<PAGE>
As filed with the Securities and Exchange Commission on January 31, 2000.
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 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 9 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
(Check appropriate box or boxes.)
NEW ENGLAND FUNDS TRUST III
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(Exact Name of Registrant as Specified in Charter)
399 Boylston Street
Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code (617) 578-1132
--------------
John E. Pelletier, Esq.
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
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(Name and Address of Agent for Service)
Copy to:
John M. Loder, Esq.
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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 February 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.
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NVEST FUNDS(SM)
Where The Best Minds Meet(R)
Nvest Funds
ACCESS SHARES(SM)
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Nvest Select Fund
[graphic omitted]
The Securities and Exchange Commission has not approved or disapproved 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 Fund or any of its services and for assistance in
opening an account, contact your financial representative or call Nvest Funds.
PROSPECTUS
February 1, 2000
WHAT'S INSIDE
Goal, Strategies & Risks [graphic omitted]
Page 2
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Fund Fees & Expenses [graphic omitted]
Page 6
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Management Team [graphic omitted]
Page 7
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Fund Services [graphic omitted]
Page 9
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Nvest Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
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TABLE OF CONTENTS
An Introduction of Access Shares(SM) ...................................... 2
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GOAL, STRATEGIES & RISKS
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Nvest Select Fund ......................................................... 2
More About Risk ........................................................... 5
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FUND FEES & EXPENSES
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Fund Fees & Expenses ...................................................... 6
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MANAGEMENT TEAM
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Meet the Fund's and Portfolio's Investment Advisers ....................... 7
Meet the Portfolio Manager ................................................ 8
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FUND SERVICES
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Investing in the Fund ..................................................... 9
How Sales Charges are Calculated .......................................... 10
Ways to Reduce or Eliminate Sales Charges ................................. 11
It's Easy to Open an Account .............................................. 12
Buying Shares ............................................................. 13
Selling Shares ............................................................ 14
Selling Shares in Writing ................................................. 15
Exchanging Shares ......................................................... 16
Restrictions on Buying, Selling and Exchanging Shares ..................... 16
How Fund Shares Are Priced ................................................ 17
Dividends and Distributions ............................................... 18
Tax Consequences .......................................................... 18
Additional Fund Information ............................................... 18
Compensation to Securities Dealers ........................................ 19
Additional Investor Services .............................................. 20
Glossary of Terms ......................................................... 21
If you have questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
<PAGE>
AN INTRODUCTION
TO ACCESS SHARES(SM)
Nvest Funds Access Shares(SM) is a unique fund structure specifically created
for investors who seek advice through financial professionals.
Unlike a typical mutual fund, each Fund available through Access Shares(SM)
invests all or substantially all of its assets in shares of a single underlying
mutual fund, establishing a direct link to that Portfolio's goal, investment
strategy and performance. As with any mutual fund, there is no assurance that
the investment goal of each Fund or its respective Portfolio will be achieved.
Each Fund's goal may be changed without shareholder approval.
This Prospectus contains information on one Access Shares(SM) Fund, Nvest Select
Fund, outlined below (the "Fund"). Nvest Funds Management, L.P. ("Nvest
Management") is the adviser to the Fund. In this Prospectus, the underlying
mutual fund in which the Fund invests directly, Oakmark Select Fund, is referred
to as the "Portfolio."
As an alternative to investing in the Fund, an investor, without the assistance
or advice of a financial advisor, could buy shares of the Portfolio directly
from the Portfolio or its distributor without paying a sales load. Also, the
Portfolio has a lower expense ratio than the Fund. However, if purchased
directly, some of the Portfolios may require higher minimum investments or
impose other eligibility requirements on investors.
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Nvest Select Fund
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Portfolio Manager: William C. Nygren
Harris Associates L.P.
Investment Goal: Long-term capital appreciation
The Fund pursues this goal by investing all
or substantially all of its assets in Class I
shares of The Oakmark Select Fund.
INVESTMENT RISKS: The risks associated with the Fund generally are the same as
those of its Portfolio and depend on the nature of the Portfolio's investments.
The value of the Portfolio's domestic and foreign investments varies in response
to many factors. Equity securities fluctuate in value based upon general market
and economic conditions, as well as in response to specific developments
affecting their issuing companies. Fixed-income securities generally fluctuate
in value due to changes in interest rates and in the perceived creditworthiness
of their issuers. Because the Fund and the Portfolio have the same investment
goal, the ability of the Fund to meet its investment goal is directly related to
the performance of the Portfolio. The Portfolio is non-diversified. Although the
Portfolio's strategy of investing in a limited number of stocks has the
potential to generate attractive returns over time, it may increase the
volatility of the Portfolio's investment performance as compared to funds that
invest in a larger number of stocks. If the stocks in which the Portfolio
invests perform poorly, the Portfolio could incur greater losses than if it had
invested in a larger number of stocks.
Fund shares are not bank deposits and are not guaranteed, insured or endorsed by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
For more detailed information about the Portfolio's investment goal, strategies
and related risks, please refer to the section entitled "Goal, Strategies &
Risks." To learn more about the possible risks of the Fund, please refer to the
section entitled "More About Risk." This section details the risks of practices
in which the Portfolio may engage. Please read this section carefully before you
invest.
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[graphic omitted] Goal, Strategies & Risks FUND FOCUS
------------------------ Stability Income Growth
NVEST SELECT FUND
High X
PORTFOLIO: Oakmark Select Fund --------- ------ ------
PORTFOLIO ADVISER: Harris Associates L.P. Mod.
("Harris Associates") --------- ------ ------
Low X X
PORTFOLIO MANAGER: William C. Nygren
CATEGORY: Large-Cap Equity TICKER SYMBOL: Class A Class B Class C
------- ------- -------
pending pending pending
INVESTMENT GOAL
The Portfolio seeks long-term capital appreciation.
INVESTMENT STRATEGIES
The Portfolio invests primarily in common stocks of U.S. companies. The
Portfolio is non-diversified, which means that it is not limited under the
Investment Company Act of 1940 to a percentage of assets that it may invest in
any one issuer. The Portfolio could own as few as 12 securities, but generally
will have 15 to 20 securities in its portfolio.
Harris Associates uses a value investment philosophy in selecting equity
securities for the Portfolio. Harris Associates' philosophy of investing is
based upon the belief that, over time, a company's stock price converges with
the company's true business value. By "true business value" Harris Associates
means its estimate of the price a knowledgeable buyer would pay to acquire the
entire business. Harris Associates believes that investing in securities priced
significantly below their true business value presents the best opportunity to
achieve the Portfolio's investment goal.
Harris Associates uses this value philosophy to identify companies that it
believes have discounted stock prices compared to the companies' true business
values.
In assessing such companies, Harris Associates looks for the following
characteristics although not all of the companies selected will have these
attributes:
X free cash flows and intelligent investment of excess cash;
X earnings that are growing and are reasonably predictable; and;
X high level of manager ownership.
In making investment decisions for the Portfolio, Harris Associates generally
employs the following methods:
o Harris Associates focuses on individual companies in making its investment
decisions rather than on specific economic factors or specific industries. In
order to select those that meet the criteria described above, Harris
Associates uses independent, in-house research to analyze each company. As
part of this selection process, Harris Associates' analysts typically visit
companies and talk to various industry sources.
o The chief consideration in the selection of stocks for the Portfolio is the
size of the discount of a company's stock price compared to the company's true
business value. Once Harris Associates determines that a stock is selling at a
significant discount (typically 60% of its estimated worth) and the company
has the other additional qualities mentioned above, it generally will consider
buying that stock. Harris Associates usually sells when the company's stock
price approaches 90% of its estimated worth. This means Harris Associates sets
specific "buy" and "sell" tar gets for each stock held by the Portfolio.
Harris Associates also monitors each holding and adjusts those price targets
as warranted to reflect changes in a company's fundamentals.
o The Portfolio tries to manage some of the risks of investing in common stock
by purchasing stocks whose prices Harris Associates considers low relative to
the stocks' true value. The Portfolio seeks companies with solid finances and
proven records and continuously monitors each portfolio holding.
o Harris Associates believes that holding a small number of stocks allows its
"best ideas" to have a meaningful impact on fund performance; therefore, the
Portfolio generally holds 15 to 20 stocks in its portfolio.
o Harris Associates' value strategy also emphasizes investing for the long-term.
Harris Associates believes that the market will ultimately discover these
undervalued companies, and, therefore, Harris Associates gives them the time
such recognition requires. Harris Associates has found that generally it takes
two to three years for the gap between stock price and true business value to
close. Therefore, successful implementation of this value investment
philosophy requires that Portfolio and its shareholders have a long term
horizon.
In addition to the principal investment strategies described above, the
Portfolio may employ the following techniques in pursuing its investment goal.
The Portfolio may:
o invest in stocks. The types of stock in which the Portfolio may invest include
common and preferred stocks and warrants or other similar rights and
convertible securities. Harris Associates' chief consideration in selecting
common stock for the Portfolio is the size of the discount of market price
relative to our determination of the true business value of the security.
o invest in debt securities. The Portfolio may invest in debt securities of both
governmental and corporate issuers. The Portfolio may invest up to 25% of its
assets (valued at the time of investment), in debt securities that are rated
below investment grade, without a minimum rating requirement. A description of
the ratings is included as an appendix to the Statement of Additional
Information.
o engage in currency exchange transactions. The Portfolio may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market or
through a forward currency exchange contract ("forward contract"). A forward
contract is an agreement to purchase or sell a specified currency at a
specified future
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Goal, Strategies & Risks [graphic omitted]
------------------------
date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange-traded and are usually for less than one
year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Portfolio may invest, and serve as hedges against
possible variations in the exchange rate between these currencies. The
Portfolio's forward currency transactions are limited to transaction hedging
and portfolio hedging involving either specific transactions or actual or
anticipated portfolio positions. Transaction hedging is the purchase or sale
of a forward contract with respect to a specific receivable or payable of the
Portfolio accruing in connection with the purchase or sale of portfolio
securities. Portfolio hedging is the use of a forward contract with respect to
an actual or anticipated portfolio security position denominated or quoted in
a particular currency. The Portfolio may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating
actual or anticipated positions in securities denominated in such currency.
When the Portfolio owns or anticipates owning securities in countries whose
currencies are linked, Harris Associates may aggregate such positions as to
the currency hedged. Although forward contracts may be used to protect the
Portfolio from adverse currency movements, the use of such hedges may reduce
or eliminate the potentially positive effect of currency revaluations on the
Portfolio's total return.
o invest in short-term investments. In seeking to achieve its investment goal,
the Portfolio ordinarily invests on a long-term basis, but on occasion may
also invest on a short-term basis, for example, where short-term perceptions
have created a significant gap between price and value. Occasionally,
securities purchased on a long-term basis may be sold within twelve months
after purchase in light of a change in the circumstances of a particular
company or industry or in light of general market or economic conditions or if
a security achieves its price target in an unexpected shorter period.
To the extent that investments meeting the Portfolio's criteria for investment
are not available, or when Harris Associates considers a temporary defensive
posture advisable in response to adverse market, economic, political, or other
conditions, the Portfolio may invest without limitation in high-quality
corporate debt obligations of U.S. companies or U.S. government obligations,
or may hold cash in domestic or foreign currencies or invest in domestic or
foreign money market securities. During those periods, the Portfolio's asset
may not be invested in accordance with its regular strategy, and the Portfolio
may not achieve its investment goal.
o maintain cash reserves. Under ordinary circumstances, the Portfolio is
substantially fully invested. At times, however, to meet liquidity needs or
for temporary defensive purposes, the Portfolio may hold cash in domestic and
foreign currencies and may invest in domestic and foreign money market
securities. During those periods, the Portfolio's assets may not be invested
in accordance with its regular strategy and the Portfolio may not achieve its
investment goal.
INVESTMENT RISKS
Although Harris Associates makes every effort to achieve the Portfolio's goal of
long-term capital appreciation, Harris Associates cannot guarantee that it
will attain that goal. Below are the principal risks of investing in the
Portfolio.
NOT A BANK DEPOSIT. An investment in the Portfolio is not a deposit in a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. The Fund risks losing money by investing in
the Portfolio.
COMMON STOCKS. The Portfolio invests mostly in common stocks, which are a type
of equity security that represents an equity (ownership) interest in a
corporation. One of the risks of investing in common stock is that a company's
stock value may go up or down depending on the company's business success or
other economic or market factors. This potential for fluctuation is called
market risk and can affect the value of Fund shares of the Portfolio. When the
Fund sells its shares of the Portfolio, they may be worth more or less than
what the Fund paid for them.
NON-DIVERSIFICATION. Although the Portfolio's strategy of investing in a limited
number of stocks has the potential to generate attractive returns over time,
it may increase the volatility of the Portfolio's investment performance as
compared to funds that invest in a larger number of stocks. If the stocks in
which the Portfolio invests perform poorly, the Portfolio could incur greater
losses than if it had invested in a larger number of stocks.
VALUE STYLE. Investing in "value" stocks presents the risk that value stocks may
fall out of favor with investors and underperform growth stocks during given
periods.
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[graphic omitted] Our Goals, Strategies & Risks
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EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Select Fund. The performance information below represents the
historical performance of Class I shares of The Oakmark Select Fund, restated to
reflect the operating expenses of Nvest Select Fund. The Portfolio's past
performance does not necessarily indicate how the Fund or the Portfolio will
perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
(total return)
1997 54.67%
1998 15.85%
1999 14.14%
/\ Highest Quarterly Return: Fourth Quarter 1998, up 21.4%
\/ Lowest Quarterly Return: Third Quarter 1998, down 17.1
The table below shows the Portfolio's average annual total returns for the
one-year and since-inception periods compared to those of the Standard & Poor's
Composite Index of 500 Stocks (the "S&P 500"), a market value-weighted,
unmanaged index of common stock prices for 500 selected stocks. You may not
invest directly in an index. The Portfolio's total returns are adjusted to
reflect the Fund's expenses for Class A, B and C shares and the maximum sales
charge that you may pay when you buy or redeem Fund 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.
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST 1 YEAR SINCE INCEPTION*
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The Portfolio: Class A 7.58% 28.30%
The Portfolio: Class B 8.39% 29.40%
The Portfolio: Class C 12.39% 29.94%
S&P 500 21.04% 28.05%
* These percentages reflect the average annual total returns since the inception
of the Portfolio on November 1, 1996.
For the expenses of Class A, B and C shares, see the section entitled "Fund
Fees & Expenses."
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Goal, Strategies & Risks [graphic omitted]
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MORE ABOUT RISK
The Portfolio has principal investment strategies that come with inherent risks.
The following is a list of risks to which the Portfolio (and therefore the Fund)
may be subject by investing in various types of securities or engaging in
various practices.
GENERAL RISKS All investments, including those in mutual funds, have risks, and
no one investment is suitable for all investors. The Portfolio is intended for
long-term investors.
MARKET RISK The Portfolio is subject to the market risk that always comes with
investments in common stock. Stock prices may fluctuate widely over short or
extended periods in response to company, market, or economic news. Stock markets
also tend to move in cycles, with periods of rising stock prices and periods of
falling stock prices. The appreciation or depreciation of any one stock will
have a greater impact on the Portfolio's net asset value than it would if the
Portfolio invested in a larger number of stocks. Although that strategy has the
potential to generate attractive returns over time, it also increases the
Portfolio's volatility.
SMALL AND MID CAP COMPANIES During some periods, the securities of small and mid
cap companies, as a class, have performed better than the securities of large
companies, and in some periods they have performed worse. Stocks of small and
mid cap companies tend to be more volatile and less liquid than stocks of large
companies. Small and mid cap companies, as compared to larger companies, may
have a shorter history of operations, may not have as great an ability to raise
additional capital, may have a less diversified product line making them
susceptible to market pressure, and may have a smaller public market for their
shares.
CREDIT RISK The Portfolio will not invest more than 25% of its total assets in
securities rated below investment grade or, if unrated, that are considered by
Harris Associates to be of comparable quality.
Investment in medium- or lower-grade debt securities involves greater risk,
including the possibility of issuer default or bankruptcy. Lower-grade debt
securities (commonly called "junk bonds") are obligations of companies rated BB
or lower by S&P or Ba or lower by Moody's. Lower-grade debt securities are
considered speculative and may be in poor standing or actually in default.
Medium-grade debt securities are those rated BBB by S&P or Baa by Moody's.
Securities so rated are considered to have speculative characteristics. An
economic downturn could severely disrupt the market in medium or lower grade
debt securities and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest
payment obligations.
LIQUIDITY RISK The market for medium- and lower-grade debt securities tends to
be less broad than higher-quality debt securities. The market for unrated debt
securities is even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase significantly, and
the Portfolio may have greater difficulty selling its portfolio of these debt
securities. The market value of these securities and their liquidity may be
affected by adverse publicity and investor perceptions.
NON-DIVERSIFICATION As "non-diversified", the Portfolio is not limited under the
Investment Company Act of 1940 in the percentage of its assets that it may
invest in any one company. However, the Portfolio intends to comply with the
diversification standards applicable to regulated investment companies under the
Internal Revenue Code of 1986. In order to meet those standards, among other
requirements, at the close of each quarter of its taxable year (a) at least 50%
of the value of the Portfolio's total assets must be represented by one or more
of the following: (i) cash and cash items, including receivables; (ii) U.S.
government securities; (iii) securities of other regulated investment companies;
and (iv) securities (other than those in items (ii) and (iii) above) of any one
or more issuers as to which the Portfolio's investment in an issuer does not
exceed 5% of the value of the Portfolio's total assets (valued at the time of
investment); and (b) not more than 25% of its total assets (valued at the time
of investment) may be invested in the securities of any one issuer (other than
U.S. government securities or securities of other regulated investment
companies).
Since the Portfolio may invest more than 5% of its assets in a single portfolio
security, the appreciation or depreciation of such a security will have a
greater impact on the net asset value of the Portfolio than would a smaller
investment in that security, and the net asset value per share of the Portfolio
can be expected to fluctuate more than would the net asset value of a comparable
"diversified" mutual fund.
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[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)
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CLASS A CLASS B CLASS C
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Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)(1)(2) 5.75% None None
Maximum deferred sales charge (load)
(as a percentage of offering price)(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."
(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."
* 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 net
assets)
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CLASS A CLASS B CLASS C
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Management fees (1) 0.97% 0.97% 0.97%
Distribution and/or service (12b-1) fees 0.25% 31.00%* 31.00%*
Other expenses of Fund and Portfolio (less
management fees)(2) 0.29% 0.29% 0.29%
Total annual fund operating expenses(3) 1.51% 2.26% 2.26%
(1) There is no management fee paid to Nvest Management by the Fund. The
Management fee represents the fee paid by the Portfolio to its Adviser.
(2) Under an Administration Agreement between the Fund and Nvest Management,
Nvest Management has agreed to pay all expenses (other than those paid by
the Portfolio under the Special Servicing Agreement) of the Fund in excess
of 0.10% annually of the Fund's average daily net assets for an initial
two-year term.
(3) Total annual fund operating expenses reflect the aggregate expenses of both
the Fund and its Portfolio.
* 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.
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
o The Fund's operating expenses remain the same
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
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CLASS A CLASS B CLASS C
(1) (2) (1) (2)
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1 year $ 720 $ 729 $ 229 $ 329 $ 229
3 years $1,025 $1,006 $ 706 $ 706 $ 706
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
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Management Team [graphic omitted]
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MEET THE FUND'S AND PORTFOLIO'S
INVESTMENT ADVISERS
The Nvest Funds family includes 25 mutual funds with a total of $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 Funds Access Shares(SM) - Nvest Select Fund which along with Nvest
Stock Funds, Nvest Bond Funds, Nvest Star Funds and Nvest Tax-Free Funds, and
Kobrick 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 Funds Management, L.P., 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. Nvest Companies' 14 principal subsidiary or affiliated
asset management firms, collectively, had more than $127 billion in assets under
management as of September 30, 1999. Nvest Management oversees, evaluates and
monitors the performance of the Fund and furnishes general business management
and administration to the Fund. Nvest Management does not determine what
investments will be purchased by the Portfolio. Harris Associates makes the
investment decisions for the Portfolio.
HARRIS ASSOCIATES L.P.
Harris Associates, located at Two North LaSalle Street, Chicago, Illinois 60602,
serves as adviser to The Oakmark Select Fund and the other mutual funds in the
Oakmark Family of Funds. Harris Associates, a subsidiary of Nvest Companies has,
together with its predecessor, managed mutual funds since 1970. In addition to
managing investments for mutual funds, Harris Associates manages assets of
individuals, trusts, retirement plans, endowments, foundations and numerous
private partnerships.
ADVISORY AGREEMENTS
Under the terms of the advisory agreement with the Fund, NVEST MANAGEMENT WILL
NOT RECEIVE ANY MANAGEMENT FEE FROM THE FUND, SO LONG AS SUBSTANTIALLY ALL OF
THE INVESTABLE ASSETS OF THE FUND ARE INVESTED IN THE SHARES OF ANOTHER MUTUAL
FUND. If, however, the Fund's Board of Trustees should vote to change the
investment strategy and elect to have Nvest Management provide portfolio
management services to the Fund, either directly or by entering into a
subadvisory agreement with another investment advisory firm, then Nvest
Management would receive a management fee from the Fund at the annual rate
calculated as a percentage of the Fund's average daily net assets of 1%.
No management fee would be payable to Nvest Management by the Fund until written
notice of any such change is communicated to the shareholders of the Fund and,
in the event of the appointment of the subadviser for the Fund that is
affiliated with Nvest Management, the subadvisory agreement has been approved by
the shareholders of the Fund at a special shareholders' meeting.
SPECIAL SERVICING AGREEMENT
Nvest Services Co., Inc. ("Nvest Services"), 399 Boylston Street, Boston,
Massachusetts 02116, is the transfer and dividend-paying agent for the Fund, and
is an affiliate of Nvest Management. Nvest Services has subcontracted certain of
its obligations in this capacity to State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110.
Under the terms of a Special Servicing Agreement (the "Service Agreement") among
the Fund, its Portfolio and Nvest Services, Nvest Services will provide services
pertaining to the operation of the Fund, including shareholder servicing and
fund administration. The Portfolio has agreed to pay Nvest Services an annual
fee equal to 0.12% of the average daily net asset value of the Portfolio Shares
held by the Fund. However, the Portfolio will not be required to pay Nvest
Services any amount in excess of the financial benefits derived from the
operation of the Fund. The cost-benefit analysis was initially reviewed by the
Trustees of the Portfolio before participating in any Service Agreement. For
future years, there will be an annual review of the Service Agreement to
determine its continued appropriateness for the Portfolio.
<PAGE>
[graphic omitted] Management Team
---------------
MEET THE PORTFOLIO MANAGER
William C. Nygren
[graphic omitted]
William Nygren has served as portfolio manager of The Oakmark Select Fund since
November 1996. Mr. Nygren, a chartered financial analyst, joined Harris
Associates as an analyst in 1983 and was its Director of Research from September
1990 through April 1998. He holds an M.S. in Finance from the University of
Wisconsin and a B.S. in Accounting from the University of Minnesota.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement entered into between Nvest Management
and the Fund, the Fund will pay Nvest Management an administrative fee at the
annual rate of 0.10% of the Fund's average daily net assets for an initial
two-year term. At the expiration of this period, the Fund will pay Nvest
Management the lesser of (i) 0.25% of the Fund's average daily net assets, or
(ii) the actual expenses incurred by Nvest Management in providing certain
services to the Fund; provided however, that the minimum payment due to Nvest
Management under the Administration Agreement will be no less than 0.10% of the
Fund's average daily net assets. These services include the provision of
necessary executive and other personnel for managing the affairs of the Fund.
PORTFOLIO TRADES
In placing trades on behalf of the Portfolio, Harris Associates may use
brokerage firms that market the Fund's or the Portfolio's shares or are
affiliated with Nvest Companies, Nvest Management or Harris Associates. Harris
Associates 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 procedures adopted by the Portfolio's
Board of Trustees.
<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 of
shares 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.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C>
o You pay a sales charge when you buy o You do not pay a sales charge when you o You do not pay a sales charge when you
Fund shares. There are several ways to buy Fund shares. All of your money buy Fund shares. All of your money
reduce this charge. See the section goes to work for you right away. goes to work for you right away.
entitled "Ways to Reduce or Eliminate
Sales Charges." o You pay higher annual expenses than o You pay higher annual expenses than
Class A shares. Class A shares.
o You pay lower annual expenses than
Class B and Class C shares, giving you o You will pay a charge on redemptions o You will pay a charge on redemptions
the potential for higher returns per if you sell your shares within 6 years if you sell your shares within 1 year
share. of purchase, as described in the of purchase.
section entitled "How Sales Charges
o You do not pay a sales charge on are Calculated." o Your Class C shares will not
orders of $1 million or more, but you automatically convert into Class A
may pay a charge on redemption if you o Your Class B shares will automatically shares. If you hold your shares for
redeem these shares within 1 year of convert into Class A shares after 8 longer than 8 years, you'll pay higher
purchase. years, which reduces your annual expenses than other classes.
expenses.
o We will not accept an order for $1
o We will not accept an order for $1 million or more of Class C shares. You
million or more of Class B shares. You may, however, purchase $1 million or
may, however, purchase $1 million or more in Class A shares, which will
more in Class A shares, which will have no sales charge as well as lower
have no sales charge as well as lower annual expenses. You may pay a charge
annual expenses. You may pay a charge on redemption if you redeem these
on redemption if you redeem these shares within 1 year of purchase.
shares within 1 year of purchase.
</TABLE>
For the 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
-------------
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price that you pay when you buy Class A shares ("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.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------- * For purchases of Class A shares of the Fund of
CLASS A SALES CHARGES $1 million or more or purchases by the
AS A % OF AS A % OF Retirement Plans (Plans under Sections 401(a)
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT or 401(k) of the Internal Revenue Code with
- -------------------------------------------------------------------------------- investments of $1 million or more and have 100
Less than $ 50,000 5.75% 6.10% or more eligible employees), there is no
$50,000 - $ 99,999 4.50% 4.71% front-end sales charge, but a contingent
$100,000 - $249,999 3.50% 3.63% deferred sales charge of 1.00% may apply to
$250,000 - $499,999 2.50% 2.56% redemptions of your shares within one year of
$500,000 - $999,999 2.00% 2.04% the purchase date. See "Ways to Reduce or
$1,000,000 or more* 0.00% 0% Eliminate Sales Charges."
</TABLE>
- --------------------------------------------------------------------------------
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 into 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%
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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 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 into Class A
shares stops until you exchange back into shares of another Nvest Fund. If you
choose to redeem those Money Market Fund shares, a CDSC may apply.
<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, 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 members (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 any Nvest Fund without
paying a sales charge to repurchase Class A shares of the same or any other
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
will generally be eliminated in the following cases:
o to make distributions from a retirement plan;
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.
<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
Transfers to Minors Act $2,000 $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
401(k), SARSEP, SEP, SIMPLE, 403(b)(7) and
certain other retirement plans $ 25 N/A $ 25
- ------------------------------------------------------------------------------------------------------------
</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 checks "Nvest Funds." Third party checks
will generally not be accepted. will generally not be accepted.
o Mail the check with your completed o Fill out the detachable investment
application to slip from an account statement. If
Nvest Funds, no slip is available, include with
P.O. Box 8551, the check a letter specifying the
Boston, MA 02266-8551. 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 to request an
by calling your investment dealer or exchange.
