November 1, 1999
between the Registrant on behalf of Nvest Equity Income Fund and
Nvest Bullseye Fund is filed herewith.
(2) Administrative Services Agreement dated December 1, 1999 between
Registrant on behalf of Nvest Equity Income Fund and Nvest
Bullseye Fund and Nvest Services Company, Inc. is filed herewith.
(3) Form of Special Servicing Agreement between the Registrant, on
behalf of Nvest Core Equity Fund, Nvest Stock and Bond Fund,
Nvest Select Fund, Nvest Small Cap Value Fund, Nvest Small Cap
Growth Fund and Nvest Total Return Bond Fund, its Underlying
Portfolios' Trusts and Nvest Services Company, Inc., is
incorporated by reference to exhibit (h)(4) to PEA No. 7 to the
Registration Statement filed on February 16, 1999.
(4) Form of Service Agreement between Registrant, on behalf of Nvest
Core Equity Fund, Nvest Stock and Bond Fund, Nvest Select Fund,
Nvest Small Cap Value Fund, Nvest Small Cap Growth Fund and Nvest
Total Return Bond Fund, each Adviser of the Underlying Portfolio
and NFM is incorporated herein by reference to exhibit (h)(6) to
PEA No. 7 to the Registration Statement filed on February 16,
1999.
(5) Form of Fee Waiver/Expense Reimbursement Undertakings between NFM
and the Registrant and its respective series enumerated in such
undertakings is incorporated herein by reference to exhibit
(h)(7) to PEA No. 7 to the Registration Statement filed on
February 16, 1999.
(6) Fee Waiver/Expense Reimbursement Undertakings dated May 1, 2000
between NFM and the Registrant and its respective series
enumerated in such undertakings is filed herewith.
(i) Legal Opinion.
Opinion of Ropes & Gray with respect to Nvest Bullseye Fund is
incorporated herein by reference to PEA No. 7 to the Registration
Statement filed on February 16, 1999.
(j) Other Opinions.
Consent of PricewaterhouseCoopers LLP is filed herewith.
(k) Omitted Financial Statements.
Not applicable.
(l) Initial Capital Agreements.
Investment Letter of Loomis Sayles Funded Pension Plan and Trust
is incorporated by reference to PreEA No. 3 to the Registration
Statement filed on November 22, 1995.
(m) Rule 12b-1 Plans.
(1) Form of Rule 12b-1 Plan relating to Class A shares of Nvest
Equity Income Fund is incorporated by reference to the
Registration Statement.
(2) Form of Rule 12b-1 Plan relating to Class B shares of Nvest
Equity Income Fund is incorporated by reference to PEA No. 3 to
the Registration Statement filed on June 10, 1997.
(3) Form of Rule 12b-1 Plan relating to Class C shares of Nvest
Equity Income Fund is incorporated by reference to PEA No. 3 to
the Registration Statement filed on June 10, 1997.
(4) Form of Rule 12b-1 Plan relating to Class A shares of Nvest
Bullseye Fund is incorporated by reference to PEA No. 4 to the
Registration Statement filed on December 31, 1997.
(5) Form of Rule 12b-1 Plan relating to Class B shares of Nvest
Bullseye Fund is incorporated by reference to PEA No. 4 to the
Registration Statement filed on December 31, 1997.
(6) Form of Rule 12b-1 Plan relating to Class C shares of Nvest
Bullseye Fund is incorporated by reference to PEA No. 4 to the
Registration Statement filed on December 31, 1997.
(7) Form of Rule 12b-1 Plan relating to Class A shares of the
Registrant, on behalf of Nvest Core Equity Fund, Nvest Stock and
Bond Fund, Nvest Select Fund, Nvest Small Cap Value Fund, Nvest
Small Cap Growth Fund and Nvest Total Return Bond Fund, is
incorporated by reference to exhibit (m)(7) to PEA No. 6 to the
Registration Statement filed on December 2, 1998.
(8) Form of Rule 12b-1 Plan relating to Class B shares of the
Registrant, on behalf of Nvest Core Equity Fund, Nvest Stock and
Bond Fund, Nvest Select Fund, Nvest Small Cap Value Fund, Nvest
Small Cap Growth Fund and Nvest Total Return Bond Fund, is
incorporated by reference to Exhibit (m)(8) to PEA No. 6 to the
Registration Statement filed on December 2, 1998.
(9) Form of Rule 12b-1 Plan relating to Class C shares of the
Registrant, on behalf of Nvest Core Equity Fund, Nvest Stock and
Bond Fund, Nvest Select Fund, Nvest Small Cap Value Fund, Nvest
Small Cap Growth Fund and Nvest Total Return Bond Fund, is
incorporated by reference to Exhibit m(9) to PEA No. 6 to the
Registration Statement filed on December 2, 1998.
(n) Rule 18f-3 Plan
Registrant's Plan pursuant to Rule 18f-3(d) under the Investment
Company Act of 1940, as amended, is incorporated by reference to
PEA No. 4 to the Registration Statement filed on December 31,
1997
(p) Code of Ethics
(1) Code of Ethics for Registrant is filed herewith.
(2) Code of Ethics dated August 1999 as revised March 2000 for NFM
and Nvest Funds Distributor, L.P. is filed herewith
(3) Code of Ethics dated June 1995 as amended through March 21, 2000
for Jurika & Voyles, L.P. is filed herewith.
(4) Code of Ethics dated April 1, 1999 for Vaughan, Nelson,
Scarborough and McCullough, L.P. is filed herewith
Item 24. Persons Controlled by or under Common Control with the Fund.
None.
Item 25. Indemnification.
Under Article 4 of the Registrant's By-laws, any past or present
Trustee or officer of the Registrant (hereinafter referred to as a "Covered
Person") shall be indemnified to the fullest extent permitted by law against all
liability and all expenses reasonably incurred by him or her in connection with
any claim, action, suit or proceeding to which he or she may be a party or
otherwise involved by reason of his or her being or having been a Covered
Person. That provision does not authorize indemnification when it is determined
that such covered person would otherwise be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties. This description is modified in its
entirety by the provision of Artcile 4 of the Registrant's By-laws contained in
the initial Registration Statement filed on August 23, 1995 as exhibit (b)(2)
and is incorporated by reference.
The Distribution Agreement, the Custodian Contract, the Transfer
Agency and Service Agreement and the Administrative Services Agreement (the
"Agreements") contained herein and in various post-effective amendments and
incorporated herein by reference, provide for indemnification. The general
effect of these provisions is to indemnify entities contracting with the Trust
against liability and expenses in certain circumstances. This description is
modified in its entirety by the provisions of the Agreements as contained in
this Registration Statement and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act "), may be permitted to
Trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of the Registrant in connection
with the successful defense of any claim, action, suit or proceeding) is
asserted against the Registrant by such Trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Registrant and its Trustees, officers and employees are insured, under
a policy of insurance maintained by the Registrant in conjunction with Nvest
Companies, L.P. and its affiliates, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such Trustees or officers. The policy
expressly excludes coverage for any Trustee or officer for any claim arising out
of any fraudulent act or omission, any dishonest act or omission or any criminal
act or omission of the Trustee or officer.
Item 26. Business and Other Connections of Investment Adviser
(a) NFM, a wholly-owned subsidiary of Nvest, L.P., serves as investment
adviser to Nvest Bullseye Fund, Nvest Equity Income Fund, Nvest Core
Equity Fund, Nvest Stock and Bond Fund, Nvest Select Fund, Nvest Small
Cap Value Fund, Nvest Small Cap Growth Fund and Nvest Total Return Fund.
NFM was organized in 1995.
The list required by this Item 26 regarding any other business,
profession, vocation or employment of a substantial nature engaged in by
officers and directors of NFM during the past two years is incorporated
herein by reference to schedules A and D of Form ADV filed by NFM
pursuant to the Investment Advisers Act of 1940, as amended (the
"Advisers Act")(File No. 801-48408).
(b)(1) Vaughan, Nelson, Scarborough & McCullough, L.P., ("VNSM"), the subadviser
to Nvest Equity Income Fund, provides investment advice to a number of
other registered investment companies and to other organizations and
individuals.
The list required by this Item 26 regarding any other business,
profession, vocation or employment of a substantial nature engaged in by
officers and partners of VSNM during the past two years is incorporated
herein by reference to schedules A and D of Form ADV filed by VNSM
pursuant to the Advisers Act (File No. 801-51795).
(2) Jurika & Voyles, L.P. ("Jurika & Voyles"), the subadviser to Nvest
Bullseye Fund, provides investment advice to other registered
investment companies and to organizations and individuals. Jurika
& Voyles succeeded Jurika & Voyles, Inc. in January 1997.
The list required by this Item 26 regarding any other business,
profession, vocation or employment of a substantial nature engaged in by
officers and directors of Jurika & Voyles during the past two years is
incorporated herein by reference to schedules A and D of Form ADV filed
by Jurika & Voyles pursuant to the Advisers Act (File No. 801-53366).
Item 27. Principal Underwriter
(a) Nvest Funds Distributor, L.P. also serves as principal underwriter for:
Nvest Funds Trust I
Nvest Funds Trust II
Nvest Tax Exempt Money Market Trust
Nvest Cash Management Trust
Nvest Kobrick Investment Trust
(b) The general partner and officers of the Registrant's principal
underwriter, Nvest Funds Distributor, L.P., and their addresses are as
follows:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Principal Underwriter with Registrant
- ------------------------------------- ------------------------------------- -----------------------------------
<S> <C> <C>
Nvest Distribution Corp. General Partner None
John T. Hailer President and Chief Executive None
Officer
John E. Pelletier Senior Vice President, General Secretary and Clerk
Counsel, Secretary and Clerk
Scott E. Wennerholm Senior Vice President, Treasurer, None
Chief Financial Officer,and Chief
Operating Officer
Coleen D. Dinneen Vice President, Associate Counsel, Assistant Secretary
Assistant Secretary and Assistant
Clerk
Kristin S. Vigneaux Vice President, Assistant Secretary Assistant Secretary
and Assistant Clerk
Beatriz Pina Smith Vice President and Assistant None
Treasurer
Christine Howe Controller None
Frank S. Maselli Senior Vice President None
Caren I. Leedom Senior Vice President None
Daniel Lynch Vice President None
Marla McDougall Vice President None
</TABLE>
The principal business address of all the above persons or entities is 399
Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 28. Location of Accounts and Records
The following companies maintain possession of the documents required by
the specified rules:
(a) For all series of Registrant:
(i) Registrant
399 Boylston Street
Boston, MA 02116
(ii) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(iii) Nvest Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
(iv) Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(b) For Nvest Bullseye Fund only:
Jurika & Voyles, L.P.
Lake Merritt Plaza,
1999 Harrison, Suite 700
Oakland, CA 94612
(c) For Nvest Equity Income Fund only:
Vaughan, Nelson, Scarborough & McCollough, L.P.
600 Travis
Suite 6300
Houston, TX 77002
Item 29. Management Services
None.
Item 30. Undertakings
(a) The Registrant undertakes to provide a copy of the annual report of any
of its series to any person who receives a prospectus for such series
and who requests the annual report.
(b) The Registrant hereby undertakes that, if requested to do so by holders
of at least 10% of the Fund's outstanding shares, it will call a
meeting of shareholders for the purpose of voting upon the question of
removal of a trustee or trustees and will assist in communications
between shareholders for such purpose as provided in Section 16(c) of
the Investment Company Act of 1940.
<PAGE>
NVEST FUNDS TRUST III
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectivness of this Post-Effective Amendment No. 11 to its
Registration Statement under Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment No. 11 to its Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 24th day of April, 2000.
Nvest Funds Trust III
By: PETER S. VOSS*
-------------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ John E. Pelletier
-------------------------
John E. Pelletier
Attorney-In-Fact**
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
PETER S. VOSS*
- -------------------------- Chairman of the Board; Chief April 24, 2000
Peter S. Voss Executive Officer; Trustee
/s/ Thomas P. Cunningham Treasurer April 24, 2000
- --------------------------
Thomas P. Cunningham
GRAHAM T. ALLISON, Jr.* Trustee April 24, 2000
- --------------------------
Graham T. Allison, Jr.
DANIEL M. CAIN*
- --------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee April 24, 2000
- --------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee April 24, 2000
- --------------------------
Richard Darman
SANDRA O. MOOSE* Trustee April 24, 2000
- --------------------------
Sandra O. Moose
JOHN A. SHANE* Trustee April 24, 2000
- --------------------------
John A. Shane
PENDLETON P. WHITE* Trustee April 24, 2000
- --------------------------
Pendleton P. White
*By: /s/ John E. Pelletier
---------------------------
John E. Pelletier
Attorney-In-Fact**
April 24, 2000
**Powers of Attorney are incorporated by reference to PEA No. 7 to the
Registration Statement filed on February 16, 1999.
<PAGE>
Nvest Funds Trust III
Exhibit Index
Exhibits for Item 23 of Form N-1A
EXHIBIT EXHIBIT DESCRIPTION
(a)(1) Agreement and Declaration of Trust dated August 22, 1995
(a)(2) Amendment No. 1 to the Agreement and Declaration of Trust
(a)(3) Amendment No. 2 to the Agreement and Declaration of Trust
(e)(1) Distribution Agreement dated August 30, 1996 for Nvest Equity
Income Fund
(e)(4) Form of Dealer Agreement used by Nvest Funds Distributor, L.P.
(g)(2) Letter Agreement dated March 16, 1998 to the Custody Contract
(g)(4) Amendment dated February 28, 2000 to the Custody Contract
(h)(1) Transfer Agency and Service Agreement dated November 1, 1999
(h)(2) Administrative Services Agreement dated December 1, 1999
(h)(6) Fee Waiver/Expense Reimbursement Undertaking dated May 1, 2000
(j) Consent of PricewaterhouseCoopers LLP
(p)(1) Code of Ethics of Registrant
(p)(2) Code of Ethics of NFM and Nvest Funds Distributor, L.P.
(p)(3) Code of Ethics of Jurika & Voyles, L.P.
(p)(4) Code of Ethics of Vaughan, Nelson, Scarborough and
McCullough, L.P.
<PAGE>
Exhibit (a)(1)
NEW ENGLAND FUNDS TRUST III
AGREEMENT AND DECLARATION OF TRUST
THIS AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts
this 22d day of August, 1995 by the Trustees hereunder and the holders of shares
of beneficial interest issued hereunder and to be issued hereunder as
hereinafter provided:
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts voluntary association with
transferable shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustee hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. This Trust shall be known as "New England Funds Trust III"
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected in accordance with such Article;
(c) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust or in any class of Shares of the Trust (as the context may
require) shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Declaration of Trust" or "Declaration" shall mean this Agreement
and Declaration of Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust, as amended from time
to time;
(i) "Series Company" refers to the form of registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision;
(j) "Series" refers to Series of Shares established and designated
under or in accordance with the provisions of Article III;
(k) "Multi-Class Series" refers to Series of Shares established and
designated as Multi-Class Series under or in accordance with the provisions of
Article III, Section 6; and
(l) The terms "class" and "class of Shares" refer to the division of
Shares representing any Multi-Class Series into two or more classes in
accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities (including options), debt instruments, commodities,
commodity contracts and options thereon.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Section 6 of this Article III,
each Share shall have voting rights as provided in Article V hereof, and holders
of the Shares of any Series or class shall be entitled to receive dividends,
when and as declared with respect thereto in the manner provided in Article VI,
Section 1 hereof. Except as otherwise provided in Section 6 of this Article III
with respect to Shares of Multi-Class Series, no Share shall have any priority
or preference over any other Share of the same Series with respect to dividends
or distributions upon termination of the Trust or of such Series made pursuant
to Article VIII, Section 4 hereof. Except as otherwise provided in Section 6 of
this Article III with respect to Shares of Multi-Class Series, all dividends and
distributions shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the number of
Shares of such Series held of record by such Shareholders on the record date for
any dividend or distribution or on the date of termination, as the case may be.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust. The Trustees may from
time to time divide or combine the Shares of any particular Series or class into
a greater or lesser number of Shares of that Series or class without thereby
changing the proportionate beneficial interest of the Shares of that Series or
class in the assets belonging to that Series or attributable to that class or in
any way affecting the rights of Shares of any other Series or class.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series and
class. No certificates certifying the ownership of Shares shall be issued except
as the Trustees may otherwise determine from time to time. The Trustees may make
such rules as they consider appropriate for the transfer of Shares of each
Series and class and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each Series and class and as to the
number of Shares of each Series and class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and for such
consideration as they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the same nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust, shall have any power to bind personally any
Shareholders, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust for the purpose of (i) responding
to or complying with any regulations, orders, rulings or interpretations of any
governmental agency or any laws, now or hereafter applicable to the Trust, or
(ii) designating and establishing Series or classes in addition to those
established in Section 6 of this Article III; provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series of classes of Shares in addition to
the Series established and designated in Section 6 of this Article III shall be
effective upon the execution by a majority of the then Trustees of an amendment
to this Declaration of Trust, taking the form of a complete restatement or
otherwise, setting forth such establishment and designation and the relative
rights and preferences of such Series, or as otherwise provided in such
instrument. The establishment and designation of any class of Shares shall be
effective upon either the execution by a majority of the then Trustees of an
amendment to this Declaration of Trust or the adoption by vote or written
consent of a majority of the then Trustees of a resolution setting forth such
establishment and designation and the relative rights and preferences of such
class and such eligibility requirements for investment therein as the Trustees
may determine, or as otherwise provided in such amendment or resolution.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or classes of Shares (in addition to any
Series or classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all outstanding Shares as shares
of particular Series or classes in accordance with such eligibility
requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (j)
of Section 6 of this Article III;
(c) combine one or more Series or classes of Shares into a single
Series or class on such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series or class, including without limitation the power to provide
for the issue of Shares of any Series or class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or class of Shares;
(f) change the method of allocating dividends among the various Series
and classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series or
classes of Shares; and
(h) specifically allocate assets to any or all Series of Shares or
create one or more additional Series of Shares which are preferred over all
other Series of Shares in respect of assets specifically allocated thereto or
any dividends paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or other rights with
respect to such Series or any classes of Shares thereof.
Section 6. Establishment and Designation of Series and Classes. Without
limiting the authority of the Trustees set forth in Section 5, inter alia, to
establish and designate any further Series or classes or to modify the rights
and preferences of any Series or class, the following Series shall be, and is
hereby, established and designated as a Multi-Class Series: New England Equity
Income Fund.
Shares of each Series established in this Section 6 shall have the
following rights and preferences relative to Shares of each other Series, and
Shares of each class of a Multi-Class Series shall have such rights and
preferences relative to other classes of the same Series as are set forth below,
together with such other rights and preferences relative to such other classes
as are set forth in any resolution of the Trustees establishing and designating
such class of Shares:
(a) Assets belonging to Series. Subject to the provisions of paragraph
(c) of this Section 6:
All consideration received by the Trust for the issue or sale of Shares
of a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and proceeds thereof from
whatever source derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, are herein referred to as "assets belonging to" that
Series. In the event that there are any assets, income, earnings, profits and
proceeds thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable, and any
General Asset so allocated to a particular Series shall belong to that Series.
Each such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. Subject to the provisions of
paragraph (c) of this Section 6:
The assets belonging to each particular Series shall be charged solely
with the liabilities of the Trust in respect to that Series, the expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as belonging to any
particular Series but which are allocated and charged by the Trustees to and
among any one or more of the Series established and designated from time to time
in a manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges and reserves so charged
to a Series are herein referred to as "liabilities belonging to" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(c) Apportionment of Assets etc. in Case of Multi-Class Series. In the
case of any Multi-Class Series, to the extent necessary or appropriate to give
effect to the relative rights and preferences of any classes of Shares of such
Series, (i) any assets, income, earnings, profits, proceeds, liabilities,
expenses, charges, costs and reserves belonging or attributable to that Series
may be allocated or attributed to a particular class of Shares of that Series or
apportioned among two or more classes of Shares of that Series; and (ii) Shares
of any class of such Series may have priority or preference over shares of other
classes of such Series with respect to dividends or distributions upon
termination of the Trust or of such Series or class or otherwise, provided that
no Share shall have any priority or preference over any other Shares of the same
class and that all dividends and distributions to Shareholders of a particular
class shall be made ratably among all Shareholders of such class according to
the number of Shares and such class held of record by such Shareholders on the
record date for any dividend or distribution or on the date of termination, as
the case may be.
(d) Dividends, Distributions, Redemptions and Repurchases.
Notwithstanding any other provisions of this Declaration, including, without
limitation, Article VI, no dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust or of any Series
or class) with respect to, nor any redemption or repurchase of, the Shares of
any Series or class shall be effected by the Trust other than from the assets
belonging to such Series or attributable to such class, nor shall any
Shareholder of any particular Series or class otherwise have any right or claim
against the assets belonging to any other Series or attributable to any other
class except to the extent that such Shareholder has such a right or claim
hereunder as a Shareholder of such other Series or class.
(e) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or class shall not be entitled to vote on
any matters as to which such Series or class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall be voted by individual Series, unless otherwise required by the 1940
Act or other applicable law.
(f) Equality. Except to the extent necessary or appropriate to give
effect to the relative rights and preferences of any classes of Shares of a
Multi-Class Series, all the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series. All the Shares of each
particular class of Shares within a Multi-Class Series shall represent an equal
proportionate interest in the assets belonging to such Series that are
attributable to such class (subject to the liabilities attributable to such
class), and each Share of any particular class within a Multi-Class Series shall
be equal to each other Share of such class.
(g) Fractions. Any fractional Share of a Series or class shall carry
proportionately all the rights and obligations of a whole Share of that Series
or class, including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust.
(h) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or class shall have the right
to exchange said Shares for Shares of one or more other Series or classes of
Shares in accordance with such requirements and procedures as may be established
by the Trustees.
(i) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series unless
otherwise required by applicable law, to combine the assets and liabilities
belonging to any two or more Series or attributable to any class into assets and
liabilities belonging to a single Series or attributable to a single class.
(j) Elimination of Series or Class. At any time that there are no
Shares outstanding of any particular Series previously established and
designated, the Trustees may amend this Declaration of Trust to abolish that
Series and to rescind the establishment and designation thereof, such amendment
to be effected in the manner provided in Section 5 of this Article III. At any
time that there are no Shares outstanding of any particular class previously
established and designated of a Multi-Series Class, the Trustees may abolish
that class and rescind the establishment and designation thereof, either by
amending this Declaration of Trust in the manner provided in Section 5 of this
Article III (if such class was established and designated by an amendment to
this Declaration of Trust), or by vote or written consent of a majority of the
then Trustees (if such class was established and designated by Trustee vote or
written consent).
Section 7. Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder of the Trust or of a particular Series
or class and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Series (or attributable to the class) of which he or she is a
Shareholder or former Shareholder to be held harmless from and indemnified
against all loss and expense arising from such liability.
Section 8. No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust.
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The initial Trustee shall be Henry L.P.
Schmelzer. The Trustees may fix the number of Trustees, fill vacancies in the
Trustees, including vacancies arising from an increase in the number of
Trustees, or remove Trustees with or without cause. Each Trustee shall serve
during the continued lifetime of the Trust until he or she dies, resigns or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his or
her successor. Any Trustee may resign at any time by written instrument signed
by him or her and delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose and to the extent required
by applicable law, including paragraphs (a) and (b) of Section 16 of the 1940
Act.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the Shareholders; they may
elect and remove such officers and appoint and terminate such agents as they
consider appropriate; they may appoint from their own number and terminate one
or more committees consisting of two or more Trustees which may exercise the
powers and authority of the Trustees to the extent that the Trustees determine;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank, retain a transfer agent or a shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other
obligations of any person; and to make contracts of guaranty or suretyship, or
otherwise assume liability for payment of such notes or other obligations;
(l) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business of the Trust, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, principal
underwriters or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as Trustee, officer, employee,
agent, investment adviser, principal underwriter or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify such
person against liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, investment advisers
or managers, principal underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series or class, to pay directly, in advance
or arrears, for charges of the Trust's custodian or transfer, shareholder
servicing or similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trustees.
Section 7. Advisory, Management and Distribution Contracts. Subject to
such requirements and restrictions as may be set forth in the By-Laws, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services for the Trust or for any Series
or class with New England Funds Management, L.P. or any other corporation,
trust, association or other organization (the "Manager"); and any such contract
may contain such other terms as the Trustees may determine, including without
limitation, authority for a Manager to determine from time to time without prior
consultation with the Trustees what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments. The Trustees may
also, at any time and from time to time, contract with New England Funds, L.P.,
the Manager or any other corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or principal underwriter for
the Shares, every such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter, distributor or affiliate or
agent of or for any corporation, trust, association or other
organization, or of or for any parent or affiliate of any organization,
with which an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer, shareholder
servicing or other agency contract may have been or may hereafter be
made, or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization
with which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer, shareholder
servicing or other agency contract may have been or may hereafter be
made also has an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer, shareholder
servicing or other agency contract with one or more other corporations,
trusts, associations or other organizations, or has other business or
interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV, Section 1, (ii)
with respect to any amendment of this Declaration of Trust to the extent and as
provided in Article VIII, Section 8, (iii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iv) with respect to the termination of the Trust or any Series or class to the
extent and as provided in Article VIII, Section 4, (v) to remove Trustees from
office to the extent and as provided in Article V, Section 7 and (vi) with
respect to such additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. At any time when no Shares of a
Series or class are outstanding the Trustees may exercise all rights of
Shareholders of that Series or class with respect to matters affecting that
Series or class and may with respect to that Series or class take any action
required by law, this Declaration of Trust or the By-Laws to be taken by the
Shareholders thereof.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may
be called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the By-Laws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the By-Laws or by this Declaration of Trust, 40% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series or classes is to vote as a single class separate
from any other Shares which are to vote on the same matters as a separate class
or classes, 40% of the Shares of each such class entitled to vote shall
constitute a quorum at a Shareholders' meeting of that class. Any meeting of
Shareholders may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned within a reasonable time after the date set for
the original meeting without further notice. When a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by law. If any question
on which the Shareholders are entitled to vote would adversely affect the rights
of any Series or class of Shares, the vote of a majority (or such larger vote as
is required as aforesaid) of the Shares of such Series or class which are
entitled to vote, voting separately, shall also be required to decide such
question.
Section 4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series or class entitled to vote separately on the matter consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series or class who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time, which shall be not more than 60 days before the date of any meeting of
Shareholders, as the record date for determining the Shareholders of such Series
or class having the right to notice of and to vote at such meeting and any
adjournment thereof, and in such case only Shareholders of record on such record
date shall have such right, notwithstanding any transfer of Shares on the books
of the Trust after the record date. For the purpose of determining the
Shareholders of any Series or class who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series or class having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series or classes
for all or any part of the period prior to a meeting of Shareholders or the
payment of a distribution. Nothing in this Section shall be construed as
precluding the Trustees from setting different record dates for different Series
or classes.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
Section 7. Removal of Trustees. No natural person shall serve as
Trustee after the holders of record of not less than two-thirds of the
outstanding Shares have declared that such Trustee be removed from that office
either by declaration in writing filed with the Trust's custodian or by votes
cast in person or by proxy at a meeting called for the purpose. The Trustees
shall promptly call a meeting of Shareholders for the purpose of voting upon the
question of removal of any Trustee when requested in writing so to do by the
record holders of not less than 10 per centum of the outstanding Shares.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares having a net asset value of at least 1 per centum of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to a request for a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust; or (b) inform such applicants as to the
approximate number of Shareholders of record, and the approximate cost of
mailing to them the proposed communication and form of request. If the Trustees
elect to follow the course specified in clause (b), the Trustees, upon the
written request of such applicants, accompanied by a tender of the material to
be mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all Shareholders of record at their addresses
as recorded on the books of the Trust, unless within five business days after
such tender the Trustees shall mail to such applicants and file with the
Commission, together with a copy of the material proposed to be mailed, a
written statement signed by at least a majority of the Trustees to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. If the Commission shall enter an order refusing to sustain any
of the objections specified in the written statement so filed, or if, after the
entry of an order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so declaring, the Trustees
shall mail copies of such material to all Shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each year,
or more frequently if they so determine in their sole discretion, distribute to
the Shareholders of each Series, in Shares of that Series, cash or otherwise, an
amount approximately equal to the net income attributable to the assets
belonging to such Series and may from time to time distribute to the
Shareholders of each Series, in Shares of that Series, cash or otherwise, such
additional amounts, but only from the assets belonging to such Series, as they
may authorize. Except as otherwise permitted by paragraph (c) of Section 6 of
Article III in the case of Multi-Class Series, all dividends and distributions
on Shares of a particular Series shall be distributed pro rata to the holders of
that Series in proportion to the number of Shares of that Series held by such
holders and recorded on the books of the Trust at the date and time of record
established for the payment of such dividend or distributions.