Nvest Funds at 800-225-5478.
o See the section entitled "Exchanging
o Call your investment dealer or Nvest Shares."
Funds to request an exchange.
o See the section entitled "Exchanging
Shares."
BY WIRE
[graphic omitted]
o Call Nvest Funds at 800-225-5478 to o Instruct your bank to transfer funds
obtain an account number and wire to State Street Bank & Trust
transfer instructions. Your bank may Company, ABA# 011000028, DDA#
charge you for such a transfer. 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 to
whether it is a member of the ACH add shares to your account through
system. 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>
[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 to request an exchange.
o See the section entitled "Exchanging Shares" for more details.
BY WIRE
[graphic omitted]
o Fill out the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o Call Nvest Funds at 800-225-5478 or indicate in your redemption request letter
(see above) that you wish to have your proceeds wired to your bank.
o Proceeds (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 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 following table shows some 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>
[graphic omitted] Fund Services
-------------
EXCHANGING SHARES
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"). An 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 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, they reserve 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 Trustees)
qualified retirement plans, automatic investment
plans or accounts that have fallen below the
minimum solely because of fluctuations in the
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>
Fund Services [graphic omitted]
-------------
HOW FUND SHARES ARE PRICED
The Fund is a mutual fund that invests directly in shares of the underlying
mutual fund, which is referred to as the Portfolio in this Prospectus. The Fund
gains access to the investment management and research capabilities as well as
the investment strategies of its Portfolio by investing in shares of that
Portfolio at its net asset value. Fund shares are priced by applying the Fund's
sales charges to the net asset value of Portfolio shares. "Net asset value" is
the price of one share of the Portfolio without a sales charge, and is
calculated each business day using this formula:
TOTAL VALUE OF SECURITIES + CASH AND
NET ASSET VALUE = OTHER ASSETS - LIABILITES
-------------------------------------------
NUMBER OF OUTSTANDING SHARES
The net asset value of Fund shares and Portfolio shares is determined according
to this schedule:
o A share's net asset value is determined at the close of regular trading on the
New York Stock Exchange (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 If the Portfolio is heavily invested in foreign securities, then there may be
net asset value changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 p.m., but not later than
8:00 p.m.
Generally, during times of substantial economic or market change it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
"Buying Shares" and "Selling Shares."
Generally, the securities of the Portfolio 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 -- 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 closing 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 Portfolio'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 Portfolio's
Board of Trustees.
o ALL OTHER SECURITIES -- fair market value as determined by the adviser of the
Portfolio under the direction of the Portfolio'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 Portfolio'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 in the
form of dividends (based upon what the Portfolio distributes). The Fund
distributes dividends annually. The Fund distributes all net realized long- and
short-term capital gains annually, after applying any available capital loss
carryovers. The Portfolio'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 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 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 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.
Access Shares(SM) use of a two tiered fund structure could adversely affect the
character of distributions to you.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive.
ADDITIONAL FUND INFORMATION
The Fund has received an exemptive order from the Securities and Exchange
Commission (the "SEC"), which 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, without shareholder
approval. The exemption also permits Nvest Management to amend or continue
existing subadvisory agreements when approved by the Fund's Board of Trustees.
The Fund will change to this subadvisory structure when the Board of Trustees
considers it to be in the best interest of the Fund. Shareholders will be
notified of any subadviser changes.
<PAGE>
Fund Services [graphic omitted]
-------------
COMPENSATION TO SECURITIES DEALERS
As part of its business strategies, the Fund pays 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 up to 0.25% of average daily net assets. In addition to this
service fee, Class B shares pay an annual distribution fee of up to 0.75% of
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 up to
0.75% of 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 omted] Fund Services
-------------
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
Nvest Funds offers a range of retirement plans, including IRAs, SEPs, SARSEPs,
SIMPLEs, 401(k) plans, 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 Fund. 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.
<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 APPROACH -- 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
Standard & Poor's Ratings Group or Moody's Investors Service Inc. Bonds with a
credit rating of BBB or higher by S&P or Baa or higher by Moody's are generally
considered investment grade.
DERIVATIVE -- A financial instrument whose value and performance are based upon
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 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 inversely fluctuates with
changes in prevailing 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
analysts consider 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, these analysts 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 a Fund's 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 x 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. The capitalization amount may vary depending upon the index being
used and/or the guidelines used by a 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 a 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 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).
<PAGE>
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 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.
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, 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>
<TABLE>
<S> <C>
IF YOU WOULD LIKE MORE INFORMATION ABOUT
THE FUND, THE FOLLOWING DOCUMENTS ARE
AVAILABLE FREE UPON REQUEST:
Statement of Additional Information
(SAI) -- Provides more detailed
information about the Fund, has been
filed with the Securities and Exchange
Commission and is incorporated by
reference into this Prospectus.
TO ORDER A FREE COPY OF THE SAI, CONTACT NVEST FUNDS
YOUR FINANCIAL REPRESENTATIVE, OR THE ACCESS SHARES(SM)
FUND AT:
Nvest Select Fund
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 information about the Fund
(including the SAI) at the
Public Reference Room of the
Securities and Exchange Commission.
For information on the operation of the
Public Reference Room,
call the Commission at 202-942-8090
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 by writing or
calling the Public Reference Room of the SEC,
Washington, D.C. 20549-6009
Telephone: 800-SEC-0330
or by electronic request at the
following e-mail address:
[email protected].
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.
(Investment Company Act File No. 811-7345)
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NVEST FUNDS(SM)
Where The Best Minds Meet(R)
ACCESS
NVEST
FUNDS SHARES(SM)
- --------------------------------------------------------------------------------
NVEST CORE EQUITY FUND
NVEST STOCK AND BOND FUND
NVEST SMALL CAP VALUE FUND
NVEST SMALL CAP GROWTH FUND
NVEST TOTAL RETURN BOND FUND
PROSPECTUS
FEBRUARY 1, 2000
WHAT'S INSIDE
GOALS, STRATEGIES & RISKS
PAGE 3 [GRAPHIC OMITTED]
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FUND FEES & EXPENSES
PAGE 20 [GRAPHIC OMITTED]
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MANAGEMENT TEAM
PAGE 28 [GRAPHIC OMITTED]
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FUND SERVICES
PAGE 31 [GRAPHIC OMITTED]
----------------------------------------------
The Securities and Exchange Commission has not approved or disapproved 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.
NVEST FUNDS
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
An Introduction to Access Shares(SM) ..................................... 1
- --------------------------------------------------------------------------------
GOALS, STRATEGIES & RISKS
- --------------------------------------------------------------------------------
Nvest Core Equity Fund ................................................. 3
Nvest Stock and Bond Fund .............................................. 7
Nvest Small Cap Value Fund ............................................. 11
Nvest Small Cap Growth Fund ............................................ 15
Nvest Total Return Bond Fund ........................................... 17
- --------------------------------------------------------------------------------
FUND FEES & EXPENSES
- --------------------------------------------------------------------------------
Fund Fees & Expenses ................................................... 20
- --------------------------------------------------------------------------------
MORE ABOUT RISK
- --------------------------------------------------------------------------------
More About Risk ........................................................ 23
- --------------------------------------------------------------------------------
MANAGEMENT TEAM
- --------------------------------------------------------------------------------
Meet the Funds' and Portfolios' Investment Advisers .................... 28
Meet the Portfolio Managers ............................................ 29
- --------------------------------------------------------------------------------
FUND SERVICES
- --------------------------------------------------------------------------------
Investing in the Funds ................................................. 31
How Sales Charges are Calculated ....................................... 32
Ways to Reduce or Eliminate Sales Charges .............................. 34
It's Easy to Open an Account ........................................... 35
Buying Shares .......................................................... 36
Selling Shares ......................................................... 38
Selling Shares in Writing .............................................. 39
Exchanging Shares ...................................................... 40
Restrictions on Buying, Selling and Exchanging Shares .................. 41
How Fund Shares Are Priced ............................................. 42
Dividends and Distributions ............................................ 43
Tax Consequences ....................................................... 43
Additional Fund Information ............................................ 44
Compensation to Securities Dealers ..................................... 44
Additional Investor Services ........................................... 45
Glossary of Terms ...................................................... 46
If you have questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
<PAGE>
AN INTRODUCTION TO ACCESS SHARES(SM)
Nvest Funds Access SharesSM is a unique fund structure specifically created for
investors who seek advice through financial professionals.
Unlike a typical mutual fund, each Fund available through Access SharesSM
invests all or substantially all of its assets in shares of a single underlying
mutual fund, establishing a direct link to that Portfolio's goal, investment
strategy and performance. As with any mutual fund, there is no assurance that
the investment goal of each Fund or its respective Portfolio will be achieved.
Each Fund's goal may be changed without shareholder approval. The goal of each
underlying portfolio advised by Harris Associates, L.P. may be changed without
shareholder approval.
This Prospectus contains information on five Access Shares(SM) Funds outlined
below (each a "Fund" and collectively the "Funds"). Nvest Funds Management, L.P.
("Nvest Management") is the adviser to each of the Funds. In this Prospectus,
the underlying mutual fund in which each Fund invests directly is referred to
individually as a "Portfolio," and collectively as the "Portfolios."
As an alternative to investing in the Funds, an investor, without the assistance
or advice of a financial representative, could buy shares of the Portfolios
directly from the Portfolios or their distributors without paying a sales load.
Also, each Portfolio has a lower expense ratio than the corresponding Fund.
However, if purchased directly, some of the Portfolios may require higher
minimum investments or impose other eligibility requirements on investors.
NVEST CORE EQUITY FUND
PORTFOLIO MANAGER: Robert J. Sanborn, Harris Associates L.P. ("Harris
Associates")
GOAL: Long-term capital appreciation. The Fund pursues this goal
by investing all or substantially all of its assets in
Class I shares of The Oakmark Fund.
NVEST STOCK AND BOND FUND
PORTFOLIO MANAGER: Clyde S. McGregor, Harris Associates
GOALS: High current income and preservation and growth of
capital. The Fund pursues these goals by investing all or
substantially all of its assets in Class I shares of The
Oakmark Equity and Income Fund.
NVEST SMALL CAP VALUE FUND
PORTFOLIO MANAGERS: Steven J. Reid and James P. Benson, Harris Associates
GOAL: Long-term capital appreciation. The Fund pursues this goal
by investing all or substantially all of its assets in
Class I shares of The Oakmark Small Cap Fund.
NVEST SMALL CAP GROWTH FUND
PORTFOLIO MANAGERS: Christopher R. Ely, Philip C. Fine, David L. Smith,
Loomis, Sayles & Company, L.P. ("Loomis Sayles")
GOAL: Long-term capital growth from investments in common stocks
or their equivalent. The Fund pursues this goal by
investing all or substantially all of its assets in
Institutional Class shares of the Loomis Sayles Small Cap
Growth Fund.
NVEST TOTAL RETURN BOND FUND
PORTFOLIO MANAGERS: Daniel J. Fuss and Kathleen C. Gaffney, Loomis Sayles
GOAL: High total investment return through a combination of
current income and capital appreciation. The Fund pursues
this goal by investing all or substantially all of its
assets in Institutional Class shares of the Loomis Sayles
Bond Fund.
INVESTMENT RISKS: The risks associated with each Fund generally are the same as
those of its Portfolio and depend on the nature of the Portfolio's investments.
The value of a Portfolio's domestic and foreign investments varies in response
to many factors. Equity securities fluctuate in value based upon general market
and economic conditions, as well as in response to specific developments
affecting their issuing companies. Fixed-income securities generally fluctuate
in value due to changes in interest rates and in the perceived creditworthiness
of their issuers. Because a Fund and its corresponding Portfolio have the same
investment goal, the ability of a Fund to meet its investment goal is directly
related to the performance of its Portfolio.
Fund shares are not bank deposits and are not guaranteed, insured or endorsed by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
For more detailed information about the Portfolios' investment goals, strategies
and related risks, please refer to the appropriate section for each Portfolio on
the following pages. To learn more about the possible risks of a Fund, please
refer to the section entitled "More About Risk." This section details the risks
of practices in which a Portfolio may engage. Please read this section carefully
before you invest.
<PAGE>
GOALS, STRATEGIES & RISKS
- -------------------------
----------------------------------
NVEST CORE EQUITY FUND FUND FOCUS
PORTFOLIO: The Oakmark Fund STABILITY INCOME GROWTH
---------------------------
PORTFOLIO ADVISER: Harris Associates L.P. HIGH X
("Harris Associates") ---------------------------
MOD. X X
---------------------------
PORTFOLIO MANAGER: Robert J. Sanborn LOW
----------------------------------
CATEGORY: Large-Cap Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
PENDING
INVESTMENT GOAL
The Portfolio seeks long-term capital appreciation.
INVESTMENT STRATEGIES
The Portfolio invests primarily in common stocks of U.S. companies.
Harris Associates uses a value investment philosophy in selecting equity
securities for the Portfolio. Harris Associates' philosophy of investing is
based upon the belief that, over time, a company's stock price converges with
the company's true business value. By "true business value," Harris Associates
means its estimate of the price a knowledgeable buyer would pay to acquire the
entire business. Harris Associates believes that investing in securities priced
significantly below their true business value presents the best opportunity to
achieve the Portfolio's investment goal.
Harris Associates uses this value philosophy to identify companies that it
believes have discounted stock prices compared to the companies' true business
values.
In assessing such companies, Harris Associates looks for the following
characteristics although not all of the companies selected will have these
attributes:
x free cash flows and intelligent investment of excess cash;
x earnings that are growing and are reasonably predictable; and
x high level of manager ownership.
In making investment decisions for the Portfolio, Harris Associates generally
employs the following methods:
o Harris Associates focuses on individual companies in making its investment
decisions rather than on specific economic factors or specific industries. In
order to select those that meet the criteria described above, Harris
Associates uses independent, in-house research to analyze each company. As
part of this selection process, Harris Associates' analysts typically visit
companies and talk to various industry sources.
o The chief consideration in the selection of stocks for the Portfolio is the
size of the discount of a company's stock price compared to the company's
true business value. Once Harris Associates determines that a stock is
selling at a significant discount (typically 60% of its estimated worth) and
the company has the other additional qualities mentioned above, it generally
will consider buying that stock. Harris Associates usually sells when the
company's stock price approaches 90% of its estimated worth. This means
Harris Associates sets specific "buy" and "sell" targets for each stock held
by the Portfolio. Harris Associates also monitors each holding and adjusts
those price targets as warranted to reflect changes in a company's
fundamentals.
o The Portfolio tries to manage some of the risks of investing in common stock
by purchasing stocks whose prices Harris Associates considers low relative to
the stocks' true value. The Portfolio seeks companies with solid finances and
proven records and continuously monitors each portfolio holding.
o Harris Associates believes that holding a small number of stocks allows its
"best ideas" to have a meaningful impact on fund performance; therefore, the
Portfolio typically holds 30 to 60 stocks rather than hundreds in its
portfolio.
o Harris Associates' value strategy also emphasizes investing for the
long-term. Harris Associates believes that the market will ultimately
discover these undervalued companies, and, therefore, Harris Associates gives
them the time such recognition requires. Harris Associates has found that
generally it takes two to three years for the gap between stock price and
true business value to close. Therefore, successful implementation of this
value investment philosophy requires that Portfolio and its shareholders have
a long-term horizon.
In addition to the principal investment strategies described above, the
Portfolio may employ the following techniques in pursuing its investment goal.
The Portfolio may:
[] invest in stocks. The types of stock in which the Portfolio may invest
include common and preferred stocks and warrants or other similar rights and
convertible securities. Harris Associates' chief consideration in selecting
common stock for the Portfolio is the size of the discount of market price
relative to our determination of the true business value of the security.
[] invest in debt securities. The Portfolio may invest in debt securities of
both governmental and corporate issuers. The Portfolio may invest up to 25%
of its assets (valued at the time of investment), in debt securities that are
rated below investment grade, without a minimum rating requirement. A
description of the ratings is included as an appendix to the Statement of
Additional Information.
[] engage in currency exchange transactions. The Portfolio may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign
exchange market or through a forward currency exchange contract ("forward
contract"). A forward contract is an agreement to purchase or sell a
specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not exchange-traded
and are usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Portfolio may invest, and serve as hedges against
possible variations in the exchange rate between these currencies. The
Portfolio's forward currency transactions are limited to transaction hedging
and portfolio hedging involving either specific transactions or actual or
anticipated portfolio positions. Transaction hedging is the purchase or sale
of a forward contract with respect to a specific receivable or payable of the
Portfolio accruing in connection with the purchase or sale of portfolio
securities. Portfolio hedging is the use of a forward contract with respect
to an actual or anticipated portfolio security position denominated or quoted
in a particular currency. The Portfolio may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating
actual or anticipated positions in securities denominated in such currency.
When the Portfolio owns or anticipates owning securities in countries whose
currencies are linked, Harris Associates may aggregate such positions as to
the currency hedged. Although forward contracts may be used to protect the
Portfolio from adverse currency movements, the use of such hedges may reduce
or eliminate the potentially positive effect of currency revaluations on the
Portfolio's total return.
[] invest in short-term investments. In seeking to achieve its investment goal,
the Portfolio ordinarily invests on a long-term basis, but on occasion may
also invest on a short-term basis, for example, where short-term perceptions
have created a significant gap between price and value. Occasionally,
securities purchased on a long-term basis may be sold within twelve months
after purchase in light of a change in the circumstances of a particular
company or industry or in light of general market or economic conditions or
if a security achieves its price target in an unexpected shorter period.
To the extent that investments meeting the Portfolio's criteria for
investment are not available, or when Harris Associates considers a temporary
defensive posture advisable in response to adverse market, economic,
political, or other conditions, the Portfolio may invest without limitation
in high-quality corporate debt obligations of U.S. companies or U.S.
government obligations, or may hold cash in domestic or foreign currencies or
invest in domestic or foreign money market securities. During those periods,
the Portfolio's asset may not be invested in accordance with its regular
strategy, and the Portfolio may not achieve its investment goal.
[] maintain cash reserves. Under ordinary circumstances, the Portfolio is
substantially fully invested. At times, however, to meet liquidity needs or
for temporary defensive purposes, the Portfolio may hold cash in domestic and
foreign currencies and may invest in domestic and foreign money market
securities. During those periods, the Portfolio's assets may not be invested
in accordance with its regular strategy and the Portfolio may not achieve its
investment goal.
INVESTMENT RISKS
Although Harris Associates makes every effort to achieve the Portfolio's goal of
long-term capital appreciation, Harris Associates cannot guarantee that it will
attain that goal. Below are the principal risks of investing in the Portfolio:
NOT A BANK DEPOSIT. An investment in the Portfolio is not a deposit in a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. The Fund risks losing money by investing in the
Portfolio.
COMMON STOCKS. The Portfolio invests mostly in common stocks, which are a type
of equity security that represents an equity (ownership) interest in a
corporation. One of the risks of investing in common stock is that a company's
stock value may go up or down depending on the company's business success or
other economic or market factors. This potential for fluctuation is called
market risk and can affect the value of Fund shares of the Portfolio. When the
Fund sells its shares of the Portfolio, they may be worth more or less than what
the Fund paid for them.
VALUE STYLE. Investing in "value" stocks presents the risk that value stocks may
fall out of favor with investors and underperform growth stocks during given
periods.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Core Equity Fund. The performance information below represents the
historical performance of Class I shares of The Oakmark Fund, restated to
reflect the operating expenses of Nvest Core Equity Fund. The Portfolio's past
performance does not necessarily indicate how the Fund or the Portfolio will
perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1992. The data
points are as follows:)
1992 48.55%
1993 30.15%
1994 2.96%
1995 34.07%
1996 15.86%
1997 32.24%
1998 3.39%
1999 10.82%
/\ Highest Quarterly Return: Fourth Quarter 1992, up 15.3%
\/ Lowest Quarterly Return: Third Quarter 1998, down 13.9%
The table below shows the Portfolio's average annual total
returns for the one-year, five-years and since-inception periods compared to the
Standard & Poor's Composite Index of 500 Stocks (the "S&P 500"), a market
value-weighted, unmanaged index of common stock prices for 500 selected stocks.
You may not invest directly in an index. The Portfolio's total returns are
adjusted to reflect the Fund's expenses for Class A, B and C shares and the
maximum sales charge that you may pay when you buy or redeem Fund shares. The
S&P 500 has not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999) SINCE
PAST 1 YEAR PAST 5 YEARS INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A -15.95% 10.14% 19.97%
The Portfolio: Class B -16.57% 9.31% 20.05%
The Portfolio: Class C -12.57% 9.53% 20.05%
S&P 500 21.04% 28.54% 19.89%
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Class I shares is August 5, 1991.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
----------------------------------
FUND FOCUS
NVEST STOCK AND BOND FUND STABILITY INCOME GROWTH
PORTFOLIO: The Oakmark Equity and ---------------------------
Income Fund HIGH X
---------------------------
PORTFOLIO ADVISER: Harris Associates L.P. MOD. X X
("Harris Associates") ---------------------------
LOW
----------------------------------
PORTFOLIO MANAGER: Clyde S. McGregor
CATEGORY:
TICKER SYMBOL: CLASS A CLASS B CLASS C
PENDING
INVESTMENT GOALS
The Portfolio seeks high current income and preservation and growth of capital.
INVESTMENT STRATEGIES
The Portfolio invests primarily in a diversified portfolio of U.S. equity and
fixed-income securities (although the Portfolio may invest up to 10% of its
total assets in securities of non-U.S. companies). The Portfolio is intended to
present a balanced investment program between growth and income by investing
approximately 50-75% of its total assets in common stock, including securities
convertible into common stock, and 25-50% of its assets in U.S. government
securities and debt securities rated at the time of purchase within the two
highest grades assigned by Moody's Investors Service, Inc. ("Moody's") or by
Standard & Poor's Corporation ("S&P"). The Portfolio may also invest up to 20%
of its assets in unrated or lower rated debt securities, sometimes called junk
bonds.
Harris Associates uses a value investment philosophy in selecting equity
securities for the Portfolio. Harris Associates' philosophy of investing is
based upon the belief that, over time, a company's stock price converges with
the company's true business value. By "true business value," Harris Associates
means its estimate of the price a knowledgeable buyer would pay to acquire the
entire business. Harris Associates believes that investing in securities priced
significantly below their true business value presents the best opportunity to
achieve the Portfolio's investment goals.
Harris Associates uses this value philosophy to identify companies that it
believes have discounted stock prices compared to the companies' true business
values.
In assessing such companies, Harris Associates looks for the following
characteristics although not all of the companies selected will have these
attributes:
x free cash flows and intelligent investment of excess cash;
x earnings that are growing and are reasonably predictable; and
x high level of manager ownership.
In making investment decisions for the Portfolio, Harris Associates generally
employs the following methods:
o Harris Associates focuses on individual companies in making its investment
decisions rather than on specific economic factors or specific industries. In
order to select those that meet the criteria described above, Harris
Associates uses independent, in-house research to analyze each company. As
part of this selection process, Harris Associates' analysts typically visit
companies and talk to various industry sources.
o The chief consideration in the selection of stocks for the Portfolio is the
size of the discount of a company's stock price compared to the company's
true business value. Once Harris Associates determines that a stock is
selling at a significant discount (typically 60% of its estimated worth) and
the company has the other additional qualities mentioned above, it generally
will consider buying that stock. Harris Associates usually sells when the
company's stock price approaches 90% of its estimated worth. This means
Harris Associates sets specific "buy" and "sell" targets for each stock held
by the Portfolio. Harris Associates also monitors each holding and adjusts
those price targets as warranted to reflect changes in a company's
fundamentals.
o The Portfolio tries to manage some of the risks of investing in common stock
by purchasing stocks whose prices Harris Associates considers low relative to
the stocks' true value. The Portfolio seeks companies with solid finances and
proven records and continuously monitors each portfolio holding.
o The Portfolio attempts to manage the risks of investing in bonds by
conducting an independent evaluation of the creditworthiness of the bonds and
the companies and by actively managing the average duration of the bonds in
anticipation of interest rate changes.
o Harris Associates believes that holding a small number of stocks allows its
"best ideas" to have a meaningful impact on fund performance; therefore, the
Portfolio typically holds 30 to 60 stocks rather than hundreds in its
portfolio.
o Harris Associates' value strategy also emphasizes investing for the
long-term. Harris Associates believes that the market will ultimately
discover these undervalued companies, and, therefore, Harris Associates gives
them the time such recognition requires. Harris Associates has found that
generally it takes two to three years for the gap between stock price and
true business value to close. Therefore, successful implementation of this
value investment philosophy requires that Portfolio and its shareholders have
a long-term horizon.
In addition to the principal investment strategies described above, the
Portfolio may employ the following techniques in pursuing its investment goals.
The Portfolio may:
[] invest in stocks. The types of stock in which the Portfolio may invest
include common and preferred stocks and warrants or other similar rights and
convertible securities. Harris Associates' chief consideration in selecting
common stock for the Portfolio is the size of the discount of market price
relative to our determination of the true business value of the security.
[] invest in debt securities. The Portfolio may invest in debt securities of
both governmental and corporate issuers. The Portfolio may invest up to 20%
of its assets (valued at the time of investment), in debt securities that are
rated below investment grade, without a minimum rating requirement. A
description of the ratings is included as an appendix to the Statement of
Additional Information.
[] engage in currency exchange transactions. The Portfolio may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign
exchange market or through a forward currency exchange contract ("forward
contract"). A forward contract is an agreement to purchase or sell a
specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not exchange-traded
and are usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Portfolio may invest, and serve as hedges against
possible variations in the exchange rate between these currencies. The
Portfolio's forward currency transactions are limited to transaction hedging
and portfolio hedging involving either specific transactions or actual or
anticipated portfolio positions. Transaction hedging is the purchase or sale
of a forward contract with respect to a specific receivable or payable of the
Portfolio accruing in connection with the purchase or sale of portfolio
securities. Portfolio hedging is the use of a forward contract with respect
to an actual or anticipated portfolio security position denominated or quoted
in a particular currency. The Portfolio may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating
actual or anticipated positions in securities denominated in such currency.
When the Portfolio owns or anticipates owning securities in countries whose
currencies are linked, Harris Associates may aggregate such positions as to
the currency hedged. Although forward contracts may be used to protect the
Portfolio from adverse currency movements, the use of such hedges may reduce
or eliminate the potentially positive effect of currency revaluations on the
Portfolio's total return.
[] invest in short-term investments. In seeking to achieve its investment
goals, the Portfolio ordinarily invests on a long-term basis, but on occasion
may also invest on a short-term basis, for example, where short-term
perceptions have created a significant gap between price and value.
Occasionally, securities purchased on a long-term basis may be sold within
twelve months after purchase in light of a change in the circumstances of a
particular company or industry or in light of general market or economic
conditions or if a security achieves its price target in an unexpected
shorter period.
To the extent that investments meeting the Portfolio's criteria for
investment are not available, or when Harris Associates considers a temporary
defensive posture advisable in response to adverse market, economic,
political, or other conditions, the Portfolio may invest without limitation
in high-quality corporate debt obligations of U.S. companies or U.S.
government obligations, or may hold cash in domestic or foreign currencies or
invest in domestic or foreign money market securities. During those periods,
the Portfolio's asset may not be invested in accordance with its regular
strategy, and the Portfolio may not achieve its investment goals.