The manner of determining net income, income, asset values, capital
gains, expenses, liabilities and reserves of any Series or class may from time
to time be altered as necessary or desirable in the judgment of the Trustees to
conform such manner of determination to any other method prescribed or permitted
by applicable law. Net income shall be determined by the Trustees or by such
person as they may authorize at the times and in the manner provided in the
By-Laws. Determinations of net income of any Series or class and determinations
of income, asset value, capital gains, expenses, and liabilities made by the
Trustees, or by such person as they may authorize, in good faith, shall be
binding on all parties concerned. The foregoing sentence shall not be construed
to protect any Trustee, officer or agent of the Trust against any liability to
the Trust or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
If, for any reason, the net income of any Series or class determined at
any time is a negative amount, the pro rata share of such negative amount
allocable to each Shareholder of such Series or class shall constitute a
liability of such Shareholder to that Series or class which shall be paid out of
such Shareholder's account at such times and in such manner as the Trustees may
from time to time determine (x) out of the accrued dividend account of such
Shareholder, (y) by reducing the number of Shares of that Series or class in the
account of such Shareholder, or (z) otherwise.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the By-Laws, next determined. Payment
for said Shares shall be made by the Trust to the Shareholder within seven days
after the date on which the request is made. The obligation set forth in this
Section 2 is subject to the provision that in the event that any time the New
York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the Commission during periods when trading on the New
York Stock Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets belonging to such
Series or attributable to any class thereof or during any other period permitted
by order of the Commission for the protection of investors, such obligations may
be suspended or postponed by the Trustees. The Trust may also purchase or
repurchase Shares at a price not exceeding the net asset value of such Shares in
effect when the purchase or repurchase or any contract to purchase or repurchase
is made.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series the Shares of which are being
redeemed. In making any such payment wholly or partly in kind, the Trust shall,
so far as may be practicable, deliver assets which approximate the
diversification of all of the assets belonging at the time to the Series the
Shares of which are being redeemed. Subject to the foregoing, the fair value,
selection and quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under authority of
the Trustees. In no case shall the Trust be liable for any delay of any
corporation or other person in transferring securities selected for delivery as
all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of any Series or class having an
aggregate net asset value of less than an amount determined from time to time by
the Trustees; or (ii) to the extent that such Shareholder owns Shares equal to
or in excess of a percentage determined from time to time by the Trustees of the
outstanding Shares of the Trust or of any Series or class.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be
responsible or liable in any event for any neglect or wrong-doing of any
officer, agent, employee, Manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
but nothing herein contained shall protect any Trustee against any liability to
which he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice.
All persons extending credit to, contracting with or having any claim against
the Trust or any Series or class shall look only to the assets of the Trust, or,
to the extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series or attributable to a particular
class, only to the assets belonging to the relevant Series or attributable to
the relevant class, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued on behalf of the Trust by the Trustees, by any officers or officer or
otherwise shall give notice that this Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts and shall recite that the same
was executed or made by or on behalf of the Trust or by them as Trustee or
Trustees or as officers or officer or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series or attributable to the
class for the benefit of which the Trustees have caused the note, bond,
contract, instrument, certificate or undertaking to be made or issued, and may
contain such further recital as he or she or they may deem appropriate, but the
omission of any such recital shall not operate to bind any Trustee or Trustees
or officers or officer or Shareholders or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice. The Trustees shall not be required to give any bond as
such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Termination of Trust, Series or Class. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of at least 66-2/3% of the Shares of each
Series entitled to vote and voting separately by Series or by the Trustees by
written notice to the Shareholders. Any Series or class may be terminated at any
time by vote of at least 66-2/3% of the Shares of that Series or class or by the
Trustees by written notice to the Shareholders of that Series or class.
Upon termination of the Trust (or any Series or class, as the case may
be), after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each Series (or the applicable Series or
attributable to the particular class, as the case may be), whether due or
accrued or anticipated as may be determined by the Trustees, the Trust shall in
accordance with such procedures as the Trustees consider appropriate reduce the
remaining assets belonging, severally, to each Series (or the applicable Series
or attributable to the particular class, as the case may be), to distributable
form in cash or shares or other securities, or any combination thereof, and
distribute the proceeds belonging to each Series (or the applicable Series or
attributable to the particular class, as the case may be), to the Shareholders
of that Series (or class, as the case may be), as a Series (or class, as the
case may be), ratably according to the number of Shares of that Series (or
class, as the case may be) held by the several Shareholders on the date of
termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust
to be merged into or consolidated with another trust or company or its shares
exchanged under or pursuant to any state or federal statute, if any, or
otherwise to the extent permitted by law, if such merger or consolidation or
share exchange has been authorized by vote of a majority of the outstanding
Shares; provided that in all respects not governed by statute or applicable law,
the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.
Section 6. Filing of Copies, Reference, Headings. The original or a
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or to control or
affect the meaning, construction or effect of this instrument. This instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
Section 7. Applicable Law. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and,
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then Trustees when
authorized so to do by vote of a majority of the Shares entitled to vote with
respect to such amendment, except that amendments described in Article III,
Section 5 hereof or having the purpose of changing the name of the Trust or of
supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by Shareholder vote.
Section 9. Addresses. The address of the Trust is 399 Boylston Street,
Boston, Massachusetts 02116. The address of the initial Trustee is c/o New
England Funds, L.P., 399 Boylston Street, Boston, Massachusetts 02116.
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
for himself and for his successors and assigns this 22d day of August, 1995.
/s/ Henry L.P. Schmelzer
--------------------
Henry L.P. Schmelzer
Initial Trustee
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, August 22, 1995
Then personally appeared the above named Henry L.P. Schmelzer, and
acknowledged the foregoing instrument to be his free act and deed, before me.
/s/ Michael P. Lawlor
--------------------
Notary Public
My commission expires July 5, 2002
<PAGE>
Exhibit (a)(2)
NEW ENGLAND FUNDS TRUST III
Amendment No. 1 to Agreement
and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Funds Trust III (the "Trust"), having determined it to be consistent
with the fair and equitable treatment of all shareholders of the Trust, hereby
amend the Trust's Agreement and Declaration of Trust (the "Declaration of
Trust"), a copy of which is on file in the office of the Secretary of State of
The Commonwealth of Massachusetts, as follows:
1. The first sentence of Section 6 of Article III of the Declaration of
Trust is hereby amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
to modify the rights and preferences of any Series or class, each of
the following Series shall be, and is hereby, established and
designated as a Multi-Class Series: (1) New England Equity Income Fund
and (2) New England Bullseye Fund.
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
- ---------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
/s/ Henry L.P. Schmelzer
- ---------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
- ---------------------- ---------------------
Daniel M. Cain John A. Shane
- ---------------------- ---------------------
Peter S. Voss Pendleton P. White
- ----------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
/s/ Kenneth J. Cowan
- ---------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- ---------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
- ---------------------- ---------------------
Daniel M. Cain John A. Shane
- ---------------------- ---------------------
Peter S. Voss Pendleton P. White
- ----------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
- ---------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- ---------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
- ---------------------- ---------------------
Daniel M. Cain John A. Shane
/s/ Peter S. Voss
- ---------------------- ---------------------
Peter S. Voss Pendleton P. White
- ----------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
- ---------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- ---------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
/s/ John A. Shane
- ---------------------- ---------------------
Daniel M. Cain John A. Shane
- ---------------------- ---------------------
Peter S. Voss Pendleton P. White
- ----------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
- ---------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
/s/ Sandra O. Moose
- ---------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
- ---------------------- ---------------------
Daniel M. Cain John A. Shane
- ---------------------- ---------------------
Peter S. Voss Pendleton P. White
- ----------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
/s/ Graham T. Allison, Jr.
- -------------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- -------------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
- -------------------------- ---------------------
Daniel M. Cain John A. Shane
- -------------------------- ---------------------
Peter S. Voss Pendleton P. White
- --------------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
- -------------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- -------------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
- -------------------------- ---------------------
Daniel M. Cain John A. Shane
- -------------------------- ---------------------
Peter S. Voss Pendleton P. White
/s/ Richard Darman
- --------------------------
Richard Darman
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 11th day of February, 1998.
- -------------------------- ---------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- -------------------------- ---------------------
Sandra O. Moose Henry L.P. Schmelzer
/s/ Daniel M. Cain
- -------------------------- ---------------------
Daniel M. Cain John A. Shane
- -------------------------- ---------------------
Peter S. Voss Pendleton P. White
- --------------------------
Richard Darman
<PAGE>
Exhibit (a)(3)
NEW ENGLAND FUNDS TRUST III
Amendment No. 2 to the Agreement
and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New
England Funds Trust III (the "Trust"), having determined it to be consistent
with the fair and equitable treatment of all shareholders of the Trust, hereby
amend the Trust's Agreement and Declaration of Trust (the "Declaration of
Trust"), a copy of which is on file in the office of the Secretary of State of
the Commonwealth of Massachusetts, as follows:
1. The first sentence of Section 6 of Article III of the Declaration of
Trust is hereby amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
to modify the rights and preferences of an Series or class, each of the
following Series shall be, and is hereby, established and designated as
a Multi-Class Series: (1) New England Equity Income Fund, (2) New
England Bullseye Fund (3) New England Core Equity Fund (4) New England
Stock and Bond Fund (5) New England Select Fund (6) New England Small
Cap Value Fund (7) New England Small Cap Growth Fund and (8) New
England Total Return Bond Fund.
The foregoing amendment shall become effective as of the time it is
filed with the Secretary of State of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 12th day of February, 1999.
/s/ Graham Allison /s/ Sandra O. Moose
------------------- ------------------
Graham Allison Sandra O. Moose
/s/ Daniel M. Cain /s/ John A. Shane
------------------- ------------------
Daniel M. Cain John A. Shane
/s/ Kenneth J. Cowan /s/ Peter S. Voss
------------------- ------------------
Kenneth J. Cowan Peter S. Voss
/s/ Richard Darman /s/ Pendleton P. White
------------------- ------------------
Richard Darman Pendleton P. White
<PAGE>
Exhibit (e)(1)
NEW ENGLAND EQUITY INCOME FUND
DISTRIBUTION AGREEMENT
AGREEMENT made this 30th day of August, 1996 by and between NEW ENGLAND
FUNDS TRUST III, a Massachusetts business trust (the "Trust"), and NEW ENGLAND
FUNDS, L.P., a Delaware limited partnership (the "Distributor").
WITNESSETH:
WHEREAS, this Agreement has been approved by the Trustees of the Trust
in contemplation of the transfer by the Distributor of its rights to receive the
Class B Distribution Fee (as defined in the Class B Distribution and Service
Plan attached hereto as Exhibit A) and/or contingent deferred sales charges to a
financing party in order to raise funds to cover distribution expenditures;
WHEREAS, the Trustees of the Trust recognize the importance to the
Trust of the Distributor being able to obtain financing with which to pay
commissions on Class B shares at the time of sale;
WHEREAS, the Trustees of the Trust acknowledge that by providing
financing to the Distributor the financing party enables the Distributor to
provide valuable services to the Series (as defined below); and
WHEREAS, the Trustees of the Trust, in the context of considering the
best interests of the Series and its shareholders at the time of and in
preparation for any vote, consent or other action that the Trustees of the Trust
may from time to time take relating to the continued receipt by the Distributor
(and/or the financing party) of the Distribution Fee, intend to consider the
effect on the Distributor and any financing party of any such vote, consent or
action.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the Trust and the Distributor agree as follows:
1. Distributor. The Trust hereby appoints the Distributor as general
distributor of shares of beneficial interest ("Series shares") of the
Trust's New England Equity Income Fund series (the "Series") during the
term of this Agreement. The Trust reserves the right, however, to
refuse at any time or times to sell any Series shares hereunder for any
reason deemed adequate by the Board of Trustees of the Trust.
2. Sale and Payment. Under this agreement, the following provisions shall
apply with respect to the sale of and payment for Series shares:
(a) The Distributor shall have the right, as principal, to
purchase Series shares from the Trust at their net asset value
and to sell such shares to the public against orders therefor
at the applicable public offering price, as defined in Section
4 hereof. The Distributor shall also have the right, as
principal, to sell shares to dealers against orders therefor
at the public offering price less a concession determined by
the Distributor.
(b) Prior to the time of delivery of any shares by the Trust to,
or on the order of, the Distributor, the Distributor shall pay
or cause to be paid to the Trust or to its order an amount in
Boston or New York clearing house funds equal to the
applicable net asset value of such shares. The Distributor
shall retain so much of any sales charge or underwriting
discount as is not allowed by it as a concession to dealers.
3. Fees. For its services as general distributor of the Class B Series
shares, the Trust shall cause the Series to pay to the Distributor (or
its designee or transferee) in addition to the sales charge, if any,
referred to in Section 4 below, the Class B Distribution Fee at the
rate and upon the terms and conditions set forth in the Class B
Distribution and Service Plan attached as Exhibit A hereto, and as
amended from time to time, and the Distributor shall also be entitled
to receive any contingent deferred sales charges that may be payable
upon redemption or repurchase of Class B Series shares. The Class B
Distribution Fee shall be accrued daily and paid monthly to the
Distributor (or, at its direction, to its designee or transferee) as
soon as practicable after the end of the calendar month in which it
accrues, but in any event within five business days following the last
day of the month. So long as this agreement and the Class B
Distribution and Service Plan have not been terminated in accordance
with their respective terms, the Series' obligation to pay the Class B
Distribution Fee to the Distributor shall be absolute and unconditional
and shall not be subject to any dispute, offset, counterclaim or
defense whatsoever (it being understood that nothing in this sentence
shall be deemed a waiver by the Trust or the Series of its right
separately to pursue any claims it may have against the Distributor and
to enforce such claims against any assets (other than its rights to be
paid the Class B Distribution Fee and to be paid contingent deferred
sales charges with respect to Class B Series shares) of the
Distributor).
4. Public Offering Price. The public offering price shall be the net asset
value of Series shares, plus any applicable sales charge, all as set
forth in the current prospectus and statement of additional information
("prospectus") of the Trust relating to the Series shares. In no event
shall the public offering price exceed 1000/935 of such net asset
value, and in no event shall any applicable sales charge or
underwriting discount exceed 6.5% of the public offering price. The net
asset value of Series shares shall be determined in accordance with the
provisions of the agreement and declaration of trust and by-laws of the
Trust and the current prospectus of the Trust relating to the Series
shares.
5. Trust Issuance of Series Shares. The delivery of Series shares shall be
made promptly by a credit to a shareholder's open account for the
Series or by delivery of a share certificate. The Trust reserves the
right (a) to issue Series shares at any time directly to the
shareholders of the Series as a stock dividend or stock split, (b) to
issue to such shareholders shares of the Series, or rights to subscribe
to shares of the Series, as all or part of any dividend that may be
distributed to shareholders of the Series or as all or part of any
optional or alternative dividend that may be distributed to
shareholders of the Series, and (c) to sell Series shares in accordance
with the current applicable prospectus of the Trust relating to the
Series shares.
6. Redemption or Repurchase. The Distributor shall act as agent for the
Trust in connection with the redemption or repurchase of Series shares
by the Trust to the extent and upon the terms and conditions set forth
in the current applicable prospectus of the Trust relating to the
Series shares, and the Trust agrees to reimburse the Distributor, from
time to time upon demand, for any reasonable expenses incurred in
connection with such redemptions or repurchases. The Trust will remit
to the Distributor any contingent deferred sales charges imposed on
redemptions or repurchases of Series shares (other than Class B shares)
upon the terms and conditions set forth in the then current prospectus
of the Trust. The Trust will also remit to the Distributor (or its
designee or transferee), in addition to the Class B Distribution Fee,
any contingent deferred sales charges imposed on redemptions or
repurchases of Class B shares, in accordance with the Remittance
Agreement attached hereto as Exhibit B.
7. Undertaking Regarding Sales. The Distributor shall use reasonable
efforts to sell Series shares but does not agree hereby to sell any
specific number of Series shares and shall be free to act as
distributor of the shares of other investment companies. Series shares
will be sold by the Distributor only against orders therefor. The
Distributor shall not purchase Series shares from anyone except in
accordance with Sections 2 and 6 and shall not take "long" or "short"
positions in Series shares contrary to the agreement and declaration of
trust or by-laws of the Trust.
8. Compliance. The Distributor shall conform to the Rules of Fair Practice
of the NASD and the sale of securities laws of any jurisdiction in
which it sells, directly or indirectly, any Series shares. The
Distributor agrees to make timely filings, with the Securities and
Exchange Commission in Washington, D.C. (the "SEC"), the NASD and such
other regulatory authorities as may be required, of any sales
literature relating to the Series and intended for distribution to
prospective investors. The Distributor also agrees to furnish to the
Trust sufficient copies of any agreements or plans it intends to use in
connection with any sales of Series shares in adequate time for the
Trust to file and clear them with the proper authorities before they
are put in use (which the Trust agrees to use its best efforts to do as
expeditiously as reasonably possible), and not to use them until so
filed and cleared.
9. Registration and Qualification of Series Shares. The Trust agrees to
execute such papers and to do such acts and things as shall from time
to time be reasonably requested by the Distributor for the purpose of
qualifying and maintaining qualification of the Series shares for sale
under the so-called Blue Sky Laws of any state or for maintaining the
registration of the Trust and of the Series shares under the federal
Securities Act of 1933 and the federal Investment Company Act of 1940
(the "1940 Act"), to the end that there will be available for sale from
time to time such number of Series shares as the Distributor may
reasonably be expected to sell. The Trust shall advise the Distributor
promptly of (a) any action of the SEC or any authorities of any state
or territory, of which it may be advised, affecting registration or
qualification of the Trust or the Series shares, or rights to offer
Series shares for sale, and (b) the happening of any event which makes
untrue any statement or which requires the making of any change in the
Trust's registration statement or its prospectus relating to the Series
shares in order to make the statements therein not misleading.
10. Distributor Independent Contractor. The Distributor shall be an
independent contractor and neither the Distributor nor any of its
officers or employees as such is or shall be an employee of the Trust.
The Distributor is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to such
agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
thereunder.
11. Expenses Paid by Distributor. While the Distributor continues to act as
agent of the Trust to obtain subscriptions for and to sell Series
shares, the Distributor shall pay the following:
(a) all expenses of printing (exclusive of typesetting) and
distributing any prospectus for use in offering Series shares
for sale, and all other copies of any such prospectus used by
the Distributor, and
(b) all other expenses of advertising and of preparing, printing
and distributing all other literature or material for use in
connection with offering Series shares for sale.
12. Interests in and of Distributor. It is understood that any of the
shareholders, trustees, officers, employees and agents of the Trust may
be a shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an
interest or any organization which may have an interest in the
Distributor; that the Distributor, any such affiliated person or any
such organization may have an interest in the Trust; and that the
existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in
the agreement and declaration of trust or by-laws of the Trust, in the
limited partnership agreement of the Distributor or by specific
provision of applicable law.
13. Words "New England" and Letters "TNE". The Distributor and/or its
parent organization and New England Investment Companies, L.P.
("NEIC"), retain proprietary rights in the words "New England" and the
letters "TNE", which may be used by the Trust and the Series only with
the consent of the Distributor, which is authorized by NEIC to give
such consent as provided herein. The Distributor consents to the use by
the Series of the name "New England Capital Growth Fund" or any other
name embodying the words "New England" or the letters "TNE", in such
forms as the Distributor shall in writing approve, but only on
condition and so long as (i) this Agreement shall remain in full force
and (ii) the Trust shall fully perform, fulfill and comply with all
provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it. No such name shall be used by the
Trust or the Series at any time or in any place or for any purposes or
under any conditions except as in this section provided. The foregoing
authorization by the Distributor as agent of NEIC to the Trust and the
Series to use said words or letters as part of a business or name is
not exclusive of the right of the Distributor itself to use, or to
authorize others to use, the same; the Trust acknowledges and agrees
that as between the Distributor and the Trust and the Series, the
Distributor has the exclusive right so to use, or authorize others to
use, said words and letters, and the Trust agrees to take such action
as may reasonably be requested by the Distributor to give full effect
to the provisions of this section (including, without limitation,
consenting to such use of said words or letters). Without limiting the
generality of the foregoing, the Trust agrees that, upon any
termination of this Agreement by either party or upon the violation of
any of its provisions by the Trust, the Trust will, at the request of
the Distributor made within six months after the Distributor has
knowledge of such termination or violation, use its best efforts to
change the name of the Trust and the Series so as to eliminate all
reference, if any, to the words "New England" or the letters "TNE" and
will not thereafter transact any business in a name containing the
words "New England" or the letters "TNE" in any form or combination
whatsoever, or designate itself as the same entity as or successor to
any entity of such name, or otherwise use the words "New England" or
the letters "TNE" or any other reference to the Distributor. Such
covenants on the part of the Trust and the Series shall be binding upon
it, its trustees, officers, shareholders, creditors and all other
persons claiming under or through it.
14. Effective Date and Termination. This Agreement shall become effective
as of the date of its execution, and
(a) Unless otherwise terminated, this Agreement shall continue in
effect with respect to the shares of the Series so long as
such continuation is specifically approved at least annually
(i) by the Board of Trustees of the Trust or by the vote of a
majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of
Trustees of the Trust who are not interested persons of the
Distributor or the Trust, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Agreement may at any time be terminated on sixty days'
notice to the Distributor either by vote of a majority of the
Trust's Board of Trustees then in office or by the vote of a
majority of the votes which may be cast by shareholders of the
Series.
(c) This Agreement shall automatically terminate in the event of
its assignment (excluding for this purpose any assignment of
rights to payment described in the recitals and in Section 19
of the Agreement which are hereby ratified and approved).
(d) This Agreement may be terminated by the Distributor on ninety
days' written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment
of any penalty.
15. Definitions. For purposes of this Agreement, the following definitions
shall apply:
(a) The "vote of a majority of the votes which may be cast by
shareholders of the Series" means (1) 67% or more of the votes
of the Series present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Series entitled to vote at such
meeting are present; or (2) the vote of the holders of more
than 50% of the outstanding shares of the Series entitled to
vote at such meeting, whichever is less.
(b) The terms "affiliated person", "interested person" and
"assignment" shall have their respective meanings as defined
in the 1940 Act subject, however, to such exemptions as may be
granted by the SEC under the 1940 Act.
16. Amendment. This Agreement may be amended at any time by mutual consent
of the parties, provided that such consent on the part of the Series
shall be approved (i) by the Board of Trustees of the Trust or by vote
of a majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of Trustees of the
Trust who are not interested persons of the Distributor or the Trust
cast in person at a meeting called for the purpose of voting on such
approval.
17. Applicable Law and Liabilities. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts. All sales hereunder are to be made, and title to the
Series shares shall pass, in Boston, Massachusetts.
18. Limited Recourse. The Distributor hereby acknowledges that the Trust's
obligations hereunder with respect to the shares of the Series are
binding only on the assets and property belonging to the Series.
19. Payments to Distributor's Transferees. The Distributor may transfer its
rights to payments hereunder with respect to Class B shares (but not
its obligations hereunder) in order to raise funds to cover
distribution expenditures, and any such transfer shall be effective
upon written notice from the Distributor to the Trust. In connection
with the foregoing, the Series is authorized to pay all or a part of
the Distribution Fee and/or contingent deferred sales charges in
respect of Class B shares directly to such transferee as directed by
the Distributor.
20. Liquidation etc. As long as the Class B Distribution and Service Plan
is in effect, the Series shall not change the manner in which the
Distribution Fee is computed (except as may be required by a change in
applicable law after the date hereof) or adopt a plan of liquidation
without the consent of the Distributor (or any designee or transferee
of the Distributor's rights to receive payment hereunder in respect of
Class B shares) except in circumstances where a surviving entity or
transferee of the Series' assets adopts the Class B Distribution and
Service Plan and assumes the obligations of the Series to make payments
to the Distributor (or its transferee) hereunder in respect of Class B
shares.
21. "Distributor's Shares" etc. The Trust, on behalf of the Series, agrees
that it will not pay any portion of the Class B Distribution Fee which
is calculated by reference to the "Distributor's Shares" (nor shall it
pay a Distribution Fee calculated by reference to Class B shares
("Other Class B Shares") other than the Distributor's Shares at a rate
exceeding .75% per annum of the net assets attributable to Other Class
B Shares) to any person other than the Distributor (or its designee or
transferee) without the written consent of the Distributor.
"Distributor's Shares" shall mean (i) Class B shares of the Series that
were sold by the Distributor, plus (ii) Class B shares of the Series
issued in connection with the exchange, for Class B shares of the
Series, of Class B shares of another fund in the New England fund group
that were sold by the Distributor, plus (iii) Class B shares of the
Series issued in connection with the exchange, for Class B shares of
the Series, of Class B shares of another fund in the New England fund
group issued in respect of the automatic reinvestment of dividends or
capital gain distributions in respect of Class B shares of such other
fund that were sold by the Distributor, plus (iv) Class B shares of the
Series issued in respect of the automatic reinvestment of dividends or
capital gain distributions in respect of Class B shares of the Series
described in clauses (i), (ii) and (iii). To the extent permitted under
the 1940 Act, the terms of this Section 21 shall survive the
termination of this Agreement.
22. Limitation on Reduction of Class B Distribution Fee. The Trust, on
behalf of the Series, agrees that it will not reduce the Distribution
Fee in respect of Series' assets attributable to Class B shares below
the annual rate of 0.75% unless it has ceased (and not resumed) paying
all "service fees" (within the meaning of Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
or any successor provision thereto) to the Distributor, to any
affiliate of the Distributor and to any other person in circumstances
where substantially all of the services and functions relating to the
distribution of Class B Series shares have been delegated to, or are
being performed by, the Distributor or an affiliate of the Distributor.
To the extent permitted under the 1940 Act, the terms of this Section
22 shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST III,
on behalf of its New England Equity Income Fund series
By /s/ Frank Nesvet
-----------------------
Frank Nesvet, Treasurer
NEW ENGLAND FUNDS, L.P.
By: NEF Corporation, its general partner
By /s/ Bruce R. Speca
-----------------------
Bruce R. Speca, Executive Vice President
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Trust") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Trust's New England Equity Income Fund series (the
"Series") on behalf of the Trust by officers of the Trust as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders of the Trust
individually but are binding only upon the assets and property of the Series.
<PAGE>
Exhibit (e)(4)
NVEST FUNDS DISTRIBUTOR, L.P.
399 Boylston Street
Boston, Massachusetts 02116
FORM OF DEALER AGREEMENT
As dealer for our own account, we offer to sell to you shares of each of the
Funds distributed by us (the "Funds" and each a "Fund"), each of which Funds we
are a principal underwriter as defined in the Investment Company Act of 1940
(the "Act") and from which we have the right to purchase shares.
With respect to each of the Funds (except for paragraph 4, which applies only
with respect to each Fund having in effect from time to time a service plan or
service and distribution plan adopted pursuant to Rule 12b-1 under the Act):
1. In all sales of shares of the Fund to the public you shall act as dealer for
your own account, and in no transaction shall you have any authority to act as
agent for any of the Funds or for us.
2. Orders received from you will be accepted by us only at the public offering
price applicable to each order, except for transactions to which a reduced
offering price applies as provided in the then current Prospectus (which term as
used herein shall include the Statement of Additional Information) of the Fund.