[] maintain cash reserves. Under ordinary circumstances, the Portfolio is
substantially fully invested. At times, however, to meet liquidity needs or
for temporary defensive purposes, the Portfolio may hold cash in domestic and
foreign currencies and may invest in domestic and foreign money market
securities. During those periods, the Portfolio's assets may not be invested
in accordance with its regular strategy and the Portfolio may not achieve its
investment goals.
INVESTMENT RISKS
Although Harris Associates makes every effort to achieve the Portfolio's goals
of high current income and preservation and growth of capital, Harris Associates
cannot guarantee that it will attain that goal. Below are the principal risks of
investing in the Portfolio:
NOT A BANK DEPOSIT. An investment in the Portfolio is not a deposit in a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. The Fund risks losing money by investing in the
Portfolio.
COMMON STOCKS. The Portfolio invests mostly in common stocks, which are a type
of equity security that represents an equity (ownership) interest in a
corporation. One of the risks of investing in common stock is that a company's
stock value may go up or down depending on the company's business success or
other economic or market factors. This potential for fluctuation is called
market risk and can affect the value of Fund shares of the Portfolio. When the
Fund sells its shares of the Portfolio, they may be worth more or less than what
the Fund paid for them.
DEBT SECURITIES. The debt securities in which the Portfolio invests are subject
to credit risk, interest rate risk and liquidity risk. Credit risk is the risk
that the company that issued the debt security or bond may become unable to make
payments of principal and interest when due and includes the risk of default.
Interest rate risk is the risk that the Portfolio's investments in debt
securities will decline in value as a result of changes in interest rates.
Generally, the value of fixed income securities rises when prevailing interest
rates fall and falls when interest rates rise. Liquidity risk is the risk that
the Portfolio may not be able to sell the medium- and lower-grade debt
securities because there are too few buyers for them.
Investment in medium- or lower-grade debt securities involves greater risk,
including the possibility of issuer default or bankruptcy. Lower-grade debt
securities (commonly called "junk bonds") are considered speculative and may be
in poor standing or actually in default. Medium-grade debt securities also are
considered to have speculative characteristics. An economic downturn could
severely disrupt the market in medium or lower grade debt securities and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest. In addition, lower-quality bonds are less
sensitive to interest rate changes than higher-quality instruments and generally
are more sensitive to adverse economic changes or individual corporate
developments. During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience difficulty in
meeting principal and interest payment obligations.
FOREIGN SECURITIES. Investing in foreign securities presents risks that in some
ways may be greater than the risks of investing in U.S. securities. These
additional risks include currency exchange rate fluctuation, less available
public information about companies, less stringent regulatory standards, lack of
uniform accounting, auditing and financial reporting standards, and country
risks including less market liquidity, high inflation rates, unfavorable market
practices and political instability.
VALUE STYLE. Investing in "value" stocks presents the risk that value stocks may
fall out of favor with investors and underperform growth stocks during given
periods.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Stock and Bond Fund. The performance information below represents the
historical performance of Class I shares of The Oakmark Equity and Income Fund,
restated to reflect the operating expenses of Nvest Stock and Bond Fund's Class
A shares. The Portfolio's past performance does not necessarily indicate how the
Fund or the Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1996. The data
points are as follows:)
1996 14.94%
1997 26.21%
1998 12.00%
1999 7.55%
- --------------------------------------------------------------------------------
/\ Highest Quarterly Return: Fourth Quarter 1998, up 10.4%
\/ Lowest Quarterly Return: Third Quarter 1998, down 7.0%
The table below shows the Portfolio's average annual total returns for the
one-year and since-inception periods compared to the Lipper Balanced Fund Index,
a composite index of annual total returns of all mutual funds with a current
investment objective similar to that of the Portfolio. You may not invest
directly in an index. The Portfolio's total returns are adjusted to reflect the
Fund's expenses for Class A, B and C shares and the maximum sales charges that
you may pay when you buy or redeem the Fund's shares. The Lipper Balanced Fund
Index percentages have been adjusted for these expenses but do not reflect any
sales charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PAST 1 YEAR SINCE INCEPTION*
(for the periods ended December 31,
1999)
The Portfolio: Class A 1.37% 13.37%
The Portfolio: Class B 1.80% 13.76%
The Portfolio: Class C 5.80% 14.24%
Lipper Balanced Fund Index Composite -8.98% 14.93%
- --------------------------------------------------------------------------------
* These percentages reflect the average annual total returns since the inception
of the Portfolio on November 1, 1995. For the expenses of Class A, B and C
shares, see the section entitled "Fund Fees and Expenses."
<PAGE>
NVEST SMALL CAP VALUE FUND ----------------------------------
FUND FOCUS
PORTFOLIO: The Oakmark Small STABILITY INCOME GROWTH
Cap Fund ---------------------------
HIGH
PORTFOLIO ADVISER: Harris Associates L.P ---------------------------
("Harris Associates") MOD. X X
---------------------------
LOW X
PORTFOLIO MANAGERS: Steven J. Reid and ----------------------------------
James P. Benson
CATEGORY: Small-Cap Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
PENDING
INVESTMENT GOAL
The Portfolio seeks long-term capital appreciation.
INVESTMENT STRATEGIES
The Portfolio invests primarily in common stocks of U.S. companies. The
Portfolio invests primarily in the stocks of "small cap companies." A small cap
company is one whose market capitalization is no larger than the largest market
capitalization of the companies included in the S&P Small Cap 600 Index ($4.156
billion as of December 31, 1999). The mean of the S&P Small Cap 600 Index is
$624 million as of December 31, 1999.
Harris Associates uses a value investment philosophy in selecting equity
securities for the Portfolio. Harris Associates' philosophy of investing is
based upon the belief that, over time, a company's stock price converges with
the company's true business value. By "true business value," Harris Associates
means its estimate of the price a knowledgeable buyer would pay to acquire the
entire business. Harris Associates believes that investing in securities priced
significantly below their true business value presents the best opportunity to
achieve the Portfolio's investment goal.
Harris Associates uses this value philosophy to identify companies that it
believes have discounted stock prices compared to the companies' true business
values.
In assessing such companies, Harris Associates looks for the following
characteristics although not all of the companies selected will have these
attributes:
x free cash flows and intelligent investment of excess cash;
x earnings that are growing and are reasonably predictable; and
x high level of manager ownership.
In making investment decisions for the Portfolio, Harris Associates generally
employs the following methods:
o Harris Associates focuses on individual companies in making its investment
decisions rather than on specific economic factors or specific industries. In
order to select those that meet the criteria described above, Harris
Associates uses independent, in-house research to analyze each company. As
part of this selection process, Harris Associates' analysts typically visit
companies and talk to various industry sources.
o The chief consideration in the selection of stocks for the Portfolio is the
size of the discount of a company's stock price compared to the company's
true business value. Once Harris Associates determines that a stock is
selling at a significant discount (typically 60% of its estimated worth) and
the company has the other additional qualities mentioned above, it generally
will consider buying that stock. Harris Associates usually sells when the
company's stock price approaches 90% of its estimated worth. This means
Harris Associates sets specific "buy" and "sell" targets for each stock held
by the Portfolio. Harris Associates also monitors each holding and adjusts
those price targets as warranted to reflect changes in a company's
fundamentals.
o The Portfolio tries to manage some of the risks of investing in common stock
by purchasing stocks whose prices Harris Associates considers low relative to
the stocks' true value. The Portfolio seeks companies with solid finances and
proven records and continuously monitors each portfolio holding.
o Harris Associates believes that holding a small number of stocks allows its
"best ideas" to have a meaningful impact on fund performance; therefore, the
Portfolio typically holds 30 to 60 stocks rather than hundreds in its
portfolio.
o Harris Associates' value strategy also emphasizes investing for the
long-term. Harris Associates believes that the market will ultimately
discover these undervalued companies, and, therefore, Harris Associates gives
them the time such recognition requires. Harris Associates has found that
generally it takes two to three years for the gap between stock price and
true business value to close. Therefore, successful implementation of this
value investment philosophy requires that Portfolio and its shareholders have
a long-term horizon.
In addition to the principal investment strategies described above, the
Portfolio may employ the following techniques in pursuing its investment goal.
The Portfolio may:
[] invest in stocks. The types of stock in which the Portfolio may invest
include common and preferred stocks and warrants or other similar rights and
convertible securities. Harris Associates' chief consideration in selecting
common stock for the Portfolio is the size of the discount of market price
relative to our determination of the true business value of the security.
[] invest in debt securities. The Portfolio may invest in debt securities of
both governmental and corporate issuers. The Portfolio may invest up to 25%
of its assets (valued at the time of investment), in debt securities that are
rated below investment grade, without a minimum rating requirement. A
description of the ratings is included as an appendix to the Statement of
Additional Information.
[] engage in currency exchange transactions. The Portfolio may engage in
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign
exchange market or through a forward currency exchange contract ("forward
contract"). A forward contract is an agreement to purchase or sell a
specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not exchange-traded
and are usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Portfolio may invest, and serve as hedges against
possible variations in the exchange rate between these currencies. The
Portfolio's forward currency transactions are limited to transaction hedging
and portfolio hedging involving either specific transactions or actual or
anticipated portfolio positions. Transaction hedging is the purchase or sale
of a forward contract with respect to a specific receivable or payable of the
Portfolio accruing in connection with the purchase or sale of portfolio
securities. Portfolio hedging is the use of a forward contract with respect
to an actual or anticipated portfolio security position denominated or quoted
in a particular currency. The Portfolio may engage in portfolio hedging with
respect to the currency of a particular country in amounts approximating
actual or anticipated positions in securities denominated in such currency.
When the Portfolio owns or anticipates owning securities in countries whose
currencies are linked, Harris Associates may aggregate such positions as to
the currency hedged. Although forward contracts may be used to protect the
Portfolio from adverse currency movements, the use of such hedges may reduce
or eliminate the potentially positive effect of currency revaluations on the
Portfolio's total return.
[] invest in short-term investments. In seeking to achieve its investment goal,
the Portfolio ordinarily invests on a long-term basis, but on occasion may
also invest on a short-term basis, for example, where short-term perceptions
have created a significant gap between price and value. Occasionally,
securities purchased on a long-term basis may be sold within twelve months
after purchase in light of a change in the circumstances of a particular
company or industry or in light of general market or economic conditions or
if a security achieves its price target in an unexpected shorter period.
To the extent that investments meeting the Portfolio's criteria for
investment are not available, or when Harris Associates considers a temporary
defensive posture advisable in response to adverse market, economic,
political, or other conditions, the Portfolio may invest without limitation
in high-quality corporate debt obligations of U.S. companies or U.S.
government obligations, or may hold cash in domestic or foreign currencies or
invest in domestic or foreign money market securities. During those periods,
the Portfolio's asset may not be invested in accordance with its regular
strategy, and the Portfolio may not achieve its investment goal.
[] maintain cash reserves. Under ordinary circumstances, the Portfolio is
substantially fully invested. At times, however, to meet liquidity needs or
for temporary defensive purposes, the Portfolio may hold cash in domestic and
foreign currencies and may invest in domestic and foreign money market
securities. During those periods, the Portfolio's assets may not be invested
in accordance with its regular strategy and the Portfolio may not achieve its
investment goal.
INVESTMENT RISKS
Although Harris Associates makes every effort to achieve the Portfolio's goal of
long-term capital appreciation, Harris Associates cannot guarantee that it will
attain that goal.
Below are the principal risks of investing in the Portfolio:
NOT A BANK DEPOSIT. An investment in the Portfolio is not a deposit in a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. The Fund risks losing money by investing in the
Portfolio.
COMMON STOCKS. The Portfolio invests mostly in common stocks, which are a type
of equity security that represents an equity (ownership) interest in a
corporation. One of the risks of investing in common stock is that a company's
stock value may go up or down depending on the company's business success or
other economic or market factors. This potential for fluctuation is called
market risk and can affect the value of Fund shares of the Portfolio. When the
Fund sells its shares of the Portfolio, they may be worth more or less than what
the Fund paid for them.
SMALL CAP STOCKS. Small cap stocks typically are more volatile and may be less
liquid than large cap stocks. Small cap companies may have a shorter history of
operations and a smaller market for their shares.
VALUE STYLE. Investing in "value" stocks presents the risk that value stocks may
fall out of favor with investors and underperform growth stocks during given
periods.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Small Cap Value Fund. The performance information below represents the
historical performance of the Class I shares of The Oakmark Small Cap Fund,
restated to reflect the operating expenses of Nvest Small Cap Value Fund. The
Portfolio's past performance does not necessarily indicate how the Fund or the
Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Funds Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
(A bar chart appears here illustrating the total returns since 1996. The
data points are as follows:)
1996 39.44%
1997 40.16%
1998 -13.51%
1999 -8.27%
- --------------------------------------------------------------------------------
/\ Highest Quarterly Return: Fourth Quarter 1998, up 17.6%
\/ Lowest Quarterly Return: Third Quarter 1998, down 26.9%
The table below shows the Portfolio's average annual total returns for the
one-year and since-inception periods compared to the Russell 2000 Index, an
unmanaged index measuring the performance of smaller companies, that represents
approximately 10% of the total value of publicly traded companies in the United
States. You may not invest directly in an index. The Portfolio's total returns
are adjusted to reflect the Fund's expenses for Class A, B and C shares and the
maximum sales charge that you may pay when you buy or redeem Fund shares. The
Russell 2000 Index returns have not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual fund
investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999) PAST 1 YEAR SINCE INCEPTION*
The Portfolio: Class A -13.54% 10.38%
The Portfolio: Class B -14.02% 10.67%
The Portfolio: Class C -10.02% 11.19%
Russell 2000 Index -21.26% 15.16%
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Class I shares is November 1, 1995.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
NVEST SMALL CAP GROWTH FUND ----------------------------------
FUND FOCUS
PORTFOLIO: Loomis Sayles Small Cap STABILITY INCOME GROWTH
Growth Fund ---------------------------
HIGH X
PORTFOLIO ADVISER: Loomis, Sayles & ---------------------------
Company, L.P. MOD. X X
("Loomis Sayles") ---------------------------
LOW
----------------------------------
PORTFOLIO Christopher R. Ely,
Philip C. Fine and
MANAGERS: David L. Smith
CATEGORY: Small-Cap Equity
TICKER SYMBOL: CLASS A CLASS B CLASS C
PENDING
INVESTMENT GOAL
The Portfolio seeks long-term capital growth from investments in common stocks
or their equivalent.
INVESTMENT STRATEGIES
The Portfolio invests primarily in equity securities of companies with market
capitalizations that fall within the capitalization range of the Russell 2000
Index, an index that tracks stocks of 2,000 of the smallest U.S. companies. The
Portfolio may invest the rest of its assets in larger companies.
In deciding which securities to buy and sell for the Portfolio, Loomis Sayles
seeks to identify companies that Loomis Sayles believes have:
x distinctive products, technologies or x prospects for high levels of
services; profitability; and
x dynamic earnings growth; x solid management.
Loomis Sayles does not typically consider current income when making buy/sell
decisions.
The Portfolio may:
[] nvest any portion of its assets in securities of Canadian issuers and up to
20% of its assets in other foreign securities, including emerging markets
securities;
[] engage in foreign currency hedging transactions, options and futures
transactions;
[] engage in securities lending; and
[] invest in Rule 144A securities.
INVESTMENT RISKS
Among the principal risks of investing in the Portfolio are the following:
MARKET RISK. The risk that the value of the Portfolio's investments will fall as
a result of movements in financial markets generally.
FOREIGN RISK. The risk that the value of the Portfolio's foreign investments
will fall as a result of foreign political, social or economic changes.
CURRENCY RISK. The risk that the value of the Portfolio's investments will fall
as a result of changes in exchange rates.
DERIVATIVES RISK. The risk that the value of the Portfolio's derivative
instruments will fall as a result of pricing difficulties or lack of correlation
with the underlying investment.
LIQUIDITY RISK. The risk that the Portfolio may be unable to find a buyer for
its investments when it seeks to sell them.
MANAGEMENT RISK. The risk that Loomis Sayles' investment techniques will be
unsuccessful and may cause the Portfolio to incur losses.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Small Cap Growth Fund. The performance information below represents the
historical performance of the Institutional Class shares of Loomis Sayles Small
Cap Growth Fund, restated to reflect the operating expenses of Nvest Small Cap
Growth Fund. The Portfolio's past performance does not necessarily indicate how
the Fund or the Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
(A bar chart appears here illustrating the total returns since 1997. The
data points are as follows:)
1997 19.08%
1998 18.38%
1999 91.45%
/\ Highest Quarterly Return: Fourth Quarter 1999, up 53.9%
\/ Lowest Quarterly Return: Third Quarter 1998, down 22.0%
The table below shows the Portfolio's average annual total returns for the
one-year and since-inception periods compared to the Russell 2000 Index, an
unmanaged index measuring the performance of smaller companies that represents
approximately 10% of the total value of publicly traded companies in the United
States. You may not invest directly in an index. The Portfolio's total returns
are adjusted to reflect the Fund's expenses for Class A, B and C shares and the
maximum sales charge that you may pay when you buy or redeem Fund shares. The
Russell 2000 Index returns have not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual fund
investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1999) PAST 1 YEAR SINCE INCEPTION*
The Portfolio: Class A 80.44% 36.51%
The Portfolio: Class B 85.70% 37.94%
The Portfolio: Class C 89.70% 38.46%
Russell 2000 Growth Index 43.1 % 17.8 %
- --------------------------------------------------------------------------------
*The inception date of the Portfolio's Institutional Class is December 31, 1996.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
----------------------------------
FUND FOCUS
NVEST TOTAL RETURN BOND FUND STABILITY INCOME GROWTH
---------------------------
PORTFOLIO: Loomis Sayles Bond Fund HIGH X
---------------------------
PORTFOLIO ADVISER: Loomis Sayles & MOD. X X
Company, L.P. ---------------------------
("Loomis Sayles") LOW
----------------------------------
PORTFOLIO MANAGER: Daniel J. Fuss and
Kathleen C. Gaffney
CATEGORY: Corporate Income
TICKER SYMBOL: CLASS A CLASS B CLASS C
PENDING
INVESTMENT GOAL
The Portfolio seeks high total investment return through a combination of
current income and capital appreciation.
INVESTMENT STRATEGIES
The Portfolio invests primarily in investment grade fixed income securities,
although it may invest up to 35% of its assets in lower rated fixed income
securities ("junk bonds") and up to 20% of its assets in preferred stocks. The
Portfolio may invest in fixed income securities of any maturity.
In deciding whether to buy and sell, Loomis Sayles will consider, among other
things:
x the financial strength of the issuer x Loomis Sayles' expectations regarding
of the securitiy; general trends in interest rates; and
x current interest rates; x comparisons of the level of risk
associated with particular investments
with Loomis Sayles' expectations
concerning the potential return of
those investments.
Three themes drive the Portfolio's investment approach:
[] First, Loomis Sayles generally seeks fixed income securities of issuers
whose credit profiles Loomis Sayles believes are improving.
[] Second, the Portfolio makes significant use of non-market related
securities, which are securities that may not have a direct correlation with
changes in interest rates. Loomis Sayles believes that the Portfolio may
generate positive returns by having a portion of the Portfolio's assets
invested in non-market related securities, rather than by relying primarily
on changes in interest rates to produce returns for the Portfolio.
[] Third, Loomis Sayles analyzes different sectors of the economy and
differences in the yields ("spreads") of various fixed income securities in
an effort to find securities that Loomis Sayles believes may produce
attractive returns for the Portfolio in comparison to their risk.
Loomis Sayles generally prefers securities that are protected against calls
(early redemption by the issuer).
The Portfolio may:
[] invest any portion of its assets in securities of Canadian issuers and up to
20% of its assets in other foreign securities, including emerging markets
securities;
[] invest in fixed income securities including corporate securities, U.S.
Government securities, commercial paper, zero coupon securities,
mortgage-backed securities, stripped mortgage-backed securities,
collateralized mortgage obligations, asset-backed securities, when-issued
securities, real estate investment trusts, Rule 144A securities, repurchase
agreements and convertible securities; and
[] may engage in options and futures transactions, foreign currency hedging
transactions and swap transactions.
INVESTMENT RISKS
INTEREST RATE RISK. The risk that the value of the Portfolio's investments will
fall if interest rates rise.
CREDIT RISK. The risk that companies in which the Portfolio invests, or with
which it does business, will fail financially, and be unwilling or unable to
meet their obligations to the Portfolio.
MARKET RISK. The risk that the value of the Portfolio's investments will fall as
a result of movements in financial markets generally.
MANAGEMENT RISK. The risk that Loomis Sayles' investment techniques will be
unsuccessful and may cause the Portfolio to incur losses.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in Nvest Total Return Bond Fund. The performance information below represents
the historical performance of the Institutional Class shares of Loomis Sayles
Bond Fund, restated to reflect the operating expenses of Nvest Total Return Bond
Fund. The Portfolio's past performance does not necessarily indicate how the
Fund or the Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
(A bar chart appears here illustrating the total returns since 1992. The data
points are as follows:)
1992 13.94%
1993 21.87%
1994 -4.42%
1995 31.61%
1996 9.94%
1997 12.34%
1998 4.35%
1999 4.15%
/\ Highest Quarterly Return: Second Quarter 1995, up 10.6%
\/ Lowest Quarterly Return: Third Quarter 1998, down 5.1%
The table below shows the Portfolio's average annual total returns for the
one-year, five-years and since-inception periods compared to the Lehman Brothers
Government/Corporate Bond Index, a composite average of the Lehman Brothers
Government Index. You may not invest directly in an index. The Portfolio's total
returns are adjusted to reflect the Fund's expenses for Class A, B and C shares
and the maximum sales charge that you may pay when you buy or redeem Fund
shares. The Lehman Brothers Government/Corporate Bond Index returns have not
been adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments. The Portfolio's performance
through December 31, 1999 benefited from Loomis Sayles' agreement to limit the
Portfolio's expenses.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PAST PAST SINCE
(for the periods ended December 31, 1999) 1 YEAR 5 YEARS INCEPTION*
The Portfolio: Class A -0.54% 9.11% 10.85%
The Portfolio: Class B -1.60% 9.12% 10.69%
The Portfolio: Class C 2.40% 9.33% 10.69%
Lehman Bros. Government/Corporate Bond Index -2.2 % 7.6 % 7.4 %**
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Institutional Class is May 16, 1991.
** Since inception data for the index covers the period from the month-end
following the Fund's inception date through December 31, 1999.
The Lehman Brothers Government/Corporate Bond Index is calculated from May 31,
1991.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
FUND FEES & EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of each Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment)
- -------------------------------------------------------------------------------------------------
ALL FUNDS EXCEPT
NVEST TOTAL RETURN BOND FUND NVEST TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering
price)(1)(2) 5.75% None None 4.50% None None
Maximum deferred sales charge
(load) (as a percentage of
offering price) (2) (3) 5.00% 1.00% (3) 5.00% 1.00%
Redemption fees None* None* None* None* None* None*
- -------------------------------------------------------------------------------------------------
(1) A reduced sales charge on Class A shares applies in some cases. See "Ways to Reduce or
Eliminate Sales Charges."
(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."
* Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as
by wire or overnight delivery.
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average net assets)
- ------------------------------------------------------------------------------------------------
NVEST CORE EQUITY FUND NVEST STOCK AND BOND FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fees(1) 0.96% 0.96% 0.96% 0.75% 0.75% 0.75%
Distribution and/or service
(12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses of the Fund and
Portfolio (less management
fees)(2) 0.25% 0.25% 0.25% 0.53% 0.53% 0.53%
----- ----- ----- ----- ----- -----
Total annual fund operating
expenses(3) 1.46% 2.21% 2.21% 1.53% 2.28% 2.28%
- ------------------------------------------------------------------------------------------------
(1) There is no management fee paid to Nvest Management by the Fund. The management fee
represents the fee paid by the Portfolio to its Adviser.
(2) Under an Administration Agreement between the Fund and Nvest Management, Nvest Management has
agreed to pay all expenses (other than those paid by the corresponding Portfolio under the
Special Servicing agreement) of each Fund in excess of 0.10% annually of the Fund's average
daily net assets for an initial two-year term.
(3) Total annual fund operating expenses reflect the aggregate expenses of both the Fund and its
respective Portfolio.
* 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.
</TABLE>
<PAGE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES (CONTINUED)
- ------------------------------------------------------------------------------------------------
NVEST SMALL CAP VALUE FUND NVEST SMALL CAP GROWTH FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fees(1) 1.27% 1.27% 1.27% 0.75% 0.75% 0.75%
Distribution and/or service
(12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses of Fund and
Portfolio (less management
fees)(2) 0.31% 0.31% 0.31% 0.46% 0.46% 0.46%
----- ----- ----- ----- ----- -----
Total annual fund operating
expenses(3) 1.83% 2.58% 2.58% 1.46% 2.21% 2.21%
Portfolio fee waiver and/or
expense reimbursement -- -- -- 0.11%** 0.11%** 0.11%**
----- ----- ----- ----- ----- -----
Net expenses 1.83% 2.58% 2.58% 1.35%** 2.10%** 2.10%**
- ------------------------------------------------------------------------------------------------
(1) There is no management fee paid to Nvest Management by the Fund. The Management fee
represents the fee paid by the Portfolio to its Adviser.
(2) Under an Administration Agreement between the Fund and Nvest Management, Nvest Management has
agreed to pay all expenses (other than those paid by the corresponding Portfolio under the
Special Servicing Agreement) of each Fund in excess of 0.10% annually of the Fund's average
daily net assets for an initial two-year term.
(3) Total annual fund operating expenses reflect the expenses of both the Fund and its respective
Portfolio without giving effect to any expense limitations.
* 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.
** Loomis Sayles has voluntarily agreed to limit the total amount of the Loomis Sayles Small Cap
Growth Fund's operating expenses to 1.00% annually of such Portfolio's average daily net
assets through February 1, 2001.
</TABLE>
- --------------------------------------------------------------------------------
NVEST TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C
Management fees(1) 0.60% 0.60% 0.60%
Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%*
Other expenses of Fund and Portfolio
(less management fees)(2) 0.25% 0.25% 0.25%
---- ---- ----
Total annual fund operating expenses(3) 1.10% 1.85% 1.85%
Portfolio fee waiver and/or expense
reimbursement 0** 0** 0**
---- ---- ----
Net expenses 1.10%** 1.85%** 1.85%**
- --------------------------------------------------------------------------------
(1) There is no management fee paid to Nvest Management by the Fund. The
Management fee represents the fee paid by the Portfolio to its Adviser.
(2) Under an Administration Agreement between the Fund and Nvest Management,
Nvest Management has agreed to pay all expenses (other than those paid by
the corresponding Portfolio under the Special Servicing Agreement) of each
Fund in excess of 0.10% annually of the Fund's average daily net assets for
an initial two-year term.
(3) Total annual fund operating expenses reflect the expenses of both the Fund
and its respective Portfolio without giving effect to any expense
limitations.
* 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.
** Loomis Sayles has voluntarily agreed to limit the amount of the Loomis
Sayles Bond Fund's total expenses to 0.75% annually of such Portfolio's
average daily net assets.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The example assumes that:
[] You invest $10,000 in the Fund for the time periods indicated
[] Your investment has a 5% return each year
[] 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:
NVEST CORE EQUITY FUND
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
1 year $ 715 $724 $224 $324 $224
3 years $1,010 $991 $691 $691 $691
NVEST STOCK AND BOND FUND
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
1 year $ 722 $ 731 $231 $331 $231
3 years $1,031 $1,012 $712 $712 $712
NVEST SMALL CAP VALUE FUND
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
1 year $750 $ 761 $261 $361 $261
3 years $1,117 $1,102 $802 $802 $802
NVEST SMALL CAP GROWTH FUND
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
1 year $705 $713 $213 $313 $213
3 years $978 $958 $658 $658 $658
NVEST TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
1 year $557 $688 $188 $288 $188
3 years $784 $882 $582 $582 $582
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period.
<PAGE>
MORE ABOUT RISK
MORE ABOUT RISK
The Portfolios have principal investment strategies that come with inherent
risks. The following is a list of risks to which the Portfolios (and therefore
their respective Funds) may be subject by investing in various types of
securities or engaging in various practices. For this section, the risks are
categorized according to the Portfolios advised by Harris Associates (the
"Harris Associate Portfolios") and the Portfolios advised by Loomis Sayles.
THE FOLLOWING DESCRIPTIONS ARE THE RISKS RELATING TO ALL HARRIS ASSOCIATE
PORTFOLIOS EXCEPT WHERE SPECIFICALLY NOTED:
GENERAL RISKS. All investments, including those in mutual funds, have risks, and
no one investment is suitable for all investors. Each Portfolio is intended for
long-term investors. Only The Oakmark Equity and Income Fund is intended to
present a balanced investment program between growth and income.
MARKET RISK. Each Portfolio is subject to the market risk that always comes with
investments in common stocks. Stock prices may fluctuate widely over short or
extended periods in response to company, market, or economic news. Stock markets
also tend to move in cycles, with periods of rising stock prices and periods of
falling stock prices. Although each Portfolio is diversified, each Portfolio
generally intends to limit its holdings to approximately 30 to 60 stocks. The
appreciation or depreciation of any one stock will have a greater impact on the
Portfolios' net asset value than it would if the Portfolio invested in a larger
number of stocks. Although that strategy has the potential to generate
attractive returns over time, it also increases the Portfolio's volatility.
SMALL AND MID CAP COMPANIES (applicable only to The Oakmark Small Cap Fund).
During some periods, the securities of small and mid cap companies, as a class,
have performed better than the securities of large companies, and in some
periods they have performed worse. Stocks of small and mid cap companies tend to
be more volatile and less liquid than stocks of large companies. Small and mid
cap companies, as compared to larger companies, may have a shorter history of
operations, may not have as great an ability to raise additional capital, may
have a less diversified product line making them susceptible to market pressure,
and may have a smaller public market for their shares.
INTERNATIONAL INVESTING (applicable only to The Oakmark Equity and Income Fund).
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. Many
foreign economies have, from time to time, grown faster than the U.S. economy,
and the returns on investments in those countries have exceeded those of similar
U.S. investments, although there can be no assurance that those conditions will
continue.
You should understand and consider carefully the greater risks involved in
investing internationally. Investing in securities of non-U.S. companies, which
are generally denominated in foreign currencies, and utilization of forward
foreign currency exchange contracts involve both opportunities and risks not
typically associated with investing in U.S. securities. These include:
fluctuations in exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would prevent cash
from being brought back to the United States; less public information with
respect to companies; less governmental supervision of stock exchanges,
securities brokers and companies; different accounting, auditing and financial
reporting standards; different settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets; imposition
of foreign taxes; and sometimes less advantageous legal, operational and
financial protections applicable to foreign subcustodial arrangements.
Although the Portfolio tries to invest in companies located in countries having
stable political environments, there is the possibility of restriction of
foreign investment, expropriation of assets, or confiscatory taxation, seizure
or nationalization of foreign bank deposits or other assets, establishment of
exchange controls, the adoption of foreign government restrictions, or other
political, social or diplomatic developments that could adversely affect
investment in these countries. Economies in individual emerging markets may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rates of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments positions. Many
emerging market countries have experienced high rates of inflation for many
years, which has had and may continue to have very negative effects on the
economies and securities markets of those countries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited.
The Portfolio may invest in ADRs, EDRs or GDRs that are not sponsored by the
issuer of the underlying security. To the extent it does so, the Portfolio would
probably bear its proportionate share of the expenses of the depository and
might have greater difficulty in receiving copies of the issuer's shareholder
communications than would be the case with a sponsored ADR, EDR or GDR.
INTEREST RATE RISK. Each Portfolio may invest in debt securities of both
governmental and corporate issuers. A decline in prevailing levels of interest
rates generally increases the value of debt securities in a Portfolio's
portfolio, while an increase in rates usually reduces the value of those
securities. As a result, to the extent that a Portfolio invests in debt
securities, interest rate fluctuations will affect its net asset value, but not
the income it receives from debt securities it owns. In addition, if the debt
securities contain call, prepayment or redemption provisions, during a period of
declining interest rates, those securities are likely to be redeemed, and the
Portfolio would probably be unable to replace them with securities having as
great a yield.
CREDIT RISK. The Oakmark Equity and Income Fund will not invest more than 20% of
its total assets, and each of the other Oakmark Portfolios will not invest more
than 25% of its total assets in such securities in securities rated below
investment grade or, if unrated, that are considered by Harris Associates to be
of comparable quality.
Investment in medium- or lower-grade debt securities involves greater risk,
including the possibility of issuer default or bankruptcy. Lower-grade debt
securities (commonly called "junk bonds") are obligations of companies rated BB
or lower by S&P or Ba or lower by Moody's. Lower-grade debt securities are
considered speculative and may be in poor standing or actually in default.
Medium-grade debt securities are those rated BBB by S&P or Baa by Moody's.
Securities so rated are considered to have speculative characteristics. An
economic downturn could severely disrupt the market in medium or lower grade
debt securities and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest
payment obligations.
LIQUIDITY RISK. The market for medium- and lower-grade debt securities tends to
be less broad than higher-quality debt securities. The market for unrated debt
securities is even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase significantly, and
a Portfolio may have greater difficulty selling its portfolio of these debt
securities. The market value of these securities and their liquidity may be
affected by adverse publicity and investor perceptions.
THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL RISKS RELATING TO THE LOOMIS SAYLES
SMALL CAP GROWTH FUND:
MARKET RISK. This is the risk that the value of the Portfolio's investments will
change as financial markets fluctuate and that prices overall may decline. The
value of a company's stock may fall as a result of factors that directly relate
to that company, such as decisions made by its management or lower demand for
the company's products or services. A stock's value also may fall because of
factors affecting not just the company, but companies in its industry or in a
number of different industries, such as increases in production costs. The value
of a company's stock also may be affected by changes in financial market
conditions, such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the company
makes required payments to holders of its bonds or other debt. For this reason,
the value of the stock will usually react more strongly than bonds and other
fixed income securities to actual or perceived changes in the company's
financial condition or prospects.
Market risk generally is greater for the Portfolio since these small
capitalization companies tend to be more vulnerable to adverse developments than
large companies.
FOREIGN RISK. This the risk associated with investments in issuers located in
foreign countries. The Portfolio's investments in foreign securities may
experience more rapid and extreme changes in value than investments in
securities of U.S. companies.
The securities markets of many foreign countries are relatively small, with a
limited number of issuers and a small number of securities. In addition, foreign
companies often are not subject to the same degree of regulation as U.S.
companies. Reporting, accounting, and auditing standards of foreign countries
differ, in some cases significantly, from U.S. standards. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes, or
diplomatic developments can cause the value of the Portfolio's investments in a
foreign country to decline. In the event of nationalization, expropriation, or
other confiscation, the Portfolio that invests in foreign securities could lose
its entire investment.
CURRENCY RISK. This is the risk that fluctuations in exchange rates between the
U.S. dollar and foreign currencies may cause the value of the Portfolio's
investments to decline. The Portfolio is subject to currency risk because it may
invest in securities denominated in, or receiving revenues in, foreign
currencies.
LEVERAGING RISK. When the Portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in the Portfolio will be more volatile,
and all other risks generally are compounded. Since the Portfolio may create
leverage by using investments such as repurchase agreements, inverse floating
rate instruments or derivatives, or by borrowing money, the Portfolio faces this
risk.
DERIVATIVES RISK. The Portfolio may use derivatives, which are financial
contracts whose value depends upon or is derived from the value of an underlying
asset, reference rate, or index. Examples of derivatives include options,
futures, and swap transactions. The Portfolio may use derivatives as part of a
strategy designed to reduce other risks ("hedging"). The Portfolio also may use
derivatives to earn income, enhance yield, and broaden Portfolio
diversification. This use of derivatives entails greater risk than using
derivatives solely for hedging purposes. The Portfolio may also face additional
risks, such as the credit risk of the other party to a derivative contract, the
risk of difficulties in pricing and valuation, and the risk that changes in the
value of a derivative may not correlate perfectly with relevant assets, rates,
or indices.
LIQUIDITY RISK. Liquidity risk exists when particular investments are difficult
to purchase or sell, possibly preventing the Portfolio from selling out of these
illiquid securities at an advantageous price. Derivatives and securities that
involve substantial credit risk tend to involve greater liquidity risk. In
addition, liquidity risk tends to increase to the extent the Portfolio invests
in securities whose sale may be restricted by law or by contract, such as Rule
144A securities.
MANAGEMENT RISK. Management risk is the risk that Loomis Sayles' investment
techniques could fail to achieve the Portfolio's goal and could cause the Fund's
investment in the Portfolio to lose value. The Portfolio is subject to
management risk because the Portfolio is actively managed by Loomis Sayles.
Loomis Sayles will apply its investment techniques and risk analyses in making
investment decisions for the Portfolio, but there can be no guarantee that
Loomis Sayles' decisions will produce the desired results. For example, in some
cases derivative and other investment techniques may be unavailable or Loomis
Sayles may determine not to use them, even under market conditions where their
use could have benefited the Portfolio.
CREDIT RISK. This is the risk that the issuer or the guarantor of a fixed income
security, or the counterparty to an over-the-counter transaction, will be unable
or unwilling to make timely payments of interest or principal or to otherwise
honor its obligations. The Portfolio may be subject to credit risk to the extent
that it invests in fixed income securities or over-the-counter transactions.
Lower rated fixed income securities ("junk bonds") are subject to greater credit
risk and market risk than higher quality fixed income securities. Lower rated
fixed income securities are considered predominantly speculative with respect to
the ability of the issuer to make timely principal and interest payments.
THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL RISKS RELATING TO THE LOOMIS SAYLES
BOND FUND:
INTEREST RATE RISK. This is the risk that changes in interest rates will affect
the value of the Portfolio's investments in fixed income securities, such as
bonds, notes, asset-backed securities, and other income producing securities.
Fixed income securities are obligations of the issuer to make payments of
principal and/or interest on future dates. Interest rate risk affects the
Portfolio. Increases in interest rates may cause the value of the Portfolio's
investments to decline. Even if it invests a significant portion of its assets
in high quality fixed income securities, the Portfolio is subject to interest
rate risk.
Interest rate risk is compounded for funds that invest a significant portion of
their assets in mortgage-related or other asset-backed securities. The Portfolio
may invest in mortgage-related securities and asset-backed securities. The value
of mortgage-related securities and asset-backed securities generally is more
sensitive to changes in interest rates than other types of fixed income
securities. When interest rates rise, the maturities of mortgage-related and
asset-backed securities tend to lengthen, and the value of the securities
decreases more significantly. In addition, these types of securities are subject
to prepayment when interest rates fall, which generally results in lower returns
because funds that hold these types of securities must reinvest assets
previously invested in these types of securities in fixed income securities with
lower interest rates.
The Portfolio also faces increased interest rate risk when they invest in fixed
income securities paying no current interest, such as zero coupon securities,
principal-only securities, interest-only securities, and fixed income securities
paying non-cash interest in the form of other fixed income securities.
CREDIT RISK. This is the risk that the issuer or the guarantor of a fixed income
security, or the counterparty to an over-the-counter transaction, will be unable
or unwilling to make timely payments of interest or principal or to otherwise
honor its obligations. The degree of risk for a particular security may be
reflected in its credit rating. Lower rated fixed income securities generally
have speculative elements or are predominately speculative credit risks.
MARKET RISK. This is the risk that the value of the Portfolio's investments will
change as the markets for fixed income securities fluctuate and that prices
overall may decline.
FOREIGN RISK. This is the risk associated with investments in issuers located in
foreign countries. The Portfolio's investments in foreign securities may
experience more rapid and extreme changes in value than investments in
securities of U.S. companies.
The securities markets of many foreign countries are relatively small, with a
limited number of issuers and a small number of securities. In addition, foreign
companies often are not subject to the same degree of regulation as U.S.
companies. Reporting, accounting, and auditing standards of foreign countries
differ, in some cases significantly, from U.S. standards. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes, or
diplomatic developments can cause the value of the Portfolio's investments in a
foreign country to decline. In the event of nationalization, expropriation, or
other confiscation, the Portfolio that invests in foreign securities could lose
its entire investment.
The Portfolio is subject to foreign risk. Furthermore, when a Portfolio invests
in securities from issuers located in countries with emerging securities
markets, it may face greater foreign risk since emerging market countries may be
more likely to experience political and economic instability.
CURRENCY RISK. This is the risk that fluctuations in exchange rates between the
U.S. dollar and foreign currencies may cause the value of the Portfolio's
investments to decline. The Portfolio is subject to currency risk because it may
invest in securities denominated in, or receiving revenues in, foreign
currencies.
LEVERAGING RISK. When the Portfolio borrows money or otherwise leverages its
portfolio, the value of an investment in the Portfolio will be more volatile,
and all other risks generally are compounded. Since the Portfolio may create
leverage by using investments such as repurchase agreements, inverse floating
rate instruments or derivatives, or by borrowing money, the Portfolio faces this
risk.
DERIVATIVES RISK. The Portfolio may use derivatives, which are financial
contracts whose value depends upon or is derived from the value of an underlying
asset, reference rate, or index. Examples of derivatives include options,
futures, and swap transactions. The Portfolio may use derivatives as part of a
strategy designed to reduce other risks ("hedging"). The Portfolio also may use
derivatives to earn income, enhance yield, and broaden its diversification. This
use of derivatives entails greater risk than using derivatives solely for
hedging purposes. By using derivatives, the Portfolio may also face additional
risks, such as the credit risk of the other party to a derivative contract, the
risk of difficulties in pricing and valuation, and the risk that changes in the
value of a derivative may not correlate perfectly with relevant assets, rates,
or indices.
LIQUIDITY RISK. Liquidity risk exists when particular investments are difficult
to purchase or sell, possibly preventing the Portfolio from selling out of these
illiquid securities at an advantageous price. Derivatives and securities that
involve substantial interest rate risk or credit risk tend to involve greater
liquidity risk. In addition, liquidity risk tends to increase to the extent the
Portfolio invests in securities whose sale may be restricted by law or by
contract, such as Rule 144A securities.
MANAGEMENT RISK. Management risk is the risk that Loomis Sayles' investment
techniques could fail to achieve the Portfolio's goal and could cause the Fund's
investment in the Portfolio to lose value. The Portfolio is subject to
management risk because the Portfolio is actively managed by Loomis Sayles.
Loomis Sayles will apply its investment techniques and risk analyses in making
investment decisions for the Portfolio, but there can be no guarantee that
Loomis Sayles' decisions will produce the desired results. For example, in some
cases derivative and other investment techniques may be unavailable or Loomis
Sayles may determine not to use them, even under market conditions where their
use could have benefited the Portfolio.
<PAGE>
MANAGEMENT TEAM
MEET THE FUNDS' AND PORTFOLIOS' INVESTMENT ADVISERS
The Nvest Funds family includes 25 mutual funds with a total of over $8 billion
in assets under management as of December 31, 1999. The Nvest Funds are
distributed through Nvest Funds Distributor, L.P. (the "Distributor"). This
Prospectus covers Nvest Access Shares which, along with Nvest Stock Funds, Nvest
Bond Funds, Nvest Star Funds and Nvest Tax-Free Funds and Kobrick Funds,
constitute the "Nvest Funds." Nvest Cash Management Trust Money Market Series
and Nvest Tax Exempt Money Market Trust constitute the "Money Market Funds."
Kobrick Capital Fund, Kobrick Emerging Growth Fund and Kobrick Growth Fund
constitute the "Kobrick Funds."
NVEST FUNDS MANAGEMENT, L.P.
Nvest Funds Management, L.P., located at 399 Boylston Street, Boston,
Massachusetts 02116, serves as the adviser to the Funds. 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. Nvest Companies' 14 principal subsidiary or affiliated
asset management firms, collectively, had more than $127 billion in assets under
management as of September 30, 1999. Nvest Management oversees, evaluates and
monitors the performance of each Fund and furnishes general business management
and administration to each Fund. Nvest Management does not determine what
investments will be purchased by any of the Portfolios. Harris Associates or
Loomis Sayles makes the investment decisions for the Portfolios advised by them.
HARRIS ASSOCIATES L.P.
Harris Associates, located at Two North LaSalle Street, Chicago, Illinois 60602,
serves as adviser to The Oakmark Fund, The Oakmark Equity and Income Fund and
The Oakmark Small Cap Fund. Harris Associates, a subsidiary of Nvest Companies,
has, together with its predecessor, managed mutual funds since 1970. In addition
to managing investments for other mutual funds, Harris Associates manages assets
of individuals, trusts, retirement plans, endowments, foundations, and several
private partnerships.
LOOMIS, SAYLES & COMPANY, L.P.
Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111,
serves as adviser to the Loomis Sayles Small Cap Growth Fund and the Loomis
Sayles Bond Fund. Loomis Sayles is also a subsidiary of Nvest Companies. Founded
in 1926, Loomis Sayles is one of America's oldest and largest investment
advisory firms.
ADVISORY AGREEMENTS
Under the terms of the advisory agreement with each Fund, Nvest Management WILL
NOT RECEIVE ANY MANAGEMENT FEE FROM A FUND, SO LONG AS SUBSTANTIALLY ALL OF THE
INVESTABLE ASSETS OF THE FUND ARE INVESTED IN THE SHARES OF ANOTHER MUTUAL FUND.
If, however, the Funds' Board of Trustees should vote to change the investment
strategy and elect to have Nvest Management provide portfolio management
services to a Fund, either directly or by entering into a subadvisory agreement
with another investment advisory firm, then Nvest Management would receive a
management fee from the Fund at the following annual rates as a percentage of
the Fund's average daily net assets: 1% for Nvest Core Equity Fund, 0.75% for
Nvest Stock and Bond Fund, 1% for Nvest Small Cap Value Fund, 1% for Nvest Small
Cap Growth Fund and 0.65% for Nvest Total Return Bond Fund.
No management fee would be payable to Nvest Management by a Fund until written
notice of any such change is communicated to the shareholders of the Fund and,
in the event of the appointment of a subadviser for a Fund that is affiliated
with Nvest Management, the subadvisory agreement has been approved by the
shareholders of the Fund at a special shareholders meeting.
SPECIAL SERVICING AGREEMENT
Nvest Services Co., Inc. ("Nvest Services"), 399 Boylston Street, Boston,
Massachusetts 02116, is the transfer and dividend paying agent for the Funds,
and is an affiliate of Nvest Management. Nvest Services has subcontracted
certain of its obligations as such to State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110.
Under the terms of a Special Servicing Agreement (the "Special Service
Agreement") among each Fund, its corresponding Portfolio and Nvest Services,
Nvest Services will provide services pertaining to the operation of the Fund,
including shareholder servicing and fund administration. Each Portfolio has
agreed to pay Nvest Services an annual fee equal to 0.12% of the average daily
net asset value of the Portfolio shares held by a Fund. However, the Portfolio
will not be required to pay Nvest Services any amount in excess of the financial
benefits derived from the operation of the Fund. The cost-benefit analysis was
initially reviewed by the Trustees of each Portfolio before participating in any
Special Service Agreement. For future years, there will be an annual review of
the Special Service Agreement to determine its continued appropriateness for
each Portfolio. Currently, only the Portfolios advised by Harris Associates will
participate in the Special Service Agreement.
MEET THE PORTFOLIO MANAGERS
ROBERT J. SANBORN
[Photo of Robert J. Sanborn]
Robert Sanborn has served as Portfolio Manager of The Oakmark Fund since August
1991. Mr. Sanborn, a chartered financial analyst, joined Harris Associates as a
portfolio manager and analyst in 1988. He holds a B.A. from Dartmouth College,
an M.B.A. from the University of Chicago, and has 16 years of investment
experience.
STEVEN J. REID
[Photo of Steven J. Reid]
Steven Reid has served as portfolio manager of The Oakmark Small Cap Fund since
November 1995. Mr. Reid, a chartered financial analyst, joined Harris Associates
as an accountant in 1980 and has been an investment analyst at Harris Associates
since 1985. He holds a B.A. in Business from Roosevelt University and has 13
years of investment experience.
JAMES P. BENSON
[Photo of James P. Benson]
James Benson has served as portfolio manager of The Oakmark Small Cap Fund since
November 1999. Mr. Benson joined Harris Associates as an investment analyst in
1997. Prior to joining Harris Associates, Mr. Benson was an Executive Vice
President and Director of Equity Research for Ryan Beck & Co. He holds a B.A. in
Economics and Computer Science from Westminster College and a M.M. in Finance
from Northwestern University.
CLYDE S. MCGREGOR
[Photo of Clyde S. McGregor]
Clyde McGregor has served as portfolio manager of the Oakmark Equity and Income
Fund since November 1995. Mr. McGregor, a charter financial analyst, joined
Harris Associates as in analyst in 1981 and began managing portfolios in 1986.
He holds a B.A. in Economics and Religion from Oberlin College and an M.B.A. in
Finance from the University of Wisconsin.
DANIEL J. FUSS
[Photo of Daniel J. Fuss]
Daniel Fuss has served as portfolio manager of the Loomis Sayles Bond Fund since
May 1991. Mr. Fuss is a chartered financial analyst and an Executive Vice
President, Director and Managing Partner of Loomis Sayles. He began his
investment career in 1968 and joined Loomis Sayles in 1976. He holds a B.S. and
an M.B.A. from Marquette University and has 31 years of investment experience.
KATHLEEN C. GAFFNEY
[Photo of Kathleen C. Gaffney]
Kathleen Gaffney has served as portfolio manager of the Loomis Sayles Bond Fund
since October 1997. Ms. Gaffney, a chartered financial analyst, joined Loomis
Sayles in 1984 and is Vice President of Loomis Sayles. She holds a B.A. from the
University of Massachusetts at Amherst and has 15 years of investment
experience.
MEET THE PORTFOLIO MANAGERS (CONTINUED)
CHRISTOPHER R. ELY
[Photo of Christopher R. Ely]
Christopher Ely has served as co-portfolio manager of the Loomis Sayles Small
Cap Growth Fund since January 1997. Mr. Ely is a chartered financial analyst and
is Vice President of Loomis Sayles. He began his investment career in 1978 and
joined Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr. Ely was Senior
Vice President and portfolio manager at Keystone Investment Management Company,
Inc. He holds an B.A. from Brown University, an M.B.A. from Babson College and
has 21 years of investment experience.
PHILIP C. FINE
[Photo of Philip C. Fine]
Philip Fine has served as co-portfolio manager of the Loomis Sayles Small Cap
Growth Fund since January 1997. Mr. Fine is a chartered financial analyst and is
a Vice President of Loomis Sayles. He began his investment career in 1988 and
joined Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr. Fine was a
Vice President and Portfolio Manager at Keystone Investment Management Company,
Inc. He received an A.B. and a Ph.D. from Harvard University and has 12 years of
investment experience.
DAVID L. SMITH
[Photo of David L. Smith]
David Smith has served as co-portfolio manager of the Loomis Sayles Small Cap
Growth Fund since January 1997. Mr. Smith is a chartered financial analyst and
is a Vice President of Loomis Sayles. He began his investment career in 1986 and
joined Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr. Smith was a
Vice President and portfolio manager at Keystone Investment Management Company,
Inc. He holds an B.A. from the University of Massachusetts at Amherst, an M.B.A.
from Cornell University and has 14 years of investment experience.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement entered into between Nvest Management
and each Fund, each Fund will pay Nvest Management an administration fee at the
annual rate of 0.10% of the Fund's average daily net assets for the initial two
year term. At the expiration of this period, each Fund will pay Nvest Management
the lesser of (i) 0.25% of the Fund's average daily net assets, or (ii) the
actual expenses incurred by Nvest Management in providing services to a Fund;
provided however, that the minimum payment due to Nvest Management under the
Administration Agreement will be no less than 0.10% of the Fund's average daily
net assets. These services include the provision of necessary executive and
other personnel for managing the affairs of a Fund.
PORTFOLIO TRADES
In placing trades on behalf of the Portfolios, Harris Associates or Loomis
Sayles may use brokerage firms that market the Funds' or the Portfolios' shares
or are affiliated with Nvest Companies, Nvest Management, Harris Associates or
Loomis Sayles. Harris Associates or Loomis Sayles 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 relevant Portfolio's Board of Trustees.
<PAGE>
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 of
shares 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.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
[] You pay a sales charge [] You do not pay a sales [] You do not pay a
when you buy Fund shares. charge when you buy Fund sales charge when you
There are several ways to shares. All of your money buy Fund shares. All of
reduce this charge. See the goes to work for you your money goes to work
section entitled "Ways to right away. for you right away.
Reduce or Eliminate Sales
Charges."
[] You pay lower annual [] You pay higher annual [] You pay higher annual
expenses than Class B and expenses than Class A expenses than Class A
Class C shares, giving you shares. shares.
the potential for higher
returns per share.
[] You do not pay a sales [] You will pay a charge [] You will pay a charge
charge on orders of $1 on redemptions if you on redemptions if you
million or more, but you may sell your shares within 6 sell your shares within
pay a charge on redemption if years of purchase, as 1 year of purchase.
you redeem these shares described in the section
within 1 year of purchase. entitled "How Sales
Charges are Calculated.
[] Your Class B shares [] Your Class C shares
will automatically will not automatically
convert into Class A convert into Class A
shares after 8 years, shares. If you hold your
which reduces your annual shares for longer than 8
expenses. years, you'll pay higher
expenses than other
classes.
[] We will not accept an
order for $1 million or [] We will not accept an
more of Class B shares. order for $1 million or
You may, however, more of Class C shares.
purchase $1 million or You may, however,
more in Class A shares, purchase $1 million or
which will have no sales more in Class A shares,
charge as well as lower which will have no sales
annual expenses. charge as well as lower
annual expenses for that
You may pay a charge on purchase. You may pay a
redemption if you redeem charge on redemption if
these shares within 1 year you redeem these shares
of purchase. within 1 year of
purchase.