The minimum dollar purchase of shares of each Fund by any investor shall be the
applicable minimum amount described in the then current Prospectus of the fund
and no order for less than such amount will be accepted hereunder. The public
offering price shall be the net asset value per share plus the sales charge, if
any, applicable to the transaction, expressed as a percentage of the public
offering price, as determined and effective as of the time specified in the then
current Prospectus of the Fund. The procedures relating to the handling of
orders shall be subject to any instructions that we shall forward from time to
time to you. All orders are subject to acceptance or rejection by us in our sole
discretion. You hereby agree to comply with the attached Policies and Procedures
with Respect to the Sales of Shares of Funds Offering Multiple Classes of
Shares.
3. The sales charge applicable to any sale of Fund shares by you and the dealer
concession or commission applicable to any order from you for the purchase of
Fund shares accepted by us shall be set forth in the then current Prospectus of
the Fund. You may be deemed to be an underwriter in connection with sales by you
of shares of the fund where you receive all or substantially all of the sales
charge as set forth in the Fund's Prospectus, and therefore you may be subject
to applicable provisions of the Securities Act of 1933.
We are entitled to a contingent deferred sales charge ("CDSC") on redemptions of
applicable Classes of shares of the Funds, as described in the then current
Prospectus. You agree that you will sell shares subject to a CDSC and that are
to be held in omnibus accounts only if you are a NETWORKING participant with the
National Securities Clearing Corporation and if such accounts are established
pursuant to a NETWORKING Agreement.
Reduced sales charges or no sales charge may apply to certain transactions under
letter of intent, combined purchases or investments, reinvestment of dividends
and distributions, repurchase privilege, unit investment trust distribution
reinvestment or other programs, as described in the then current Prospectus of
the Fund.
4. Rule 12b-1 Plans. The substantive provisions of this Paragraph 4 have been
adopted pursuant to Rule 12b-1 under the Act by certain funds, under plans
pursuant to such Rule (each a "Plan")
(a) You agree to provide (i) for the Funds with a Service Plan, personal
services to investors in shares of the Funds and/or the maintenance of
shareholder accounts and (ii) for those Funds with a Service and Distribution
Plan, both personal services to investors in shares of the funds and/or the
maintenance of shareholder accounts and also distribution and marketing services
in the promotion of Fund shares. As compensation for these services, we shall
pay you, with respect to Fund shares which are owned of record by your firm as
nominee for your customers or which are owned by those shareholders whose
records, as maintained by the Fund or its agent, designate your firm as the
shareholder's dealer of record, a quarterly services fee or services fee and
distribution fee based on the average daily net asset value of such Fund shares
at the rate set forth with respect to the Fund in the then current Prospectus.
No such fee will be paid to you with respect to shares purchased by you and
redeemed or repurchased by the Fund or by us as an agent within seven (7)
business days after the date of our confirmation of such purchase. No such fee
will be paid to you with respect to any of your customers if the amount of such
fee based upon the value of such customer's Fund shares will be less than $5.00
Normally, payment of such fee to you shall be made within forty-five (45) days
after the close of each quarter for which such fee is payable.
(b) You shall furnish us and the Fund with such information as shall reasonably
be requested by the Trustees or Directors of the Fund with respect to the fees
paid to you pursuant to this paragraph 4.
(c) The provisions of this Paragraph 4 may be terminated by the vote of a
majority of the Trustees or Directors of the Fund who are not interested persons
of the fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to the Plan, or by a vote of
a majority of the Fund's outstanding shares, on sixty (60) days' written notice,
without payment of any penalty. Such provisions will be terminated also by any
act that terminates either the Fund's Distributor's Contract or Underwriting
Agreement with us or this Dealer Agreement and shall terminate automatically in
the event of the assignment (as that term is defined in the Act) of this Dealer
Agreement.
(d) The provisions of the Distributor's Contract or Underwriting Agreement
between the Fund and us, insofar as they relate to the Plan, are incorporated
herein by reference. The provisions of this paragraph 4 shall continue in full
force and effect only so long as the continuance of the Plan, the Distributor's
Contract or Underwriting Agreement and these provisions are approved at least
annually by a vote of the Trustees or Directors, including a majority of the
Trustees or Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan, cast in person at a meeting called for the
purpose of voting thereon.
5. You agree to purchase shares only from us or from your customers. If you
purchase shares from us, you agree that all such purchases shall be made only:
(a) to cover orders already received by you from your customers; (b) for shares
being acquired by your customers pursuant to either Exchange privilege or the
Reinvestment Privilege, as described in the then current prospectus of the Fund;
(c) for your own bona fide investment; or (d) for investments by any IRS
qualified pension, profit sharing or other trust established for the benefit of
your employees or for investments in Individual Retirement Accounts established
by your employees, and if you so advise us in writing prior to any sale of Fund
shares pursuant to this subparagraph (d), you agree to waive all your dealer
concessions to all sales of Fund shares pursuant to this subparagraph (d). If
you purchase shares from your customers, you agree to pay such customers not
less than the applicable redemption price as established by the then current
Prospectus of the Fund. We agree that we will not purchase any securities from
the Fund except for our own bona fide investment purposes for the purpose of
covering purchase orders that we have already received or for shares to be
acquired by our customers pursuant to either exchange privilege or the
repurchase privilege, as described in the then current prospectus of the Fund.
6. You shall sell shares only: (a) to customers at the applicable public
offering price, except for shares being acquired by your customers at net asset
value pursuant to either the exchange privilege or the repurchase privilege as
described in the then current Prospectus of the Fund, and (b) to us agent for
the Fund at the redemption price. In such a sale to us, you may act as either as
principal for your own account or as agent for your customer. If you act as
principal for your own account in purchasing shares for resale to us, you agree
to pay your customer not less than the price that you receive from us. If you
act as an agent for your customer in selling shares to us, you agree not to
charge your customer more than a fair commission for handling the transaction,
except that you agree to receive no compensation of any kind based on the
reinvestment of redemption or repurchase proceeds pursuant to the repurchase
privilege, as described in the current Prospectus of the Fund.
7. You hereby certify that all of your customers' taxpayer identification
numbers ("TIN") or social security numbers ("SSN") furnished to us by you are
correct and that you will not open an account without providing the customer's
TIN or SSN.
8. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding; e.g., by a change in the
net asset value from that used in determining the public offering price to your
customers.
9. We will not accept from you any conditional orders for shares.
10. If any Fund shares sold to you under the terms of this Agreement are
redeemed by the Fund or repurchased by us as agent for the Fund within seven (7)
business days after the date of our confirmation of the original purchase by
you, it is agreed that you shall forfeit your right to the dealer concession or
commission received by you on such Fund shares.
We will notify you of any such repurchase or redemption within ten (10) business
days after the date thereof and you shall forthwith refund to us the entire
concession or commission allowed or paid to you on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund the portion of
the sales charge if any, retained by us and upon receipt from you of the
concession allowed to you on Class A Shares, to pay such refund forthwith to the
Fund.
11. Payment for Fund shares sold to you shall be made on or before the
settlement date specified in our confirmation, at the office of our clearing
agent, and by check payable to the order of the Fund, which reserves the right
to delay issuance, redemption or transfer of shares until such check has
cleared. If such payment is not received by us, we reserve the right, without
notice, forthwith either to cancel the sale, or at our option, to sell the
shares ordered back to the Fund, resulting from your failure to make payment as
aforesaid.
12. You will also act as principal in all purchases by a shareholder for whom
you are the dealer of record of fund shares with payments sent directly by such
shareholder to the Shareholder Services and Transfer agent (the "Agent")
specified in the then current Prospectus of the Fund, and you authorize and
appoint the Agent to execute and confirm such purchases to such shareholder on
your behalf. The Agent will remit not less frequently than monthly to you the
amount of any concessions due with respect to such purchases, except that no
concessions will be paid to you on any transaction for which your net sales
concession is less than the total of $5.00 in any one month. You also represent
that with respect to all such direct purchases by such shareholder, you may
lawfully sell shares of such Fund in the state designated as such shareholder's
record address.
13. Stock certificates for shares sold to you shall be issued only if
specifically requested and upon terms specified from time-to-time by the
Trustees of the Fund. If no open account registration or transfer instructions
are received by the Agent within 20 days after payment by you for shares sold to
you, an open account for such shares will be established in your name. You agree
to hold harmless and indemnify us, the Agent and the Fund, for any loss or
expenses resulting from such open account registration of such shares.
14. No person is authorized to make any representations concerning shares of the
Fund except those contained in the then current Prospectuses of the Fund and in
sales literature issued by us supplemental to such Prospectuses. In purchasing
shares from us, you shall rely solely on the representations contained in such
Prospectus and such sales literature. We will furnish you with additional copies
of such Prospectuses and such sales literature and other releases and
information issued by us in reasonable quantities upon request.
If, with prior approval from us, you use any advertisement or sales literature
which has not been supplied by us, you are responsible for ensuring that the
material complies with all applicable regulations and has been filed with the
appropriate authorities. Also, you will send us copies of all such materials
within (10) days of first use.
You shall indemnify and hold us (Distributor and its directors, officers,
employees, and agents) harmless from and against any and all losses, claims,
liabilities and expenses (including reasonable attorneys' fees)("Losses")
incurred by any of them arising out of (i) your dissemination of information
regarding any Fund that is alleged to contain an untrue statement of material
fact or any omission of a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading and that was not published or provided to you by or on behalf of us
or our affiliated persons ("Affiliates"), as defined under the Investment
Company Act of 1940, as amended (the "1940 Act"), or accurately derived from
information published or provided by or on behalf of us or any of our
affiliates, (ii) any breach by you of any representation, warranty or agreement
contained in this agreement, or (iii) any willful misconduct or negligence on
your part in the performance of, or failure to perform, your obligations under
this agreement, except to the extent such losses are caused by our breach of
this Agreement or our willful misconduct or negligence in the performance, or
failure to perform, its obligations under this Agreement. This Section (14)
shall survive termination of this Agreement.
15. The Fund reserves the right in its discretion and we reserve the right in
our discretion, without notice, to suspend sales or withdraw the offering of
Fund shares entirely. We reserve the right, by written notice to you, to amend,
modify, cancel or assign this Dealer Agreement. Notice for all purposes shall be
deemed to be given when mailed or electronically transmitted to you.
16. This Dealer Agreement shall replace any prior agreement between you and us
or any of our predecessor entities (New England Funds, L.P., TNE Investment
Services Corporation, Investment Trust of Boston Distributors, Inc.) and is
conditioned upon your representation and warranty that you are a member of the
National Association of Securities Dealers, Inc. Or, in the alternative, that
you are a foreign dealer not eligible for membership in that Association, in
which case you agree that, in making any sales to purchasers within the United
States of securities acquired from us, you will conform to the provisions of
paragraphs (a) and (b) of Rule 2420 of that Association's Conduct Rules. You and
we agree to abide by the Rules and Regulations of the National Association of
Securities Dealers, Inc. Including without limitation Conduct Rules 2310, 3110,
and 2830 , and all applicable state and federal laws, rules and regulations.
You will not offer Fund shares for sale in any state (a) where they are not
qualified for sale under the blue sky laws and regulations of such state or (b)
where you are not qualified to act as a dealer.
In the event that you offer fund shares outside the United States, you agree to
comply with the applicable laws, rules and regulations of the foreign government
having jurisdiction over such sales, including any regulations of United States
military authorities applicable to solicitations to military personnel.
<PAGE>
17. All communications to us should be sent to the above address. Any notice to
you shall be duly given if mailed or telegraphed to you at the address specified
by you below. This Agreement shall be effective when accepted by you below and
shall be construed under the laws of the Commonwealth of Massachusetts.
Accepted: Nvest Funds Distributor, L.P.
- --------------------------------------- By:
Dealer's Name --------------------------
Address
- --------------------------------------
By:
------------------------------------
Authorized Signature of Dealer
- --------------------------------------
(Please print name)
Date:
---------------------------------
<PAGE>
POLICIES AND PROCEDURES WITH RESPECT TO SALES OF NVEST FUNDS OFFERING
MULTIPLE CLASSES OF SHARES
In connection with the offering by certain Funds (the "Funds") with multiple
classes of shares, one subject to a front-end sales load and a service fee or
service and distribution fee ("Class A shares"), one subject to a service fee, a
distribution fee, no front-end sales load and a contingent deferred sales charge
("CDSC") on redemptions within a time period specified in the then current
prospectus of the Fund ("Class B shares"), one subject to a service fee,
distribution fee, no front-end sales load and a CDSC if redeemed in the first
year ("Class C shares") and one intended only for certain institutional
investors and subject to no front-end sales load ("Class Y shares"), an investor
must choose the method of purchasing shares which best suits his/her particular
circumstances. To assist investors in these decisions, the Distributor has
instituted the following policies with respect to orders for Fund shares. These
policies apply to each broker/dealer which distributes Fund shares.
1. No purchase order may be placed for Class B shares if the amount of the
orders equals or exceeds $1,000,000 or the order is eligible for a net
asset value purchase price (i.e. no front-end sales charge) of Class A
shares, as provided in the prospectus.
2. No purchase order may be placed for Class C shares if the amount of the
order equals or exceeds $1,000,000 or the order is eligible for a net
asset value purchase price (i.e. no front-end sales charge) of Class A
shares unless the investor indicates on the relevant section of the
application that the investor has been advised of the relative
advantages and disadvantages of Class A and C shares.
3. Any purchase order for less than $1,000,000 may be for either Class, A,
B or C shares in light of the relevant facts and circumstances,
including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his/her
shares; and
c) any other relevant circumstances such as the availability of
purchase under a Letter of Intent, Breakpoints (a volume
discount), or Rights of Accumulation, as described in the
prospectus.
4. The following types of investors are eligible only to purchase Class Y
shares so long as they meet the minimum initial investment standard;
they are not eligible to invest in Class A, B or C shares:
a) tax-qualified retirement plans ($2,000,000 minimum initial
investment);
b) endowments, foundations and other tax-qualified organizations
($1,000,000 minimum initial investment);
c) separate accounts of New England Financial or any insurance
company affiliated with New England Financial (no minimum);
d) omnibus accounts of retirement plans with at least 500
eligible plan participants and $1,000,000 of plan assets.
Institutional investors described above who will not make the initial minimum
investment amount are eligible to invest in Class A, B or C shares. They should
be advised, however, of the lower fees and expenses applicable to Class Y shares
and should consider whether a larger investment, to meet the Class Y
requirements, would be appropriate and desirable for their circumstances.
There are instances when one method of purchasing shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A shares may determine that
payment of such a reduced front-end sales load and service fee is preferable to
payment of a higher ongoing distribution fee. Investors whose orders would not
qualify for such a discount and who anticipate holding their investment for more
than eight years might consider Class B shares because 100% of the purchase
price is invested immediately. Investors making smaller investments who
anticipate redeeming their shares within eight years might consider Class C
shares for the same reason.
Appropriate supervisory personnel within your organization must ensure that all
employees and representatives receiving investor inquires about the purchase of
shares of a Fund advise the investor of then available pricing structures
offered by the Fund, and the impact of choosing one method over another. In some
instances it may be appropriate for a supervisory person to discuss a purchase
with the investor.
This policy is effective with respect to any order for the purchase of shares of
a Fund offering multiple classes of shares.
Questions relating to this policy should be directed to John T. Hailer,
President and Chief Executive Officer, Nvest Funds Distributor, L.P. at
(617) 578-1166.
<PAGE>
Exhibit (g)(2)
March 16, 1998
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Bullseye Fund
Gentlemen:
This is to advise you that New England Funds Trust III (the "Trust")
has established a new series of shares, New England Bullseye Fund. In accordance
with the Additional Funds provisions in Section 17 of the Custodian Contract
dated November 15, 1995 between the Trust and State Street Bank and Trust
Company and the provisions of Section 1.01 of the Sub-Transfer and Service
Agreement between New England Funds Service Corporation and State Street Bank,
the Trust and New England Funds Service Corporation hereby requests that you act
as Custodian and Sub-Transfer Agent for the new series under the terms of the
respective contracts. A revised Exhibit A to the Custodian Contract and to the
Sub-Transfer and Service Agreement are attached to this letter.
Acknowledged and Agreed to this 16th day of March, 1998:
By: /s/ Henry L.P. Schmelzer
--------------------
Henry L.P. Schmelzer
President
New England Funds Trust III
New England Funds Service Corporation
By: /s/ _________________________
Vice President
State Street Bank and Trust Company
<PAGE>
Exhibit (g)(4)
AMENDMENT TO CUSTODIAN CONTRACT
Amendment dated February 28, 2000, to the custody contract, dated
November 15, 1995, as amended, by and between State Street Bank and Trust
Company (the "Custodian") and Nvest Funds Trust III (formerly New England Funds
Trust III), on behalf of its portfolios (each a "Fund") (the "Custodian
Contract").
In consideration of the promises and covenants contained herein, the
Custodian and the Fund hereby agree to amend and replace Section 5 of the
Custodian Contract as follows:
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing signed or
initialed by one or more person or persons as the Board of Trustees shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices; provided that the Fund has
followed any security procedures agreed to from time to time by the Fund and the
Custodian, including, but not limited to the security procedures selected by the
Fund in the Funds Transfer Agreement. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any multi-party agreement, which requires a segregated asset account in
accordance with Section 2.12.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized representative.
NVEST FUNDS TRUST III
By: /s/ Neal Litvack
---------------------
Its: President
STATE STREET BANK AND TRUST
By: /s/ Ronald E. Logue
---------------------
Its: Vice Chairman
<PAGE>
Exhibit (h)(1)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
and
NVEST SERVICES COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. Appointment and Duties.............................................. 1
2. Third Party Administrators for Defined Contribution Plans .......... 3
3. Fees and Expenses................................................... 4
4. Representations and Warranties of the Transfer Agent................ 5
5. Representations and Warranties of the Funds......................... 5
6. Wire Transfer Operating Guidelines.................................. 6
7. Data Access and Proprietary Information............................. 7
8. Confidentiality..................................................... 9
9. Indemnification..................................................... 10
10. Standard of Care.................................................... 11
11. Information to be Furnished by the Funds ........................... 12
12. Recordkeeping....................................................... 12
13. Termination of Agreement............................................ 13
14. Assignment and Third Party Beneficiaries............................ 13
15. Subcontractors...................................................... 14
16. Miscellaneous....................................................... 14
17. Additional Funds.................................................... 16
18. Limitations of Liability of the Trustees and Shareholders........... 17
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
Agreement made as of this 1st day of November, 1999, by and between NEW ENGLAND
FUNDS TRUST I, NEW ENGLAND FUNDS TRUST II, NEW ENGLAND FUNDS TRUST III, NEW
ENGLAND CASH MANAGEMENT TRUST AND NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST,
each a Massachusetts business trust, having its principal office and place of
business at 399 Boylston Street, Boston, Massachusetts 02116 (each a "Fund" and
collectively, "the Funds"), and NVEST SERVICES COMPANY, INC., a Massachusetts
corporation having its principal office and place of business at 399 Boylston
Street, Boston, Massachusetts 02116 (the "Transfer Agent").
WHEREAS, each Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Funds currently offer shares in twenty two series, such series
being named in the attached Schedule A, which may be amended by the parties from
time to time (each such series, together with all other series subsequently
established by a Fund and made subject to this Agreement in accordance with
Section 17 hereof, being herein referred to as a "Portfolio," and collectively
as the "Portfolios"); and
WHEREAS, each Funds, on behalf of the Portfolios, desires to appoint the
Transfer Agent as its transfer agent, dividend disbursing agent, and agent in
connection with certain other activities, and the Transfer Agent desires to
accept such appointment.
WHEREAS, the Transfer Agent intends to engage Boston Financial Data Services,
Inc. (the "Sub-Transfer Agent") to perform certain of the services to be
provided by the Transfer Agent hereunder and enter into a Sub-Transfer Agency
and Service Agreement with the Sub-Transfer Agent to that effect, and each Fund
hereby acknowledges the Transfer Agent's intent to so engage the Sub-Transfer
Agent.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Appointment and Duties
1.1 General. Subject to the terms and conditions set forth in this Agreement,
each Fund, on behalf of the Portfolios, hereby employs and appoints the
Transfer Agent to act as, and the Transfer Agent agrees to act as, its
transfer agent for the authorized and issued shares of beneficial interest
of the Fund ("Shares"), dividend disbursing agent, and agent in connection
with any accumulation, open-account, or similar plan provided to the
shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectuses and
statements of additional information ("prospectus") of the Fund, on behalf
of the applicable Portfolio, including, without limitation, any periodic
investment plan or periodic withdrawal program.
In accordance with written procedures established from time to time by
agreement between the Funds and the Transfer Agent, the Transfer Agent
agrees that it will perform the services set forth in Schedule B hereto.
As the Funds and the Transfer Agent may, from time to time, mutually agree
in writing, the Transfer Agent may at times perform only a portion of the
services listed in Schedule B, and a Fund or its agent may perform such
services.
1.2 Retirement Accounts. With respect to certain retirement plans or accounts
(such as individual retirement accounts ("IRAs"), SIMPLE IRAs, SEP IRAs,
Roth IRAs, Education IRAs, and 403(b) Plans (such accounts, "Retirement
Accounts")), the Transfer Agent, at the request of a Fund, may provide or
arrange for the provision of appropriate prototype plans as well as
provide or arrange for the provision of various services to such plans
and/or accounts, which services may include plan custodian services,
account set-up, maintenance, and disbursements as well as such other
services as the parties hereto shall mutually agree upon.
If at any time and for any reason the Transfer Agent, any of its agent or
sub-contractors, or any of their affiliates chooses to resign as custodian
of any or all Retirement Accounts, the Transfer Agent will give the Fund
at least eighty-five (85) days' prior written notice and shall not be
required to designate a successor custodian. If either party chooses to
terminate this Agreement pursuant to Section 13 hereof, the Transfer
Agent, any of its agents or sub-contractors, or any of their affiliates
may thereupon resign as custodian in respect to any or all of the
Retirement Accounts upon eighty-five (85) days' prior written notice to
the Fund. In either such event, the Fund will promptly distribute notice
of the custodian's resignation to such persons and in such manner as are
called for under the applicable provisions of the Retirement Account and
in form and content satisfactory to and signed by the Transfer Agent. The
Fund shall be responsible for obtaining a successor custodian for all
Retirement Accounts.
1.3 Review and Maintenance of Fund Prototype Retirement Plans or Account
Materials.
(a) If a Fund develops and makes available its own retirement plan
prototypes or account materials (the "Fund Prototype(s)") for use in
connection with a Retirement Account or Accounts, the Fund, subject to
the terms set forth below, may appoint the Transfer Agent, one of its
agent or sub-contractors, or an affiliate thereof as the custodian
with respect to such Retirement Accounts.
(b) The Fund agrees that the Fund Prototypes will comply with applicable
sections of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder as in effect at the
time. The Fund will be responsible for establishing, maintaining, and
updating the Fund Prototypes in compliance with the Code and all other
applicable federal or state law or regulations, when changes in the
law require such updating.
(c) The Fund agrees that the Fund Prototypes are the responsibility of the
Fund and further agrees that it will indemnify, defend, and hold
harmless the Transfer Agent, its affiliates, successors,
representatives, and assigns from and against any and all losses,
damages, costs, charges, expenses, including reasonable fees for
counsel, taxes, penalties, and liabilities (collectively, "Losses")
arising out of or attributable to the use of a Fund Prototype by the
Fund or the Transfer Agent, its agents, employees, representatives, or
any other person acting on a Fund's behalf, except to the extent that
such Losses arise out of or are attributable to the negligence, bad
faith, or willful misconduct of the Transfer Agent (or its agents,
affiliates, successors, or assigns), unless such negligence is a
result of complying with a Fund Prototype. This indemnification
obligation will survive termination of this Agreement.
(d) The Fund agrees that any modifications made by the Fund to a Fund
Prototype without the Transfer Agent's written consent or the required
written consent of any of the Transfer Agent's agents or
sub-contractors or any of their affiliates shall not increase the
liabilities or responsibilities of the Transfer Agent or that of such
agent, sub-contractor, or affiliate as custodian or limit the Transfer
Agent's ability or that of that of its agent or sub-contractor, or any
of their affiliates to resign as custodian as provided hereunder. The
Fund will furnish the Transfer Agent with a copy of each Fund
Prototype. The Transfer Agent shall not be required to review,
comment, or advise on such Fund Prototypes.
1.4 Blue Sky. The Funds shall (a) identify to the Transfer Agent in writing
those transactions and assets to be treated as exempt from blue sky
reporting for each State and (b) verify the establishment of transactions
for each State on the system prior to activation and thereafter monitor
the daily activity for each State. The responsibility of the Transfer
Agent for the Fund's blue sky State registration status is solely limited
to the initial establishment of transactions subject to blue sky
compliance by the Funds and providing a system that will enable the Funds
to monitor the total number of Shares sold in each State.
2. Third Party Administrators for Defined Contribution Plans
2.1 A Fund may decide to make available to certain of its customers a
qualified plan program (the "Program") pursuant to which such customers
("Employers") may adopt certain plans (each a "Plan," and collectively,
"Plans") for the benefit of Plan participants (the "Participants"), such
Plans being qualified under Section 401(a) of the Code, and administered
by third party administrators, which may be "administrators" as defined in
the Employee Retirement Income Security Act of 1974, as amended
("TPA(s)").
2.2 In accordance with the procedures established in Schedule 2.2 hereto
entitled "Third Party Administrator Procedures," as may be amended by the
Transfer Agent and the Funds from time to time ("Schedule 2.2"), the
Transfer Agent shall:
(a) treat Shareholder accounts established by the Plans in the name of the
Plan Trustees, the Plans or TPAs, as the case may be, as omnibus
accounts;
(b) maintain omnibus accounts on its records in the name of the TPA or its
designee as the Trustee for the benefit of the Plan; and
(c) perform all services under Section 1 as transfer agent of the Funds
and not as a record-keeper for the Plans.
2.3 Transactions identified under Section 2 of this Agreement shall be deemed
exception services ("Exception Services") when such transactions:
(a) require the Transfer Agent or its sub-agent to use methods and
procedures other than those usually employed by the Transfer Agent or
its sub-agent to perform services described under Section 1 of this
Agreement;
(b) involve the provision of information to the Transfer Agent or its
sub-agent after the commencement of the nightly processing cycle of
the transfer agency data processing system then in use by the Transfer
Agent or its sub-agent (the "System"); or
(c) require more manual intervention by the Transfer Agent or its
sub-agent, either in the entry of data or in the modification or
amendment of reports generated by the System than is usually required
by non-retirement plan and pre-nightly transactions.
3. Fees and Expenses
3.1 Fee Schedule. For the performance by the Transfer Agent pursuant to this
Agreement, the Funds agree to pay the Transfer Agent fees as set forth in
the attached fee schedule ("Schedule 3.1"). Such fees and out-of-pocket
expenses and advances identified under Section 3.2 below may be changed
from time to time subject to mutual written agreement between the Funds
and the Transfer Agent.
3.2 Out-of-Pocket Expenses. In addition to the fees paid under Section 3.1
above, the Funds agree to reimburse the Transfer Agent for the Transfer
Agent's reasonable out-of-pocket expenses, including, but not limited to,
confirmation production, postage, investor statements, telephone,
telecommunication and line charges, microfilm, microfiche, checks, forms
(including year end forms), wire fees, mailing and tabulating proxies,
records storage, costs associated with certain specialty products,
systems, or services, as applicable (such as "Investor," "Voice," "Fan,"
and "Vision"), or advances incurred by the Transfer Agent for the items
set out in Schedule 3.1 attached hereto. In addition, any other expenses
reasonably incurred by the Transfer Agent at the request or with the
consent of a Fund will be reimbursed by such Fund.
3.3 Postage. Postage for mailing of a Fund's respective dividends, proxies,
Fund reports, and other mailings to all shareholder accounts shall be
advanced to the Transfer Agent by such Fund at least seven (7) days prior
to the mailing date of such materials.