</TABLE>
For the 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>
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price that you pay when you buy Class A shares ("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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
CLASS A SALES CHARGES
ALL FUNDS EXCEPT
TOTAL RETURN BOND FUND TOTAL RETURN BOND FUND
AS A % OF AS A % OF YOUR AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.10% 4.50% 4.71%
$50,000 - $99,999 4.50% 4.71% 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63% 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56% 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04% 2.00% 2.04%
$1,000,000 or more* 0% 0% 0% 0%
- ----------------------------------------------------------------------------------------------------
* For purchases of Class A shares of the Funds of $1 million or more or purchases by the Retirement
Plans (Plans under Sections 401(a) or 401(k) of the Internal Revenue Code with investments of $1
million or more 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 purchase date. See "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
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 into 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%
------------------------------------------------------------
<PAGE>
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 into 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%
------------------------------------------------------------
<PAGE>
HOW SALES CHARGES ARE CALCULATED (CONTINUED)
HOW THE CDSC IS APPLIED TO YOUR SHARES
The CDSC is a sales charge you pay when you redeem certain Fund shares. The
CDSC:
[] is calculated based on the number of shares you are selling;
[] is based on either your original purchase price or the current net asset
value of the shares being sold, whichever is lower;
[] is deducted from the proceeds of the redemption, not from the amount
remaining in your account; and
[] 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:
[] increases in net asset value above the purchase price; or
[] 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 into Class A
shares stops until you exchange back into shares of another Nvest Fund. If you
choose to redeem those Money Market Fund shares, a CDSC may apply.
<PAGE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
CLASS A SHARES
REDUCING SALES CHARGES
There are several ways you can lower your sales charge, including:
[] 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.
[] 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:
[] Any government entity that is prohibited from paying a sales charge or
commission to purchase mutual fund shares;
[] Selling brokers, sales representatives or other intermediaries;
[] 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);
[] Participants in certain Retirement Plans with at least 100 members (one-year
CDSC may apply);
[] Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities; and
[] 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 any Nvest Fund WITHOUT
PAYING A SALES CHARGE to repurchase Class A shares of the same or any other
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
will generally be eliminated in the following cases:
[] to make distributions from a retirement plan;
|| to make payments through a systematic withdrawal plan; or
[] 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.
<PAGE>
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 FOR
MINIMUM TO ACCOUNT USING EXISTING
TYPE OF ACCOUNT OPEN AN ACCOUNT INVESTMENT BUILDER 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
Transfers to Minors Act $2,000 $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 401(k), SARSEP, SEP, SIMPLE,
403(b)(7) and certain other retirement
plans $25 N/A $25
- --------------------------------------------------------------------------------------------------
</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 NVEST FUNDS
PERSONAL ACCESS LINE(R) 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:
[] purchase, exchange or redeem shares in your existing accounts (certain
restrictions may apply);
[] review your account balance, recent transactions, Fund prices and recent
performance;
[] order duplicate account statements; and
[] obtain tax information.
Please see the following pages for other ways to buy, exchange or sell your
shares.
<PAGE>
<TABLE>
<CAPTION>
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
THROUGH YOUR
INVESTMENT DEALER
[GRAPHIC OMITTED] [] Call your investment dealer [] Call your investment
for information dealer for information
BY MAIL
[GRAPHIC OMITTED]
[] Make out a check in U.S. [] Make out a check in U.S.
dollars for the investment dollars for the investment
amount payable to "Nvest Funds." amount payable to "Nvest
Third party, checks will Funds." Third party checks
generally not be accepted. will generally not be
accepted.
[] Mail the check with your [] Fill out the detachable
completed application to Nvest investment slip from an
Funds, P.O. Box 8551, Boston, MA account statement. If no slip
02266-8551. is available, include with
the check a letter specifying
the Fund name, your class of
shares, your account number
and the registered account
name(s). To make investing
even easier, you can order
more investment slips by
calling 800-225-5478.
BY EXCHANGE
[GRAPHIC OMITTED [] The exchange must be for a [] The exchange must be for a
minimum of $1,000 or for all of minimum of $1,000 or for all
your shares. of your shares.
[] Obtain a current prospectus [] Call your investment
for the Fund into which you are dealer or Nvest Funds at
exchanging by calling your 800-225-5478 to request an
investment dealer or Nvest Funds exchange.
at 800-225-5478.
[] Call your investment dealer [] See the section entitled
or Nvest Funds to request an "Exchanging Shares" for more
exchange. details.
[] See the section entitled
"Exchanging Shares" for more
details.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUYING SHARES (CONTINUED)
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
BY WIRE
[GRAPHIC OMITTED] [] Call Nvest Funds at [] Instruct your bank to
800-225-5478 to obtain an transfer funds to State
account number and wire Street Bank & Trust Company,
transfer instructions. Your bank ABA# 011000028, DDA# 99011538.
may charge you for such a
transfer.
[] 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 [] Indicate on your application
that you would like to begin an [] Please call Nvest Funds at
automatic investment plan 800-225-5478 for a Service
through Investment Builder and Options Form. A signature
the amount of the monthly guarantee may be required to
investment ($100 minimum). add this privilege.
[] Send a check marked "Void" or [] See the section
a deposit slip from your bank entitled"Additional Investor
Investor account along with your Services."
application.
THROUGH AUTOMATED CLEARING
HOUSE (ACH)
[GRAPHIC OMITTED] [] Ask your bank or credit union
whether it is a member of the [] Call Nvest Funds at
ACH system. 800-225-5478 to add shares to
your account through ACH.
[] Complete the "Telephone [] If you have not signed up
Withdrawal and Exchange" and for the ACH system, please
"Bank Information" sections on call Nvest Funds for a
your account application. Service Options Form. A
signature guarantee may be
required to add this
privilege.
[] Mail your completed
application to Nvest Funds, P.O.
Box 8551, Boston, MA 02266-8551.
</TABLE>
<PAGE>
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
Certain Restrictions may apply. See the section entitled "Restrictions on
Buying, Selling and Exchanging Shares."
THROUGH YOUR INVESTMENT
DEALER
[] Call your investment dealer for information.
BY MAIL
[] 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".
[] The request must be signed by all of the
owners of the shares including the capacity in
which they are signing, if appropriate.
[] Mail your request to Nvest Funds, P.O.
Box 8551, Boston, MA 02266-8551.
[] 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
[] Obtain a current prospectus for the Fund into
which you are exchanging by calling your
investment dealer or Nvest Funds at
800-225-5478.
[] Call Nvest Funds to request an exchange.
[] See the section entitled "Exchanging Shares"
for more details.
BY WIRE
[] Fill out the "Telephone Withdrawal and
Exchange" and "Bank Information" sections on
your account application.
[] Call Nvest Funds at 800-225-5478 or indicate
in your redemption request letter (see above)
that you wish to have your proceeds wired to
your bank.
[] 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)
[] Ask your bank or credit union whether it is a
member of the ACH system.
[] Complete the "Telephone Withdrawal and
Exchange" and "Bank Information" sections on
your account application.
[] 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.
[] Call Nvest Funds to request a redemption
through this system.
[] Proceeds (less any applicable CDSC) will
generally arrive at your bank within three
business days.
BY SYSTEMATIC WITHDRAWAL PLAN
[] Please refer to the section entitled
"Additional Investor Services" or call Nvest
Funds at 800-225-5478 or your financial
representative for information.
[] Because withdrawal payments may have tax
consequences, you should consult your tax
adviser before establishing such a plan.
BY TELEPHONE
[] You may receive your proceeds by mail, by wire
or through ACH (see above).
[] Call Nvest Funds at 800-225-5478 to choose the
method you wish to use to redeem your shares.
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:
[] your address of record has been changed within the past 30 days;
[] you are selling more than $100,000 worth of shares and you are requesting the
proceeds by check; or
[] 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:
[] a financial representative or securities dealer;
[] a federal savings bank, cooperative, or other type of bank;
[] a savings and loan or other thrift institution;
[] a credit union; or
[] a securities exchange or clearing agency.
The following table shows some 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 PROPRIETORSHIP, [] The signatures on the letter must
UGMA/UTMA (Minor Accounts) include all persons authorized to
sign, including title, if
applicable.
[] Signature guarantee, if applicable
(see above).
CORPORATE OR ASSOCIATION ACCOUNTS [] The signatures on the letter must
include all persons authorized to
sign, including title.
OWNERS OR TRUSTEES OF TRUST ACCOUNTS [] The signature on the letter must
include all trustees authorized to
sign, including title.
[] 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.
[] Signature guarantee, if applicable
(see above).
JOINT TENANCY WHOSE CO-TENANTS
ARE DECEASED [] The signatures on the letter must
include all surviving tenants of the
account.
[] Copy of the death certificate.
[] Signature guarantee if proceeds
check is issued to other than the
surviving tenants.
<PAGE>
SELLING SHARES IN WRITING (CONTINUED)
SELLER (ACCOUNT TYPE) REQUIREMENTS FOR WRITTEN REQUESTS
- --------------------------------------------------------------------------------
[]
POWER OF ATTORNEY (POA) [] The signatures on the letter must
include the attorney-in-fact,
indicating such title.
[] A signature guarantee.
[] 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 PLANS
(EXCEPT NVEST FUNDS PROTOTYPE
DOCUMENTS) [] The signature on the letter must
include all signatures of those
authorized to sign including title.
[] Signature guarantee, if applicable.
(see above)
EXECUTORS OF ESTATES, ADMINISTRATORS, [] The signature on the letter must
include Guardians, Conservators
those authorized to sign, including
capacity.
[] A signature guarantee.
[] Certified copy of court document
where signer derives authority,
e.g.: Letters of Administration,
Conservatorship, Letters
Testamentary.*
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) [] Additional documentation and
distribution forms are required.
* Certification may be made on Court documents by the Court, usually certified
by the clerk of the court. POA certification may be made by a commercial bank,
broker/member of a domestic stock exchange or a practicing attorney.
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"). An 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 shares for shares in another 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.
<PAGE>
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 [] When the New York Stock
or postpone payment for more than 7 days Exchange is : closed (other
than a weekend/holiday)
[] During an emergency
[] Any other period permitted
by the SEC
The Fund reserves the right to suspend [] With a notice of a dispute
account services or refuse transaction between
registered owners requests: [] With suspicion/evidence of a
fraudulent act
The Fund may pay the redemption price in [] When it is detrimental for a
whole or part by a distribution in kind of Fund to make cash payments
readily marketable securities in lieu of cash as determined in the sole
or may take up to 7 days to pay a redemption discretion of the adviser or
request in order to raise capital: subadviser
The Fund may close your account and send you [] When the Fund account falls
the proceeds. Shareholders will have 60 days below a set minimum
after being notified of the Fund's intention (currently $1,000 as set by
to close the account to increase the account the Fund's Board of
to the set minimum. This does not apply to Trustees)
certain qualified 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 [] When redemptions are made
until the check or funds have cleared: within 10 calendar days of
purchase by check or ACH of
the shares being redeemed
Telephone redemptions are not accepted for tax-qualified retirement accounts.
If you hold certificates representing your shares, they must be sent with your
request for it to be honored. The Funds recommend that certificates be sent by
registered mail.
<PAGE>
HOW FUND SHARES ARE PRICED
The Funds are mutual funds that invest directly in shares of an underlying
mutual fund, which is referred to as a Portfolio in this Prospectus. A Fund
gains access to the investment management and research capabilities as well as
the investment strategies of its corresponding Portfolio by investing in shares
of that Portfolio at their net asset value. Fund shares are priced by applying
the Fund's sales charges to the net asset value of Portfolio shares. "Net asset
value" is the price of one share of a Portfolio without a sales charge, and is
calculated each business day using this formula:
TOTAL MARKET VALUE OF SECURITIES
+ CASH AND OTHER ASSETS - LIABILITIES
NET ASSET VALUE = -------------------------------------
NUMBER OF OUTSTANDING SHARES
The net asset value of Fund shares and Portfolio shares is determined according
to this schedule:
[] A share's net asset value is determined at the close of regular trading on
the New York Stock Exchange (the "Exchange") on the days the Exchange is open
for trading. This is normally 4:00 p.m. Eastern time.
[] 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 the State Street Bank and Trust Company, the Fund's
custodian (plus or minus applicable sales charges as described earlier in
this Prospectus).
[] 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.
[] A Fund whose Portfolio is heavily invested in foreign securities may have
net asset value changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 p.m. and before 8:00 p.m.
Generally during times of substantial economic or market change it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
"Buying Shares" and "Selling Shares."
Generally, the securities of the underlying Portfolios are valued as follows:
[] EQUITY SECURITIES - most recent sales or quoted bid price as provided by a
pricing service.
[] DEBT SECURITIES - (other than short-term obligations) based upon pricing
service valuations.
[] SHORT-TERM OBLIGATIONS - amortized cost (which approximates market value).
[] SECURITIES TRADED ON FOREIGN EXCHANGES - most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the closing 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 Portfolio's Board of Trustees at
the close of regular trading on the Exchange.
[] OPTIONS - last sale price, or if not available, last offering price.
[] 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 Portfolios
Board of Trustees.
[] ALL OTHER SECURITIES - fair market value as determined by the adviser of the
Portfolio under the direction of the Portfolio'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 Portfolio's Board of
Trustees believes accurately reflects fair value.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Funds generally distribute most or all of their net investment income in the
form of dividends (based on what the Portfolios distribute). All of the Funds
except Nvest Total Return Bond Fund distribute dividends annually. Nvest Total
Return Bond Fund declares and distributes dividends quarterly. Each Fund
distributes all net realized long- and short-term capital gains annually, after
applying any available capital loss carryovers. Each Portfolio'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:
[] 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."
[] 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.
[] 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 and each Portfolio 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 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.
Access Shares'(SM) use of a two tiered fund structure could adversely affect
the character of distributions to you.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive.
<PAGE>
ADDITIONAL FUND INFORMATION
Each Fund has received an Exemptive Order from the Securities and Exchange
Commission (the "SEC"), which 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, without shareholder
approval. The exemption also permits Nvest Management to amend or continue
existing subadvisory agreements when approved by the Fund's Board of Trustees. A
Fund will change to this subadvisory structure when the Board of Trustees
considers it to be in the best interest of the Fund. Shareholders will be
notified of any subadviser changes.
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 up to 0.25% of average daily net assets. In addition to this
service fee, Class B shares pay an annual distribution fee of up to 0.75% of
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 up to
0.75% of 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>
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
Nvest Funds offers a range of retirement plans, including IRAs, SEPs, SARSEPs,
SIMPLEs, 401(k) plans, 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 has 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 Fund. 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 inform ation 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.
<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 APPROACH - The search for outstanding performance of individual stocks
before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS - Payments to a Fund's shareholders of profits earned
from selling securities in a Fund's Portfolio. Capital gain distributions are
usually paid once a year.
CREDIT RATING - Independent evaluation of a bond's creditworthiness. This
measurement is usually calculated through an index compiled by companies such as
Standard & Poor's Ratings Group or Moody's Investors Service Inc. Bonds with a
credit rating of BBB or higher by S&P or Baa or higher by Moody's are generally
considered investment grade.
DERIVATIVE - A financial instrument whose value and performance are based upon
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 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 inversely fluctuates with
changes in prevailing 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
analysts consider 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, these analysts 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 a Fund's 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 x 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. The capitalization figures may vary depending upon the index being
used and/or the guidelines used by a 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 a 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 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).
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 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.
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, 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>
IF YOU WOULD LIKE MORE INFORMATION ABOUT THE FUNDS, THE FOLLOWING DOCUMENTS ARE
AVAILABLE FREE UPON REQUEST:
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 THE 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' SAI at the Public Reference Room of the Securities and
Exchange Commission. 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 by writing or calling
the Public Reference Room of the SEC, Washington, D.C. 20549-6009 Telephone:
800-SEC-0330
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 ACCESS SHARESSM
NVEST CORE EQUITY FUND
NVEST STOCK AND BOND FUND
NVEST SMALL CAP VALUE FUND
NVEST SMALL CAP GROWTH FUND
NVEST TOTAL RETURN BOND FUND
Investment Company Act file no. 811-7345
<PAGE>
NVEST FUNDS(R)
WHERE THE BEST MINDS MEET(R)
NVEST FUNDS ACCESS SHARES(SM)
Nvest Select Fund
STATEMENT OF ADDITIONAL INFORMATION
February 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 Select Fund (the "Fund"). This Statement is not a prospectus and is
only authorized for distribution when accompanied or preceded by the Prospectus
of the Fund dated February 1, 2000 for Class A, Class B or Class C shares, (the
"Prospectus"). 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.
TABLE OF CONTENTS
The Fund.............................................................. 2
Management of the Trust .............................................. 6
Portfolio Transactions and Brokerage................................. 13
Description of the Trust and Ownership of Shares..................... 14
How To Buy Shares.................................................... 16
Net Asset Value and Public Offering Price............................ 16
Reduced Sales Charges................................................ 17
Shareholder Services................................................. 19
Redemptions.......................................................... 25
Standard Performance Measures........................................ 27
Investment Performance of the Fund................................... 31
Income Dividends, Capital Gain Distributions and Tax Status.......... 31
Miscellaneous Investment Practices of the Portfolio.................. 34
Appendix A - Description of Bond Ratings............................ A-1
Appendix B - Publications That May Contain Fund Information......... B-1
Appendix C - Advertising and Promotional Literature................. C-1
<PAGE>
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THE FUND
- --------------------------------------------------------------------------------
Nvest Select Fund is a non-diversified series of Nvest Funds Trust III, a
registered open-end management investment company (the "Trust"). The Trust is a
Massachusetts business trust and was established on August 22, 1995.
GENERAL INVESTMENT OBJECTIVE AND POLICIES
To achieve its investment objective, the Fund invests all or substantially
all of its assets in shares of a single underlying mutual fund, The Oakmark
Select Fund, offered by Harris Associates L.P. ("Harris Associates"). This
underlying mutual fund is referred to in the Prospectus and in this Statement as
a "Portfolio." Harris Associates is the investment adviser of The Oakmark Select
Fund, and is an affiliated investment management subsidiary of Nvest Companies,
L.P. ("Nvest Companies"). Achievement of the Fund's and the Portfolio's
objective cannot be assured.
The investment objective of the Fund is to seek long-term capital appreciation.
The Fund pursues this goal by investing all or substantially all of its assets
in Class I shares of The Oakmark Select Fund.
INVESTMENT STRATEGIES AND RISKS
The investment strategies and risks associated with the Fund generally are
the same as those of its Portfolio and depend on the nature of the Portfolio's
investment strategies and risks. The Prospectus sets forth the principal
investment strategies employed by Harris Associates attempting to achieve the
goal of the Portfolio. The following paragraphs describe those strategies used
by Harris Associates that are not considered principal investment strategies for
the Portfolio. The Portfolio's risks are determined by the nature of the
securities held and the management activities used by Harris Associates. A more
detailed description of these strategies and the related risks is included under
the section entitled "Miscellaneous Practices of the Portfolio."
THE OAKMARK SELECT FUND
Along with engaging in its principal strategies described in the
Prospectus, the Portfolio may invest securities of non-U.S. issuers, including
emerging market securities and may engage in currency exchange transactions. The
Portfolio may invest in debt securities, including lower-rated securities and
may purchase securities on a when-issued or delayed-delivery basis. The
Portfolio may invest to a certain percent in illiquid securities. The Portfolio
may sell securities short on a limited basis and may acquire securities in
private placements. The Portfolio may lend its portfolio securities subject to
certain investment restrictions. The Portfolio may invest in shares of other
investment companies and may purchase and sell both call options and put options
on securities. Finally, the Portfolio may employ temporary strategies to respond
to certain situations such as changes in market and economic conditions.
RISK FACTORS OF THE PORTFOLIO
In pursuing its investment goal, the Portfolio is permitted to engage in a
wide range of investment activities. The Portfolio's risks are determined by the
nature of the securities held and the management activities used by Harris
Associates. Certain of these policies are described in the section entitled
"Miscellaneous Investment Practices of the Portfolio" later in this Statement
and further information about the Portfolio is contained in the Portfolio's
prospectus. Because the Fund invests in the Portfolio, shareholders of the Fund
will be affected by these investment policies.
NOTE ON SHAREHOLDER APPROVAL
Approval by the shareholders of the Fund or Portfolio requires approval by
the holders of a majority of the outstanding shares of the Fund or Portfolio. As
used in this Statement (and as defined in the 1940 Act), the term "majority of
the outstanding shares" of the Fund or Portfolio means the lesser of (i) 67% of
the shares of the Fund or Portfolio represented at a meeting at which more than
50% of the outstanding shares of the Fund or Portfolio are represented or (ii)
more than 50% of the outstanding shares of the Fund or Portfolio.
INVESTMENT RESTRICTIONS OF THE FUND
The investment restrictions set forth below are fundamental policies of
the Fund and, accordingly, without the approval of the holders of a majority of
the outstanding shares of the Fund, the Fund will not:
1. With respect to 75% of its total assets, purchase any security if, as a
result, more than 5% of its total assets (based on current value) would then
be invested in the securities of a single issuer. This limitation does not
apply to Government Securities (as defined in the 1940 Act) ("U.S.
Government Securities"). This restriction does not prevent the Fund from
investing all or substantially all of its assets in shares of another
investment company;
2. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer. This restriction this does not
prevent the Fund from investing all or substantially all of its assets in
shares of another investment company;
3. Invest more than 25% of its total assets in any one industry. This
restriction does not apply to U.S. Government Securities. For purposes of
this restriction, telephone, gas and electric public utilities are each
regarded as separate industries and finance companies whose financing
activities are related primarily to the activities of their parent companies
are classified in the industry of their parents. For purposes of this
restriction with regard to bank obligations, bank obligations are considered
to be one industry, and asset-backed securities are not considered to be
bank obligations. This restriction does not prevent the Fund from investing
all or substantially all of its assets in shares of another investment
company.
4. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions, and the Fund may make
any short sales or maintain any short positions where the short sales or
short positions would not constitute "senior securities" under the 1940 Act;
5. Borrow money except for temporary or emergency purposes; provided, however,
that the Fund may loan its securities, engage in reverse repurchase
agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total
assets taken at cost;
6. Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies. This restriction does
not apply to repurchase agreements or loans of portfolio securities;
7. Act as an underwriter of securities of other issuers except that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities law;
8. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt obligations secured
by real estate or interests therein;
9. Purchase or sell commodities, except that the Fund may purchase and sell
future contracts and options, may enter into foreign exchange contracts and
may enter into swap agreements and other financial transactions not
requiring the delivery of physical commodities;
10. Issue senior securities, except for permitted borrowings or as otherwise
permitted under the 1940 Act.
The percentages and percentage limitations set forth above in the
Statement, other than with respect to restriction (5) pertaining to borrowing,
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. Restrictions (4) and (10) shall be
interpreted based upon no-action letters and other pronouncements of the staff
of the Securities and Exchange Commission (the "SEC"). Under current
pronouncements, certain Fund positions are excluded from the definition of
"senior security" so long as the Fund maintains adequate cover, segregation of
assets or otherwise.
In addition, it is contrary to the Fund's present policy, which may be
changed without shareholder vote, to purchase any illiquid security, including
any securities whose disposition is restricted under federal securities laws and
securities that are not readily marketable, if, as a result, more than 15% of
the Fund's total assets (based on current value) would then be invested in such
securities. The staff of the SEC is presently of the view that repurchase
agreements maturing in more than seven days are illiquid securities and
therefore subject to this restriction. Until that position is revised, modified
or rescinded, the Fund will conduct its operations in a manner consistent with
this view. This limitation on investment in illiquid securities does not apply
to certain restricted securities, including securities issued pursuant to Rule
144A under the Securities Act of 1933 and certain commercial paper, that the
Fund's adviser has determined to be liquid under procedures approved by the
Fund's Board of Trustees.
INVESTMENT RESTRICTIONS OF THE OAKMARK SELECT FUND
In addition to its investment goal and policies set forth in its
Prospectus, the following investment restrictions are policies of The Oakmark
Select Fund:
The Portfolio will not:
1. Acquire securities of any one issuer which at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have a
value greater than 10% of the value of the outstanding securities of the
issuer;
2. Invest more than 25% of its assets (valued at the time of investment) in
securities of companies in any one industry, except that this restriction
does not apply to investments in U.S. government obligations;
3. Borrow money except from banks for temporary or emergency purposes in
amounts not exceeding 10% of the value of the Portfolio's assets at the time
of borrowing [the Portfolio will not purchase additional securities when its
borrowings, less receivables from portfolio securities sold, exceed 5% of
the value of the Portfolio's total assets];
4. Issue any senior security except in connection with permitted borrowings;
5. Underwrite the distribution of securities of other issuers; however the
Portfolio may acquire "restricted" securities which, in the event of a
resale, might be required to be registered under the Securities Act of 1933
on the ground that the Portfolio could be regarded as an underwriter as
defined by that act with respect to such resale;
6. Make loans, but this restriction shall not prevent the Portfolio from (a)
investing in debt obligations, (b) investing in repurchase agreements,(1) or
(c) lending its portfolio securities [The Portfolio will not lend securities
having a value in excess of 33% of its assets, including collateral received
for loaned securities (valued at the time of any loan)];
7. Purchase and sell real estate or interests in real estate, although it may
invest in marketable securities of enterprises which invest in real estate
or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it may
enter into forward foreign currency contracts;
9. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission or
(b) where the acquisition results from a dividend or a merger, consolidation
or other reorganization;(2)
10. Make margin purchases or participate in a joint or on a joint or several
basis in any trading account in securities;
11. Invest in companies for the purpose of management or the exercise of
control;
12. Invest more than 15% of its net assets (valued at the time of investment) in
illiquid securities, including repurchase agreements maturing in more than
seven days;
13. Invest more than 2% of its net assets (valued at the time of investment) in
warrants not listed on the New York or American stock exchanges, valued at
cost, nor more than 5% of its net assets in all warrants, provided that
warrants acquired in units or attached to other securities shall be deemed
to be without value for purposes of this restriction;
14. Invest more than 25% of its total assets (valued at the time of investment)
in securities of non-U.S. issuers (other than securities represented by
American Depositary Receipts);(3)
15. Make short sales of securities unless the Portfolio owns at least an equal
amount of such securities, or owns securities that are convertible or
exchangeable, or anticipated to be convertible or exchangeable, into at
least an equal amount of such securities with no restriction other than the
payment of additional consideration;
16. Purchase or write a call option or a put option if the aggregate premium
paid for all call and put options then held exceed 20% of its net assets
(less the amount by which any such positions are in-the-money);
17. Invest in futures or options on futures, except that it may invest in
forward foreign currency contracts.
- ----------
(1) A repurchase agreement involves a sale of securities to the Portfolio with
the concurrent agreement of the seller (bank or securities dealer) to
repurchase the securities at the same price plus an amount equal to an
agreed-upon interest rate within a specified time. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the
Portfolio could experience both delays in liquidating the underlying
securities and losses. The Portfolio may not invest more than 15% of its net
assets in repurchase agreements maturing in more than seven days and other
illiquid securities.
(2) In addition to this investment restriction, the 1940 Act provides that the
Portfolio may neither purchase more than 3% of the voting securities of any
one investment company nor invest more than 10% of the Portfolio's assets
(valued at the time of investment) in all investment company securities
purchased by the Portfolio. Investment in the shares of another investment
company would require the Portfolio to bear a portion of the management and
advisory fees paid by that investment company, which might duplicate the
fees paid by the Portfolio.
(3) Although securities represented by American Depositary Receipts ("ADRs") are
not subject to restriction 15, the Portfolio has no present intention to
invest more than the indicated percentage of its total assets in ADRs and
securities of foreign issuers.
The first 9 restrictions listed above, except the bracketed portions, are
fundamental policies and may be changed only with the approval of the holders of
a "majority of the outstanding voting securities" of the Portfolio, which is
defined in the 1940 Act (the "1940 Act") as the lesser of (i) 67% of the shares
of the Portfolio present at a meeting if more than 50% of the outstanding shares
of the Portfolio are present in person or represented by proxy or (ii) more than
50% of the outstanding shares of the Portfolio. Those restrictions not
designated as "fundamental," and the Portfolio's investment objective, may be
changed by the board of trustees without shareholder approval. The Portfolio's
investment objective will not be changed without at least 30 days' notice to
shareholders.