3.4 Invoices. Each Fund agrees, on behalf of each of its Portfolio, to pay all
fees and reimbursable expenses within thirty (30) days following the
receipt of the respective billing notice, except for any fees or expenses
that are subject to good faith dispute. In the event of such a dispute,
the Fund may withhold only that portion of the fee or expense subject to
the good faith dispute. The Fund will use reasonable efforts to notify the
Transfer Agent in writing within twenty-one (21) calendar days following
the receipt of each billing notice if the Fund is disputing any amounts in
good faith.
4. Representations and Warranties of the Transfer Agent
The Transfer Agent represents and warrants to the Fund that:
4.1 It is a corporation duly organized and existing and in good standing under
the laws of The Commonwealth of Massachusetts and is duly registered as a
transfer agent under the Securities Exchange Act of 1934, as amended.
4.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
4.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
4.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
15.1 It has and will continue to have access (either directly or pursuant to
contractual arrangements with third parties) to the necessary facilities,
equipment, and personnel to perform its duties and obligations under this
Agreement.
15.2 It will at all times maintain in effect insurance coverage, including,
without limitation, errors and omissions, Fidelity Board, and Electronic
Data Processing coverages, at levels consistent with those customarily
maintained by other comparable transfer agents and with such policies as
the Trustees of the Funds may From time to time adopt.
5. Representations and Warranties of the Funds
Each Fund represents and warrants to the Transfer Agent that:
5.1 It is a business trust duly organized and existing and in good standing
under the laws of Massachusetts.
5.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
5.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
5.4 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
5.5 A registration statement under the Securities Act of 1933, as amended, is
currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
6. Wire Transfer Operating Guidelines
6.1 The Transfer Agent is authorized to promptly debit the appropriate Fund
bank account(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that the Transfer Agent has been
instructed to transfer. The Transfer Agent shall execute payment orders in
compliance with the Security Procedure and with the Fund instructions on
the execution date, provided that such payment order is received by the
customary deadline for processing such a request, unless the payment order
specifies a later time. All payment orders and communications received
after this the customary deadline will be deemed to have been received the
next business day.
15.1 Each Fund acknowledges that the Security Procedure it has designated on
the Transfer Agent's Wire Transfer Security Procedures Customer Selection
Form (the form of which is attached hereto as Schedule 6.2) was selected
by the Fund from security procedures offered by the Transfer Agent. The
Fund shall restrict access to confidential information relating to the
Security Procedure to authorized persons as communicated to the Transfer
Agent in writing. The Fund shall notify the Transfer Agent immediately if
it has reason to believe unauthorized persons may have obtained access to
such information or of any change in the Fund's authorized personnel. The
Transfer Agent shall verify the authenticity of all Fund instructions
according to the Security Procedure.
15.2 The Transfer Agent shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
15.3 The Transfer Agent reserves the right to decline to process or delay the
processing of a payment order (a) which is in excess of the collected
balance in the account to be charged at the time of the Transfer Agent's
receipt of such payment order; (b) if initiating such payment order would
cause the Transfer Agent, in the Transfer Agent's sole judgement, to
exceed any volume, aggregate dollar, network, time, credit or similar
limits that are applicable to the Transfer Agent or any of its sub-agents;
or (c) if the Transfer Agent, in good faith, is unable to satisfy itself
that the transaction has been properly authorized.
6.5 The Transfer Agent shall use reasonable efforts to act on all authorized
requests to cancel or amend payment orders received in compliance with the
Security Procedure, provided that such requests are received in a timely
manner affording the Transfer Agent reasonable opportunity to act.
However, the Transfer Agent assumes no liability if the request for
amendment or cancellation cannot be satisfied.
6.6 The Transfer Agent shall assume no responsibility for failure to detect
any erroneous payment order, provided that the Transfer Agent complies
with the payment order instructions as received and the Transfer Agent
complies with the Security Procedure. The Security Procedure is
established for the purpose of authenticating payment orders only and not
for the detection of errors in payment orders.
6.7 The Transfer Agent shall assume no responsibility for lost interest with
respect to the refundable amount of any unauthorized payment order. In no
event (including failure to execute a payment order) shall the Transfer
Agent be liable for special, indirect, or consequential damages, even if
advised of the possibility of such damages.
6.8 When the Fund initiates or receives Automated Clearing House ("ACH")
credit and debit entries pursuant to these guidelines and the rules of the
National Automated Clearing House Association and the New England Clearing
House Association, the Transfer Agent or its sub-agent will act as an
"Originating Depository Financial Institution" and/or "Receiving
Depository Financial Institution," as the case may be, with respect to
such entries. Credits given by the Transfer Agent or its sub-agent with
respect to an ACH credit entry are provisional until the Transfer Agent or
its sub-agent receives final settlement for such entry from the Federal
Reserve Bank. If the Transfer Agent or its sub-agent does not receive such
final settlement, the Fund agrees that the Transfer Agent shall receive a
refund of the amount credited to the Fund in connection with such entry,
and the party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
6.9 Confirmation of the Transfer Agent's execution of payment orders shall
ordinarily be provided within twenty-four (24) hours, notice of which may
be delivered through the Transfer Agent's or its sub-agent's proprietary
information systems, or by facsimile or call-back. Each Fund must notify
the Transfer Agent of any objections to the execution of an order within
thirty (30) days.
7. Data Access and Proprietary Information
7.1 Each Fund acknowledges that the databases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Transfer Agent or its sub-agent as
part of the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Transfer Agent on databases under the control and
ownership of the Transfer Agent or its sub-agent ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the
Transfer Agent or its sub-agent. In no event shall Proprietary Information
be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Transfer Agent or its sub-agent and
further agrees that it shall not divulge any Proprietary Information to
any person or organization except as may be provided hereunder. Without
limiting the foregoing, each Fund agrees for itself and its employees and
agents to:
(a) use such programs and databases (i) solely on the Fund's computers, or
(ii) solely from equipment at the locations agreed to between the Fund
and the Transfer Agent, and (iii) solely in accordance with the
Transfer Agent's or its sub-agent's applicable user documentation;
(b) refrain from copying or duplicating in any way (other than in the
normal course of performing processing on the Fund's computer(s)) the
Proprietary Information;
(c) refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and, if such access is inadvertently
obtained, to inform the Transfer Agent in a timely manner of such fact
and dispose of such information in accordance with the Transfer
Agent's instructions;
(d) refrain from causing or allowing information transmitted from the
Transfer Agent's computer to the Fund's terminal to be retransmitted
to any other computer terminal or other device except as expressly
permitted by the Transfer Agent;
(c) allow the Fund to have access only to those authorized transactions as
agreed to between the Fund and the Transfer Agent; and
(d) honor all reasonable written requests made by the Transfer Agent to
protect at the Transfer Agent's or its sub-agent's expense the rights
of the Transfer Agent or its sub-agent in Proprietary Information at
common law, under federal copyright law and under other federal or
state law.
7.2 Proprietary Information shall not include all or any portion of any of the
foregoing items that (a) are or become publicly available without breach
of this Agreement; (b) are released for general disclosure by a written
release by the Transfer Agent or its sub-agent; or (c) are already in the
possession of the receiving party at the time or receipt without
obligation of confidentiality or breach of this Agreement.
7.3 Each Fund acknowledges that its obligation to protect the Transfer Agent's
and its sub-agent's Proprietary Information is essential to the business
interest of the Transfer Agent and that the disclosure of such Proprietary
Information in breach of this Agreement would cause the Transfer Agent or
its sub-agent immediate, substantial, and irreparable harm, the value of
which would be extremely difficult to determine. Accordingly, the parties
agree that, in addition to any other remedies that may be available at
law, in equity or otherwise for the disclosure or use of the Proprietary
Information in breach of this Agreement, the Transfer Agent or its
sub-agent shall be entitled to seek and obtain a temporary restraining
order, injunctive relief, or other equitable relief against the
continuance of such breach.
7.4 If a Fund notifies the Transfer Agent that any of the Data Access Services
do not operate in material compliance with the most recently issued user
documentation for such services, the Transfer Agent shall endeavor in a
timely manner to correct such failure. Organizations from which the
Transfer Agent or its sub-agent may obtain certain data included in the
Data Access Services are solely responsible for the contents of such data,
and the Fund agrees to make no claim against the Transfer Agent or its
sub-agent arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL
COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT AND ITS
SUB-AGENTS EXPRESSLY DISCLAIM ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.5 If the transactions available to a Fund include the ability to originate
electronic instructions to the Transfer Agent or its sub-agent in order to
(a) effect the transfer or movement of cash or Shares; or (b) transmit
Shareholder information or other information, then in such event the
Transfer Agent and its sub-agent shall be entitled to rely on the validity
and authenticity of such instruction without undertaking any further
inquiry as long as such instruction is undertaken in conformity with
security procedures established by the Transfer Agent or its sub-agent
from time to time.
7.6 Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 7. The obligations of the Funds under
this Section shall survive any termination of this Agreement.
8. Confidentiality
8.1 Subject to the provisions of Section 8.2 hereof, the Transfer Agent and
the Funds agree that they will not, at any time during the term of this
Agreement or after its termination, reveal, divulge or make known to any
person, firm, corporation, or other business organization, any customers'
lists, trade secrets, cost figures and projections, profit figures and
projections or any other secret or confidential information whatsoever,
whether of the Transfer Agent or its sub-agent or of a Fund, used or
gained by the Transfer Agent or its sub-agent or the Fund during
performance under this Agreement. The Funds and the Transfer Agent further
covenant and agree to retain all such knowledge and information acquired
during and after the term of this Agreement respecting such lists, trade
secrets, or any secret or confidential information whatsoever in trust for
the sole benefit of the Transfer Agent or its sub-agent or the Funds and
their successors and assigns. In the event of breach of the foregoing, the
remedies provided by Section 7.3 shall be available to the party whose
confidential information is disclosed. The above prohibition of disclosure
shall not apply to the extent that the Transfer Agent must disclose such
data to its sub-agent or to agents or representatives of the Fund for
purposes of providing services under this Agreement.
8.2 In the event that any requests or demands are made for the inspection of
the Shareholder records of a Fund, other than request for records of
Shareholders pursuant to subpoenas from state or federal government
authorities, the Transfer Agent will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Transfer Agent expressly reserves, for itself and its
sub-agents, the right, however, to exhibit the Shareholder records to any
person whenever it is advised by counsel that it may be held liable for
the failure to exhibit the Shareholder records to such person or if
required by law or court order.
9. Indemnification
9.1 The Transfer Agent shall not be responsible for, and a Fund shall
indemnify and hold the Transfer Agent harmless from and against, any and
all reasonable losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to:
(a) all actions of the Transfer Agent or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct;
(b) said Fund's (or its trustees', officers' or employees') lack of good
faith, negligence, or willful misconduct which arise out of the breach
of any representation or warranty by the Fund;
(c) the Transfer Agent's (and its sub-agent's) reliance upon, and any
subsequent use of or action taken or omitted by the Transfer Agent (or
its sub-agents) in good faith based on (i) any information, records,
documents, data, stock certificates, or services that are received by
the Transfer Agent or its agents or subcontractors by machine readable
input, facsimile, CRT data entry, electronic instructions, or other
similar means authorized by the Fund, and that have been prepared,
maintained, or performed by the Fund or any other person or firm on
behalf of the Fund, including, but not limited to, any previous
transfer agent or registrar and reasonably believed to be genuine,
authentic or signed by the proper person or persons; (ii) any
instructions or requests received by the Transfer Agent from the Fund
or any of its authorized officers and reasonably believed to be
genuine, authentic or signed by the proper person or persons; (iii)
any instructions or opinions of legal counsel with respect to any
matter arising in connection with the services to be performed by the
Transfer Agent under this Agreement that are provided to the Transfer
Agent after consultation with such legal counsel; or (iv) any paper or
document, reasonably believed to be genuine, authentic or signed by
the proper person or persons;
(d) the offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other determination or
ruling by any federal or any state agency with respect to the offer of
sale of such Shares, unless such violation of state securities law was
directly attributable to the Transfer Agent's negligence, bad faith,
or willful misconduct (with respect to this Section 9.1(d), in
addition to indemnifying and holding harmless the Transfer Agent, said
Fund shall also indemnify and hold harmless the Transfer Agent's
agents and sub-contractors);
(e) the negotiation and processing of any checks, including, without
limitation, for deposit into any bank account of the Fund so long as
the Transfer Agent complies with applicable procedures and guidelines
approved by the Fund; or
(f) the Transfer Agent's entering into any agreements required by the
National Securities Clearing Corporation ("NSCC") for the transmission
of Fund or Shareholder data through the NSCC clearing systems.
15.1 A Fund shall not be responsible for, and the Transfer Agent shall
indemnify and hold the Fund harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses, and liabilities
arising out of or attributable to any actions or omissions of the Transfer
Agent as a result of the Transfer Agent's lack of good faith, negligence,
or willful misconduct.
15.2 In order that the indemnification provisions contained in the Section 9
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion and shall keep the other
party advised with respect to all developments concerning such claim. The
party who may be required to indemnify herunder shall have the option with
counsel selected by it to participate with the party seeking
indemnification in the defense of such claim or to defend against said
claim in its own name or in the name of the other party. The party seeking
indemnification shall in no case confess any claim or make any compromise
in any case in which the other party may be required to indemnify it
except with the other party's prior written consent (which shall not be
unreasonably withheld).
15. Standard of Care
15.1 The Transfer Agent shall at all times act in good faith and agrees to use
its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and
shall not be liable for loss or damage due to errors unless such errors
are caused by its negligence, bad faith, or willful misconduct or that of
its employees, except as provided in Section 10.2 below. The parties agree
that any encoding or payment processing errors and the liability arising
under Section 4-209 of the Uniform Commercial Code shall be governed by
this Section 10.1.
15.2 In the case of Exception Services as defined in Section 2.3 herein, the
Transfer Agent shall be held to a standard of gross negligence.
11. Information to be Furnished by the Fund
11.1 Each Fund shall promptly furnish to the Transfer Agent the following:
(a) a certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Transfer Agent and the
execution and delivery of this Agreement;
(b) a copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto;
(c) a list of all officers of the Fund, together with specimen signatures
of those officers, who are authorized to instruct the Transfer Agent
in all matters; and
(d) two copies of the following:
1. all of its current Prospectuses and Statements of Additional
Information; and
2. all other forms commonly used by the Fund with regard to its
relationships and transactions with Shareholders of the Fund.
12. Recordkeeping
15.1 The Transfer Agent hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Funds for safekeeping of stock
certificates, check forms, and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
15.2 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in such form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Transfer Agent agrees that all
such records prepared or maintained by the Transfer Agent relating to the
services to be performed by the Transfer Agent hereunder are the property
of each Fund and will be preserved, maintained, and made available in
accordance with such Section and Rules, and will be surrendered promptly
to the Fund on and in accordance with its request.
15.3 Upon reasonable notice and during normal business hours, the Transfer
Agent shall make available to each Fund its records supporting performance
of its obligations hereunder, provided however such disclosure will not
relate in any way whatsoever to records of the Transfer Agent's other
clients.
13. Termination of Agreement
15.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days' written notice to the other.
15.2 Should the Fund exercise its right to terminate this Agreement, all
reasonable out-of-pocket expenses associated with the movement of records
and material will be borne by the Fund at cost. Additionally, the Transfer
Agent reserves the right to charge for any other reasonable expenses
associated with such termination. Payment of such expenses or costs shall
be in accordance with Section 3.4 of this Agreement.
15.3 Upon termination of this Agreement, each party shall return to the other
party all copies of confidential or proprietary materials or information
received from such other party hereunder, other than materials or
information required to be retained by such party under applicable laws or
regulations. In addition, the Transfer Agent shall promptly provide to the
Funds or a successor transfer agent all records and information required
to be maintained by the Transfer Agent hereunder. To the extent reasonably
possible, the Transfer Agent shall deliver such records and information in
machine readable form.
15.4 Upon the resignation by the Transfer Agent or any of its agents or
sub-contractors or their affiliates as custodian of a Retirement Account,
the Transfer Agent shall promptly return to the Funds and shall require
its agents or sub-contractors to promptly return to the Funds and all Fund
and Fund Shareholder records and information held or maintained by such
party in its capacity as Retirement Account custodian. To the extent
reasonably possible, such records and information shall be delivered to
the Funds in machine readable form.
15.5 If either party defaults in the performance of any material provision of
this Agreement, or commits a series of non-material defaults which in the
aggregate impair to a material extent the value of this Agreement to the
other party, and the default or deficiency or condition is not cured
within the shorter period of (a) thirty (30) days after the receipt of
written notice thereof; or (b) the period of time allowed to cure such
deficiency by applicable regulations. If the default or failure or
condition is not cured during the thirty (30) day period, then this
Agreement will terminate immediately upon receipt by the defaulting or
failing party of a second written notice from the other Party stating that
such termination is then effective. If the Funds terminate this Agreement
pursuant to this paragraph, the Funds shall be liable for all reasonable
out-of-pocket expenses associated with such termination, including any
fees due to the Sub-Transfer Agent pursuant to such applicable notice
period.
14. Assignment and Third Party Beneficiaries.
14.1 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party.
Any attempt to do so in violation of this Section shall be void. Unless
specifically stated to the contrary in any written consent to an
assignment, no assignment will release or discharge the assignor from any
duty or responsibility under this Agreement.
14.2 Except as explicitly stated elsewhere in this Agreement, nothing under
this Agreement shall be construed to give any rights or benefits under
this Agreement to anyone other than the Transfer Agent and the Funds, and
the duties and responsibilities undertaken pursuant to this Agreement
shall be for the sole and exclusive benefit of the Transfer Agent and the
Fund. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
14.3 This Agreement does not constitute an agreement for a partnership or joint
venture between the Transfer Agent and the Fund.
15. Subcontractors
15.1 The Transfer Agent may, without further consent on the part of the Fund,
engage subcontractors to perform any of the obligations of the Transfer
Agent under this Agreement; provided, however, that the Transfer Agent
shall be fully responsible to the Fund for the acts and omissions of the
subcontractor as it is for its own acts and omissions.
15.1 Except as otherwise provided in Section 15.1, nothing herein shall impose
any duty upon the Transfer Agent in connection with or make the Transfer
Agent liable for the actions or omissions to act of unaffiliated third
parties, such as, by way of example and not limitation, Airborne Services,
Federal Express, United Parcel Service, the U.S. Mails, NSCC and
telecommunication companies, provided, if the Transfer Agent selected such
company, the Transfer Agent shall have exercised due care in selecting the
same.
16. Miscellaneous
16.1 Relationship of Parties. The parties agree that they are independent
contractors and not partners or co-venturers, and nothing contained herein
shall be interpreted or construed otherwise.
16.2 Amendment. This Agreement may be amended or modified by a written
agreement executed by both parties.
16.3 Massachusetts Law to Apply. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of
The Commonwealth of Massachusetts.
16.4 Force Majeure. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, including, but not limited to, transmission errors in
transactions processed by Shareholders via on-line computer services, or
other causes reasonably beyond its control, such party shall not be liable
for damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
16.5 Consequential Damages. Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act or
failure to act hereunder.
16.6 Survival. All provisions regarding indemnification, warranty, liability,
and limits thereon and confidentiality and/or protections of proprietary
rights and trade secrets shall survive the termination of this Agreement.
16.7 Severability. If any provision or provisions of this Agreement shall be
held invalid, unlawful or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
16.8 Priorities Clause. In the event of any conflict, discrepancy, or ambiguity
between the terms and conditions contained in this Agreement and any
schedules or attachments hereto, the terms and conditions contained in
this Agreement shall take precedence.
16.9 Waiver. No waiver by either party or any breach or default of any of the
covenants or conditions herein contained and performed by the other party
shall be construed as a waiver of any succeeding breach of the same or of
any other covenant or condition.
16.10 Merger of Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect
to the subject matter hereof whether oral or written.
16.11 Counterparts. This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
16.12 Reproduction of Documents. This Agreement and all schedules, exhibits,
attachments and amendments hereto may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic, or other
similar process. The parties hereto each agree that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding, whether or not the original is in existence and
whether or not such reproduction was made by a party in the regular course
of business, and that any enlargement, facsimile, or further reproduction
shall likewise be admissible in evidence.
16.13 Year 2000. The Transfer Agent will take reasonable steps to ensure that
its products reflect the available technology to offer products that are
Year 2000 ready, including, but not limited to, century recognition of
dates, calculations that correctly compute same century and multicentury
formulas and date values, and interface values that reflect the date
issues arising between now and the next one-hundred years. The Transfer
Agent shall not be liable for computer-related problems arising out of, or
associated with, third-party vendor computer systems or related equipment
that are incurred in connection with the change from the years 1999 to
2000, such third-party vendors including, but not limited to, the
Sub-Transfer Agent, DST Systems, Inc., and Output Technologies, Inc. The
Transfer Agent has conducted a commercially reasonable investigation of
the Sub-Transfer Agent's applicable computer systems and is not aware of
any Year 2000 issues. The Transfer Agent will notify the Fund promptly in
the event it becomes aware of any Year 2000 issues.
16.14 Notices. All notices and other communications as required or permitted
hereunder shall be in writing and sent by first class mail, postage
prepaid, addressed as follows or to such other address or addresses of
which the respective party shall have notified the other.
(a) If to Transfer Agent, to:
Nvest Services Company, Inc.
399 Boylston Street, 5th Floor
Boston, Massachusetts 02116
Attention: President
With a copy to: General Counsel
Facsimile: (617) 578-1177
(b) If to the Fund, to:
New England Funds Trust I
New England Funds Trust II
New England Funds Trust III
New England Cash Management Trust
New England Tax Exempt Money Market Trust
399 Boylston Street, 10th Floor
Boston, Massachusetts 02110
Attention: President
With a copy to: General Counsel
Facsimile: (617) 578-1191
17. Additional Funds
In the event that a Fund establishes one or more series of Shares in
addition to those named on the attached Schedule A with respect to which
it desires to have the Transfer Agent render services as transfer agent
under the terms hereof, it shall so notify the Transfer Agent in writing,
and, if the Transfer Agent agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
18. Limitations of Liability of the Trustees and Shareholders
A copy of each Fund's Declaration of Trust is on file with the Secretary
of The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Fund by an officer and not
individually and that the obligations of or arising out of this instrument
are not binding upon any of the Trustees, officers or Shareholders of the
Fund individually, but are binding only upon the assets and property of
the indicated Portfolio of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
BY: /s/ Bruce R. Speca
------------------------------------
Bruce R. Speca, President
ATTEST:
- --------------------------------
NVEST SERVICES COMPANY, INC.
BY: /s/ Christopher L. Wilson
------------------------------------
Christopher L. Wilson, President
ATTEST:
- --------------------------------
<PAGE>
SCHEDULE A
LIST OF PORTFOLIOS OF NEW ENGLAND FUNDS TRUST I, NEW ENGLAND
FUNDS TRUST II, NEW ENGLAND FUNDS TRUST III, NEW ENGLAND CASH &
MANAGEMENT TRUST, NEW ENGLAND TAX EXEMPT, MONEY MARKET TRUST
1. New England Growth Fund
2. New England Capital Growth Fund
3. New England Growth & Income Fund
4. New England Equity Income Fund
5. New England Bullseye Fund
6. New England Balanced Fund
7. New England Value Fund
8. New England International Equity Fund
9. New England Star Advisers Fund
10. New England Star Worldwide Fund
11. New England Star Small Cap Fund
12. New England Bond Income Fund
13. New England High Income Fund
14. New England Government Securities Fund
15. New England Limited Term U.S. Government Fund
16. New England Strategic Income Fund
17. New England Short Term Income Fund
18. New England Municipal Income Fund
19. New England Massachusetts Tax Free Income Fund
20. New England Intermediate Term Tax Free Fund of California
21. New England Cash Management Trust - Money Market Series
22. New England Tax Exempt Money Market Trust
New England Funds Trust I Nvest Services Company, Inc.
New England Funds Trust II
New England Funds Trust III
New England Cash Management Trust
New England Tax Exempt Money Market Trust
BY: /s/ Bruce R. Speca BY: /s/ Christopher L. Wilson
---------------------------- --------------------------------
Bruce R. Speca, President Christopher L. Wilson, President
<PAGE>
SCHEDULE B
SERVICES TO BE PROVIDED BY THE TRANSFER AGENT OF NEW ENGLAND
FUNDS TRUST I, NEW ENGLAND FUNDS TRUST II, NEW ENGLAND FUNDS
TRUST III, NEW ENGLAND CASH & MANAGEMENT TRUST, NEW ENGLAND TAX
EXEMPT, MONEY MARKET TRUST
Perform the customary services of a transfer agent, dividend disbursing agent,
and, as relevant, agent in connection with accumulation, open-account or similar
plan (including any periodic investment plan or periodic withdrawal program),
including, but not limited to, the following:
1. maintain all Shareholder accounts;
2. process transactions, including, but not limited to, new account set
up, transfer of Share ownership, exchange of Shares, telephone
transactions, and literature requests;
3. prepare Shareholder meeting lists;
4. mail Shareholder proxies, Shareholder reports, and prospectuses to
current Shareholders;
5. receive and tabulate Shareholders proxies;
6. withhold taxes on U.S. resident and non-resident alien accounts;
7. prepare and file U.S. Treasury Department Forms 1099 and other
appropriate forms with respect to dividends and distributions by
federal authorities for all Shareholders;
8. prepare and mail confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts;
9. prepare and mail activity statements for Shareholders;
10. provide Shareholder account information through various means,
including, but not limited to, telephone calls, correspondence, and
research;
11. receive for acceptance orders for the purchase of Shares and promptly
deliver payment and appropriate documentation thereof to the custodian
of the Fund authorized pursuant to the Fund's Declaration of Trust
(the "Custodian");
12. pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
13. receive for acceptance redemption requests and redemption directions
either in correspondence, via telephone, facsimile transmission, or
through NSCC or any other method deemed appropriate by the Fund and
deliver the appropriate documentation thereof to the Custodian;
14. at the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
15. with respect to the transactions in items 11, 12, 13 and 14 above, the
Transfer Agent shall execute transactions directly with broker-dealers
authorized by the Fund;
16. effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
17. prepare and transmit payments for dividends and distributions declared
by the Fund on behalf of the applicable Portfolio;
18. maintain such bank accounts (which accounts may be in the name of the
Transfer Agent or a subagent thereof) as the Transfer Agent shall deem
necessary to the performance of its duties hereunder, including, but
not limited to, the processing of Share purchases and redemptions and
the payment of Portfolio dividends; any income or expense associated
with any such account shall accrue to or be borne by the Transfer
Agent;
19. if applicable, issue replacement certificates for those certificates
alleged to have been lost, stolen, or destroyed upon receipt by the
Transfer Agent of indemnification satisfactory to the Transfer Agent
and protecting the Transfer Agent and the Fund; the Transfer Agent, at
its option, may issue replacement certificates in place of mutilated
stock certificates upon presentation thereof and without such
indemnity;
20. report abandoned property to the various states as authorized by the
Fund according to policies and principles agreed upon by the Fund and
the Transfer Agent;
21. maintain records of account for and advise the Fund and its
Shareholders as to the foregoing;
22. record the issuance of Shares of the Fund and maintain a record of the
total number of Shares of the Fund that are authorized, based upon
data provided to it by the Fund, and issued and outstanding; the
Transfer Agent shall also provide the Fund on a regular basis with the
total number of Shares that are authorized and issued and outstanding
and shall have no obligation, when recording the issuance of Shares,
to monitor the issuance of such Shares or to take cognizance of any
laws relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund;
23. maintain a daily record and produce a daily report for the Fund of all
transactions, receipts, and disbursements of money and securities to
and from Shareholders and deliver a copy of such report for the Fund
for each business day to the Fund no later than 10:00 AM Eastern Time,
or such earlier time as the Fund may reasonably require, on the next
business day; and
24. register and maintain accounts through Networking and accept and
effectuate the purchase, redemption, transfer and exchange of Shares
in such accounts through Fund/SERV (Networking and Fund/SERV being
programs operated by NSCC on behalf of NSCC's participants, including
the Fund), in accordance with instructions transmitted to and received
by the Transfer Agent by transmission from NSCC on behalf of
broker-dealers and banks, which have been established, or in
accordance with the instructions of authorized persons as hereinafter
defined on the dealer file maintained by the Transfer Agent; issue
instructions to the Fund's banks for the settlement of transactions
between the Fund and NSCC (acting on behalf of its broker-dealer and
bank participants); provide account and transaction information from
the affected Fund's records on the System in accordance with NSCC's
Networking and Fund/SERV rules for those broker-dealers; and maintain
Shareholder accounts on the System through Networking.
NEW ENGLAND FUNDS TRUST I NVEST SERVICES COMPANY, INC.
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
BY: /s/ Bruce R. Speca BY: /s/ Christopher L. Wilson
---------------------------- --------------------------------
Bruce R. Speca, President Christopher L. Wilson, President
<PAGE>
SCHEDULE 2.2
THIRD PARTY ADMINISTRATOR PROCEDURES
DATED ___________________
1. On each Business Day, the TPA shall receive, on behalf of and as agent
of the Fund(s), Instructions (as hereinafter defined) from the Plan.
Instructions shall mean as to each Fund (i) orders by the Plan for the
purchases of Shares, and (ii) requests by the Plan for the redemption
of Shares; in each case, based on the Plan's receipt of purchase
orders and redemption requests by Participants in proper form by the
time required by the terms of the Plan, but not later than the time of
day at which the net asset value of a Fund is calculated, as described
from time to time in that Fund's prospectus. Each Business Day on
which the TPA receives Instructions shall be a "Trade Date."
2. The TPA shall communicate the TPA's acceptance of such Instructions to
the applicable Plan.
3. On the next succeeding Business Day following the Trade Date on which
it accepted Instructions for the purchase and redemption of Shares
(TD+1), the TPA shall notify the Transfer Agent of the net amount of
such purchases or redemptions, as the case may be, for each Plan. In
the case of net purchases by any Plan, the TPA shall instruct the
Trustees of such Plan to transmit the aggregate purchase price for
Shares by wire transfer to the Transfer Agent on TD+1. In the case of
net redemptions by any Plan, the TPA shall instruct the Fund's
custodian to transmit the redemption proceeds for Shares by wire
transfer to the Trustees of such Plan on TD+1. The times at which such
notification and transmission shall occur on TD+1 shall be as mutually
agreed upon by each Fund, the TPA, and the Transfer Agent.
4. The TPA shall maintain separate records for each Plan, which records
shall reflect Shares purchased and redeemed, including the date and
price for all transactions, and Share balances. The TPA shall maintain
on behalf of each of the Plans a single master account with the
Transfer Agent and such account shall be in the name of that Plan, the
TPA, or the nominee of either thereof as the record owner of Shares
owned by such Plan.
5. The TPA shall maintain records of all proceeds of redemptions of
Shares and all other distributions not reinvested in Shares.
6. The TPA shall prepare, and transmit to each of the Plans, periodic
account statements showing the total number of Shares owned by that
Plan as of the statement closing date, purchases and redemptions of
Shares by the Plan during the period covered by the statement, and the
dividends and other distributions paid to the Plan on Shares during
the statement period (whether paid in cash or reinvested in Shares).
7. The TPA shall, at the request and expense of each Fund, transmit to
the Plans prospectuses, proxy materials, reports and other information
provided by each Fund for delivery to its shareholders.
8. The TPA shall, at the request of each Fund, prepare and transmit to
each Fund or any agent designated by it such periodic reports covering
Shares of each Plan as each Fund shall reasonably conclude are
necessary to enable the Fund to comply with state Blue Sky
requirements.
9. The TPA shall transmit to the Plans confirmation of purchase orders
and redemption requests placed by the Plans.
10. The TPA shall, with respect to Shares, maintain account balance
information for the Plan and daily and monthly purchase summaries
expressed in Shares and dollar amounts.
11. Plan sponsors may request, or the law may require, that prospectuses,
proxy materials, periodic reports, and other materials relating to
each Fund be furnished to Participants, in which event, the Transfer
Agent or each Fund shall mail or cause to be mailed such materials to
Participants. With respect to any such mailing, the TPA shall, at the
request of the Transfer Agent or each Fund, provide at the TPA's
expense complete and accurate set of mailing labels with the name and
address of each Participant having an interest through the Plans in
Shares.
NEW ENGLAND FUNDS TRUST I NVEST SERVICES COMPANY, INC.
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
BY: /s/ Bruce R. Speca BY: /s/ Christopher L. Wilson
---------------------------- --------------------------------
Bruce R. Speca, President Christopher L. Wilson, President
<PAGE>
SCHEDULE 3.1
FEES
DATED AS OF NOVEMBER 1, 1999
ANNUAL ACCOUNT SERVICE FEES
- --------------------------------------------------------------------------------
Each Portfolio/Class
Equity Funds (Classes A, B and C) * $20.10
Fixed Income Funds (Classes A, B and C) * $17.35
Money Market Funds (Classes A, B, C and Y) $22.00
- --------------------------------------------------------------------------------
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Account service fees are the higher of open account charges plus closed account
charges or the fund minimum.
MONTHLY MINIMUMS
- --------------------------------------------------------------------------------
Each Portfolio/Class
Equity Funds (Classes A, B and C) * $1,500
Fixed Income Funds (Classes A, B and C) * $1,500
Money Market Funds (Classes A, B, C and Y) $1,500
- --------------------------------------------------------------------------------
*Class Y Shares of the Equity and Fixed Income Funds are charged an asset based,
flat fee of 10 basis points.
IRA CUSTODIAL FEES
- --------------------------------------------------------------------------------
Annual Maintenance (payable by shareholders) $15.00/Account
Out-of-pocket expenses include, but are not limited to, confirmation statements,
postage, investor statements, audio response, telephone, telecommunication and
line charges, record storage, records retention, transcripts, microfilm,
microfiche, checks, forms (including year end forms), wire fees, mailing and
tabulating proxies, costs associated with certain specialty products, systems,
or services, as applicable (such as "Investor," "Voice," "FAN," and "Vision"),
and any other expenses incurred at the specific direction of the Fund.
Subject to each party's right to terminate this Agreement pursuant to Section 13
hereof, the Transfer Agent and the Fund agree that the fees set forth in this
Schedule 3.1 shall remain in effect for a period of one year from the date of
this Agreement. Upon the expiration of such one year period, the Transfer Agent
and the Fund hereby agree to negotiate in good faith such changes to this
Schedule as they may deem necessary.
NEW ENGLAND FUNDS TRUST I NVEST SERVICES COMPANY, INC.
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
BY: /s/ Bruce R. Speca BY: /s/ Christopher L. Wilson
---------------------------- --------------------------------
Bruce R. Speca, President Christopher L. Wilson, President
<PAGE>
SCHEDULE 6.2
WIRE TRANSFER SECURITY PROCEDURES
CUSTOMER SELECTION FORM
SECTION I
Details the types of funds transfers processed on behalf of
____________________.
Please select the appropriate security procedures from Section II for each type
of funds transfer listed in Section I.
TYPES OF FUNDS TRANSFERS
__________ Expedited Redemptions
__________ Same Day Wires
__________ Manual Wires
__________ Wire Transfers Initiated by FAX
__________ Group Divided Wire
__________ Remote Bach Transmissions
__________ ACH Transactions
SECTION II
Lists the types of security procedures offered.
SECURITY PROCEDURES
A. REPETITIVE WIRES/ACH TRANSACTIONS
B. TELEPHONE CONFIRMATION
C. ENCRYPTION
AUTHORIZATION
Nvest Services Company, Inc. is hereby instructed to implement the above checked
security procedure(s) in regard to payment orders initiated by or on behalf of
our organization or its shareholders.
- --------------------------------------------- ----------------
Authorized Signature Date
FUNDS TRANSFER SECURITY PROCEDURES DEFINITIONS
REPETITIVE WIRES
1. SHAREHOLDER GENERATED
Wires initiated from existing authorized shareholder accounts. Each wire
is sent to the same pre-established destination bank and beneficiary
account number. Only the date of the wire and dollar amount may vary from
instruction to instruction. Changes to that file can only be performed
based on written instructions coupled with a signature guarantee. The
establishment of the repetitive wire is confirmed via a written notice to
the shareholder's address of record.
2. CLIENT GENERATED
Manual wires processed on behalf of the client. Wires are initiated from
the same authorized debit account and sent to the same destination bank
and beneficiary account number each time. Only the date and the dollar
amount may vary from instruction to instruction.
TELEPHONE CONFIRMATION
Telephone confirmation will be used to verify funds transfer instructions
received via telephone, untested facsimile or mail. This security
procedure can be used to authenticate non-repetitive and repetitive wire
transfers instructions. Repetitive wires may be subject to a specific
threshold at the client's discretion.
As part of the confirmation process, customers must designate individuals
as authorized initiators and authorized confirmers. Within 24 hours of
receipt of the wire instruction and prior to execution, a Transfer Agent
associate will contact someone other than the originator at the customer's
location to authenticate the instructions. Additionally, a confirmation
log will be maintained to provide an evidentiary control as well as
providing an invaluable operational tool for resolving any disputes.
ENCRYPTION
Delivery of wire transfer is completed via computer to computer data
communications. Recommended security procedures include encryption, the
process by which data traveling over communication lines is
cryptographically transformed (encrypted). This control is appropriate not
only for terminal based initiation, but also being used by some
institutions in the form of both encrypted facsimile and encrypted voice
communication. This delivery mechanism is typically used for high volume
business such as shareholder redemptions and dividends.
TELEPHONE COMMUNICATIONS
All telephone communication between the Transfer Agent and the client will
be handled on recorded telephone lines.
TRANSFERS INITIATED VIA FACSIMILE TRANSMISSION
Transfers initiated via fax may use either repetitive wire security
procedures, telephone confirmation or a combination of both.
OPTIONAL SECURITY PROCEDURE
Client may establish telephone confirmation procedures to authenticate
repetitive manual wires initiated via telephone, untested facsimile or
mail in excess of certain dollar amounts using the attached forms.
<PAGE>
FUNDS TRANSFER OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: The Transfer Agent is authorized to promptly
debit the appropriate Fund account(s) upon the receipt of a payment order
in compliance with the selected security procedure (the "Security
Procedure") chosen for funds transfer and in the amount of money that the
Transfer Agent has been instructed to transfer. The Transfer Agent shall
execute payment orders in compliance with the Security Procedure and with
the Fund instructions on the execution date provided that such payment
order is received by the customary deadline for processing such a request,
unless the payment order specifies a later time. All payment orders and
communications received after this the customary deadline will be deemed to
have been received the next business day.
2. SECURITY PROCEDURE: The Fund acknowledges that the Security Procedure it
has designated on the Selection Form was selected by the Fund from security
procedures offered by the Transfer Agent. The Fund shall restrict access to
confidential information relating to the Security Procedure to authorized
persons as communicated to the Transfer Agent in writing. The Fund must
notify the Transfer Agent immediately if it has reason to believe
unauthorized persons may have obtained access to such information or of any
change in the Fund's authorized personnel. The Transfer Agent shall verify
the authenticity of all Fund instructions according to the Security
Procedure.
3. ACCOUNT NUMBERS: The Transfer Agent shall process all payment orders on the
basis of the account number contained in the payment order. In the event
discrepancy between any name indicated on the payment order and the account
number, the account number shall take precedence and govern.
4. REJECTION: The Transfer Agent reserves the right to decline to process or
delay the processing of a payment order which (a) is in excess of the
collected balance in the account to be charged at the time of the Transfer
Agent's receipt of such payment order; (b) if initiating such payment order
would cause the Transfer Agent, in the Transfer Agent's sole judgment, to
exceed any volume, aggregate dollar, network, time, credit or similar
limits that are applicable to the Transfer Agent; or (c) if the Transfer
Agent, in good faith, is unable to satisfy itself that the transaction has
been properly authorized.
5. CANCELLATION OF AMENDMENT: The Transfer Agent shall use reasonable efforts
to act on all authorized requests to cancel or amend payment orders
received in compliance with the Security Procedure provided that such
requests are received in a timely manner affording the Transfer Agent
reasonable opportunity to act. However, the Transfer Agent assumes no
liability if the request for amendment or cancellation cannot be satisfied.
6. ERRORS: The Transfer Agent shall assume no responsibility for failure to
detect any erroneous payment order provided that the Transfer Agent
complies with the payment order instructions as received and the Transfer
Agent complies with the Security Procedure. The Security Procedure is
established for the purpose of authenticating payment orders only and not
for the detection of errors in payment orders.
7. INTEREST AND LIABILITY LIMITS: The Transfer Agent shall assume no
responsibility for lost interest with respect to the refundable amount of
any unauthorized payment order. In no event (including failure to execute a
payment order) shall the Transfer Agent be liable for special, indirect or
consequential damages, even if advised of the possibility of such damages.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When
the Fund initiates or receives Automated Clearing House credit and debit
entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Transfer Agent will act as an Originating Depository
Financial Institution and/or Receiving Depository Financial Institution, as
the case may be, with respect to such entries. Credits given by the
Transfer Agent with respect to an ACH credit entry are provisional until
the Transfer Agent receives final settlement, the Fund agrees that the
Transfer Agent shall receive a refund of the amount credited to the Fund in
connection with such entry, and the party making payment to the Fund via
such entry shall not be deemed to have paid the amount of the entry.
9. CONFIRMATION STATEMENTS: Confirmation of Transfer Agent's execution of
payment orders shall ordinarily be provided within twenty four (24) hours,
notice of which may be delivered through the Transfer Agent's or its
subagent's proprietary information systems, or by facsimile or call-back.
The Fund must report any objections to the execution of an order within
thirty (30) days.
I understand and agree to the terms and conditions described above. I am
authorized to sign on behalf of each of the mutual funds or other entities named
on Schedule __ attached.
BY: _______________________________________ DATE: __________________
NAME: _____________________________________
TITLE: ____________________________________
<PAGE>
SCHEDULE ___
LIST OF MUTUAL FUNDS
<PAGE>
SECTIONS I AND II SHOULD BE COMPLETED BY ALL CLIENTS
PLEASE TYPE ALL DOCUMENTATION
SECTION I
CLIENT/FUND
- --------------------------------------------------------------------------------
STREET: APT:
- --------------------------------------------------------------------------------
CITY: STATE: ZIP:
- --------------------------------------------------------------------------------
PHONE NUMBER: FAX NUMBER:
- --------------------------------------------------------------------------------
SECTION II
Please list the number of all demand deposit accounts (DDAs) from which you
intend to initiate wire transfers
<TABLE>
<CAPTION>
MAXIMUM $ LIMIT MAXIMUM $ LIMIT
DDA NUMBER PER TRANSACTION DDA NUMBER PER TRANSACTION
(8 DIGITS) (IF ANY) (8 DIGITS) (IF ANY)
<S> <C> <C> <C>
1. 1.
- -------------------------- ----------------------- ---------------------- ------------------------
2. 2.
- -------------------------- ----------------------- ---------------------- ------------------------
3. 3.
- -------------------------- ----------------------- ---------------------- ------------------------
4. 4.
- -------------------------- ----------------------- ---------------------- ------------------------
5. 5.
- -------------------------- ----------------------- ---------------------- ------------------------
6. 6.
- -------------------------- ----------------------- ---------------------- ------------------------
</TABLE>
<PAGE>
Exhibit (h)(2)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made as of the 1st day of December 1999, by and between Nvest
Services Company, Inc., a Massachusetts corporation ("NSC"), and New England
Funds Trust I, New England Funds Trust II, New England Funds Trust III, New
England Cash Management Trust and New England Tax Exempt Money Market Trust
(collectively, the "Trusts").
WITNESSETH:
WHEREAS, each Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trusts desire to employ NSC to provide certain administrative
services to the Trusts in the manner and on the terms set forth in this
Agreement, and NSC wishes to perform such services;
NOW, THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties hereby agree as follows:
1. APPOINTMENT AND ACCEPTANCE. The Trusts hereby employ NSC to act as
Administrator of the Trusts on the terms set forth in this agreement. NSC hereby
accepts such employment and agrees to furnish the services and to assume the
obligations herein set forth for the compensation herein provided. The Trusts
will initially consist of the series and/or classes of shares (each a "Fund" and
collectively, the "Funds") listed on Schedule A to this Agreement. In the event
that any of the Trusts establish one or more additional Funds with respect to
which such Trust wishes to employ NSC to act as Administrator hereunder, the
Trust shall notify NSC in writing. Upon written acceptance by NSC, such Fund
shall become subject to the provisions of this Agreement to the same extent as
the existing Funds, except to the extent that such provisions (including those
relating to the compensation and expenses payable by the Trusts and its Funds)
may be modified with respect to each additional Fund in writing by the Trust and
NSC at the time of the addition of the Fund.
2. SERVICES PROVIDED BY NSC.
(a) NSC shall perform or arrange for the performance of the various
administrative and clerical services listed in Schedule B hereto. The
administrative services provided hereunder shall be subject to the
control, supervision and direction of the Trusts and the review and
comment by the Trusts' auditors and legal counsel and shall be
performed in accordance with procedures which may be established from
time to time between the Trusts and NSC. NSC shall provide the office
space, facilities, equipment and the personnel required by it to
perform the services contemplated herein.
(b) In providing any or all of the services listed in Schedule B hereto, and
in satisfaction of its obligations to provide such services, NSC may enter
into agreements with one or more other third parties to provide such
services to the Trusts; provided, however, that NSC shall be as fully
responsible to the Trusts for the acts and omissions of any such third
party service providers as it would be for its own acts or omissions
hereunder.
3. COMPENSATION AND EXPENSES.
(a) For the services provided by NSC hereunder, the Trusts shall pay NSC the
greater of the following:
(1) an annual minimum fee payable in equal monthly installments equal to
$2,300,000. This minimum fee would only apply when and if the collective
average net assets of the Trusts dropped below $7,000,000,000; or
(2) a monthly fee (accrued daily) based on the Trusts' average daily net
assets during the calendar month, such fee being calculated at the
annualized rates set forth below:
ANNUALIZED FEE RATE
AVERAGE DAILY NET ASSETS AS A % OF AVERAGE DAILY NET ASSETS
------------------------ ----------------------------------
$0 - $5 billion 0.0350%
Next $5 billion 0.0325%
Over $10 billion 0.0300%
(b) In addition, the Trusts shall reimburse NSC for its reasonable
out-of-pocket expenses as well as any other advances incurred by NSC with
the consent of the Trusts with respect to its provision of services
hereunder. It is agreed that the expenses for Blue Sky administrative
services performed and vendor costs incurred will be paid directly by the
Trusts.
(c) For any period less than a full calendar month, any fees payable to NSC
for such period shall be pro-rated for such lesser period. All of the
foregoing fees and expenses will be billed monthly in arrears by NSC. The
Trusts shall pay such fees and reimburse such expenses promptly upon
receipt of an invoice therefor and, in no event, later than five (5)
business days after receipt of the invoice.
(d) The Trusts agrees promptly to reimburse NSC for any equipment and supplies
specially ordered by or for the Trusts through NSC at the request or with
the consent of the Trusts, and for any other expenses not contemplated by
this Agreement that NSC may incur on behalf of, at the request of, or with
the consent of the Trusts.
(e) The Trusts will bear all expenses that are incurred in its operation
and not specifically assumed by NSC. Expenses to be borne by the
Trusts, include, but are not limited to: organizational expenses; cost
of services of independent accountants and outside legal and tax
counsel (including such counsel's review of each Trust's registration
statement, proxy materials, federal and state tax qualification as a
regulated investment company and other reports and materials prepared
by NSC under this Agreement); cost of any services contracted for by
the Trusts directly from parties other than NSC; cost of trading
operations and brokerage fees, commissions and transfer taxes in
connection with the purchase and sale of securities for the Funds;
investment advisory fees; taxes, insurance premiums and other fees and
expenses applicable to its operation; costs incidental to any meetings
of shareholders including, but not limited to, legal and accounting
fees, proxy filing fees and the costs of preparation, printing and
mailing of any proxy materials; costs incidental to Board meetings,
including fees and expenses of Board members; the salary and expenses
of any non-affiliated officer or director/trustee or any employee of
the Trusts; costs incidental to the preparation, printing and
distribution of the Trusts' registration statements and any amendments
thereto and shareholder reports; cost of typesetting and printing of
prospectuses; cost of preparation and filing of each of the Fund's tax
returns, Form N-1A and Form N-SAR, and all notices, registrations and
amendments associated with applicable federal and state tax and
securities laws; all applicable registration fees and filing fees
required under federal and state securities laws; fidelity bond and
directors' and officers' liability insurance; and cost of independent
pricing services used in computing each Fund's net asset value.
4. LIMITATION OF LIABILITY; INDEMNIFICATION.
(a) NSC shall not be liable to the Trusts for any error of judgment or
mistake of law or for any loss arising out of any act or omission by
NSC, or any persons engaged pursuant to Section 2(b) hereof, including
officers, agents, and employees of NSC and its affiliates, in the
performance of its duties hereunder; provided, however, that nothing
contained herein shall be construed to protect NSC against any
liability to the Trusts, the Funds, or the shareholders to which NSC
shall otherwise be subject by reason of its willful misfeasance, bad
faith, or negligence in the performance of its duties or the reckless
disregard of its obligations and duties hereunder.
(b) NSC will indemnify and hold harmless the Trusts, their officers,
employees, and agents and any persons who control the Trusts
(collectively, the "Trusts Indemnified Parties") and hold each of them
harmless from any losses, claims, damages, liabilities, or actions in
respect thereof to which the Trusts Indemnified Parties may become
subject, including amounts paid in settlement with the prior written
consent of NSC, insofar as such losses, claims, damages, liabilities,
or actions in respect thereof arise out of or result from the failure
of NSC to comply with the terms of this Agreement.
NSC will reimburse the Trusts for reasonable legal or other expenses
reasonably incurred by the Trusts in connection with investigating or
defending against any such loss, claim, damage, liability, or action. NSC
shall not be liable to the Trusts for any action taken or omitted by the
Trusts in bad faith or with willful misfeasance or negligence or with
reckless disregard by the Trusts of their respective obligations and
duties hereunder. The indemnities herein shall, upon the same terms and
conditions, extend to and inure to the benefit of each of the officers of
the Trusts and any person controlling the Trusts.
(c) The obligations set forth in this Section 4 shall survive the termination
of this Agreement.
5. ACTIVITIES OF NSC NOT EXCLUSIVE; DUAL INTERESTS.
(a) The services of NSC under this Agreement are not to be deemed exclusive,
and NSC and any person controlled by or under common control with NSC
shall be free to render similar services to others.
(b) It is understood that any of the officers, employees, and agents of the
Trusts or the Manager may be a shareholder, director, officer,
employee, or agent of, or be otherwise interested in, NSC, any
affiliated person of NSC, any organization in which NSC may have an
interest, or any organization that may have an interest in the Trusts.
Except as otherwise provided by specific provisions of applicable law,
the existence of any such dual interest shall not affect the validity
of this Agreement or any of the transactions hereunder.
6. REPRESENTATIONS AND WARRANTIES.
(a) The Trusts each represents and warrants to NSC that this Agreement has
been duly authorized by each of them and, when executed and delivered,
will constitute a legal, valid, and binding obligation of the Trusts,
enforceable against the Trusts in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting the rights and remedies of creditors and
secured parties.
(b) NSC represents and warrants to the Trusts that this Agreement has been
duly authorized by NSC and, when executed and delivered by NSC, will
constitute a legal, valid, and binding obligation of NSC, enforceable
against NSC in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium, and other laws of general
application affecting the rights and remedies of creditors and secured
parties.
7. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall become effective as of the date first above written
and, unless otherwise terminated, shall continue indefinitely; provided,
however, that this Agreement may be terminated at any time without the
payment of any penalty by either party on not less than sixty (60) days'
written notice to the other party.
(b) This Agreement shall automatically terminate for any Fund in the attached
Schedule A upon the termination of that Fund's Advisory Agreement.
(c) Unless otherwise terminated, this Agreement shall continue in effect for
one year from the date of execution, and from year to year thereafter so
long as such continuance is specifically approved at least annually by the
Board of Trustees of the Trusts.
(d) NSC hereby agrees that any books and records prepared hereunder with
respect to the Trusts are the property of the Trusts and shall be readily
accessible to the Trusts and their respective trustees, officers and
agents during normal business hours. NSC further agrees that, upon the
termination of this Agreement or otherwise upon request, NSC will
surrender promptly to the Trusts copies of all such books and records.
8. AMENDMENTS AND WAIVERS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved by the Trusts' Board of
Trustees, and such amendment is set forth in a written instrument executed by
each of the parties hereto. At any time, any of the provisions hereof may be
waived by the written mutual consent of the parties hereto.
9. NOTICES. All notices or other communications hereunder to either party
shall be in writing and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid. Notices shall be sent to the addresses set
forth below or to such other address as either party may designate by written
notice to the other.
If to NSC:
Nvest Services Company, Inc.
399 Boylston Street
Boston, MA 02116
Attention: President
With a copy to: General Counsel
If to the Trusts:
New England Funds Trust I
New England Funds Trust II
New England Funds Trust III
New England Cash Management Trust
New England Tax Exempt Money Market Trust
399 Boylston Street
Boston, MA 02110
Attention: President
With a copy to: Secretary
Notice shall also be deemed sufficient if given electronically or by telex,
telecopier, telegram, or other similar means of same day delivery (with a
confirming copy by mail as provided herein).
10. ADDITIONAL PROVISIONS
(a) Year 2000. Neither party shall be held liable for computer-related problems
arising out of or associated with third party vendor computer systems or
related equipment that are incurred in connection with the change from the
years 1999 to 2000.
(b) Separate Portfolios. This Agreement shall be construed to be made by the
Trusts as a separate agreement with respect to each Fund, and under no
circumstances shall the rights, obligations, or remedies with respect to a
particular Fund be deemed to constitute a right, obligation, or remedy
applicable to any other Fund.
(c) Entire Agreement. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes any prior
arrangements, agreements, or understandings.
(d) Severability. If any term or provision of this Agreement or the application
thereof to any person or circumstance is held to be invalid or unenforceable
to any extent, the remainder of this Agreement or the application of such
provision to other persons or circumstances shall not be affected thereby
and shall be enforced to the fullest extent permitted by law.
(e) Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of The Commonwealth of Massachusetts
as then in effect.
(f) Counterparts. This Agreement may be executed by the parties hereto in one or
more counterparts, and, if so executed, the separate instruments shall
constitute one agreement.
(g) Headings. Headings used in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
NVEST SERVICES COMPANY, INC.