Notwithstanding the foregoing investment restrictions, the Portfolio may
purchase securities pursuant to the exercise of subscription rights. Japanese
and European corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise such rights would
result in the Portfolio's interest in the issuing company being diluted. The
market for such rights is not well developed in all cases and, accordingly, the
Portfolio may not always realize full value on the sale of rights. The exception
applies in cases where the limits set forth in the investment restrictions would
otherwise be exceeded by exercising rights or would have already been exceeded
as a result of fluctuations in the market value of the Portfolio's portfolio
securities with the result that the Portfolio would be forced either to sell
securities at a time when it might not otherwise have done so, or to forego
exercising the rights.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
The Fund is governed by a Board of Trustees which is responsible for
generally overseeing the conduct of Fund business and for protecting the
interests of shareholders. The trustees meet periodically throughout the year to
oversee the Fund's activities, review contractual arrangements with companies
that provide services to the Fund and review the Fund's performance.
TRUSTEES
Trustees of the Trust and their ages (in parentheses), addresses and
principal occupations during the past five years are listed below. Those marked
with an asterisk (*) are deemed an "interested person" of the Trust, as defined
in the 1940 Act.
GRAHAM T. ALLISON, JR. - Trustee (59); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138; Member of the Contract Review and Governance
Committee for the Trust; Douglas Dillon Professor and Director for the
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 (54); 452 Fifth Avenue, New York, New York 10018;
Member of the Audit and Transfer Agent and Shareholder Services Committee
for the Trust; President and CEO, Cain Brothers & Company, Incorporated
(investment banking), Trustee, Universal Health Realty Income Trust
(NYSE); Norman Rockwell Museum; Sharon Health Corporation and National
Committee for Quality Healthcare (all not-for-profit organizations).
KENNETH J. COWAN - Trustee (67); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Member of the Contract Review and Governance Committee for
the Trust; Retired; Director, A Young Woman's Residence; 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
Trust; 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,
Genesis Cable (cable communications); Director, Prime Communications
(cable communications); Director, Neptune Communications (undersea cable
systems); Director, Sequana Therapeutics (biotechnology); 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 (57); Exchange Place, Boston, MA 02109; Member of the
Audit and Transfer Agent and Shareholder Services Committee for the Trust;
Senior Vice President and Director, The Boston Consulting Group, Inc.
(management consulting); Director, GTE Corporation (communications
services); Director, Rohm and Haas Company (specialty chemicals).
JOHN A. SHANE - Trustee (66); 200 Unicorn Park Drive, Woburn, Massachusetts
01801; Member of the Audit and Transfer Agent and Shareholder Services
Committee for the Trust; President, Palmer Service Corporation (venture
capital organization); General Partner, Palmer Partners L.P.; Director,
Abt Associates, Inc. (consulting firm); Director, Arch Communications
Group, Inc. (paging service); Director, Dowden Publishing Company, Inc.
(publisher of medical magazines); 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); 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; Chairman of the
Board and Director, NEF Corporation; Chairman of the Board and Director,
BBAI; formerly, Director, New England Financial.
PENDLETON P. WHITE - Trustee (68); 6 Breckenridge Lane, Savannah, Georgia 31411;
Member of the Contract Review and Governance Committee for the Trust;
Retired; formerly, President and Chairman of the Executive Committee,
Studwell Associates (executive search consultants); formerly, Trustee, The
Faulkner Corporation (community hospital corporation).
The Contract Review and Governance Committee of the 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 Fund, and governance matters
relating to the Fund.
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 Fund's audits and serves as a forum in
which the independent accountants can raise any issues or problems identified in
the audit with the Board of Trustees identified in the audits. This Committee
also reviews and monitors compliance with stated investment objectives and
policies, SEC and Internal Revenue Service ("IRS") regulations as well as
operational issues relating to the transfer agent.
OFFICERS
Officers of the Trust, in addition to Mr. Voss, and their ages (in
parentheses) and principal occupations during at least the past five years are
as follows:
NEAL G. LITVACK - President (44) - President and Chief Executive Officer, NEF
Corporation and New England Funds Management, L.P. (since November 1999);
Manager, Kobrick Funds, LLC (since July 1999); Director, Harris
Associates, Inc.; Executive Vice President, Retail Marketing, Nvest
Companies, L.P. (since February 1997); Executive Vice President, Retail
Marketing, Fidelity Investments (until 1997).
THOMAS 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); Senior Vice President, General
Counsel, Secretary and Clerk, NEF Corporation; Senior Vice President,
General Counsel, Secretary and Clerk, Nvest Funds Distributor, L.P.;
Senior Vice President and General Counsel, Secretary and Clerk, Nvest
Management; Executive Vice President and General Counsel, Nvest Services
Company; formerly, Senior Vice President and General Counsel, Funds
Distributor, Inc. (mutual funds service company); formerly, Counsel, The
Boston Company Advisors, Inc.; formerly, Associate, Ropes & Gray (law
firm).
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 Trust's trustees is also a trustee of certain
other investment companies for which Nvest Funds Distributor, L.P. acts as
principal underwriter. Except as indicated above, the address of each trustee
and officer of the Trust is 399 Boylston Street, Boston, Massachusetts 02116.
TRUSTEE FEES
The Trust pays no compensation to its officers or to its trustees who are
interested persons thereof.
Each trustee who is not an interested person of the Trust or an interested
person of Nvest Funds Trust I or Nvest Funds Trust II (collectively the
"Trusts") receives, in the aggregate for serving on the boards 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 December 31,
1999 a total of 22 active 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 net assets of each fund.
During the fiscal year ended September 30, 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 ESTIMATED
AGGREGATE RETIREMENT BENEFITS ANNUAL BENEFITS TOTAL COMPENSATION FROM
COMPENSATION FROM ACCRUED AS PART OF UPON THE NVEST FUND COMPLEX*
NAME OF TRUSTEE NVEST FUNDS TRUST III FUND EXPENSES RETIREMENT PAID TO TRUSTEES
- --------------- --------------------- ------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Graham T. Allison, Jr. $11,959 $0 $0 $60,000
Daniel M. Cain $11,959 $0 $0 $64,000
Kenneth J. Cowan $11,959 $0 $0 $64,000
Richard Darman $11,959 $0 $0 $60,000
Sandra O. Moose $11,959 $0 $0 $60,000
John A. Shane $11,959 $0 $0 $60,000
Pendleton P. White $11,959 $0 $0 $56,500
* The Nvest Fund Complex consists of 22 active funds, including the funds of Nvest Funds Trust III.
</TABLE>
The Fund 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 Fund on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have been if they had
been invested in the Fund on the normal payment date for such fees. As a result
of this method of calculating the deferred payments, the Fund, upon making the
deferred payments, will be in the same financial position as if the fees had
been paid on the normal payment dates.
As of February 1, 2000, the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of the Fund.
As of February 1, 2000, there were no shares of the Fund outstanding.
ADVISORY AGREEMENT
Under the Fund's advisory agreement between the Trust and Nvest Funds
Management, L.P. ("Nvest Management"), on behalf of the Fund, Nvest Management
will furnish or pay the expenses of the Fund for office space, facilities and
equipment, services of executive and other personnel of the Trust and certain
administrative services. Nvest Management will invest all or substantially all
of the assets of the Fund in a registered, open-end management investment
company, in accordance with Section 12(d)(1)(E) under the 1940 Act. Nvest
Management is responsible for obtaining and evaluating such economic,
statistical and financial data and information and performing such additional
investment research as is necessary to manage the Fund's assets in accordance
with the investment objective and policies.
The Fund's advisory agreement provides that it will continue in effect for
two years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Trust's Board of Trustees
or by vote of a majority of the outstanding voting securities of the Fund and
(ii) by vote of a majority of the Trustees who are not "interested persons" of
the Trust, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. Any amendment to an advisory
agreement must be approved by vote of a majority of outstanding voting
securities of the Fund and by a vote of the majority of the Trustees of the
Trust who are not such interested persons, cast in person at a meeting called
for the purpose of voting on such approval. Each advisory agreement may be
terminated without penalty by vote of the Trust's Board of Trustees or by vote
of a majority of the outstanding voting securities of the Fund, upon 60 days
written notice, or by the Fund's advisor upon 90 days' written notice, and each
terminates automatically in the event of its assignment. In addition, each
advisory agreement will automatically terminate if the Trust or the Fund shall
at any time be required by Nvest Funds Distributor, L.P. to eliminate all
reference to the words "Nvest" or the letters "Nvest Management" in the name of
the Trust or the Fund, unless the continuance of the agreement after such change
of name is approved by a majority of the outstanding voting securities of the
Fund and by a majority of the Trustees who are not interested persons of the
Trust or the Fund's adviser.
The advisory agreement provides that the adviser shall not be subject to
any liability in connection with the performance of its service 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, NEF Corporation, is a wholly-owned subsidiary of Nvest
Holdings, L.P. ("Nvest Holdings"), which in turn is a wholly-owned subsidiary of
Nvest Companies. NEF Corporation is also the sole general partner of Nvest Funds
Distributor, L.P., (the "Distributor") and the sole shareholder of Nvest
Services Company, the transfer and dividend disbursing agent of the Fund. Nvest
Companies owns the entire limited partnership interest in each of Nvest
Management and Nvest Funds Distributor, L.P. Nvest Services Company, Inc. will
also do business as Nvest Services Company, Nvest Services Co. and Nvest Funds
Service Company.
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 mutual life insurance company. MetLife
owns approximately 46% (and in the aggregate, directly and indirectly,
approximately 47%) 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 fourteen principal subsidiary or
affiliated asset management firms of Nvest Companies, collectively, have more
than $127 billion of assets under management or administration as of September
30, 1999.
SPECIAL SERVICING AGREEMENT
The Trust has received an order from the SEC (the "Order") pursuant to
Section 17(d) and Rule 17d-1 under the 1940 Act which permits the Fund to invest
all or substantially all of its assets in a single underlying mutual fund (the
Portfolio) pursuant to Section 12(d)(1)(E) of the 1940 Act. Pursuant to the
Order the Fund has entered into a Special Servicing Agreement (the "Special
Service Agreement") with an underlying fund (the Portfolio) wherein certain
shareholder related expenses of the Fund will be borne by the underlying fund.
Under the terms of the Special Service Agreement among the Fund, its Portfolio
and Nvest Services Company, Inc., Nvest Services Company, Inc. will provide
services pertaining to the operation of the Fund, including shareholder
servicing and fund administration. The Portfolio has agreed to pay Nvest
Services Company, Inc. an annual fee equal to 0.12% of the assets that the Fund
has invested in that Portfolio. However, the Portfolio will not be required to
pay Nvest Services Company, Inc. any amount in excess of the financial benefits
derived from the operation of that Fund.
The cost-benefit analysis was initially reviewed by the Board of Trustees
of the Portfolio before participating in any Special Service Agreement. For
future years, there will be an annual review of the Special Service Agreement to
determine its continued appropriateness for the Portfolio.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement entered into between Nvest
Management and the Fund, the Fund will pay Nvest Management at the annual rate
of 0.10% of the Fund's average daily net assets for the initial two-year term.
At the expiration of this period, the Fund will pay Nvest Management the lesser
of (i) 0.25% of the Fund's average daily net assets, or (ii) the actual expenses
incurred by Nvest Management in providing certain services to the Fund; provided
however, that the minimum payment due to Nvest Management under the
Administration Agreement will be no less than 0.10% of the Fund's average daily
net assets. These expenses consist of the provision of necessary executive and
other personnel for managing the affairs of the Fund. The Administration
Agreement is effective for a period of two years and may only be amended by a
majority vote of the non-interested Trustees of the Trust as that term is
defined in the 1940 Act.
SERVICE AGREEMENT
Pursuant to a Service Agreement entered into between Harris Associates and
Nvest Management, for providing administrative services to the Fund, Harris
Associates pays Nvest Management 0.25% annually of the Fund's average daily net
assets less the fee paid by the Portfolio to Nvest Services Company, Inc. under
the Special Servicing Agreement.
THE PORTFOLIO ADVISERS
Harris Associates L.P. 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.
Certain officers and employees of Harris have respectability 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 the Fund, The Oakmark Fund, The Oakmark Small Cap
Fund, Nvest Star Advisers Fund, Nvest Star Worldwide Fund and/or Nvest 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 the Fund, Oakmark Fund, The Oakmark Equity and
Income Fund, The Oakmark Small Cap Fund, Nvest Star Advisers Fund, Nvest Star
Worldwide Fund and Nvest Star Small Cap Fund to participate in larger volume
transactions in this manner will in some cases produce better executions for
these Funds and therefore the Portfolio. However, in some cases, this procedure
could have a detrimental effect on the price and amount of a security available
to these Funds and Portfolio or the price at which a security may be sold. The
trustees of the Trusts are of the view that the benefits of retaining Harris as
a subadviser to the Nvest Star Advisers Fund, Nvest Star Worldwide Fund and
Nvest Star Small Cap Fund as well as an adviser to The Oakmark Fund, The Oakmark
Equity and Income Fund and The Oakmark Small Cap Fund outweigh the
disadvantages, if any, that might result from participating in such
transactions.
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLANS.
Under an agreement with the Trust, Nvest Funds Distributor, L.P. (the
"Distributor"), serves as the principal distributor of each class of shares of
the Fund. Under this agreement, Nvest Funds Distributor, L.P. is not obligated
to sell a specific number of shares of the Fund. Nvest Funds Distributor, L.P.
bears the cost of making information about the Fund available through
advertising and other means and the cost of printing and mailing Prospectuses to
persons other than shareholders. Except as provided in the Administration
Agreement, the Fund pays the cost of registering and qualifying its shares under
state and federal securities laws and the distribution of Prospectuses to
existing shareholders.
Nvest Funds Distributor, L.P. is compensated under the 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 Fund, or the Portfolio under
the Special Service Agreement, 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 the Fund to investment dealers
from time to time. The SEC is of the view that dealers receiving all or
substantially all of the sales charge may be deemed to be underwriters of the
Fund's shares.
The Fund has adopted Rule 12b-1 plans (the "Plans") for its Class A, Class
B and Class C shares which, among other things, permit it to pay the Fund's
Distributor monthly fees out of its net assets. Pursuant to Rule 12b-1 under the
1940 Act, the Plan was approved by the shareholders of the Fund, and (together
with the related Distribution Agreement) by the Board of Trustees, including a
majority of the trustees who are not interested persons of the Trust (as defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of the Plans or the Distribution Agreement (the "Independent
Trustees").
Under Service Plans adopted under rule 12b-1, the Fund pays the
Distributor a monthly service fee at an annual rate not to exceed 0.25% of the
Fund's average daily net assets attributable to the Class A, Class B and Class C
shares. 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. In the case
of Class B shares, the Distributor pays investment dealers at the time of sale
the first year's service fee, in the amount of up to 0.25% of the amount
invested.
The Fund's Class B and Class C shares also pays 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 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. The Distributor retains
the balance of the fee as compensation for its services as distributor of the
Class B and Class C shares. In the case of Class C shares, the Distributor
retains the 0.75% distribution fee assessed against such shares during the first
year of investment.
The Plans may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
relevant class of shares of the relevant Fund. The Plans may be amended by vote
of the trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose. Any change in a 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 Trust's Board of Trustees review quarterly a
written report of such costs as well as the purposes for which such costs have
been incurred. For so long as the Plans are in effect, selection and nomination
of those trustees who are not interested persons of the 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, an affiliate of the Distributor, for
the sale of the Fund's shares. New England Securities is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the "1934 Act"), as
amended. 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.
The Distribution Agreement for the Fund may be terminated at any time upon
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 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 Independent Trustees and (ii) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the outstanding
securities of the Fund (or the relevant class, in the case of the Plans).
With the exception of the Distributor, New England Securities and their
direct and indirect corporate parents, no interested person of the Trust nor any
trustee of the Trust has any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Fund and its shareholders resulting from the Plans are
believed to include (1) enhanced shareholder service, (2) asset retention, (3)
enhanced bargaining position with third party service providers and economies of
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 Trust and
the Fund and if it should cease to be the principal distributor of the Fund's
shares, the Trust or the Fund may be required to change their names and delete
these words or letters. The Distributor also acts as principal distributor for
Nvest Funds Trust I, Nvest Funds Trust II, Nvest Kobrick Investment Trust, Nvest
Cash Management Trust and Nvest Tax Exempt Money Market Trust.
The portion of the various fees and expenses for Class A, B and C shares
that are paid (reallowed) to securities dealers are shown below:
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares 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%
(1) For investments by Retirement Plans, the Distributor may pay a 0.50% commission for investments in excess of $3 million and up
to $10 million.
(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 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 that are paid to securities dealers are
shown below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MAXIMUM MAXIMUM MAXIMUM
REALLOWANCE OR FIRST YEAR FIRST YEAR
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>
The Fund 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 ("CDSC"). Proceeds from the CDSC on Class A and
Class C shares are paid to the Distributor and are used to defray the expenses
for services that it provides the Trust. Proceeds from the CDSC on Class B
shares are paid to Nvest Funds Distributor, L.P. 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.
For new amounts invested at net asset value by an eligible governmental
authority, the Distributor may, at its expense, pay investment dealers a
commission of 0.025% of the average daily net assets of an account at the end of
each calendar quarter for up to one year. These commissions are not payable if
the purchase represents the reinvestment of redemption proceeds from any other
Nvest Fund or if the account is registered in street name.
The Distributor may at its expense provide additional concessions to
dealers who sell shares of the Fund, including: (i) full reallowance of the
sales charge of Class A shares, (ii) additional compensation with respect to the
sale of Class A, B and C shares, (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 recordkeeping or miscellaneous
administrative services. Payment for travel, lodging and related expenses may be
provided for attendance at Nvest Funds' seminars and conferences, e.g., due
diligence meetings held for training and educational purposes. The payment of
these concessions and any other compensation offered will conform with state and
federal laws and the rules of any self-regulatory organization, such as the
National Association of Securities Dealers, Inc. The participation of such firms
in financial assistance programs is at the discretion of the firm.
CUSTODIAL ARRANGEMENTS
State Street Bank and Trust Company ("State Street Bank"), 225 Franklin
Street, Boston, Massachusetts 02110, is the Trust's custodian. As such, State
Street Bank holds in safekeeping certified securities and cash belonging to the
Fund and, in such capacity, is the registered owner of securities in book-entry
form belonging to the Fund. Upon instruction, State Street Bank receives and
delivers cash and securities of the Fund in connection with Fund transactions
and collects all dividends and other distributions made with respect to
portfolio securities. State Street Bank also maintains certain accounts and
records of the Trust and calculates the total net asset value, total net income
and net asset value per share of the Fund on a daily basis.
INDEPENDENT ACCOUNTANTS
The Trust's independent accountants are PriceWaterhouseCoopers, LLP, 160
Federal Street, Boston, Massachusetts, 02110. The independent accountants of the
Trust conduct an annual audit of that Trust's financial statements, assist in
the preparation of federal and state income tax returns and consult with the
Trust as to matters of accounting and federal and state income taxation.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. Purchases and
sales are made for the Fund whenever necessary, in management's opinion, to meet
that Fund's objective. The Fund expects to have an annual portfolio turnover
rate not exceeding 20% for its initial fiscal year. The portfolio turnover rate
for the Portfolio's last fiscal year was 67%.
BROKERAGE TRANSACTIONS
FOR THE PORTFOLIO (THE OAKMARK SELECT FUND):
In placing orders for the purchase and sale of securities for its
Portfolio, Harris Associates 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 Harris Associates, a more favorable execution can be obtained by
carrying out such transactions through other brokers or dealers.
Harris Associates selects only brokers or dealers which 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 Portfolio. 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 the Portfolio by
customers of broker-dealers as a factor in the selection of broker-dealers to
execute Portfolio transactions.
Harris Associates may cause its Portfolio 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 Portfolio 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
Portfolio and its other clients. Harris Associates' authority to cause the
Portfolio to pay such greater commissions is also subject to such policies as
the trustees of the Trust may adopt from time to time.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
- --------------------------------------------------------------------------------
Nvest Funds Trust III is organized as a Massachusetts business trust under
the laws of Massachusetts by an Agreement and Declaration of Trust (the
"Declaration of Trust") dated August 22, 1995, and is a "series" company as
described in Section 18(f)(2) of the 1940 Act. The Trust has eight separate
funds. Each fund in the Trust currently offers three classes of shares. The
other funds in the Trust are Nvest Bullseye Fund, Nvest Equity Income Fund,
Nvest Core Equity Fund, Nvest Stock and Bond 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 was organized in 1998 and commenced operations on March 31,
1998. The Fund and the remaining funds were organized in 1999 and intend to
commence operations in 2000.
The Declaration of Trust of Nvest Funds Trust III currently permits the
Trust's Board of Trustees to issue an unlimited number of full and fractional
shares of each series. The Fund is represented by a particular series of shares.
The Declaration of Trust further permits the 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 the Board
of Trustees may determine. When you invest in the Fund, you acquire freely
transferable shares of beneficial interest that entitle you to receive annual or
quarterly dividends as determined by the Trust's Board of Trustees and to cast a
vote for each share you own at shareholder meetings. The shares of the Fund do
not have any preemptive rights. Upon termination of the 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 Declaration
of Trust also permits the Board of Trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The shares of the Fund are divided into three classes, Class A, Class B
and Class C. The Fund offers such classes of shares as set forth in such Fund's
Prospectus. Absent the Service Agreement, all expenses of the Fund (excluding
transfer agency fees and expenses of printing and mailing Prospectuses to
shareholders ("Other Expenses")) would be borne by its Class A, B and C shares
on a pro rata basis. The Class A, Class B and Class C structure could be
terminated should certain applicable IRS rulings be rescinded.
The assets received by each class of the Fund for the issue or sale of its
shares and all income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of the creditors, are allocated to, and constitute the
underlying assets of, that class of the Fund. The underlying assets of each
class of the Fund are segregated and are charged, absent the Service Agreement,
with the expenses with respect to that class of the Fund and with a share of the
general expenses of the Trust. Any general expenses of the Trust that are not
readily identifiable as belonging to a particular class of the Fund are
allocated by or under the direction of the Trust's Board of Trustees in such
manner as it determines to be fair and equitable. While the expenses of the
Trust are allocated to the separate books of account of the Fund, certain
expenses may be legally chargeable against the assets of all of the funds in the
Trust.
The Declaration of Trust also permits the Board of Trustees, without
shareholder approval, to subdivide any series or class of shares into various
sub-series or sub-classes with such dividend preferences and other rights as the
Board of Trustees may designate. While the Board of Trustees has no current
intention to exercise this power, it is intended to allow it to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The 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 Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or the Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of the Fund affected. Similarly,
any class within the Fund may be terminated by vote of at least two-thirds of
the outstanding shares of such class. While the Declaration of Trust further
provides that the Board of Trustees may also terminate the 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.
Matters submitted by the Portfolio to its shareholders for a vote will be
passed along by the appropriate Fund to its shareholders and the Fund will vote
its entire interest in the Portfolio in proportion to the voters actually
received from the Fund's shareholders.
The Declaration of Trust provides that on any matter submitted to a vote
of all shareholders of the Trust, all Trust shares entitled to vote shall be
voted together irrespective of series or class unless the rights of a particular
series or class would be adversely affected by the vote, in which case a
separate vote of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under 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) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the 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 Trust has 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 the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's or the 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.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and require that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust provides for indemnification out of the Fund's property
for all loss and expense of any shareholder held personally liable for the
obligations of the Fund by reason of owning shares of such Fund. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which the disclaimer
is inoperative and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Board of Trustees will
not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The by-laws of the Trust provide for
indemnification by the Trust of trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the 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.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Fund are summarized in the
Prospectus. 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.
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 wire or, in the case of
Class A, B and C shares, by electronic funds transfer using Automated Clearing
House ("ACH"), or by exchange, as described in the Prospectus through firms that
are members of the National Association of Securities Dealers, Inc. and that
have selling agreements with the Distributor. You may also use Nvest Funds
Personal Access Line(R)(800-225-5478, press 1) or Nvest Funds Web site
(www.nvestfunds.com) to purchase Fund shares. For more information, see the
section entitled "Shareholder Services."
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of the Fund's Class A, B and C shares. Payment must
be received by the Distributor within three business days following the
transaction date or the order will be subject to cancellation. Telephone orders
must be placed through the Distributor or your investment dealer.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules as summarized in the
Prospectus may apply.
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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 net asset value of Fund shares is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading. The
Exchange is scheduled to be closed on the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. Net asset value per share is
determined by dividing the value of the total assets of the Fund, less all
liabilities, by the total number of shares outstanding.
The net asset value of the Portfolio is determined based upon the nature
of the securities as set forth in the prospectus and statement of additional
information of such Portfolio. Shares of the Portfolio in which the Fund may
invest are valued at the net asset value per share of the Portfolio as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading. The net asset value per share of the Portfolio will be calculated and
reported to the Fund by the Portfolio's accounting agent.
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REDUCED SALES CHARGES
CLASS A SHARES ONLY
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Special purchase plans are summarized in the text of the Prospectus.
CUMULATIVE PURCHASE DISCOUNT. The 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 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
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
Nvest Cash Management Trust and Nvest Tax Exempt Money Market Trust (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 the Fund at a reduced sales
charge of 1.50% of the public offering price (or 1.52% of the net amount
invested); for large purchases on which a sales charge of less than 1.50% would
ordinarily apply, such lower charge also applies to investments of unit
investment trust distributions.
CLIENTS OF ADVISERS OR SUBADVISERS. No sales charge or contingent deferred
sales charge applies to investments of $25,000 or more in Class A shares of the
Fund 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; and 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
sales charge, CDSC or initial investment minimum related to investments in Class
A shares of the Fund by any of the Trusts' advisers or subadvisers, Nvest Funds
Distributor, L.P. 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
Nvest Funds Distributor, L.P.; 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 contingent
deferred sales charge related to investments in Class A shares of the Fund by
any state, county or city or any instrumentality, department, authority or
agency thereof that has determined that the Fund is a legally permissible
investment and that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered investment company.
INVESTMENT ADVISORY ACCOUNTS. Shares of the Fund may be purchased at net
asset value by investment advisers, financial planners or other intermediaries
who place trades for their own accounts or the accounts of their clients and who
charge a management, consulting or other fee for their services; clients of such
investment advisers, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment adviser, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Sections 401(a), 403(b), 401(k) and 457 of the Code and "rabbi
trusts." Investors may be charged a fee if they effect transactions through a
broker or agent.
CERTAIN BROKER-DEALERS AND FINANCIAL SERVICES ORGANIZATIONS. Shares of the
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 receive compensation based upon the average value of the Fund
shares held by their customers. This compensation may be paid by Nvest
Management 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 Fund are available at net asset
value for investments by participant-directed 401(a) and 401(k) plans that have
100 or more eligible employees or by retirement plans whose third party
administrator or dealer has entered into a service agreement with the
Distributor to perform certain administrative services, subject to certain
operational and minimum size requirements specified from time to time by the
Distributor. This compensation may be paid indirectly by the Fund in the form of
service and/or distribution fees.