By: /s/ Christopher L. Wilson
------------------------------
Name: Christopher L. Wilson
Title: President & Chief Executive Officer
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
By: /s/ Neal G. Litvack
------------------------------
Name: Neal G. Litvack
Title: President
<PAGE>
SCHEDULE A
TRUST PORTFOLIOS
1. New England Growth Fund
2. New England Capital Growth Fund
3. New England Growth & Income Fund
4. New England Equity Income Fund
5. New England Bullseye Fund
6. New England Balanced Fund
7. New England Value Fund
8. New England International Equity Fund
9. New England Star Advisers Fund
10. New England Star Worldwide Fund
11. New England Star Small Cap Fund
12. New England Bond Income Fund
13. New England High Income Fund
14. New England Government Securities Fund
15. New England Limited Term U.S. Government Fund
16. New England Strategic Income Fund
17. New England Short Term Income Fund
18. New England Municipal Income Fund
19. New England Massachusetts Tax Free Income Fund
20. New England Intermediate Term Tax Free Fund of California
21. New England Cash Management Trust - Money Market Series
22. New England Tax Exempt Money Market Trust
<PAGE>
SCHEDULE B
DESCRIPTION OF SERVICES PROVIDED
NSC shall perform or arrange for the performance of the following administration
and clerical service:
CORPORATE SECRETARIAL SERVICES
1. provide Secretary and Assistant Secretaries for the Trusts and other
officers as requested;
2. maintain general corporate calendar, tracking all legal and regulatory
compliance through annual cycles;
3. prepare Board materials for quarterly Board meetings and Board
committee meetings, including agenda and background materials for
annual review of advisory and distribution fees, presentation of
issues to the Board, prepare minutes and follow-up on matters raised
at meetings;
4. maintain charter documents for the Trusts;
5. prepare organizational Board meeting materials for new Funds;
6. draft contracts, assisting in negotiation and planning, as
appropriate, for example advisory, distribution and selling
agreements, transfer agency and custodian agreements, 12b-1 and
shareholder servicing plans and related agreements and various other
agreements and amendments;
7. prepare and file proxy solicitation materials, oversee solicitation
and tabulation efforts, conduct shareholder meetings and provide legal
presence at meetings;
REGISTRATION AND DISCLOSURE ASSISTANCE SERVICES
8. prepare and file amendments to the Funds' registration statement,
including updating prospectuses and SAIs;
9. prepare and file prospectus and SAI supplements, as needed;
10. prepare and file other regulatory documents, including N-SARs, Rule
24f-2/24e-2 Notices;
11. negotiate, obtain and file fidelity bonds and monitor compliance with
Rule 17g-1 and Rule 17d-1(7) under the 1940 Act;
12. negotiate, obtain and monitor directors' and officers' errors and
omissions policies;
13. prepare and file shareholder meeting materials and assist with all
shareholder communications;
14. coordinate and monitor state Blue Sky qualification through an
experienced vendor partner;
LEGAL CONSULTING AND PLANNING SERVICES
15. provide general legal advice on matters relating to portfolio
management, Fund operations, mutual fund sales, development of
advertising materials, changing or improving prospectus disclosure,
and any potential changes in each Fund's investment policies,
operations, or structure;
16. communicate significant emerging regulatory and legislative
developments to the Adviser, the Trusts and the Board and provide
related planning assistance;
17. develop or assist in developing guidelines and procedures to improve
overall compliance by the Trusts and Funds;
18. provide advice with regard to litigation matters, routine fund
examinations and investigations by regulatory agencies;
19. provide advice regarding long-term planning for the Funds, including
creation of new funds or portfolios, corporate structural changes,
mergers, acquisitions, and other asset gathering plans including new
distribution methods;
20. maintain effective communications with fund counsel and counsel to the
independent Trustees, if any;
21. create and implement timing and responsibility system for outside
legal counsel when necessary to implement major projects and the legal
management of such projects;
22. monitor activities and billing practices of counsel performing
services for the Funds or in connection with related fund activities;
23. provide consultation and advice for resolving compliance questions
along with the Adviser, its counsel, the Trusts and fund counsel;
24. provide active involvement with the management of SEC and other
regulatory examinations;
25. maintain the Trust's Code of Ethics and monitor compliance of
personnel;
TRANSFER AGENT MONITORING SERVICES
26. ensure that the content of confirmations, statements, annual and
semi-annual reports, disclosure statements and shareholder
administrative communications conform to regulatory requirements and
are distributed within the mandated time frames;
27. monitor and review transfer agent activity in order to evaluate the
status of regulatory compliance, protect the integrity of the funds
and shareholders, search for systemic weaknesses, and examine for
potential liability and fraud;
28. investigate and research customer and other complaints to determine
liability, facilitate resolution and promote equitable treatment of
all parties;
29. consult with transfer agent and other staff regarding prospectus and
SAI provisions and requirements, distribution issues including payment
programs, sub-transfer agent arrangements and other regulatory issues;
TREASURY FINANCIAL SERVICES
30. provide Treasurer and Assistant Treasurers for the Trusts as
requested;
31. generate portfolio schedules utilizing State Street Safire system;
32. create financial statements and financial highlight tables;
33. maintain and update the notes to the financials;
34. supply State Street Bank with a listing of audit reports and
schedules;
35. coordinate with external auditors for annual audit;
36. review financial statements for completeness accuracy and full
disclosure;
37. coordinate ROCSOP adjustments with auditors;
38. determine and monitor expense accrual for each fund;
39. verify management and 12b-1 fees calculated by State Street;
40. review fund waivers and deferrals;
41. calculate total returns for each fund and respective classes using the
Fundstation system;
42. oversee and review custodial bank services including maintenance of
books and records;
43. provide service bureaus with funds statistical information;
44. oversee the determination and publication of the Funds' net asset
values;
45. review the calculation, submit for approval by an officer of the
Funds', and arrange for the payment of the Funds' expenses;
46. oversee and review the calculation of fees paid to the Funds' manager,
subadvisers, custodian, transfer agent and distributor and submit to
an officer for Funds' approval;
TREASURY REGULATORY SERVICES
47. prepare and file annual and semi-annual N-SAR forms with the SEC;
48. provide Trustees with condensed portfolio information;
49. review securities lending activity;
50. review pricing errors;
51. review fair value pricing;
52. review stale pricing;
53. review collateral segregation;
54. provide bi-monthly summaries of pricing overrides to management;
55. provide a review of expense caps and management fee waivers to
management;
56. review short sales;
57. review derivatives positions;
58. review brokerage commissions;
59. review dividends and capital gain distributions;
TREASURY TAX SERVICES
60. provide annual tax information (Form 1099) for each fund or class of
shares to shareholders and transfer agents;
61. calculate distribution of capital gains, income and spill back
requirements;
62. provide estimates of capital gains;
63. provide 1099 information to vendors;
64. provide service bureaus, brokers and various parties with tax
information noticed;
65. prepare excise tax returns;
66. prepare income tax returns;
67. prepare tax identification number filings;
68. perform IRS sub-Chapter M testing for 25% diversification, 50%
diversification, 90% gross income, 90% income distribution requirement
(annually), and 98% excise distribution requirement (annually);
TREASURY COMPLIANCE SERVICES
69. perform oversight review to ensure investment manager compliance with
investment policies and limitations;
70. obtain and review investment manager certification on adhering to all
investment policies, restrictions and guidelines;
71. monitor SEC diversification with 75% diversification test and Section
12 diversification test;
72. review bi-monthly designated collateral on all fund derivative and
delayed delivery positions;
TREASURY SPECIAL SERVICES
73. administer daily review of securities lending with Goldman Sachs and
State Street Bank;
74. ensure semiannual review of Funds for opportunities with lending and
review of current income levels;
75. establish opportunities with investment manager and brokers for
directed commission programs;
76. monitor line of credit arrangement and payment of commitment fees;
77. maintain Trustee payments and monitor deferred compensation
arrangements;
78. provide Trustees with Form 1099 information;
79. generate expense proformas for new products;
80. negotiate with vendors to ensure new products are brought in at the
lowest costs;
81. ensure all aspects of new products are operationally ready.
<PAGE>
Exhibit (h)(6)
May 1, 2000
Nvest Funds Trust I
Nvest Funds Trust II
Nvest Funds Trust III
Nvest Tax Exempt Money Market Trust
Boston, MA 02116
Re: Fee Waiver/Expense Reimbursement
Ladies and Gentlemen:
Nvest Funds Management, L.P. notifies you that it will waive its
management fee (and, to the extent necessary, bear other expenses of the Funds
listed below) through May 1, 2001 to the extent that expenses of each class of a
Fund, exclusive of brokerage, interest, taxes and deferred organizational and
extraordinary expenses, would excess the following annual rates:
Name of Fund Expense Cap
------------ -----------
Nvest Bullseye Fund 1.75% for Class A shares
2.50% for Class B shares
2.50% for Class C shares
Nvest Equity Income Fund 1.50% for Class A shares
2.25% for Class B shares
2.25% for Class C shares
Nvest Massachusetts Tax Free 1.20% for Class A shares
Income Fund 1.85% for Class B shares
Nvest Intermediate Term Tax Free 0.85% for Class A shares
Fund of California 1.60% for Class B shares
Nvest Short Term Corporate 0.90% for Class A shares
Income Fund 1.65% for Class B shares
1.65% for Class C shares
0.60% for Class Y shares
<PAGE>
With respect to each Fund, Nvest Funds Management shall be permitted to
recover expenses it has borne subsequent to the effective date of this agreement
(whether through reduction of its management fee or otherwise) in later periods
to the extent that a Fund's expenses fall below the annual rates set forth
above. Provided, however, that a Fund is not obligated to pay any such deferred
fees more than one year after the end of the fiscal year in which the fee was
deferred.
During the period covered by this letter agreement, the expense cap
arrangement set forth above for each of the Funds may only be modified by a
majority vote of the "non-interested" Trustees of the Trusts affected.
For purposes of determining any such waiver or expense reimbursement,
expenses of the class of the Funds shall not reflect the application of balance
credits made available by the Funds' custodian or arrangements under which
broker-dealers that execute portfolio transactions for the Funds' agree to bear
some portion of Fund expenses.
We understand and intend that you will rely on this undertaking in
preparing and filing the Registration Statements on Form N-1A for the above
referenced Funds with the Securities and Exchange Commission, in accruing each
Fund's expenses for purposes of calculating its net asset value per share and
for other purposes permitted under Form N-1A and/or the Investment Company Act
of 1940, as amended, and expressly permit you to do so.
Nvest Funds Management, L.P.
By: /s/ John E. Pelletier
-----------------------
John E. Pelletier
Title: Senior Vice President, General
Counsel, Secretary & Clerk
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated February 11, 2000, relating to the
financial statements and financial highlights which appears in the December 31,
1999 Annual Reports to Shareholders of Nvest Funds Trust III, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the
Prospectuses and under the heading "Independent Accountants" in the Statements
of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2000
<PAGE>
Exhibit (p)(1)
NEW ENGLAND FUNDS
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
NEW ENGLAND FUNDS TRUST IV
NEW ENGLAND CASH MANAGEMENT TRUST
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
NEW ENGLAND ZENITH FUND
NEW ENGLAND VARIABLE ANNUITY FUND I
CODE OF ETHICS
In order to ensure that all acts, practices and courses of business
engaged in by personnel of the above Funds, their advisers and underwriters
reflect high standards and comply with the requirements of Section 17(j) of the
Investment Company Act of 1940 and Rule 17j-1 thereunder, the Board of Trustees
or Managers of each Fund has determined that the Fund shall adopt this Code of
Ethics.
It is the policy of the Funds that all Fund personnel, their advisers and
underwriters should (1) at all times place the interests of Fund shareholders
first; (2) conduct all personal securities transactions in a manner that is
consistent with this Code of Ethics and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of the individual's position of
trust and responsibility; and (3) adhere to the fundamental standard that Fund
personnel, their advisers and underwriters should not take inappropriate
advantage of their position.
Each of the Advisers and the Underwriters, as defined below, imposes
reporting and review requirements and restrictions on the personal securities
transactions of its personnel. Copies of the codes and policies of these
organizations have been furnished to the Trustees and Managers. The Trustees and
Managers have determined that, in addition to the requirements of each Fund's
Code of Ethics, the standards and reporting and review requirements established
by these organizations will be appropriately applied by each of the Funds to
those of its officers and those of its Trustees or Managers who are affiliated
with these organizations.
The provisions of the codes and policies of the Advisers and the
Underwriters are incorporated in this Code of Ethics as the provisions
applicable to officers, Trustees, Managers or advisory persons of the Fund who
are officers, partners, directors or employees of these organizations. A
violation of any such incorporated code or policy by any access person covered
by that code or policy with respect to transactions covered herein shall
constitute a violation of this Code.
1. Definitions
(a) "Fund" or "Funds" means one or more of New England Funds Trust
I, New England Funds Trust II, New England Funds Trust III, New England Cash
Management Trust, New England Tax Exempt Money Market Trust, New England Zenith
Fund, and New England Variable Annuity Fund I and their respective series.
(b) "Access person" means any director, officer, general partner or
advisory person of a Fund.
(c) "Adviser" means each entity that serves as an investment adviser
or sub-adviser to any Fund.
(d) "Advisory person" means (i) any employee of the Fund or of any
company in a control relationship to the Fund, who, in connection with his or
her regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by the Fund, or whose functions
relate to the making of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship to the Fund who
obtains information concerning recommendations made to the Fund with regard to
the purchase or sale of a security.
(e) A security is "being considered for purchase or sale" when a
decision or recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the decision or
recommendation, when such person seriously considers making such a decision or
recommendation.
(f) "Beneficial ownership" shall be interpreted in the same manner
as it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an access person has or acquires.
(g) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act.
(h) "Disinterested Trustee" or "disinterested Manager" means a
Trustee or Manager of a Fund who is not an "interested person" of the Fund
within the meaning of Section 2(a)(19) of the Investment Company Act.
(i) "Purchase or sale of a security" includes, inter alia, the
writing of an option to purchase or sell a security.
(j) "Security" shall have the meaning set forth in Section 2(a)(36)
of the Investment Company Act, except that it shall not include shares of
registered open-end investment companies, securities issued by the Government of
the United States, short term debt securities which are "government securities"
within the meaning of Section 2(a)(16) of the Investment Company Act, bankers'
acceptances, bank certificates of deposit or commercial paper.
(k) "Security held or to be acquired" by a Fund means any security
which, within the most recent 15 days, (i) is or has been held by the Fund, or
(ii) is being or has been considered by the Fund or its Adviser for purchase by
the Fund.
(l) "Underwriter" means New England Funds, L.P., with respect to New
England Funds Trust I, New England Funds Trust II, New England Funds Trust III,
New England Cash Management Trust and New England Tax Exempt Money Market Trust
and New England Securities Corporation with respect to New England Zenith Fund
and New England Variable Annuity Fund I.
2. Exempted Transactions
The prohibitions of Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales which are non-volitional on the part of
either the access person or the Fund.
(c) Purchases which are part of an automatic dividend reinvestment
plan.
(d) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights so
acquired.
3. Prohibitions
No access person shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership and which he or she knows or should have
known at the time of such purchase or sale:
(a) is being considered for purchase or sale by the Fund; or
(b) is being purchased or sold by the Fund.
4. Reporting
(a) Every access person shall report to the Fund the information
described in Section 4(c) of this Code with respect to transactions in any
security in which such access person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership in the security; provided,
however, that an access person shall not be required to make a report with
respect to transactions effected for any account over which such person does not
have any direct or indirect influence or control.
(b) Notwithstanding Section 4(a) of this Code, an access person need
not make a report where the report would duplicate information reported pursuant
to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940
or pursuant to codes of ethics or policies and procedures with respect to the
flow and use of material nonpublic (inside) information adopted by an Adviser or
an Underwriter (collectively, "Adviser's or Underwriter's Codes"). Reports which
have been filed with an Adviser or Underwriter shall be subject to inspection by
appropriate representatives of the Fund, including the President and Secretary
of the Fund, and the Adviser and Underwriter shall promptly notify the President
and Secretary of the Fund of any violation of this Code or of an Adviser's or
Underwriter's Code.
(c) A disinterested Trustee or Manager of the Fund need only report
a transaction in a security if such Trustee or Manager, at the time of that
transaction, knew or, in the ordinary course of fulfilling his or her official
duties as a Trustee or Manager of the Fund, should have known that, during the
15-day period immediately preceding the date of the transaction by the Trustee
or Manager, such security was purchased or sold by the Fund or was being
considered by the Fund or its investment adviser for purchase or sale by the
Fund.
(d) Every report shall be made not later that 10 days after the end
of the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through
whom the transaction was effected; and
(v) Identification of factors potentially relevant to a
conflict of interest analysis, of which the access person is aware,
including the existence of any substantial economic relationship
between his or her transactions and transactions of or securities
held or to be acquired by the Fund.
(e) Any such report may contain a statement that the report shall
not be construed as an admission by the person making such report that he or she
has any direct or indirect beneficial ownership in the security to which the
report relates.
5. Sanctions
Upon discovering a violation of this Code, the Board of Trustees or
Managers of the Fund and/or the Adviser or the Underwriter may impose such
sanctions as it or they deem appropriate, including, inter alia, a letter of
censure or suspension or termination of the relationship to the Fund or of the
employment by the Adviser or the Underwriter of the violator. Any sanctions
imposed by an Adviser or an Underwriter with respect to this Code or to an
Adviser's or Underwriter's Code shall periodically be reported to the Board of
Trustees or Managers of the Fund with respect to whose securities the violation
occurred.
<PAGE>
Exhibit (p)(2)
NVEST FUNDS MANAGEMENT, L.P.
NVEST FUNDS DISTRIBUTOR, L.P.
CODE OF ETHICS
REVISED, AUGUST 1999
I. INTRODUCTION
Nvest Funds Management, L.P. ("NFM"), as a registered investment adviser, and
Nvest Funds Distributor, L.P. ("NFD"), as the principal underwriter for
registered investment companies, (each a "Firm" and, collectively, the "Firms")
must conduct operations in compliance with the Investment Company Act of 1940
(the "Act"), the Investment Advisers Act of 1940 (in the case of NFM), the
Securities Exchange Act of 1934 (in the case of NFD), and other federal and
state securities laws (collectively, the "Securities Laws").
In addition, the Firms recognize that their reputation for fairness and
integrity is vital to their success. Accordingly, the Code of Ethics ("this
Code") requires the Firms' general partner, the officers and directors of the
general partner, and all the Firms' officers and employees (collectively,
"Members of the Firms") to adhere to certain rules in order to avoid the
appearance of impropriety. Members of the Firms are expected to uphold the
highest standards of care and fair dealing in any matters involving the clients
of the Firms or their affiliates.
It is important to note that NFM and NFD are not in the business of providing
investment advice or engaging in the investment decision-making process for any
client or registered investment company, in particular, for any registered
investment company for which NFM is the adviser or NFD acts as distributor,
principal underwriter or administrator ("the Funds"). The Firms engage in
monitoring the management activity of investment advisers who subadvise certain
portfolios.
Most officers, directors and other Members of the Firms are regarded as Advisory
Persons, as defined below, and along with virtually all other Members of the
Firms have no involvement in or access to information regarding investment
decisions. A limited number of Members of the Firms are regarded as Access
Persons, as defined below, because they have occasional or regular opportunity
for access to information regarding portfolio transactions. Throughout the
organization, Members of the Firms do not make or influence decisions regarding
investment transactions in the Funds. As a result, Part VI, Sections 2 through 5
of this Code, relating to personal securities transactions, only apply to
Members of the Firms who are Access Persons and Part VI, Sections 1 and 6, apply
to both Access Persons and Advisory Persons. Periodically, the Firms' Legal
Department (the "Legal Department") and/or Compliance Department (the
"Compliance Department") may determine that other Members of the Firms are
subject to Part VI, Sections 2 through 5 of this Code, and/or Part VI, Sections
1and 6.
The Compliance Department will maintain a list of Access Persons, Advisory
Persons and of others subject to reporting requirements under the Firms'
Statement of Policies and Procedures With Respect to the Flow and Use of
Material Nonpublic (Inside) Information ("The Statement of Policy on Inside
Information"). Anyone who does not receive quarterly report forms from the Firm
but has reason to believe that he or she is an Access Person or an Advisory
Person shall notify the Firms' Director of Compliance (the "Director of
Compliance").
II. DEFINITIONS
(A) "Access person" is (i) any director, officer or employee of the Firms or
of any company in a control relationship to the Firms who, in connection
with his or her regular functions or duties, makes, participates in or
obtains information regarding the purchase or sale of a security by a
Fund, or whose functions relate to the making of any recommendations with
respect to such purchases or sales; and (ii) any natural person in a
control relationship to the Firms who obtains information concerning
recommendations made to the Funds with regard to the purchase or sale of a
security.
A person who normally only assists in the preparation of public reports,
or receives public reports but receives no information about current
recommendations or trading, is not an "Access Person." Under the
definition of "Access Person" the phrase "makes . . . the purchase or
sales" includes someone who places orders or otherwise arranges
transactions.
The Firms' determination is that management staff who are Members of the
Firms' Fund Administration, Legal, Compliance and Product Development
Departments or members of the NFM Investment Committee are those who have
occasional or regular opportunity for access to information regarding
portfolio transactions. Other Members of the Firms, who are not otherwise
subject to this Code, may become subject to this Code if they obtain
current information concerning which securities are being purchased or
sold by the Funds or a subadviser to the Funds. Any Members of the Firms
who obtain such information must immediately notify the ' General Counsel
or Director of Compliance and abide by the provisions of the Statement of
Policy on Inside Information.
An Access Person of the Firms does not include an employee of a company in
a control relationship to the Firms where such company is required to have
a code of ethics containing provisions reasonably necessary to prevent the
Access Persons from engaging in any act, practice or course of business
prohibited by Rule 17j-1(a) and such employee is required to report his
transactions to such company.
(B) "Advisory person" with respect to NFM means any director or officer of NFM
(including directors and officers of the Firms' corporate general partner)
or Managing Director of NFD (including directors and officers of the
Firms' corporate general partner) who, in connection with his or her
regular functions or duties, does not make, participate in or obtain
information regarding the purchase or sale of a security by the Funds, or
whose functions do not relate to the making of any recommendations with
respect to such purchases or sales.
(C) A security is "being considered for purchase or sale" when a decision or
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the decision or
recommendation, when such person seriously considers making such a
decision or recommendation.
(D) "Beneficial ownership" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder from time to time in effect, except that the
determination of direct or indirect beneficial ownership shall apply to
all securities which an access person has or acquires.
(E) "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the Act. Section 2(a)(9) provides that "control" means, among other
things, the power to exercise a controlling influence
over the management or policies of a company, unless such power is
solely the result of an official position with such company.
(F) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Act, except that it shall not include shares of registered open-end
investment companies for which neither the firm or any company affiliated
with the firm acts as adviser or distributor, securities issued by the
Government of the United States, short term debt securities which are
"government securities" within the meaning of Section 2(a)(16) of the Act,
bankers' acceptances, bank certificates of deposit and commercial paper.
(G) "Security held or to be acquired" by a Fund means any security which,
within the most recent fifteen days, (i) is or has been held by a Fund, or
(ii) is being or has been considered by a Fund or any investment adviser
of a Fund for purchase by a Fund.
(H) "Fund" means any registered investment company for which NFM serves as
investment adviser or for which NFD or New England Securities Corporation
serves as principal underwriter.
III. OUTSIDE AFFILIATIONS
No Members of the Firms shall become an officer, trustee or director of any
company (except an investment company managed by an affiliate of the Firm)
without the written approval of the Firms' General Counsel (the "General
Counsel").
No Members of the Firms shall accept an appointment as an executor,
administrator, trustee, guardian or conservator (other than in family
situations) without the written approval of the General Counsel.
IV. GIFTS TO OR FROM BROKERS OR CLIENTS
No Members of the Firms shall accept or receive on his or her own behalf or on
behalf of a Firm any gift or other accommodations from a business contact or
broker, securities salesman or client (a "business contact") that might create a
conflict of interest or interfere with the impartial discharge of his or her
responsibilities to the Funds, or place the recipient in a difficult or
embarrassing position. This prohibition applies equally to gifts to a Member's
close relatives or to those who share the same household as a Member.
No Members of the Firms shall give on his or her own behalf or on behalf of the
Firms any gift or other accommodation to a business contact that may be
construed as an improper attempt to influence the donee.
V. USE OF INSIDE INFORMATION
Members of the Firms shall adhere to the Firms' Statement of Policy on Inside
Information, which should be read in conjunction with this Code.
VI. PERSONAL SECURITIES TRANSACTIONS
1. FUND OPPORTUNITIES
The Firms put the Funds' interests first. If an Access and/or Advisory Person
learns of an investment opportunity of limited availability that would be
suitable for the Funds, the Access and/or Advisory Person may not invest in that
opportunity for his or her own account without the express prior approval of the
General Counsel or, in his absence, the Director of Compliance.
The foregoing principle applies in all situations. In addition, in furtherance
of this principle, Access Persons will adhere to the following restrictions on
their personal investing activity.
2. INITIAL PUBLIC OFFERINGS
No Access Person may acquire securities in an initial public offering.
3. PRIVATE PLACEMENTS
No Access Person may acquire securities in a private placement without the
written prior approval of the General Counsel or, in his absence, the Director
of Compliance.
Any Access Person who now or hereafter owns a privately-placed security and who
becomes involved in an investment decision involving the issuer of the security
shall disclose his or her ownership of the private placement to the General
Counsel or, in his absence, the Director of Compliance, as soon as practicable
after becoming involved in the decision-making process.
Any Access Person who owns a private placement of an issuer must refrain from
deliberations regarding client purchases or sales of securities issued by the
same issuer.
4. BLACKOUT PERIODS
Except as set forth below, no Access Person may purchase or sell a security (or
an option on that security or a security convertible to that security) on any
day during which he or she knows (before trading) that a buy or sell order in
the same security (or an option on that security or a security convertible to
that security) is pending for a Fund.
Except as set forth below, no Access Person may purchase or sell securities,
which he or she knows before trading, were purchased or sold by a Fund within
seven calendar days before and after the Fund buys or sells the security.
The prohibitions of this section do not apply to transactions in the following
securities:
[ ] Securities issued or guaranteed by any government that is a member of
the Organization for Economic Cooperation and Development, or any agency
or authority thereof.
[ ] Common or preferred stocks of a class that is publicly-traded, issued by
companies with a market capitalization in excess of 10 billion U.S.
dollars (or the equivalent in foreign currency).
[ ] Commodity futures contracts, including futures contracts on interest
rate instruments or securities indices, options on such contracts and
options on securities indices.
The provisions of this section do not apply to the following transactions:
[ ] Transactions that occur by operation of law or in any account over which
neither the firm or any advisory representative has any direct or indirect
influence or control or under any other circumstance in which the Access
Person does not exercise any discretion to buy or sell.
[ ] Purchases of securities pursuant to an automatic dividend reinvestment
plan.
[ ] Purchases pursuant to the exercise of rights issued pro rata to all
holders of the class of securities held by the Access Person and received
by the Access Person from the issuer.
5. PRE-TRADE CLEARANCE
Given the nature of NFM's current advisory operations, which are restricted to
post-trade oversight of other investment advisers, and NFD's role as
distributor, principal underwriter or administrator of the Funds, the Firms have
determined that preclearance of transactions is not practicable. Nonetheless,
the Firms reserve the right to require any Access Person to preclear
transactions at any time and, if requested by a Firm, an Access Person will
obtain the approval of such Firm before buying or selling any security, for such
period (which may be indefinite) as such Firm shall determine.
6. DISCLOSURE REQUIREMENTS AND REPORTS
Broker Statements
All Access and/or Advisory Persons may direct their brokers to supply such Firm
with duplicate confirmation statements and periodic account statements. It is
the recommendation of the Firm that each Access or Advisory Person is to direct
his or her broker(s) to send duplicate confirmation and account statements to
the Firm routinely.
Quarterly Reports
Within ten days following the end of each quarter, each Access or Advisory
Person must file a signed securities transaction form with the Firms' Legal
Department. On that form each Access and/or Advisory Person must report the
security transactions carried out during the quarter for all accounts in which
he or she has a beneficial interest, except accounts where the Access and/or
Advisory Person has no direct or indirect influence or control over investments,
or accounts for which transactions have been reported by means of duplicate
confirmations and account statements. All transactions in securities must be
included in the quarterly reports other than transactions in securities excepted
from the definition of "security" under this Code and in securities purchased as
part of an automatic dividend reinvestment plan.
Every report shall contain the following information for each transaction:
a) a description of the security or other interest acquired;
b) the date of the transaction, the number of shares, and the principal
amount of each security involved;
c) the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
d) the price at which the transaction was effected; and
e) the name of the broker, dealer or bank with or through which the
transaction was effected.
This form must be filed whether or not any security transactions have been
carried out. In instances where there have been no transactions, that fact
should be stated.
Any such report may contain a statement that the report shall not be construed
as an admission that the Access and/or Advisory Person has any direct or
indirect beneficial ownership in a security to which the report relates and no
report shall be considered as an admission that any transaction reported
constitutes a violation of this Code.
Any person required to make such a report may satisfy his or her obligations
hereunder by sending duplicate confirmations of such trades to the Firms' Legal
Department, Attention: Director of Compliance.
Reports of Holdings
Upon commencement of employment, each Access and/or Advisory Person shall file
with the Legal Department a report listing all personal securities holdings.
VII. REVIEW AND ENFORCEMENT
The Compliance and/or Legal Department will review transaction reports for
potential violations of this Code. It is the policy of the firm to investigate
all instances of trading during Black Out Periods on the part of Access and/or
Advisory Persons and other apparent or technical violations on the part of
Access Persons to determine if a substantive conflict exists resulting in an
actual violation.
An individual may not participate in a determination of whether he or she has
committed a violation of this Code or of the imposition of any resulting
sanction. If anyone contemplates making a transaction that may conflict with the
provisions of this Code, he or she shall contact the General Counsel or, in his
absence, the Director of Compliance prior to going ahead with the transaction.
The Firms may impose such sanctions, as it deems appropriate for violations of
this Code, including, among other things, a letter of censure or suspension or
termination of the employment of the violator.
The Firms will treat information submitted in the quarterly reports as
confidential. However, the Firms shall present the results of their review of
the reports to the Board of Directors of the general partner and the boards of
the Funds on an annual basis and more frequently if appropriate.
VIII. MAINTENANCE OF RECORDS
The Firms will maintain the following records, to the extent and in the manner
set forth below, and will make such records available to the Securities and
Exchange Commission or any representative thereof at any time and from time to
time for reasonable periodic, special or other examination:
1. A copy of the Firms' Code, as in effect any time within the past five
years, shall be preserved in an easily accessible place;
2. A record of any violation of such Code, and of any action taken as a
result of such violation, shall be preserved in an easily accessible
place for a period of not less than five years following the end of the
fiscal year in which the violation occurs;
3. A copy of each report of a securities transaction shall be preserved
for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible
place; and
4. A list of all persons who are, or within the past five years have been,
required to make reports pursuant to Part VI, Section 6 shall be
maintained in an easily accessible place.
IX. ANNUAL CERTIFICATION
All Members of the Firms shall certify annually in writing that they have read
and understand this Code and that they have complied with all of its provisions.
Access Persons shall further certify that they have complied with the reporting
requirements of Part VI, Section 6, of this Code.
<PAGE>
ADDENDUM
NVEST FUNDS MANAGEMENT, L.P.
NVEST FUNDS DISTRIBUTOR, L.P.
CODE OF ETHICS
MARCH 2000
The SEC has recently amended Rule 17j-1 under the Investment Company Act of
1940. This rule addresses conflicts of interest that can arise from personal
trading activities of Investment Advisor Personnel. These amendments have
resulted in certain changes to the current NFM Code of Ethics and will
ultimately result in a new Code being established in 2000. Until the new Code is
established this addendum is designed to update the current Code to satisfy the
requirements of the revised Rule 17j-1.
NFM has created two classes of reporting persons that must report under the Code
of Ethics. ACCESS PERSONS are those individuals whose job function within the
company may expose them to material nonpublic information, ADVISORY PERSONS are
typically not exposed to this type of information and are required to report
under their code due to their status as an officer of the advisor. Specific
reporting requirements have not changed and can be found in the attached copy of
the NFM Code of Ethics.
All NFM Access/Advisory Persons must file an Annual certification of portfolio
holdings, those employed or designated an Access/Advisory Person after 3/1/2000
must file an initial holdings report within 10 days of their start/designation
date.
All Access/Advisory Persons must complete a Personal Securities Transaction
Report for each reporting period, whether or not they had any reportable
transactions. This report has been amended to gather all of the necessary
information required under the amended rule, including disclosure of any
securities accounts opened through a bank or broker-dealer during the reporting
period. These reports are due no later than the 10th day following the end of
each calendar quarter.
NFM Access/Advisory Persons must obtain written authorization from the
Compliance Officer before participating in a private placement of securities.
The request for approval must contain a description of the private placement,
the nature of your participation, and identify any potential conflicts of
interest that may exist.
Access Persons are PROHIBITED from acquiring securities in an initial public
offering (IPO). Advisory Persons are permitted to take part in an IPO provided
written authorization is obtained from the Compliance Officer before
participation.
Please contact the Compliance Officer with any questions about this addendum,
the NFM Code of Ethics or your individual reporting requirements.
<PAGE>
NVEST FUNDS DISTRIBUTOR, L.P.
NVEST FUNDS MANAGEMENT, L.P.
STATEMENT OF POLICIES AND PROCEDURES WITH RESPECT TO THE FLOW AND
USE OF MATERIAL NONPUBLIC (INSIDE) INFORMATION
INTRODUCTION
Nvest Funds Distributor, L.P.'s and Nvest Funds Management, L.P.'s ("NFD"
and "NFM," respectively, each a "Firm" and, collectively, the "Firms")
reputation for integrity and high ethical standards in the conduct of their
affairs is of paramount importance to all of us. To preserve this reputation, it
is essential that all securities transactions be effected in conformity with
applicable securities laws. In particular, it has been the Firms' long-standing
policy that no member of a Firm should knowingly trade in securities on the
basis of material nonpublic information. This is sometimes referred to as
"insider trading."
The Firms operate under a written Code of Ethics (the "Code"). The Code
prohibits trading by the general partner of the Firms, the officers and
directors of the general partner and all of the Firms' officers and employees
(collectively, "members of the Firms") which is in conflict with trading by the
mutual funds advised, distributed or traded by Nvest Companies, L.P. ("Nvest")
and its affiliates, including the firms (the "Funds"). The Code establishes a
broad range of restrictions and trading procedures for members of the Firms.
This Statement of Policies and Procedures (this "Statement") constitutes a
written supplement to the principles in the Code.
In November, 1988, the Insider Trading and Securities Fraud Enforcement
Act of 1988 (the "Act") was enacted into law. The Act is designed to add to the
enforcement of the securities laws, particularly in the area of insider trading,
by imposing severe penalties on persons who violate the Federal securities laws
by trading on material, nonpublic information. The Act also imposes on
broker-dealers, such as NFD, and investment advisers, such as NFM, the explicit
obligation to establish, maintain and enforce written policies and procedures
reasonably designed to prevent the misuse of inside information.
In addition, in recent years, insider trading has become a top enforcement
priority of the Securities and Exchange Commission (the "SEC") and the United
States Attorneys. As a result of insider trading violations, both the Firms and
the member(s) of the Firms involved could be subject to disciplinary action or
fines by the SEC, damage actions brought by private parties and criminal
prosecution.
PURPOSE OF STATEMENT
The purpose of this Statement is to explain: (1) the general prohibitions
regarding insider trading and the meaning of the key concepts underlying the
prohibition, (2) the sanctions for insider trading and expanded liability for
controlling persons, (3) your obligations in the event you learn of material,
nonpublic information, and (4) the Firms' educational programs regarding insider
trading.
APPLICABILITY
This Statement applies to all members of the Firms.
I. THE BASIC INSIDER TRADING PROHIBITION
The Act does not define insider trading. However, in general, the "insider
trading" doctrine under the Federal securities laws prohibits any person from
knowingly or recklessly breaching a duty owed by that person, including the
following:
(a) trading on the basis of material, nonpublic information,
(b) tipping such information to others,
(c) recommending the purchase or sale of securities on the basis of such
information, or
(d) providing substantive assistance to someone who is engaged in any of
the above activities.
Examples may include trading by a person in a position of trust or
confidence with advance knowledge of announcements concerning material nonpublic
information about:
(a) changes in previously disclosed financial information,
(b) introduction of significant new products,
(c) extraordinary borrowings,
(d) major litigation,
(e) severe liquidity problems, or
(f) substantial revisions in earnings' estimates.
Material nonpublic information can also include information about the
trading activities or proposed trading activities of a mutual fund investment
adviser, such as NFM, or other institutional investor.
A. Who is an Insider? The concept of "insider" is broad. It includes
officers, directors and employees of a company. A person can be a "temporary
insider" if he or she enters into a special confidential relationship in the
conduct of a company's affairs. The duty of an insider is to keep material
nonpublic information confidential until it is sufficiently disseminated to the
public.
B. What is material information? Information is material if a "reasonable"
investor would be motivated to buy, sell or hold a security as a result of
acquiring the information. Examples include: a prospective dividend increase or
decrease, plans for a corporate merger or reorganization, or knowledge about a
favorable or uncomplimentary article about a company before it is published.
When in doubt, members of the Firms should assume that information is material
unless advised to the contrary by the Firms' Legal Department (the "Legal
Department").
C. What is Nonpublic Information? Information is nonpublic until it is
effectively communicated to the market place. For example, information that has
been filed with the SEC or published by Dow Jones, The Wall Street Journal or
other national or local media would be considered public. Selective disclosure
to a few investors does not make information public.
II. SANCTIONS AND LIABILITIES
Insider trading violations may result in severe sanctions being imposed on
the individual(s) involved and on the Firms and affiliated companies. These
could involve SEC administrative sanctions, such as being barred from employment
in the securities industry, SEC suits for disgorgement and civil penalties of,
in the aggregate, up to four times profits gained or losses avoided by the
trading, private damage suits brought by persons who traded in the market at
about the same time as the person who traded on inside information, and criminal
prosecutions which could result in substantial fines and jail sentences. Even in
the absence of legal action, violations of insider trading prohibitions or
failure to comply with this Statement and the Code may result in termination of
your employment and referral to the appropriate authorities.
The Legal Department shall review member and related account trading for
compliance with applicable laws and regulations. The term "related account"
refers to the immediate family of members of the Firms (i.e., parents, in-laws,
husband or wife, brother or sister and children) to whose support the member
contributes, directly or indirectly, or an account in which the member has a
beneficial interest.
III. YOUR OBLIGATIONS
A. No member of a Firm or related account may purchase or sell a security
while knowingly in possession of material, nonpublic information relating to
such security, or tip the information to others, or recommend purchase or sale
of a security on the basis of that information.
B. No member of a Firm may knowingly employ a manipulative or deceptive
device with respect to a security. The SEC takes the view that such devices
include "frontrunning" (e.g., trading a security or a related security
instrument (such as an option) while in possession of material nonpublic
information concerning an imminent block transaction in that security or a
related security or instrument).
C. All members of the Firms shall comply with all applicable requirements
set forth in the Statement.
D. All members of the Firms whose jobs give them occasional or regular
exposure to confidential information about companies are considered Access
Persons under the Statement. Other Officers of the Adviser and Managing
Directors of NFD are not viewed as exposed to confidential information and are
considered Advisory Persons. The Firms' General Counsel (the "General Counsel")
or the Firms' Compliance Director (the "Compliance Director") will identify and
maintain a list of Access and Advisory Persons and will notify such persons that
they have been so identified. Access and Advisory Persons under the Code shall
also comply with the procedures for reporting personal securities transactions
as outlined in the Code, and report personal securities transactions on a
quarterly basis by the 10th day of the month following end of the quarter for
which the report is due. In addition, as provided in Section IV.B of this
Statement, all members shall certify in writing that they have complied with
this Statement on an annual basis.
E. A member of a Firm who is an Access or Advisory Person under the Code
shall not disclose to others, except in the normal performance of his/her
business duties, material nonpublic information relating to the trading
activities of the Funds.
F. Whenever a member of a Firm receives what he or she believes may be
material, nonpublic information about a security or becomes aware that such
information has been used by another member in the purchase or sale of a
security or that another member has employed a manipulative and deceptive
device, he or she shall immediately notify the General Counsel or, in his
absence, the Director of Compliance. "Immediately" means as soon as humanly
practical. Members of a Firm are expected to bring this information immediately
to the attention of the General Counsel or, in his absence, the Director of
Compliance and refrain from disclosing the information to anyone else, including
other persons within the Firms.
G. No member of a Firm, except in the normal performance of his/her
business duties, shall have access to the information maintained for or
generated by portfolio managers or research analysts for the Funds.
H. As part of an organization offering multiple financial services, the
Firms will take whatever steps may be required to isolate effectively material,
nonpublic information about securities in a manner to avoid unnecessary
interruption of the free flow of information that is essential to the efficiency
of financial markets. While one subsidiary or division of Nvest may be
legitimately in possession of material, nonpublic information concerning a
securities issuer, the organization of Nvest as a whole may be at risk because
another subsidiary or division has effected a transaction in, or otherwise taken
action relating to, that issuer's securities. Consequently, if a member of a
Firm is legitimately in possession of material, nonpublic information about a
securities issuer in the normal performance of his or her business duties, he or
she shall immediately notify the General Counsel or, in his absence, the
Director of Compliance who shall determine the appropriate safeguards to be
established.
I. No member of a Firm, shall become an officer, trustee or director of
any company whose shares are publicly traded (except an investment company
managed by or distributed by a Firm or an affiliate of the Firms) without the
approval of the General Counsel. If such approval is obtained, trading by the
member in the securities of that company shall be subject to prior approval by
the General Counsel. The member shall not discuss material nonpublic information
concerning that company with other members of the Firms at any time.
J. All members of a Firm must consult with the General Counsel before
communicating (orally or in writing) with the SEC or any other regulatory agency
about insider trading or related matters.
K. All members of a Firm must consult with the General Counsel before
communicating (orally or in writing) with any representative of the newspapers
or other mass media on insider trading or any related matter.
IV. MEMBER EDUCATION
To ensure that every member of the Firms understands the policies and
procedures with respect to insider trading, the following shall occur:
A. INITIAL REVIEW FOR NEW MEMBERS. All new members of the Firms shall be
given a copy of this Statement along with the Code at the time of their
employment and shall be required to read and acknowledge in writing their
receipt of each.
B. PERIODIC REVIEW. The General Counsel shall review this Statement and
the Code at least annually. The Firms require that members of the Firms
acknowledge receipt and certify compliance with this Statement in writing on an
annual basis.
C. CONTINUING EDUCATION PROGRAMS. The General Counsel and/or the Director
of Compliance shall conduct continuing education programs or disseminate
information, as necessary, to inform members of changes in this Statement or the
Code and to inform members of important developments in the area of insider
trading.
D. QUESTIONS. If you have any questions whatsoever with respect to the
interpretation or application of this Statement, you should contact the General
Counsel (x1132) or the Director of Compliance (x1741).
<PAGE>
Exhibit (p)(3)
JURIKA & VOYLES FUND GROUP
JURIKA & VOYLES, L.P.
CODE OF ETHICS AND POLICY ON PERSONAL TRADING
Enacted June 1995 (version effective 3/21/2000)
I. SCOPE AND SUMMARY
(a) Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), requires every investment company, as well as
every investment adviser to and principal underwriter of an investment company,
to have a written code of ethics which specifically addresses trading practices
by "access persons." The Rule also requires that reasonable diligence be used
and procedures instituted to prevent violations of such codes of ethics.
(b) The "Blue Ribbon Advisory Group on Personal Investing" in its
report to the Investment Company Institute also articulated the following three
general fiduciary principles which that Advisory Group believes should govern
the personal investment activities of mutual fund advisory and distributor
personnel:
(i) the duty at all times to place the interests of
shareholders first;
(ii) the requirement that all personal securities transactions
be conducted consistently with an established code of ethics and in
such a manner as to avoid any actual or potential conflict of interest
or any abuse of an individual's position of trust and responsibility;
and
(iii) the fundamental standard that mutual fund advisory and
distributor personnel should not take inappropriate advantage of their
positions.
(c) This Code of Ethics and Policy on Personal Trading ("Code of
Ethics") is designed to satisfy the legal requirements and ethical principles
applicable to Jurika & Voyles in its role as adviser to the Jurika & Voyles Fund
Group and to other Clients. It is important that each individual to whom this
Code of Ethics applies observes the ethical standards set forth in this Code of
Ethics.
(d) This Code of Ethics is not intended to cover all possible areas of
potential liability under the Investment Company Act or under the federal
securities laws in general. For example, other provisions of Section 17 of the
Investment Company Act prohibit various transactions between a registered
investment company and affiliated persons, including the knowing sale or
purchase of property to or from a registered investment company on a principal
basis, and joint transactions (e.g., combining to achieve a substantial position
in a security, concerted market activity, or commingling of funds) between an
investment company and an affiliated person.
(e) In order to avoid duplicate personal trading rules and duplicate
reporting obligations, this Code of Ethics is also intended to serve as the
policy on personal trading for all employees of Jurika & Voyles, even those who
have no involvement with a registered investment company. All employees of
Jurika & Voyles are therefore defined as "Access Persons" for purposes of this
Code of Ethics.
(f) It is expected that Access Persons will be sensitive to all areas
of potential conflict, even if this Code of Ethics does not address specifically
an area of fiduciary responsibility.
(g) Each shareholder, officer, director and employee of the
administrator for a Fund (the "Administrator") and the distributor for a Fund
(the "Distributor"), is required to comply with the reporting and other
requirements of the Administrator's or Distributor's code of ethics, as
applicable.
(h) SUMMARY. Under this Code of Ethics, all Access Persons, except
Independent Trustees who qualify for the exception in Section VI (a) and the
Nvest Directors, are prohibited from:
(i) purchasing or selling Securities without proper
preclearance;
(ii) purchasing or selling Securities on a day during which
any Fund or separately managed account purchases or sells that same
Security;
(iii) purchasing or selling Securities within the prior 7 days
and in the same direction as an Investment Action, or within 3 days
after and in the opposite direction of an Investment Action; and,
(iv) purchasing Securities as part of an initial public
offering ("IPO") without the express prior approval of the Compliance
Department.
II. DEFINITIONS
(a) "Access Person" means: (i) any director, trustee, officer, general
partner or advisory person of a Fund; (ii) any director, officer, general
partner or advisory person of Jurika & Voyles, L.P.; and (iii) any employee of
Jurika & Voyles, L.P. An Access Person also includes any person who knows about
recommendations made by Jurika & Voyles for a Fund or other Client. Members of
the immediate family of an Access Person who live in the same household or
receive substantial financial support from an Access Person are covered by this
Code of Ethics to the same extent as the Access Person. This definition of
Access Person is intended to include all directors, officers and employees of
Jurika & Voyles regardless of their knowledge of Fund or Client portfolio
activity.
(b) A "Beneficial Owner" of a Security is any person who directly or
indirectly has or shares voting power and/or the power to dispose of such
Security (as further defined in the provisions of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, with
the exception that the determination of direct or indirect Beneficial Ownership
shall apply to all Securities which an Access Person has or acquires).
(c) "Blackout Period" means that period within seven days prior to the
commencement of an Investment Action, when Access Persons may not purchase
(sell) a Security to be purchased (sold) for a Fund or Client (i.e.,
purchase-purchase), and that period within three days after the end of an
Investment Action, when Access Persons may not purchase (sell) a Security to be
sold (purchased) for a Fund or Client (i.e., purchase-sale). Blackout Period
shall also mean with respect to any Security the calendar day on which such
Security is purchased or sold for any Fund or Client.
(d) "Client" means any person or entity for whom Jurika & Voyles
provides investment advisory services, but does not include proprietary accounts
of Jurika & Voyles or of its Access Persons.
(e) "Control" means the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the result
of an official position, as further defined in Section 2(a)(9) of the Investment
Company Act.
(f) "Excepted Securities" include shares of registered open-end
investment companies, direct obligations of the Government of the United States,
bankers' acceptances, bank certificates of deposit, commercial paper and high
quality short-term debt instruments, including repurchase agreements.
(g) "Fund" means the Jurika & Voyles Fund Group or any series thereof.
(h) "Independent Trustee" means a Trustee of a Fund who is not an
Interested Person of that Fund.
(i) "Interested Person" of a Fund means (i) a 5% or greater shareholder
in that Fund; (ii) an officer, director, partner, employee or shareholder of
Jurika & Voyles or First Fund Distributors, Inc., or the members of the
immediate family of one of these people; (iii) an officer, director, partner,
employee or 5% or greater shareholder of any registered broker/dealer; (iv) any
individual, or any partner or employee of any individual, who, at any time since
the beginning of the last two fiscal years of a Fund, has acted as legal counsel
for that Fund; or (v) any individual who has had a "material business or
professional relationship" with the Funds, Jurika & Voyles, First Fund
Distributors, or their principal executive officers.
(j) "Investment Action" means a series of trades resulting from an
investment recommendation made by Jurika & Voyles on behalf of numerous Clients
within a given investment mandate. It is not intended to include transactions
specific to a single account, such as those which result from the opening or
closing of an account, additions to or withdrawals from an account or specific
tax considerations.
(k) "Purchase or sale of a Security" includes the writing of an option
to purchase or sell a Security, but does not include the exercise of an option
by the counterparty.
(l) "Security" shall have the meaning set forth in Section 2(a)(36) of
the Investment Company Act. This includes any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, investment contract, collateral-trust certificate,
transferable share, certificate of deposit, put, call, straddle, privilege,
option or warrant, except that it shall not include Excepted Securities or any
note, draft or bill of exchange which has a maturity at the time of issuance not
exceeding nine months.
III. PROHIBITED TRADING PRACTICES
(a) GENERAL ANTI-FRAUD PROHIBITION. No Access Person shall knowingly
purchase, sell or otherwise directly or indirectly acquire or dispose of any
direct or indirect Beneficial Ownership interest in a Security if such action by
such Access Person would defraud a Fund or Client, operate as a fraud or deceit
upon a Fund or Client, or constitute a manipulative practice with respect to a
Fund or Client. Indirect transactions through options and warrants are covered
by this prohibition.
(b) TRADES WITHOUT PRECLEARANCE. No Access Person shall purchase or
sell any Security without proper preclearance. Trades by an Access Person must
be completed on the same day that preclearance is granted. This period applies
to all trades, even limit orders. Instruments representing an indirect interest
in a Security, such as options and warrants, also must be precleared.
As part of the preclearance process Access Persons are required to
obtain the signature of a senior equity or fixed income trader, as appropriate.
Preclearance will not be granted prior to 11:30 a.m. PST (2:30 p.m. EST), at any
time when there are open orders in the same Security for a Fund or separately
managed account, or on any day in which trades have been executed in the same
Security for a Fund or separately managed account.
Also as part of the preclearance process for equity Securities, Access
Persons are required to determine the market capitalization of the company in
question. For companies with market capitalizations of $1.5 billion or less,
Access Persons are required to obtain the approval of the Small-Cap Portfolio
Manager, Jon Hickman, signifying that there are no plans at that time to engage
in an Investment Action in that Security within the firm's small-cap product.
(c) TRADES WITHIN THE BLACKOUT PERIOD. No Access Person shall knowingly
purchase (sell) any Security within seven calendar days prior to the date such
Security is purchased (sold) by a Fund or Client as part of an Investment
Action. This prohibition applies to same-direction trades.
No Access Person shall knowingly purchase (sell) any Security within
three days following the date such Security is sold (purchased) by a Fund or
Client as part of an Investment Action. This prohibition applies to
opposite-direction trades.
(d) INITIAL PUBLIC OFFERINGS. No Access Person shall acquire any
securities offered and sold as part of an IPO until after the public offering
(at the prevailing market price) without the express prior approval of the
Compliance Department.
(e) PRIVATE PLACEMENTS. Purchases of private placements require the
express prior approval of a Compliance Officer. If an Access Person holding a
private placement plays a part in considering an investment in that issuer for a
Fund or a Client, the Access Person must specifically disclose such holding to
the Compliance Officer. The decision to purchase such securities for a Fund or
Client should then be reviewed independently by an appropriate party.
IV. EXEMPTED TRANSACTIONS
The prohibitions of Section III of this Code shall not apply to:
(a) purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control (e.g., a discretionary
account managed by another Registered Investment Adviser);
(b) purchases, sales or gifts which are non-volitional on the part of
the Access Person;
(c) purchases which are part of an automatic dividend reinvestment plan
or a systematic or periodic purchase or sale program;
(d) purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
(e) purchases and sales of instruments that are not Securities or are
Excepted Securities (e.g., open-end mutual funds or U.S. government securities);
(f) transactions by an Independent Trustee who qualifies for the
exception in Section VI(a); and
(g) transactions by G. Neal Ryland and Peter S. Voss, who are directors
of Jurika & Voyles, Inc., the general partner of Jurika & Voyles, L.P., but who
are not employees of Jurika & Voyles, L.P. (the "Nvest Directors").
V. REPORTING
(a) PERSONAL HOLDINGS DISCLOSURE. Upon commencement of employment, and
thereafter on an annual basis, Access Persons, including Nvest Directors are
required to disclose in writing the names and number of shares held of all
personal Securities holdings to the Compliance Department. It is the Access
Person's responsibility to disclose actual and apparent conflicts of interest in
his or her recommendations to the Compliance Department as such conflicts arise.
(b) PRECLEARANCE AUTHORIZATION FORMS. All Access Persons must submit a
signed preclearance authorization form to the Compliance Department within 24
hours of executing a trade, for all Securities transactions that are required to
be precleared. The only transactions for which such immediate reporting is not
required are Exempted Transactions. Access Persons should keep a copy of all
signed and completed preclearance forms for a period of at least 6 months.
(c) MONTHLY REPORTING. All Access Persons are required to file reports
listing all Securities transactions at least monthly. To fulfill this
requirement Access Persons must request duplicate confirmations and statements
be mailed to the Compliance Department.
(d) NO TRANSACTIONS. For periods in which no reportable transactions
were effected, the report shall consist of a representation that no transactions
subject to the reporting requirements were effected during the relevant time
period. This report may be submitted to the Compliance Department on a quarterly
basis.
(e) CONTENTS AND TIMING OF REPORTS. Every report shall be made not
later than 10 days after the end of each month or calendar quarter and shall
contain the following information:
(i) the date, the name of the Security, the number of shares,
and the principal amount of each transaction;
(ii) the nature of the transaction (i.e., purchase, sale, or
any other type of acquisition or disposition);
(iii) the price at which the transaction was effected; and
(iv) the broker, dealer, or bank through which the transaction
was effected.
(f) NO BENEFICIAL OWNERSHIP. Any report may contain a statement that
the report shall not be construed as an admission by the person making such
report that he has any direct or indirect Beneficial Ownership in the security
to which the report relates.
VI. EXCEPTIONS TO REPORTING REQUIREMENTS
(a) An Independent Trustee of the Jurika & Voyles Fund Group is not
required to report transactions provided such Independent Trustee neither knew
nor, in the ordinary course of fulfilling his or her official duties as Trustee,
should have known, that during the 15-day period immediately preceding or after
the date of the transaction by the Trustee, such security was purchased or sold
by a Fund or was being considered for purchase or sale by a Fund by its
investment adviser.
Although an Independent Trustee is exempt from the reporting
requirements of this Code of Ethics, such Trustee may nevertheless voluntarily
file a report representing that he or she did not engage in any transactions
which, to his or her knowledge, involved Securities that were being purchased or
sold or considered for purchase by any Fund during the 15-day period preceding
or after the date(s) of any transaction(s) by such Trustee. The failure to file
such a report, however, shall not be considered a violation of this Code of
Ethics.
(b) Access Persons are not required to report Exempted Transactions.
(c) Access Persons do not need to file multiple reports.
(d) Shareholders, officers, directors and employees of the
Administrator and the Distributor are exempt from the reporting and other
requirements of this Code of Ethics, provided they are subject to the Codes of
Ethics of those respective organizations.
VII. SERVICE AS A DIRECTOR
Due to the potential conflicts of interest in this area, this Code of
Ethics prohibits Access Persons from serving on the boards of publicly traded
companies without the prior approval of the Jurika & Voyles Fund Group's Board
of Trustees. This restriction does not apply to the Independent Trustees or the
Nvest Directors. Additionally, this Code of Ethics prohibits such persons from
offering investment advice to anyone or managing any person's portfolio on a
discretionary basis, except on behalf of a Fund or other Client.
VIII. GIFT POLICY
As an investment advisor, Jurika & Voyles is often in a position to
determine the broker-dealer with whom trade orders are placed and where hot
issues are allocated. It is, therefore, important to avoid any actual or
apparent conflicts of interest. Accordingly, Access Persons may not accept gifts
totaling in excess of $100 in value during any calendar year from an employee or
employees of any one issuer, broker-dealer, vendor, news source or financial
information provider with whom Jurika & Voyles does business. Attendance at any
sporting event, concert, dinner or other event paid for by any of these parties
must be accompanied by the sponsor. If not being accompanied by the sponsor, the
Access Person must obtain written approval from a Compliance Officer prior to
accepting the gift.
Access Persons may accept gifts from a Client in excess of $100 in
value, as long as the gift is disclosed to the Compliance Department within
thirty days of receipt. However, in an effort to maintain independence and
objectivity, the Compliance Department strongly discourages this practice. Gifts
under $100 need not be reported to the Compliance Department.