BANK TRUST DEPARTMENTS OR TRUST COMPANIES. Shares of the Fund are
available at net asset value for investments by non-discretionary and
non-retirement accounts of bank trust departments or trust companies, but are
unavailable if the trust department or institution is part of an organization
not principally engaged in banking or trust activities.
SHAREHOLDERS OF REICH AND TANG GOVERNMENT SECURITIES TRUST. Shareholders
of Reich and Tang Government Securities Trust may exchange their shares of that
fund for Class A shares of the Fund at net asset value and without imposition of
a sales charge.
The reduction or elimination of the sales charges in connection with the
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 financial
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 Portfolio
under the Service Agreement and no direct charges are made to shareholders.
Although the Fund has 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 the Fund's investor eligibility requirements, investors may
automatically invest in additional shares of the Fund on a monthly basis by
authorizing Nvest Funds Distributor, L.P. 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 Nvest Funds Distributor, L.P. at 800-225-5478 or your
investment dealer.
The Investment Builder Program is voluntary and may be terminated at any
time by Nvest Services Company upon notice to existing plan participants or at
any time by the investor by written notice to Nvest Services Company, which must
be received at least five business days prior to any payment date. The plan may
be discontinued by State Street Bank at any time without prior notice if any
check is not paid upon presentation; or by written notice to you at least thirty
days prior to any payment date. State Street Bank is under no obligation to
notify shareholders as to the nonpayment of any check.
RETIREMENT PLANS OFFERING TAX BENEFITS
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the Fund or with certain
other investments. The plans include H.R. 10 (Keogh) plans for self-employed
individuals and partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans, and retirement
plans for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the Prospectus. For these plans, initial
investments in the Fund must be at least $250 for each participant in corporate
pension and profit sharing plans and Keogh plans, and $100 for 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). Plan documents and further information can be obtained from Nvest
Funds Distributor, L.P.
An investor should consult a competent tax or other adviser as to the
suitability of the Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and as to the eligibility requirements for a specific plan and its
state as well as federal tax aspects.
SYSTEMATIC WITHDRAWAL PLANS
An investor owning the Fund's shares having a value of $5,000 or more at
the current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or Nvest Funds Distributor, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of the Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or, to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in your account. No CDSC applies to a redemption pursuant to
the Plan.
All shares under the Plan must be held in an open (uncertified) 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 Fund
and Nvest Funds Distributor, L.P. 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 Fund and Nvest Funds Distributor,
L.P. 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.
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.
EXCHANGE PRIVILEGE
A shareholder may exchange the shares of the Fund 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.
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 Nvest Fund, the shares received in
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 the Fund for shares of the same class of the
Money Market Funds. On all exchanges of Class A or Class 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 Nvest 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. 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 Nvest Services Company, P.O. Box 8551,
Boston, MA 02266-8551. You must acknowledge receipt of a current Prospectus for
a Nvest Fund before an exchange for that Fund can be effected. For federal
income tax purposes, an exchange is treated as a sale of shares, and, therefore,
would be considered a taxable event on which you may realize a gain or a loss.
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 and the Money Market Funds
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 VALUE FUND seeks a reasonable long-term investment return from a
combination of market appreciation and dividend income from equity securities.
NVEST BALANCED FUND seeks a reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
NVEST GROWTH AND INCOME FUND seeks opportunities for long-term growth of
capital and income.
NVEST INTERNATIONAL EQUITY FUND seeks total return from long-term growth
of capital and dividend income primarily through investment in a diversified
portfolio of marketable international equity securities.
NVEST STAR ADVISERS FUND seeks long-term growth of capital.
NVEST STAR WORLDWIDE FUND seeks long-term growth of capital.
NVEST STAR SMALL CAP FUND seeks capital appreciation.
NVEST EQUITY INCOME FUND seeks current income and capital growth.
NVEST BULLSEYE FUND seeks long-term growth of capital.
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.
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.
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 the
Adviser believes have better than average long-term potential.
As of December 31, 1999 the net assets of the Nvest Funds totaled over $8
billion.
AUTOMATIC EXCHANGE PLAN (CLASS A, B AND C SHARES)
As described in the Prospectus in the "Additional Investor Services"
section, a shareholder may establish an Automatic Exchange Plan under which
shares of the Fund are automatically exchanged each month for shares of the same
class of one or more of the other Nvest Funds. Registration on all accounts must
be identical. The exchanges are made on the 15th of each month or the first
business day thereafter if the 15th is not a business day until the account is
exhausted or until Nvest Funds Distributor, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $100 or over. The
Service Options Form is available from Nvest Funds Distributor, L.P. or your
financial representative to establish an Automatic Exchange Plan.
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 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 on-line 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
- --------------------------------------------------------------------------------
The procedures for redemption of shares of the Fund are summarized in the
Prospectus. As described in the Prospectus, a CDSC may be imposed on certain
purchases of Class A, Class B, and Class C shares. For purposes of the CDSC, an
exchange of shares from one Fund to another Fund is not considered a redemption
or a purchase. For federal tax purposes, however, such an exchange is considered
a sale and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or loss. In determining whether a CDSC is
applicable to a redemption of Class A, Class B or Class C shares, the
calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, for Class B shares it will be assumed that the
redemption is first of any Class A shares in the shareholder's Fund account,
second of shares held for over six years, third of shares issued in connection
with dividend reinvestment and fourth of shares held longest during the six-year
period. For Class C shares and Class A shares subject to CDSC, it will be
assumed that the redemption is first of any shares that have been in the
shareholder's Fund account for over a year, and second of any shares that have
been in the shareholder's Fund account for under a year. The charge will not be
applied to dollar amounts representing an increase in the net asset value of
shares since the time of purchase or reinvested distributions associated with
such shares. Unless you request otherwise at the time of redemption, the CDSC is
deducted from the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 Class B shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares under dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4%
(the applicable rate in the second year after purchase).
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the 1934 Act, as
amended. 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 the Fund may be redeemed by calling toll free
800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds.
Telephone redemption requests must be received by the close of regular trading
on the Exchange. Requests made after that time or on a day when the Exchange is
not open for business cannot be accepted and a new request on a later day will
be necessary. The proceeds of a telephone withdrawal will normally be sent on
the first business day following receipt of a proper redemption request.
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 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 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 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 Fund reserves the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
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 Internal Revenue Code of 1986, as amended (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.
The Fund will normally redeem shares for cash; however, the Fund reserves
the right to pay the redemption price wholly or partly in kind if the Trust's
board of Trustees determines it to be advisable and in the interest of the
remaining shareholders of the Fund. If portfolio securities are distributed in
lieu of cash, the shareholder may incur fees upon subsequent disposition of any
such securities. Securities distributed by the Fund in kind will be selected by
the adviser or 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. The Fund does not currently intend to impose any redemption charge
(other than the CDSC imposed by the Fund's distributor), although they reserve
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 Fund may also close your account and send you the proceeds if the
balance in your account falls below a minimum amount set by the 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 Fund should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
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STANDARD PERFORMANCE MEASURES
- --------------------------------------------------------------------------------
CALCULATIONS OF YIELD. The Fund may advertise the yield of its Class A,
Class B and Class C 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. The Fund's yield will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses of the Trust
allocated to the Fund. These factors, possible differences in the methods used
in calculating yield and the tax exempt status of distributions should be
considered when comparing the 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 the Fund. 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 Fund 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 the 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 the Fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically reinvested in
shares of the same class of that Fund rather than paid to the investor in cash.
The 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 Fund 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 $1,000 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 the Fund.
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. The
Fund may from time to time include its yield and total return in advertisements
or in information furnished to present or prospective shareholders. The Fund may
from time to time include in advertisements its total return and the ranking of
those performance figures relative to such figures for groups of mutual funds
categorized by Morningstar, Inc. or Lipper, Inc., 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
New York Stock 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 MidCap 400 Index consists of 400 domestic stocks
chosen for market size, liquidity, and industry group representation. It is also
a market-value weighted index and was the first benchmark of midcap stock price
movement.
The Standard & Poor's SmallCap 600 Index consists of 600 domestic stocks
chosen for market size, liquidity, (bid-asked spread, ownership, share turnover
and number of no trade days) and industry group representation. It is a
market-value weighted index (stock price times the number of shares
outstanding), with each stock's weight in the Index proportionate to its market
value.
The Salomon Brothers World Government Bond Index includes a broad range of
institutionally-traded fixed-rate government securities issued by the national
governments of the nine countries whose securities are most actively traded.
This index generally excludes floating- or variable-rate bonds, securities aimed
principally at non-institutional investors (such as U.S. Savings Bonds) and
private-placement type securities.
The Lehman Government Bond Index (the "Lehman Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; 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. Mortgage-backed securities, flower bonds and foreign targeted issues
are not included in the Lehman Government Index.
The Lehman Government/Corporate Bond Index (the "Lehman
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the Lehman Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rated
agency such as Standard & Poor's Ratings Group ("S&P") and Moody's Investors
Service, Inc.
("Moody's").
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 39,800 bonds.
The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock Exchange.
The Salomon Brothers Broad Investment Grade Bond Index is a price
composite of a broad range of institutionally based U.S. Government
mortgage-backed and corporate debt securities of investment outstanding of at
least $1 million and with a remaining period to maturity of at least one year.
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 Fund may cite its ratings, recognition, or other mention by
Morningstar, Inc. ("Morningstar") or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is expressed in a
star-rating format. The risk-adjusted number is computed by subtracting a fund's
risk score (which is a function of the fund's monthly returns less the 3-month
T-bill return) from the fund's load-adjusted total return score. This numerical
score is then translated into rating categories, with the top 10% labeled five
star, the next 22.5% labeled four star, the next 35% labeled three star, the
next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects
either above-average returns or below-average risk or both. The Fund may also
compare its performance or ranking against all funds tracked by Morningstar or
another independent service, including Lipper, Inc. ("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 the Fund to a different category or develop
(and place the Fund into) a new category, that Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service. The Fund may also compare its performance or ranking against all
funds tracked by Lipper or another independent service, including Morningstar,
Inc.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 on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ Stock Market. 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 "EAFE Index") is a market-value weighted and unmanaged index of
common stocks traded outside the U.S. 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 value (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-value
weighted and unmanaged index of common stocks traded outside the U.S. 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 Value Line Index is an unmanaged and unweighted average of more than
1,000 stocks.
Articles and releases, developed by the Fund and other parties, about the
Fund regarding performance, rankings, statistics and analyses of the individual
Fund's 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, Inc. and Morningstar.
References to these rankings or reviews or reprints of such articles may be used
in the Fund's 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 its 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 Fund's advertising and promotional
literature, see Appendix C.
The Fund may use the accumulation charts below in its advertisements to
demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
INVESTMENTS AT 8% RATE OF RETURN
5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
---------------------------------------------------------------------
$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 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
---------------------------------------------------------------------
$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 Fund's 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 Fund's advertising and sales literature may include
historical and current performance and total returns of investment alternatives
to the Nvest Funds. Articles, releases, advertising and literature may discuss
the range of services offered by the Trust and Nvest Funds Distributor, L.P., as
distributor and transfer agent of the Fund, with respect to investing in shares
of the Fund and customer service. Such materials may discuss the multiple
classes of shares available through the Trust and their features and benefits,
including the details of the pricing structure.
Nvest Funds Distributor, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and rates 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 Nvest
Funds Distributor, L.P.'s selection including, but not limited to, the scores
and categories in which Nvest Funds Distributor, L.P. excelled, the names of
funds and fund companies that have previously won the award and comparative
information and data about those against whom Nvest Funds Distributor, L.P.
competed for the award, honor or citation.
Nvest Funds Distributor, L.P. 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 Nvest Funds
Distributor, L.P.
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 Fund may enter into arrangements with banks exempted from
broker-dealer registration under the 1934 Act. Advertising and sales literature
developed to publicize such arrangements will explain the relationship of the
bank to the Nvest Funds and Nvest Funds Distributor, L.P. as well as the
services provided by the bank relative to the Fund. The material may identify
the bank by name and discuss the history of the bank including, but not limited
to, the type of bank, its asset size, the nature of its business and services
and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Fund's prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUND
- --------------------------------------------------------------------------------
The performance information below shows the Portfolio's aggregate and
average annual total returns for the one-year, five-year and since-inception
periods as of December 31, 1999, as applicable. The Portfolio's total returns
are adjusted to reflect the Fund's expenses for Class A, B and C shares.
PERFORMANCE RESULTS - PERCENT CHANGE
For the Periods ended 12/31/99
SELECT FUND
AVERAGE ANNUAL TOTAL RETURN AGGREGATE TOTAL
RETURN
1 YEAR SINCE 1 YEAR SINCE
INCEPTION* INCEPTION*
CLASS A SHARES: AS A
% OF:
Net Asset Value 14.14% 30.72% 14.14% 133.45%
Maximum Offering Price 7.58% 28.30% 7.58% 120.02%
CLASS B SHARES: AS A
% OF:
Net Asset Value 13.39% 29.94% 13.39% 129.05%
Maximum Offering Price 8.39% 29.40% 8.39% 126.05%
CLASS C SHARES: AS A
% OF:
Net Asset Value 13.39% 29.94% 13.39% 129.05%
Maximum Offering Price 12.39% 29.94% 12.39% 129.05%
* Calculated from November 1, 1996.
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INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus, it is the policy of the Fund to pay its
shareholders, as dividends, substantially all net investment income and net
short-term capital gains and to distribute annually all net realized long-term
capital gains, if any, after offsetting any capital loss carryovers.
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 business on the Exchange on the
record date for each dividend or distribution. Shareholders, however, may elect
to receive their 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 Distributor, L.P. In order for a change to be in effect
for any dividend or distribution, it must be received by Nvest Funds
Distributor, L.P. on or before the record date for such dividend or
distribution. If you elect to receive your dividends in cash and the dividend
checks sent to you are returned "undeliverable" to the Fund or remain uncashed
for six months, your cash election will automatically be changed and your future
dividends will be reinvested. No interest will accrue on amounts represented by
uncashed dividend or redemption checks.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order to qualify, the Fund must, among other
things, (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, gains from the sale of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; (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 and cash items, including receivables, 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 U.S. Government Securities or securities of 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, the Fund generally will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gains
distributions.
If the Fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the Fund would be subject to tax on
its taxable income at corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to shareholders as ordinary income. In addition,
the Fund could be required to recognize unrealized gains, pay substantial taxes
and interest and make substantial distributions before requalifying as a
regulated investment company that is accorded special tax treatment.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over its actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 (or December 31, if the Fund is
so permitted to elect and so elects) plus undistributed amounts from prior
years. The Fund intends to make distributions sufficient to avoid imposition of
the excise tax. Distributions declared by the Fund during October, November or
December to shareholders of record on a date in any such month and paid by the
Fund during the following January will be treated for federal tax purposes as
paid by the Fund and received by shareholders on December 31 of the year in
which declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. If the Portfolio
derives dividends from domestic corporations, a portion of the dividends paid by
the Fund that invests in the Portfolio may qualify for the deduction for
dividends received by corporations. Properly designated distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gain
dividends paid to the shareholder with respect to such shares.
Dividends and distributions on the Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses.
If the Fund were to choose to invest in more than one Portfolio, the Fund
would not be able to offset gains realized by one Portfolio in which such Fund
invests against losses realized by another Portfolio in which such Fund invests.
The Fund's use of a fund of funds structure could therefore adversely affect the
amount, timing and character of distributions to shareholders.
Income received by the Portfolio from sources within a foreign country may
be subject to withholding and other taxes imposed by that country. If more than
50% of the value of an underlying Portfolio's total assets at the close of its
taxable year consists of stock or securities of foreign corporations, the
Portfolio will be eligible and may elect to "pass-through" to its shareholders,
including the Fund, the amount of foreign income and similar taxes paid by the
Portfolio. Pursuant to this election, the Fund would be required to include in
gross income (in addition to taxable dividends actually received) its pro rata
share of the foreign income and similar taxes paid by the Portfolio, and would
be entitled either to deduct its pro rata share of foreign income and similar
taxes in computing its taxable income or to use it as a foreign tax credit
against its U.S. federal income taxes, subject to limitations. The Fund would
not, however, be eligible to elect to "pass-through" to its shareholders the
ability to claim a deduction or credit with respect to foreign income and
similar taxes paid by the Portfolio.
The Portfolio's transactions, if any, in foreign currencies are likely to
result in a difference between the Portfolio's book income and taxable income.
This difference may cause a portion of the Portfolio's income distributions to
constitute a return of capital gain for tax purposes or require the Portfolio to
make distributions exceeding book income to avoid excise tax liability and to
qualify as a regulated investment company.
The Fund may receive exempt-interest dividends from its investment in the
Portfolio. The Fund is not, however, eligible to "pass-through" to its
shareholders such tax-exempt income since it holds share only of the Portfolio.
Redemptions and exchanges of the 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 (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. In some cases,
shareholders will not be permitted to take sales charges into account for
purposes of determining the amount of gain or loss realized on the disposition
of their Fund shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the shares, (2) the shares are
disposed of before the 91st day after the date on which they were acquired, and
(3) the shareholder subsequently acquires shares of the same or another Fund or
fund and the otherwise applicable sales charge is reduced under a "reinvestment
right" received upon the initial purchase of shares. The term "reinvestment
right" means any right to acquire stock of one or more funds (including the
Fund) without the payment of a sales charge or with the payment of a reduced
sales charge. Sales charges affected by this rule are treated as if they were
incurred with respect to the shares acquired under the reinvestment right. This
provision may be applied to successive acquisitions of Fund shares.
The Fund may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
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.
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).
The Portfolio intends to qualify annually and elects to be treated as a
regulated investment company under the Code. In any year in which the Portfolio
qualifies as a regulated investment company and timely distributes all of its
taxable income, the Portfolio generally will not pay any federal income or
excise tax, and the corresponding Fund will qualify as a regulated investment
company.
Distributions of the Portfolio's ordinary income and net short-term
capital gains are treated as ordinary income by the Fund that invests in the
Portfolio. Properly designated distributions of the Portfolio's net long-term
capital gains are treated as long-term capital gain by the Fund that invests in
the Portfolio, regardless of how long the Fund held the Portfolio's shares.
Depending on the Fund's percentage ownership in the Portfolio both before
and after a redemption, the Fund's redemption of shares of such Portfolio may
cause the Fund to be treated as not receiving capital gain income on the amount
by which the distribution exceeds the Fund's tax basis in the shares of the
Portfolio, but instead to be treated as receiving a dividend taxable as ordinary
income on the full amount of the distribution. This could cause shareholders of
the Fund to recognize higher amounts of ordinary income than if the shareholders
had held the shares of the Portfolio directly.
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MISCELLANEOUS INVESTMENT PRACTICES OF THE PORTFOLIO
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The following information relates to certain investment practices in which
Harris Associates may engage, whether as a primary or secondary strategy for the
Portfolio:
SECURITIES OF NON-U.S. ISSUERS. The Portfolio each may invest a minor portion of
its assets (up to 25%) in securities of non-U.S. issuers.
International investing permits an investor to take advantage of the
growth in markets outside the United States. Investing in securities of non-U.S.
issuers may entail a greater degree of risk (including risks relating to
exchange rate fluctuations, tax provisions, or expropriation of assets) than
does investment in securities of domestic issuers. The Portfolio may invest in
securities of non-U.S. issuers directly or in the form of American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), or other securities representing underlying shares of foreign issuers.
Positions in these securities are not necessarily denominated in the same
currency as the common stocks into which they may be converted. ADRs are
receipts typically issued by an American bank or trust company and trading in
U.S. markets evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. Generally ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. GDRs are
receipts that may trade in U.S. or non-U.S. markets. The Portfolio may invest in
both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored depositary
receipt, the issuer typically pays some or all of the expenses of the depository
and agrees to provide its regular shareholder communications to depositary
receipt holders. An unsponsored depositary receipt is created independently of
the issuer of the underlying security. The depositary receipt holders generally
pay the expenses of the depository and do not have an undertaking from the
issuer of the underlying security to furnish shareholder communications.
With respect to portfolio securities of non-U.S. issuers or denominated in
foreign currencies, the Portfolio's investment performance is affected by the
strength or weakness of the U.S. dollar against these currencies. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions."
You should understand and consider carefully the risks involved in
international investing. Investing in securities of non-U.S. issuers, which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; different accounting, auditing and financial reporting standards;
different settlement periods and trading practices; less liquidity and
frequently greater price volatility; imposition of foreign taxes; and sometimes
less advantageous legal, operational and financial protections applicable to
foreign subcustodial arrangements.
Although the Portfolio tries to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation of assets, confiscatory taxation, seizure or nationalization of
foreign bank deposits or other assets, establishment of exchange controls, the
adoption of foreign government restrictions, or other political, social or
diplomatic developments that could adversely affect investment in these
countries.
EMERGING MARKETS. Investments in emerging markets securities include special
risks in addition to those generally associated with foreign investing. Many
investments in emerging markets can be considered speculative, and the value of
those investments can be more volatile than in more developed foreign markets.
This difference reflects the greater uncertainties of investing in less
established markets and economies. Emerging markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets is
uninvested and no return is earned thereon. The inability to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Portfolio due to subsequent declines in the value of those securities or, if the
Portfolio has entered into a contract to sell a security, in possible liability
to the purchaser. Costs associated with transactions in emerging markets
securities are typically higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain foreign markets (including emerging markets) may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in an emerging market's balance of payments or for other
reasons, a country could impose temporary restrictions on foreign capital
remittances. The Portfolio could be adversely affected by delays in, or a
refusal to grant, required governmental approval for repatriation of capital, as
well as by the application to the Portfolio of any restrictions on investments.
The risk also exists that an emergency situation may arise in one or more
emerging markets. As a result, trading of securities may cease or may be
substantially curtailed and prices for the Portfolio's securities in such
markets may not be readily available. The Portfolio may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
SEC. Accordingly, if the Portfolio believes that appropriate circumstances
exist, it will promptly apply to the SEC for a determination that such an
emergency is present. During the period commencing from the Portfolio's
identification of such condition until the date of the SEC action, that
Portfolio's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Portfolio's board of
trustees.
Income from securities held by the Portfolio could be reduced by taxes
withheld from that income, or other taxes that may be imposed by the emerging
market countries in which the Portfolio invests. Net asset value of the
Portfolio may also be affected by changes in the rates or methods of taxation
applicable to the Portfolio or to entities in which the Portfolio has invested.
Many emerging markets have experienced substantial rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have adverse effects on the economies and securities markets of
certain emerging market countries. In an attempt to control inflation, certain
emerging market countries have imposed wage and price controls. Of these
countries, some, in recent years, have begun to control inflation through
prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest or principal on debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through ownership or control of many companies. The future actions of those
governments could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities in
the Portfolio's portfolio. Expropriation, confiscatory taxation,
nationalization, political, economic and social instability have occurred
throughout the history of certain emerging market countries and could adversely
affect Portfolio assets should any of those conditions recur.
CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may enter into currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate for purchasing
or selling currency prevailing in the foreign exchange market or through a
forward currency exchange contract ("forward contract"). A forward contract is
an agreement to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the contract.
Forward contracts are usually entered into with banks, foreign exchange dealers
or broker/dealers, are not exchange-traded and are usually for less than one
year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Portfolio may invest, and serve as hedges against
possible variations in the exchange rate between these currencies. The
Portfolio's currency transactions are limited to transaction hedging and
portfolio hedging involving either specific transactions or actual or
anticipated portfolio positions. Transaction hedging is the purchase or sale of
a forward contract with respect to specific receivables or payables of the
Portfolio accruing in connection with the purchase or sale of portfolio
securities. Portfolio hedging is the use of a forward contract with respect to
an actual or anticipated portfolio security position denominated or quoted in a
particular currency. When the Portfolio owns or anticipates owning securities in
countries whose currencies are linked, the Portfolio may aggregate such
positions as to the currency hedged.
If the Portfolio enters into a forward contract hedging an anticipated or
actual holding of portfolio securities, liquid assets of the Portfolio, having a
value at least as great as the amount of the excess, if any, of the Portfolio's
commitment under the forward contract over the value of the portfolio position
being hedged, will be segregated on the books of the Portfolio and held by the
Portfolio's custodian and marked to market daily, while the contract is
outstanding.
At the maturity of a forward contract to deliver a particular currency,
the Portfolio may sell the portfolio security related to such contract and make
delivery of the currency received from the sale, or it may retain the security
and either purchase the currency on the spot market or terminate its contractual
obligation to deliver the currency by entering into an offsetting contract with
the same currency trader for the purchase on the same maturity date of the same
amount of the currency.
It is impossible to forecast precisely the market value of the Portfolio
security being hedged with a forward currency contract. Accordingly, at the
maturity of a contract it may be necessary for the Portfolio to purchase
additional currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of currency the
Portfolio is obligated to deliver under the forward contract and if a decision
is made to sell the security and make delivery of the currency. Conversely, it
may be necessary to sell on the spot market some of the currency received upon
the sale of the portfolio security if the sale proceeds exceed the amount of
currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If the Portfolio
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the currency. Should forward prices decline during the
period between the Portfolio's entering into a forward contract for the sale of
a currency and the date it enters into an offsetting contract for the purchase
of the currency, the Portfolio will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Portfolio will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell. A default on the contract would
deprive the Portfolio of unrealized profits or force the Portfolio to cover its
commitments for purchase or sale of currency, if any, at the current market
price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Portfolio of engaging in currency exchange transactions varies with such factors
as the currency involved, the length of the contract period, and prevailing
market conditions. Since currency exchange transactions are usually conducted on
a principal basis, no fees or commissions are involved.
EUROPEAN CURRENCY UNIFICATION. Effective January 1, 1999, eleven of the fifteen
member countries of the European Union adopted a single European currency, the
euro. The countries participating in the Economic and Monetary Union ("EMU") are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. The four European Union countries not currently
participating in the EMU are Great Britain, Denmark, Sweden and Greece. A new
European Central Bank manages the monetary policy of the new unified region, and
the exchange rates among the EMU member countries are permanently fixed.
National currencies will continue to circulate until they are replaced by euro
coins and bank notes by the middle of 2002.
This change is likely to impact significantly the European capital markets
in which the Portfolio may invest its assets. The change to the new euro
currency could have adverse effects on the Portfolio's ability to value its
portfolio holdings in foreign securities, and could increase the costs
associated with the Portfolio's operations. Harris Associatesis working with the
providers of services to the Portfolio in the areas of clearance and settlement
of trades in an effort to avoid any material impact on the Portfolio due to the
euro conversion; there can be no assurance, however, that the steps taken by
Harris Associateswill be sufficient to avoid any adverse impact on the
Portfolio.
DEBT SECURITIES. The Portfolio may invest in debt securities, including
lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's
("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly
called "junk bonds")and securities that are not rated. There are no restrictions
as to the ratings of debt securities acquired by the Portfolio or the portion of
the Portfolio's assets that may be invested in debt securities in a particular
ratings category, except that the Portfolio will not invest more than 25% of its
total assets in such securities.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in making their principal and interest payments.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and the Portfolio may have greater difficulty selling
its portfolio securities. The market value of those securities and their
liquidity may be affected by adverse publicity and investor perceptions.
A description of the characteristics of bonds in each ratings category is
included in the appendix to this statement of additional information.