Basic travel expenses, such as airfare, should be paid for by the
Access Person or Jurika & Voyles, except in cases where a commercial airline is
not available. Depending on the nature of the event, it may be appropriate for
hotel costs and meals to be covered by the sponsor. Customary business-related
entertainment provided by any of the above-mentioned parties is permitted, as
long as it does not create the perception of a conflict of interest.
No Access Person may compensate or give a gift in excess of $100 in
value to any of the above-mentioned parties (including a Client) during any
year, with the following exception: in a case where a family member or
significant other is employed by any of the above-mentioned parties or any other
party with whom a potential conflict may arise, the Compliance Department should
be notified, and an exemption from the policy may be permitted regarding gifts
to that family member.
IX. IMPLEMENTATION
(a) In order to implement this Code of Ethics, at least two Compliance
Officers will always be designated for Jurika & Voyles and the Funds. Currently,
these individuals are Glenn Voyles, Scott Jaggers and Sybil Hippolyte.
(b) The Compliance Officers shall maintain separate lists of all Access
Persons (including all Jurika & Voyles Fund Group Trustees), senior equity
traders and senior fixed income traders, and update these lists with reasonable
frequency. Currently, the senior equity traders are Anthony Ives and Harold
Sawyer, and the senior fixed income traders are Kenneth Carlson and Robert
Green. The Compliance Officers shall identify all reporting Access Persons on
such list and shall take steps to ensure that all reporting Access Persons have
submitted reports, confirmations and statements in a timely manner. The
Compliance Officers may delegate the compilation of this information to
appropriate persons. Failure to submit timely reports will be penalized
according to the list of sanctions then in place.
(c) The Compliance Officers shall circulate a copy of this Code of
Ethics to each Access Person, together with an acknowledgment of receipt, which
shall be signed and returned to the Compliance Officers by each Access Person at
least once each year.
(d) The Compliance Officers are charged with responsibility for
ensuring that the preclearance and reporting requirements of this Code of Ethics
are adhered to by all Access Persons. The Compliance Officers shall be
responsible for ensuring that the Review requirements of this Code of Ethics are
performed in a prompt manner.
X. REVIEW
(a) The Compliance Officers shall review all reports of personal
Securities transactions and compare such reports with preclearance forms and
with completed portfolio transactions for each Fund and other Clients to
determine whether noncompliance with this Code of Ethics or other applicable
trading procedures may have occurred.
(b) No person shall review his or her own reports. Before making any
determination that a non-compliant transaction may have been made by any person,
the Compliance Officers shall give such person an opportunity to supply
additional explanatory material. If a Securities transaction of a Compliance
Officer or a senior trader is under consideration, an alternate shall act in all
respects in the manner prescribed herein for the designated Compliance Officer
or senior trader, as applicable.
(c) If a Compliance Officer determines that noncompliance with this
Code of Ethics has or may have occurred, he or she shall submit his or her
determination, together with the transaction report and any additional
explanatory material provided by the individual, to another Compliance Officer,
who shall make an independent determination of whether a violation has occurred.
XI. SANCTIONS
(a) If a material violation of this Code of Ethics occurs or a
preliminary determination is made that a violation may have occurred, a report
of the alleged violation shall be made to the Sanctions Committee for further
review. The Sanctions Committee will determine whether the alleged violation
shall be deemed a material violation requiring a report to the Jurika & Voyles
Executive Committee, the Board of Trustees of the Jurika & Voyles Fund Group and
the Audit Committee of Jurika & Voyles, Inc.
(b) The Jurika & Voyles Executive Committee or the Sanctions Committee
may impose such sanctions as they deem appropriate, generally according to the
attached Exhibit A.
<PAGE>
EXHIBIT A
SANCTIONS IMPOSED FOR CODE OF ETHICS VIOLATIONS
The Code of Ethics provides that sanctions may be imposed as deemed appropriate.
Effective immediately, the following sanctions will apply:
FAILURE TO OBTAIN PRECLEARANCE
o The 1st violation in a twelve month period will result in a warning.
o The 2nd violation will result in a trading prohibition of up to 30 days.
o The 3rd violation will result in a trading prohibition of up to 180 days.
In addition, the Sanctions Committee may require an employee to unwind or
reverse any trade that has not received proper preclearance.
Employees with more than 3 violations in any twelve month period may be subject
to a formal reprimand, a permanent trading prohibition or dismissal.
VIOLATION OF A BLACKOUT PERIOD
o When feasible, trades in violation will be broken or reallocated to clients.
o Trades in violation which cannot be reasonably broken or reallocated will
result in a 60-day prohibition against opposite-way trades in the same or any
related Security. In addition, any favorable price differential between the
trade in violation and client trades will be donated by the employee to
charity.
In addition, the Sanctions Committee may require an employee to unwind or
reverse any trade in violation of a blackout period.
LATE REPORTING
(i.e., failure to make timely monthly or quarterly reports or failure to timely
submit signed preclearance forms to the Compliance Department)
The 1st violation in any 12-month period will result in a warning. If the Access
Person is an employee of Jurika & Voyles, subsequent violations may become a
permanent entry in his/her personnel file and the Access Person may be subject
to a trading prohibition as described above.
<PAGE>
SUMMARY FOR INDEPENDENT TRUSTEES OF JURIKA & VOYLES FUND GROUP
(as of 8/4/99)
Jurika & Voyles has enacted a Code of Ethics and Policy on Personal Trading to
monitor the trading practices of Access Persons of both the Jurika & Voyles Fund
Group (the "Fund Group") and its investment adviser. Independent Trustees are
generally exempted from both the trading prohibitions and the reporting
requirements of this Code of Ethics.
WHO IS AN INDEPENDENT TRUSTEE?
An "Independent Trustee"is a Trustee of the Fund Group who is not an Interested
Person. An "Interested Person"can be any one of the following:
|X| a 5% or greater shareholder in a Jurika & Voyles Fund;
|X| any officer, director, partner, employee or shareholder of Jurika & Voyles
or First Fund Distributors, Inc., or a member of the immediate family of
one of these people;
|X| any officer, director, partner, employee or 5% or greater shareholder of
any registered broker/dealer;
|X| any individual, or partner or employee of any individual, who has acted as
legal counsel for the Fund Group at any time during its last two fiscal
years;
|X| any individual who has had a "material business or professional
relationship"with the Fund Group, Jurika & Voyles, First Fund Distributors
or their principal executive officers.
EXEMPTIONS FOR INDEPENDENT TRUSTEES
Trading:
None of the trading prohibitions of the Code of Ethics shall apply to
transactions by an Independent Trustee.
Reporting:
There are no reporting requirements for Independent Trustees so long as:
(a) The Independent Trustee had no knowledge of any purchases or sales of a
security by a Jurika & Voyles Fund within 15 days of the Trustee's transaction;
or
(b) The Independent Trustee had no knowledge that a security was being
considered for purchase or sale by a Jurika & Voyles Fund.
Service as a Director:
Independent Trustees are not restricted from serving on boards of publicly
traded companies and need not seek prior approval of the Fund Group Board of
Trustees to do so.
<PAGE>
Exhibit (p)(4)
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH, L.P.
VNSM TRUST COMPANY
CODE OF ETHICS AND TRADING POLICY
April 1, 1999
<PAGE>
VAUGHAN, NELSON, SCARBOROUGH & McCULLOUGH, L.P./
VNSM TRUST COMPANY
CODE OF ETHICS AND TRADING POLICY
FOREWORD
The primary goal of Vaughan, Nelson, Scarborough & McCullough, L.P. and VNSM
Trust Company (together known as Vaughan, Nelson, Scarborough & McCullough" or
"VNSM") since inception has been to be a highly professional investment counsel
firm which provides unbiased advice--that is, advice based solely on the merits
of the individual investment and undiluted by any conflicts of interest which
could prejudice the investment decision in any way. Thus, the very nature of our
business requires that the main thrust of our Code be the elimination of any
conflicts and the maintenance of a culture in which confidentiality and highest
standards of practice are paramount.
As a practical matter, we must eliminate conflicts throughout the entire
organization, so that no member who is making or who has access to investment
decisions will be influenced by the conflicting interests of anyone else in the
firm.
We are all obliged to put the interest of Vaughan, Nelson, Scarborough &
McCullough's clients before our own personal interest. The core of this Code is
the Principle of Reason, Conscience and Integrity. The firm puts the clients
first. While compliance with the Code is necessary, the best assurance of VNSM
always being a first-class investment counsel firm is for each of us to use our
own conscience as people of integrity.
<PAGE>
VAUGHAN, NELSON, SCARBOROUGH & McCULLOUGH, L.P./
VNSM TRUST COMPANY
CODE OF ETHICS AND TRADING POLICY
Vaughan, Nelson, Scarborough & McCullough, L.P., (VNSM) is an investment
management company registered under the Investment Advisers Act of 1940,
(Advisers Act). VNSM Trust Company, in addition to the Advisers Act, is also
subject to the Federal Reserve Act. It is the intention of VNSM to have created
and distributed this Code of Ethics and Trading Policy to inform and ensure all
are cognizant of and committed to the performance of their fiduciary duties
under the Advisers Act, the Federal Reserve Act and such other laws and
regulations which may be enacted from time to time.
Each Employee of Vaughan, Nelson, Scarborough & McCullough, L.P. and VNSM Trust
Company (together "VNSM Employees" or "Employees") has a fiduciary
responsibility to our Clients. This responsibility requires the maintenance by
all Employees of the highest standards of integrity and conduct both in fact and
in appearance. Employees should conduct themselves in an ethical manner at all
times when dealing with clients, the public at large and with fellow Employees
and avoid compromising or potentially compromising situations or conflicts of
interest.
VNSM Employees must at all times recognize, respect and act in the best
interests of VNSM clients. In doing so, all Employees must ensure they do not
take advantage of their position and/or engage in personal securities
transactions which might conflict with or adversely affect the interests and
welfare of VNSM clients. At no time should an Employee engage in activities
specifically prohibited by the Advisers or Federal Reserve Act, including but
not limited to, self-dealing, insider trading or other situations creating
conflicts of interest. Additionally, an Employee shall not commit a criminal act
or engage in conduct involving dishonesty, fraud, deceit or misrepresentation.
As all potential conflicts cannot be foreseen by this Code of Ethics, Employees
should adhere not only to the letter, but also to the spirit and principles
articulated in this Code of Ethics. If any legal or ethical question should
arise in the course of performing an Employee's responsibilities then advice
from counsel should be sought.
Inasmuch as VNSM chooses to conduct its business utilizing the guidelines
promulgated by the Association for Investment Management and Research (AIMR),
all Investment Principals of VNSM should be familiar with and conduct themselves
in a manner consistent with the AIMR Code of Ethics and Standards of
Professional Conduct, a copy of which is attached to this statement.
For purposes of the Code of Ethics and Trading Policy, the following definitions
shall apply:
Beneficial Ownership - as interpreted with regard to Section 16 of the
Securities and Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Employee has or acquires.
Beneficial Ownership exists when one derives a direct or indirect economic
benefit from the purchase, sale or voting of a security. The following
are examples of common situations where Beneficial Ownership exists:
* Securities owned, whether or not registered in your name
* Securities held in a partnership, trust, estate or other
account in which one has a present or future interest in the
income or principal and has/shares investment control with
respect to transactions
* Securities owned by your spouse (including common law) or minor
children
* Securities owned by other relatives who share the same home
with you
* Securities in the name of another person where you have a right
to obtain title to the securities now or in the future.
Client - any entity, including but not limited to, individuals,
corporations, pensions, trusts, endowments, or foundations, for which VNSM
receives a fee for services or for which assets are managed, tracked or
maintained within VNSM portfolio systems.
Control - as defined in Section 202(a)(9) of the Investment Company Act of
1940, the power to exercise a controlling influence over the management or
policies of a company, unless such power is solely the result of an
official position with such company.
Employee(s) - Any individual or other entity employed by Vaughan, Nelson,
Scarborough & McCullough, L.P. or VNSM Trust Company.
Investment Principal(s) - Any individual or other entity employed by VNSM
for the purpose of investment research, analysis and/or the recommendation
of specific advice as to client portfolio investment strategies, including
but not limited to, buy and sell recommendations.
Purchase or Sale of a Security - shall include the writing of an option to
purchase or sell the security.
Reviewing Employee - individual designated by the president of VNSM with
the responsibility for the organization, implementation and compliance
aspects of this Code of Ethics and Trading Policy.
Security - Security shall mean any type of PUBLICLY-TRADED EQUITY OR DEBT
SECURITY and shall include related securities such as put and call
options, warrants, rights and convertible instruments, and financial
instruments such as futures, commodities, and derivatives. Security shall
not include direct obligations issued by the United States Government,
Bankers' Acceptances, Banks' Certificates of Deposit, Commercial Paper,
Repurchase Agreements, Money Market Instruments or shares of registered
open-end investment companies. Indirect obligations of the United States
Government such as GNMAs or FNMAs are included in the definition of
security. The term security shall also include restricted securities.
Security is being considered for Purchase or Sale - when a recommendation
to purchase or sell a security has been made and communicated or, when an
Investment Principal first indicates to the investment committee an intent
to recommend a security in an upcoming investment committee meeting.
Security is being Purchased or Sold - when, within the last three business
days, a transaction in such security has been effected for a Client, or
when a transaction in such security is pending or in progress for a
Client.
GENERAL RULE - PROHIBITED TRANSACTIONS
It is unlawful and a violation of the VNSM Code of Ethics for any Employee, in
connection with the purchase or sale, directly or indirectly, of any Security
which is being held, considered, or is in process of being purchased or sold on
behalf of VNSM Clients, to mislead, deceive, manipulate, scheme or engage in any
act or practice which would serve to defraud VNSM Clients.
Except as provided in the section entitled Exempted Transactions, no Employee
shall purchase or sell, directly or indirectly, any Security in which such
Employee has, or acquires by such contemplated transaction, any direct or
indirect Beneficial Ownership, if such Employee knows, or should have known, at
such time that the Security is being considered for, or is in process of being,
purchased or sold for VNSM Clients. This prohibition also includes a bond or
preferred stock which is convertible into such a security as well as an option
on the security.
As a practical matter, Employees will be prohibited from buying/selling a
Security:
* as part of an initial public offering (IPO)
* if the Security is actively being considered for recommendation
* if the Security has been traded for a client within three business days
before or after the expected personal trade date (see Advance Approval
of Transactions below)
* without first receiving written approval from the Trader, Asst. Trader
or the Reviewing Employee
EXEMPTED TRANSACTIONS
The restrictions and prohibitions heretofore outlined by this Code of Ethics and
Trading Policy shall not apply to:
* purchases or sales which are non-volitional on the part of the Employee;
* purchases which are part of a dividend reinvestment plan;
* purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of securities to the extent such rights
were acquired from the issuer, and sales of such rights so acquired;
* purchases or sales of securities effected in any account over which an
Employee has no direct or indirect influence or Control.
ADVANCE APPROVAL OF TRANSACTIONS
Given the nature of VNSM's advisory business, advance approval, or
"preclearance" of personal transactions will be required for all trades falling
within the definition of Security above.
A VNSM Personal Trade Sheet EXHIBIT A should be completed for each personal
trading transaction. Several securities may be included on the same Trade Sheet
if the transactions are to be executed on the same day. The Personal Trade Sheet
will incorporate (1) the date of the transaction, (2) the name or title of the
Security, (3) the number of shares or interests of the Security, (4) the type of
the transaction (e.g. purchase, sale, long or short position, etc.), (5) per
share or interest price (6) total cost or proceeds of the transaction and (7)
the name of the broker, dealer or bank.
The completed Personal Trade Sheet should be taken to the firm's Trader,
Assistant Trader or, if necessary, the Reviewing Employee for preclearance
approval prior to any execution. The approving individual will prepare a listing
of transactions for VNSM's clients during the previous three days (attaching
such listing to the Personal Trade Sheet), inquire as to current open trading
orders and make appropriate inquiry as to whether such security is actively
being considered for recommendation. If none of the above have or are taking
place, the personal trade will be approved. Approvals are valid only for the
date of approval. If an approved trade is unexecuted at the end of the day it
should be re-approved on such day as it will be executed. Once all information
and documentation for an approved personal trade is completed it will be
forwarded to the Reviewing Employee.
NOTE: Preclearance approval may also be given to personal trades by the
Reviewing Employee at his/her discretion including certain instances where 1)
transactions for VNSM's clients have been undertaken during the previous
three days, 2) there is no current open trading order and, 3) the security is
not actively being considered for recommendation. This will typically apply
to de minimus type transactions. However, in no event will approval be
granted to trade on the same day as a VNSM client.
Once approved, the Employee may execute the trade with the broker of their
choice (see Reporting Requirements below).
SUBSEQUENT REVIEW BY REVIEWING EMPLOYEE
Upon receipt of each approved Employee's Personal Trade Sheet, the Reviewing
Employee shall make a comparison of the personal trade to a listing of
transactions for VNSM's clients during the subsequent three days (attaching such
listing to the Personal Trade Sheet). The Reviewing Employee shall determine,
based upon such comparison and any other information provided by the Employee,
whether any conflict or violation of the Code of Ethics and Trading Policy has
occurred. If the Reviewing Employee believes a conflict has occurred, then the
Reviewing Employee shall provide all information to the president of VNSM, or
his designee, who will, in their sole discretion, given all the facts and
circumstances surrounding the transaction, determine whether the transaction
should be unwound and any profits disgorged. Any such profit disgorged will be
remitted to the firm for charitable distribution, as determined by the
President, or his designee.
INITIAL PUBLIC OFFERING
No Employee shall purchase, directly or indirectly, any Securities that are
offered in an initial public offering.
REPORTING REQUIREMENTS
In addition to obtaining preclearance approval on individual personal trades,
each Employee shall:
A) direct any broker effecting a transaction in any Security in which such
Employee, or member of Employee's household, has any direct or indirect
Beneficial Ownership to provide a duplicate copy of the transaction confirmation
to the Reviewing Employee.
B) on a quarterly basis, submit to the Reviewing Employee a statement that
all Security transactions entered into for which the Employee has or had a
direct or indirect Beneficial Ownership during such quarter were precleared by
the firm in accordance with this policy in such form as EXHIBIT B. If no
transactions requiring preclearance were made during a quarter, the Employee
should submit a report indicating no such transactions occurred.
C) on an annual basis, provide to the Reviewing Employee a written statement
that the Employee has read, understands and has complied with the requirements,
including reporting requirements, of this Code of Ethics and Trading Policy on a
form similar to that shown in EXHIBIT C.
The Reviewing Employee shall make available to the president of VNSM, or his
designee, all trades, information and reports submitted by Employees and a
summary of the Reviewing Employee's findings for the previous quarter as well as
details of any perceived violations. In addition, the Reviewing Employee will
recommend changes in restrictions or procedures based upon the experience of
VNSM under this Code of Ethics and Trading Policy, changes in laws or
regulations, or changes in industry practice. On at least an annual basis, the
reviewing employee/compliance officer will provide a summary report to the Board
of Directors describing the activity and results under the Code for the previous
year.
POTENTIAL CONFLICTS OF INTEREST
Trips & Gifts - Employees, or their family members, shall not give, seek or
accept any trip expense, gift, favor, or other item of value in excess of $150
to or from any broker, dealer, publicly-traded company or other entity having a
direct or indirect business and/or professional relationship with VNSM or VNSM
Clients which might in any way create or give an appearance of a conflict of
interest. This prohibition does not apply to "normal business entertainment".
Questions as to whether a particular instance constitutes "normal business
entertainment", particularly with regard to higher dollar amounts, should be
addressed to the President of VNSM.
Employees shall not directly, or indirectly, participate in any transaction
involving the payment or receipt of any bribe or kickback, or the payment or
receipt of any other amount with an understanding that part or all of such
amount will be refunded or delivered to a third party in violation of any law
applicable to the transaction.
Preferential Treatment - Employees shall not give, seek or accept any
preferential treatment in dealings with any broker, dealer, financial
institution, supplier or any other organization with which VNSM transacts or may
transact business in the future.
Investment Advice - All Employees should be extremely prudent and discreet when
discussing specific strategies and positions utilized by VNSM in the interest of
marketing, radiation and relationships with individuals or entities other than
Employees, Clients and prospective clients of VNSM. Employees are strictly
prohibited from acting jointly or individually in an investment advisory
capacity for an account other than a Client unless written approval is received
in advance from the Board of VNSM or its designee, in a form similar to that
shown as EXHIBIT D. An indication of direct or indirect compensation as a result
of such services provided should be included in any submission for written
approval. This section does not prohibit the general advice and management of
family member's personal assets, including capacities of executor, trustee,
guardian or conservator, so long as transactions are effected only after VNSM
client transactions.
Director of Publicly Traded Companies - No Employee shall serve on the board of
directors of a publicly traded company unless written authorization has been
obtained from the Board of VNSM or its designee, in a form similar to that shown
as EXHIBIT D. Such approval shall be based upon a determination that the service
is consistent with the interests of VNSM and its Clients. When such instances
are approved, the Employee shall refrain from any direct or indirect involvement
in any decision-making regarding the securities of such public company or any
affiliates thereto.
INVESTMENT CLUBS
Notwithstanding any other provisions of this Trading Policy to the contrary, an
Employee or an immediate family member of an Employee may participate in
investment clubs or similar organizations provided the Employee does not make
recommendations, directly or indirectly, to the club based upon information
obtained through employment at VNSM. Activity within such Investment Clubs is
subject to the Reporting Requirements of the Code of Ethics and Trading Policy.
RECORD RETENTION
VNSM shall retain and maintain for a five-year period all copies of, Codes of
Ethics and Trading Policy in effect during the period, all recaps submitted by
Employees, all summary reports submitted to the president and/or Board of
Directors of VNSM, or his designee, information regarding violations or
potential violations of this Code of Ethics and Trading Policy and a record of
the action(s) taken in each case.
INSIDE INFORMATION
It is unlawful under the Securities and Exchange Act of 1934 and SEC Rule 10b-5
thereunder for any person to trade or recommend trading in securities on the
basis of material, inside (non-public) information. In the case of VNSM this
includes all Employees.
Material inside information is any information about a company or the market for
a company's securities which has not been disclosed generally to the
marketplace, the dissemination of which would be likely to affect the market
price of any of the company's securities or would be likely to be considered
important by reasonable investors in determining whether or not to trade in such
securities. "Material" information would include, but is not limited to, areas
such as mergers, acquisitions, significant changes in financial condition,
changes in dividends or estimated earnings, new products, litigation, stock
buy-back programs, liquidity issues, and management changes. The determination
of whether information is "material" will be considered in light of all the
facts and circumstances surrounding the information.
"Inside" information is information that has not been publicly disclosed.
Information should be presumed to be "inside" unless one can point to some fact
or release to show that the information is public or generally available.
Any question by an Employee with regard to whether information is "inside" or
not should be resolved by discussion and in writing prior to any recommendation,
purchase or sale of the security on behalf of clients or any purchase or sale of
the security for the benefit of an Employee.
VIOLATIONS
Any Employee who becomes aware of a violation or apparent violation of the Code
of Ethics and Trading Policy shall advise the president of VNSM, or his
designee. The president of VNSM, or his designee, shall determine whether a
violation has occurred and, if so, will consult legal counsel, if necessary, and
take such course of action as he or she deems appropriate. Such actions could
include censure, suspension or termination of employment. Additionally, the
Employee involved in the violation may be required to either unwind the
transaction, if feasible, or disgorge all profits from the transaction with any
such profits remitted to the firm for charitable distribution.
CONFIDENTIALITY
The firm's relationship with clients is entirely confidential and no disclosure
of the name or of any detail of the personal circumstances of a client shall be
made to anyone not a member of the firm without the specific permission of the
client.
Each employee must agree that, both before and after the term of employment,
they will not attempt in any way, directly or indirectly, to solicit any of our
clients or otherwise disturb the firm's client relationships.
Each employee agrees that, upon the termination of employment, they will not
take with them any of our records, correspondence, files, forms, documents or
data of any nature whatsoever pertaining to the firm's clients, publications,
procedures, or research activities, and that they will not prepare or take with
them any copies of the same, and that they will not, before or after termination
of employment, make any of such records or other information or data available
to any other person or firm. All information in our files pertaining to the
clients of the firm or our publications, forms, procedures, research or
counseling activities, and all material and information contained in our
research files, including memoranda of research field work, is confidential
property of the firm.
<PAGE>
<TABLE>
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH, L.P. / VNSM TRUST COMPANY
PERSONAL TRADE SHEET
EXHIBIT A
<S> <C> <C> <C> <C> <C>
FOR THE ACCOUNT OF: DATE:
-------------------------------------------------------- -----------------
BUY
SECURITY EXECUTED TOTAL
NO. OF SHARES ------------------------------------ DATE PRICE COST /
OR CONTRACTS SYMBOL NAME EXECUTED PER SHARE PROCEEDS
- ------------ ------ ---- -------- --------- --------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
SELL
- ---------------- ---------- ----------------------- ---------- -------------- --------------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
- ---------------- ---------- ----------------------- ---------- -------------- --------------
</TABLE>
BROKERAGE FIRM:
---------------------------------------
TELEPHONE NUMBER:
---------------------------------------
REPRESENTATIVE:
---------------------------------------
This trade is in accordance with the following:
Officers, principals and employees of Vaughan, Nelson, Scarborough & McCullough,
L.P. or VNSM Trust Company (the "Company") may execute orders on behalf of the
Company, its subsidiaries, their own accounts or other accounts, however, it is
a policy of the Company that they must avoid security transactions and
activities for these accounts which might conflict with or be detrimental to the
interests of clients, or which are designed to profit by market effect of the
Company's advice to its clients. A specific policy for officers, principals and
employees has been established whereby all trades must be approved by authorized
individuals of the Company. No sales or purchases may be made by the Company or
an officer or employee in a security while it is being purchased or sold for a
client's account. Officers, principals and employes of the Company may own the
same securities as those held in clients' accounts; however, the client would
always receive preferential treatment on orders over those orders by officers,
principals and employees of Company.
EMPLOYEE SIGNATURE
-------------------------------------------------
APPROVED BY:
-------------------------------------------------
(Trader, Asst. Trader, Reviewing Employee)
<PAGE>
EXHIBIT B
Vaughan, Nelson, Scarborough & McCullough, L.P.
VNSM Trust Company
DATE:
----------------------
TO: Reviewing Employee
FROM:
----------------------
RE: PERSONAL TRADING
- ------------------------------------------------------------------------------
As required by the SEC and as part of the firm's Code of Ethics and Trading
Policy (the "Code"), I am confirming that all buy/sell transactions (equity or
fixed income) conducted during the previous calendar quarter for myself, my
spouse or any other account for which I have direct or indirect Beneficial
Ownership of, or control over, have been approved by an authorized individual in
advance the transaction in accordance with the Code's procedures.
___ No personal trading was undertaken during the proceeding quarter.
--------------------------------------
Employee Signature
<PAGE>
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH, L.P.
VNSM TRUST COMPANY
EXHIBIT C
CODE OF ETHICS AND TRADING POLICY
ANNUAL COMPLIANCE FORM
By signature below, I hereby acknowledge that I have read the Vaughan, Nelson,
Scarborough & McCullough, L.P. / VNSM Trust Company Code of Ethics and Trading
Policy and have understood and complied with all requirements as stipulated
therein including, but not limited to, the preclearance of all security
transactions in which I have/had a direct or indirect beneficial ownership.
EMPLOYEE NAME:
----------------------------------
DATE:
-------------------------------------------
<PAGE>
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH, L.P.
VNSM TRUST COMPANY
EXHIBIT D
APPROVAL OF INVESTMENT ADVISER CAPACITY OUTSIDE OF VNSM CLIENTS
OR DIRECTORSHIP OF PUBLICLY TRADED COMPANY
Please describe the entity or individual for which an investment adviser
capacity or directorship is requested.
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please describe your current relationship to the entity or individual.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please describe any remuneration or payments to be received either directly or
indirectly based upon the proposed investment advisory or directorship
arrangement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
APPROVED BY:
----------------------------------
DATE:
----------------------------------