WHEN-ISSUED, DELAYED-DELIVERY AND OTHER SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the Portfolio
enters into the commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have changed. The
Portfolio makes such commitments only with the intention of actually acquiring
the securities, but may sell the securities before settlement date if Harris
Associates deems it advisable for investment reasons. The Portfolio may utilize
spot and forward foreign currency exchange transactions to reduce the risk
inherent in fluctuations in the exchange rate between one currency and another
when securities are purchased or sold on a when-issued or delayed-delivered
basis.
At the time the Portfolio enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets of the Portfolio having a value
at least as great as the purchase price of the securities to be purchased will
be segregated on the books of the Portfolio and held by the custodian throughout
the period of the obligation. The use of these investment strategies, as well as
any borrowing by the Portfolio, may increase net asset value fluctuation.
The Portfolio may also enter into a contract with a third party that
provides for the sale of securities held by the Portfolio at a set price, with a
contingent right for the Portfolio to receive additional proceeds from the
purchaser upon the occurrence of designated future events, such as a tender
offer for the securities of the subject company by the purchaser, and
satisfaction of any applicable conditions. Under such an arrangement, the amount
of contingent proceeds that the Portfolio will receive from the purchaser, if
any, will generally not be determinable at the time such securities are sold.
The Portfolio's rights under such an arrangement will not be secured and the
Portfolio may not receive the contingent payment if the purchaser does not have
the resources to make the payment. The Portfolio's rights under such an
arrangement also generally will be illiquid and subject to the limitations on
ownership of illiquid securities.
ILLIQUID SECURITIES. The Portfolio may not invest in illiquid securities, if as
a result such securities would comprise more than 15% of the value of the
Portfolio's assets.
If through the appreciation of illiquid securities or the depreciation of
liquid securities, the Portfolio should be in a position where more than 15% of
the value of its net assets are invested in illiquid assets, including
restricted securities, the Portfolio will take appropriate steps to protect
liquidity.
Illiquid securities may include restricted securities, which may be sold
only in privately negotiated transactions or in a public offering with respect
to which a registration statement is in effect under the Securities Act of 1933
(the "1933 Act"). Where the Portfolio holds restricted securities and
registration is required, the Portfolio may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the board of
trustees.
Notwithstanding the above, the Portfolio may purchase securities that,
although privately placed, are eligible for purchase and sale under Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Portfolio, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. Harris Associates, under the
supervision of the board of trustees, may consider whether securities purchased
under Rule 144A are liquid and thus not subject to the Portfolio's restriction
of investing no more than 15% of its assets in illiquid securities. (See
restriction 13 under "Investment Restrictions.") A determination of whether a
Rule 144A security is liquid or not is a question of fact. In making this
determination Harris Associates will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, Harris Associatescould consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, (4) and the nature of the security and of market
place trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of the Portfolio's assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.
SHORT SALES. The Portfolio may sell securities short, on a limited basis, 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 Portfolio's
short positions remain open. The Portfolio may make short sales of securities
only if at all times when a short position is open the Portfolio owns at least
an equal amount of such securities or securities convertible into or
exchangeable for, or anticipated to be convertible into or exchangeable for,
securities of the same issue as, and equal in amount to, the securities sold
short with no restriction other than the payment of additional consideration.
In a short sale, the Portfolio does not deliver from its portfolio the
securities sold and does not receive immediately the proceeds from the short
sale. Instead, the Portfolio 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 Portfolio, to the purchaser of such
securities. Such broker/dealer is entitled to retain the proceeds from the short
sale until the Portfolio delivers to such broker/dealer the securities sold
short. In addition, the Portfolio is required to pay to 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
Portfolio must deposit and continuously maintain in a separate account with the
Portfolio'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. The Portfolio 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 Portfolio receives the proceeds of the sale.
The Portfolio 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 the Portfolio against the 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 upon the amount of securities sold short relative to the amount the
Portfolio owns, either directly or indirectly, and, in the case where the
Portfolio 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 Portfolio replaces the borrowed security, the Portfolio will incur a loss
and if the price declines during this period, the Portfolio 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 Portfolio may have to pay in connection
with such short sale. Certain provisions of the Internal Revenue Code may limit
the degree to which the Portfolio is able to enter into short sales. There is no
limitation on the amount of the Portfolio'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. The Portfolio currently does not expects that more than 20% of its total
assets would be involved in short sales.
PRIVATE PLACEMENTS. The Portfolio may acquire securities in private placements.
Because an active trading market may not exist for such securities, the sale of
such securities may be subject to delay and additional costs. The Portfolio will
not purchase such a security if more than 15% of the value of the Portfolio's
net assets would be invested in illiquid securities.
LENDING OF PORTFOLIO SECURITIES. The Portfolio except Oakmark Fund may lend its
portfolio securities to broker/dealers and banks to the extent indicated in
restriction 7 under the section entitled "Investment Restrictions of the Harris
Associate Portfolio." Any such loan must be continuously secured by collateral
in cash or cash equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Portfolio. The
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also receive an
additional return that may be in the form of a fixed fee or a percentage of the
earnings on the collateral. The Portfolio would have the right to call the loan
and obtain the securities loaned at any time on notice of not more than five
business days. In the event of bankruptcy or other default of the borrower, the
Portfolio could experience delays in liquidating the loan collateral or
recovering the loaned securities and incur expenses related to enforcing its
rights. In addition, there could be a decline in the value of the collateral or
in the value of the securities loaned while the Portfolio seeks to enforce its
rights thereto and the Portfolio could experience subnormal levels of income and
lack of access to income during this period.
OTHER INVESTMENT COMPANIES. Certain markets are closed in whole or in part to
direct equity investments by foreigners. The Portfolio may be able to invest in
such markets solely or primarily through governmentally authorized investment
vehicles or companies.
The Portfolio generally may invest up to 10% of its assets in the
aggregate in shares of other investment companies and up to 5% of its assets in
any one investment company, as long as no investment represents more than 3% of
the outstanding voting stock of the acquired investment company at the time of
investment.
Investment in another investment company may involve the payment of a
premium above the value of such issuers' portfolio securities, and is subject to
market availability. The Portfolio does not intend to invest in such vehicles or
funds unless, in the judgment of Harris Associates, the potential benefits of
the investment justify the payment of any applicable premium or sales charge. As
a shareholder in an investment company, the Portfolio would bear its ratable
share of that investment company's expenses, including its advisory and
administration fees. At the same time the Portfolio would continue to pay its
own management fees and other expenses.
OPTIONS. The Portfolio may purchase and sell both call options and put options
on securities. An option on a security is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of an option on an individual security has the obligation upon
exercise of a call option to deliver the underlying security upon payment of the
exercise price or upon exercise of a put option to pay the exercise price upon
delivery of the underlying security.
It is expected that the Portfolio will not purchase a call option or a put
option if the aggregate value of all call and put options held by the Portfolio
would exceed 5% of the Portfolio's net assets.
The Portfolio will write call options and put options only if they are
"covered." For example, in the case of a call option, the option is "covered" if
the Portfolio owns the security underlying the option or has an absolute and
immediate right to acquire that security without additional consideration (or,
if additional consideration is required, assets having a value at least equal to
that amount are segregated on the books of the Portfolio) upon conversion or
exchange of other securities held in its portfolio.
If an option written by the Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Portfolio expires, the Portfolio realizes a
capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, the writer may close out
the option by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security or index, exercise price and expiration).
There can be no assurance, however, that a closing purchase or sale transaction
can be effected when the Portfolio desires.
If the Portfolio closes out an option it has written, it will realize a
capital gain from a closing purchase transaction if the cost of the closing
option is less than the premium received from writing the option, or, if it is
more, the Portfolio will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase the option,
the Portfolio will realize a capital gain or, if it is less, the Portfolio will
realize a capital loss. The principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price of the underlying security in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by the Portfolio is an asset of the
Portfolio, valued initially at the premium paid for the option. The premium
received for an option written by the Portfolio is recorded as a deferred
credit. The value of an option purchased or written is marked-to-market daily
and is valued at the closing price on the exchange on which it is traded, or, if
not traded on an exchange or no closing price is available, at the mean between
the last bid and asked prices.
There are several risks associates with transactions in options. For
example, there are significant differences between the securities markets and
the options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when, and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the
Portfolio seeks to close out an option position. If the Portfolio was unable to
close out an option that it had purchased on a security, it would have to
exercise the option in order to realize any profit or the option would expire
and become worthless. If the Portfolio was unable to close out a covered call
option that it had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a covered call
option on a security, the Portfolio foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise price of
the call. If trading were suspended in an option purchased or written by the
Portfolio, that Portfolio would not able to close out the option. If
restrictions on exercise were imposed, the Portfolio might be unable to exercise
an option it has purchased.
TEMPORARY STRATEGIES. The Portfolio has the flexibility to respond promptly to
changes in market and economic conditions. In the interest of preserving
shareholders' capital, Harris Associates may employ a temporary defensive
investment strategy if it determines such a strategy to be warranted. Pursuant
to such a defensive strategy, the Portfolio 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 the Portfolio will employ defensive strategies.
In addition, pending investment of proceeds from new sales of Portfolio
shares or to meet ordinary daily cash needs, the Portfolio temporarily may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and may
invest any portion of its assets in money market instruments.
<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, if
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 the 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
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and Affiliates Fortune
Adam Smith's Money World Fox Network and Affiliates
America On Line Fund Action
Anchorage Daily News Fund Decoder
Atlanta Constitution Global Finance
Atlanta Journal (the) Guarantor
Arizona Republic Hartford Courant
Austin American Statesman Houston Chronicle
Baltimore Sun INC
Bank Investment Marketing Indianapolis Star
Barron's Individual Investor
Bergen County Record (NJ) Institutional Investor
Bloomberg Business News International Herald Tribune
Bnai Brith Jewish Monthly Internet
Bond Buyer Investment Advisor
Boston Business Journal Investment Company Institute
Boston Globe Investment Dealers Digest
Boston Herald Investment Profiles
Broker World Investment Vision
Business Radio Network Investor's Daily
Business Week IRA Reporter
CBS and affiliates Journal of Commerce
CFO Kansas City Star
Changing Times KCMO (Kansas City)
Chicago Sun Times KOA-AM (Denver)
Chicago Tribune LA Times
Christian Science Monitor Leckey, Andrew (syndicated column)
Christian Science Monitor News Service Lears
Cincinnati Enquirer Life Association News
Cincinnati Post Lifetime Channel
CNBC Miami Herald
CNN Milwaukee Sentinel
Columbus Dispatch Money
CompuServe Money Maker
Dallas Morning News Money Management Letter
Dallas Times-Herald Morningstar
Denver Post Mutual Fund Market News
Des Moines Register Mutual Funds Magazine
Detroit Free Press National Public Radio
Donoghues Money Fund Report National Underwriter
Dorfman, Dan (syndicated column) NBC and affiliates
Dow Jones News Service New England Business
Economist New England Cable News
FACS of the Week New Orleans Times-Picayune
Forbes Palm Beach Post
Fort Worth Star-Telegram Pension World
Pensions and Investments Standard & Poor's Stock Guide
Personal Investor Stanger's Investment Advisorx
Philadelphia Inquirer Stockbrokers Register
Porter, Sylvia (syndicated column) Strategic Insight
Portland Oregonian Tampa Tribune
Prodigy Time
Public Broadcasting Service Tobias, Andrew (syndicated column)
Quinn, Jane Bryant (syndicated column) Toledo Blade
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business (syndicated column) Wall St. Journal
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry Management WHDH
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook 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, L.P. ("Back Bay Advisors") Harris Associates L.P., Loomis, Sayles
& Company, L.P. ("Loomis Sayles"), Capital Growth Management Limited Partnership
("CGM") and Westpeak Investment Advisors, L.P. ("Westpeak"). Reference also may
be made to the Fund of its fund groups, namely, the Oakmark Funds.
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., Marlborough Capital Advisors,
L.P., Reich & Tang Capital Management, Reich and Tang Mutual Funds Group and
Jurika & Voyles and their fund group.
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 Corporation ("Janus Capital"),
Montgomery Asset Management, L.P. ("Montgomery") and Robertson, Stephens &
Company Investment Management, L.P. ("Robertson Stephens").
Nvest Funds' advertising and promotional material will include, but is not
limited to, discussions of the following information about both affiliated and
unaffiliated entities:
o Specific and general assessments and forecasts regarding U.S., world
economies, the economics of specific nations and their impact on the Nvest
Funds
o Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions
o Specific and general investment philosophies, strategies, processes,
techniques and types of analysis
o Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
o The corporate histories, founding dates and names of founders of the entities
o Awards, honors and recognition given to the firms
o The names of those with ownership interest and the percentage of ownership
o The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists, principals and
other staff members and employees
o The specific credentials of the above individuals, including, but not limited
to, previous employment, current and past positions, titles and duties
performed, industry experience, educational background and degrees, awards
and honors
o The specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments
o Current and historical statistics about:
o total dollar amount of assets managed
o Nvest Funds' assets managed in total and by Fund
o the growth of assets
o asset types managed
o numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
o 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 the subadviser.
o The general and specific strategies applied by the advisers in the management
of Nvest Funds portfolios including, but not limited to:
o the pursuit of growth, value, income oriented, risk management or other
strategies
o the manner and degree to which the strategy is pursued
o whether the strategy is conservative, moderate or extreme and an
explanation of other features, attributes
o the types and characteristics of investments sought and specific portfolio
holdings
o the actual or potential impact and result from strategy implementation
o through its own areas of expertise and operations, the value added by
subadvisers to the management process
o 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
o 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.
o Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than Nvest Funds, and those families of
funds, other than Nvest Funds. Specific references may include actual
performance of the underlying Portfolio in addition to adjusted performance
of the Nvest Fund. 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 Fund and other funds managed by the
Funds' adviser and subadvisers, including, but not limited to, those provided
by Morningstar, Lipper, Inc., Forbes and Worth.
In addition, communications and materials developed by Nvest Funds will
make reference to the following information about Nvest Companies and its
affiliates:
Nvest Companies is part of an affiliated group including Nvest, L.P., a
publicly traded company listed on the NYSE. Nvest Companies has 14 principal
subsidiary or affiliated asset management firms, which collectively had more
than $127 billion of assets under management as of September 30, 1999. In
addition, promotional materials may include:
o Specific and general references to Nvest Funds multi-manager approach through
Nvest Companies affiliates and outside firms including, but not limited to,
the following:
o 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
o 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
o in this and other contexts reference may be made to Nvest Funds tagline
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(R).
Financial Adviser Services ("FAS"), a division 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: the Nvest Funds, the Loomis Sayles Funds, the Oakmark Funds and the
Reich & Tang Funds.
FAS 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 FAS and the types of services it provides
which may include: seminars; its 800 number, Web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper, Inc.;
statistics about the advisers', fund groups' or a specific fund's assets under
management; the histories of the advisers and biographical references to
portfolio managers and other staff including, but not limited to, background,
credentials, honors, awards and recognition received by the advisers and their
personnel; and commentary about the advisers, their funds and their personnel
from third-party sources including newspapers, magazines, periodicals, radio,
television or other electronic media.
References may be included in Nvest Funds' advertising and promotional
literature about its 401(k) and retirement plans. The information may include,
but is not limited to:
o Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and 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 firms including, but not limited to, DC Xchange, William
Mercer and other organizations involved in 401(k) and retirement programs
with whom Nvest Funds may or may not have a relationship.
o Specific and general reference 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, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
o Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
o 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 regulation. 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
o 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 o current and prospective ERISA regulation and requirements.
o 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:
o increased employee retention
o reinforcement or creation of morale
o deductibility of contributions for participants
o deductibility of expenses for employers
o tax deferred growth, including illustrations and charts
o loan features and exchanges among accounts
o educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, availability of wholesalers and other personnel.
o Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, Nvest Funds and
investing in its 401(k) and retirement plans, including, but not limited to:
o the significant economies of scale experienced by mutual fund companies
in the 401(k) and retirement benefits arena
o broad choice of investment options and competitive fees
o plan sponsor and participant statements and notices
o the plan prototype, summary descriptions and board resolutions
o plan design and customized proposals
o Trusteeship, record keeping and administration
o the services of State Street Bank, including, but not limited to,
trustee services and tax reporting
o the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
o the services of Trust Consultants Inc. (TCI), including, but not limited
to, sales support, plan record keeping, document service support, plan
sponsor support, compliance testing and Form 5500 preparation.
o Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
o access to expertise on investments
o assistance in interpreting past, present and future market trends and
economic events
o providing information to clients including participants during enrollment
and on an ongoing basis after participation
o promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
Nvest Funds advertising and sales literature will include but it is not
limited to, discussions of the following information regarding Access Shares.
They are:
o an innovative new fund structure that was created specifically for
investors who seek advice through financial representatives.
o offered in recognition of the demand for high quality investment
choices and sound financial advice. Investors who seek advice through
financial representatives may purchase the funds of prominent money
managers and pursue the benefits of:
> access to some of the top investment managers in the business who are among
Nvest Funds Best Minds.
> advantages of advice and sound strategies offered through/by their financial
representative.
> proven track record of the underlying fund.
o sold by commission-based financial intermediaries and representatives.
With public focus on advice and assistance through financial
representatives and consultants, investors are offered a
commission-based alternative to wrap and other advisory arrangements.
o provide financial intermediaries the ability to tap into existing
no-load funds with strong performance records and rankings by
recognized ratings services such as, but not limited to, Morningstar
and Lipper
o intended to bridge the gap between load and no-load funds by providing
access to existing no-load funds on a load basis, including but not
limited to, - targeting investors who seek advice through financial
intermediaries - focusing on pursuing long-term strategies with the
help of an investment adviser.
o intended to level the playing field between fee-based financial advisor
arrangements and the sale of front-end and back-end (contingent
deferred sales charge) shares. e.g., a purchase of Class C Access
shares with an annual 100 basis point 12b-1 fee may compare favorably
on an annual basis with fee-based financial advisor advisory charges.
o intended to increase and diversify the pool of potential investors
available to the underlying mutual fund with the potential to reduce
the underlying fund's expense ratio attributable to fixed costs.
In addition, statistics and other information regarding consumer's demand,
desire and interest in investment and financial advice may be referenced and
incorporated including, but not limited to, information from the Forum for
Investment Advice, the Investment Company Institute, International Association
of Financial Planners, the International Board of Certified Financial Planners
and other financial services organizations.
Comparisons and distinctions may be made between the structure and other
aspects of Master Feeder Funds, which are an underlying master fund or trust to
one or more feeder funds; Clone Funds, which replicate the investment policies
and management of an existing fund; Fund of Funds, which involve layered fees,
expenses and multiple underlying funds, and Access Shares, which are invested in
one underlying fund, including but not limited to:
[] the differences in expenses and costs
[] methods of operations
[] benefits and rewards to investors, including but not limited to, the expense
structure arrangements, the ability to access established funds and the
merits relative to fee-based, wrap and other advisory programs
[] comparisons of the costs of advisory and wrap-fee arrangements
Comparisons and distinctions also may be made to funds in the same asset
categories and details and explanations may be provided regarding how the funds
fit into Nvest Funds overall product line, including but not limited to: product
overlap, style, diversification, risk/reward potential and funds strategies,
objectives and goals.
<PAGE>
NVEST FUNDS(SM)
Where The Best Minds Meet(R)
Nvest Funds Access Shares(SM)
Nvest Core Equity Fund
Nvest Stock and Bond Fund
Nvest Small Cap Value Fund
Nvest Small Cap Growth Fund
Nvest Total Return Bond Fund
Statement of Additional Information
February 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 only authorized for distribution when accompanied or
preceded by the Prospectus of the Funds dated February 1, 2000 for Class A,
Class B or Class C shares, (the "Prospectus"). 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.
Table of Contents
The Funds.................................................................2
Management of the Trust ..................................................8
Portfolio Transactions and Brokerage.....................................15
Description of the Trust and Ownership of Shares.........................18
How To Buy Shares........................................................20
Net Asset Value and Public Offering Price................................20
Reduced Sales Charges....................................................21
Shareholder Services.....................................................23
Redemptions..............................................................28
Standard Performance Measures............................................30
Investment Performance of the Funds .....................................34
Income Dividends, Capital Gain Distributions and Tax Status..............36
Miscellaneous Investment Practices of the Portfolios.....................39
Appendix A - Description of Bond Ratings................................A-1
Appendix B - Publications That May Contain Fund Information.............B-1
Appendix C - Advertising and Promotional Literature.....................C-1
Appendix D - Average Monthly Portfolio Composition Table ...............D-1
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THE FUNDS
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Nvest Core Equity Fund, Nvest Stock and Bond Fund, Nvest Small Cap Value
Fund, Nvest Small Cap Growth Fund and Nvest Total Return Bond Fund are
diversified series of Nvest Funds Trust III, a registered open-end management
investment company (the "Trust"). The Trust is a Massachusetts business trust
and was established on August 22, 1995.
General Investment Objectives and Policies
To achieve their respective investment objectives, each Fund invests all
or substantially all of its assets in shares of a single underlying mutual fund
offered by either Harris Associates L.P. ("Harris Associates") or Loomis, Sayles
& Company, L.P. ("Loomis Sayles"). Each such underlying mutual fund is refered
to individually in the Prospectus and in this Statement as a "Portfolio" and
collectively as the "Portfolios." Harris Associates is the investment adviser to
The Oakmark Fund, The Oakmark Equity and Income Fund and The Oakmark Small Cap
Fund, and is an affiliated investment management subsidiary of Nvest Companies,
L.P. ("Nvest Companies"). Loomis Sayles is the investment adviser to the Loomis
Sayles Small Cap Growth Fund and the Loomis Sayles Bond Fund and is also an
affiliated investment management subsidiary of Nvest Companies. Achievement of
each Fund's objective as set forth below cannot be assured.
The investment objectives of the five Funds are as follows:
Nvest Core Equity Fund (the "Core Equity Fund") seeks long-term capital
appreciation. The Core Equity Fund pursues this goal by investing all or
substantially all of its assets in Class I shares of The Oakmark Fund.
Nvest Stock and Bond Fund (the "Stock and Bond Fund") seeks high current income
and preservation and growth of capital. The Stock and Bond Fund pursues this
goal by investing all or substantially all of its assets in Class I shares of
The Oakmark Equity and Income Fund.
Nvest Small Cap Value Fund (the "Small Cap Value Fund") seeks long-term capital
appreciation. The Small Cap Value Fund pursues this goal by investing all or
substantially all of its assets in Class I shares of The Oakmark Small Cap Fund.
Nvest Small Cap Growth Fund (the "Small Cap Growth Fund") seeks long-term
capital growth from investments in common stock or their equivalent. The Small
Cap Growth Fund pursues this goal by investing all or substantially all of its
assets in the Institutional Class shares of Loomis Sayles Small Cap Growth Fund.
Nvest Total Return Bond Fund (the "Total Return Bond Fund") seeks high total
investment return through a combination of current income and capital
appreciation. The Total Return Bond Fund pursues this goal by investing all or
substantially all of its assets in the Institutional Class shares of Loomis
Sayles Bond Fund.
Investment Strategies and Risks
The investment strategies and risks associated with each Fund generally
are the same as those of its Portfolio and depend on the nature of the
Portfolio's investments strategies and risks. The Prospectus sets forth the
principal investment strategies employed by Harris Associates or Loomis Sayles
attempting to achieve the goals of the Portfolios each manages. The following
paragraphs describe those strategies used by Harris Associates and Loomis Sayles
that are not considered principal investment strategies for the specified
Portfolios. The Portfolios' risks are determined by the nature of the securities
held and the management activities used by their respective advisers. A more
detailed description of these strategies and the related risks is included under
the section entitled "Miscellaneous Investment Practices of the Portfolios"
later in this Statement of Additional Information.
The Oakmark Fund, The Oakmark Stock and Bond Fund and The Oakmark Small Cap Fund
Along with engaging in its principal strategies described in the
Prospectus, the Portfolios may invest securities of non-U.S. issuers, including
emerging market securities and may engage in currency exchange transactions.
Each Portfolio may invest in debt securities, including lower-rated securities
and may purchase securities on a when-issued or delayed-delivery basis. Each
Portfolio may invest to a certain percentage in illiquid securities. The
Portfolios may sell securities short on a limited basis and may acquire
securities in private
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placements. Each Portfolio, except the Oakmark Fund, may lend its portfolio
securities subject to certain investment restrictions. A Portfolio may invest in
shares of other investment companies and may purchase and sell both call options
and put options on securities. Finally, the Portfolios may employ temporary
strategies to respond to certain situations such as changes in market and
economic conditions.
Loomis Sayles Small Cap Growth Fund and Loomis Sayles Bond Fund
Along with engaging in the principal strategies described in the
Prospectus, the Portfolios may invest in various types of U.S. Government
securities and zero coupon bonds. The Portfolios may enter into repurchase
agreements, and may purchase real estate investment trusts and Rule 144A
securities. A Portfolio may purchase securities on a when-issued basis and
engage in foreign currency transactions, forward contracts and options and
futures transactions. A Portfolio may invest in companies with small
capitalizations and may purchase securities in private placements.
Note on Shareholder Approval
Approval by the shareholders of each Fund or Portfolio requires approval
by the holders of a majority of the outstanding shares of the Fund or Portfolio.
As used in this Statement (and as defined in the 1940 Act), the term "majority
of the outstanding shares" of the Fund or Portfolio means the lesser of (i) 67%
of the shares of the Fund or Portfolio represented at a meeting at which more
than 50% of the outstanding shares of the Fund or Portfolio are represented or
(ii) more than 50% of the outstanding shares of the Fund or Portfolio.
Investment Restrictions of the Funds
The investment restrictions set forth below are fundamental policies of
each Fund and, accordingly, without the approval of the holders of a majority of
the outstanding shares of the relevant Fund, each Fund will not:
1. With respect to 75% of its total assets, purchase any security if, as a
result, more than 5% of its total assets (based on current value) would then
be invested in the securities of a single issuer. This limitation does not
apply to Government Securities (as defined in the 1940 Act) ("U.S.
Government Securities"). This restriction does not prevent the Fund from
investing all or substantially all of its assets in shares of another
investment company;
2. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer. This restriction this does not
prevent the Fund from investing all or substantially all of its assets in
shares of another investment company;
3. Invest more than 25% of its total assets in any one industry. This
restriction does not apply to U.S. Government Securities. For purposes of
this restriction, telephone, gas and electric public utilities are each
regarded as separate industries and finance companies whose financing
activities are related primarily to the activities of their parent companies
are classified in the industry of their parents. For purposes of this
restriction with regard to bank obligations, bank obligations are considered
to be one industry, and asset-backed securities are not considered to be
bank obligations. This restriction does not prevent the Fund from investing
all or substantially all of its assets in shares of another investment
company.
4. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions, and the Fund may make
any short sales or maintain any short positions where the short sales or
short positions would not constitute "senior securities" under the 1940 Act;
5. Borrow money except for temporary or emergency purposes; provided, however,
that each Fund may loan its securities, engage in reverse repurchase
agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total
assets taken at cost;
6. Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies. This restriction does
not apply to repurchase agreements or loans of portfolio securities;
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7. Act as an underwriter of securities of other issuers except that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities law;
8. Purchase or sell real estate, although it may purchase securities of issuers
which deal in real estate, securities which are secured by interests in real
estate, and securities which represent interests in real estate, and it may
acquire and dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt obligations secured
by real estate or interests therein;
9. Purchase or sell commodities, except that each Fund may purchase and sell
future contracts and options, may enter into foreign exchange contracts and
may enter into swap agreements and other financial transactions not
requiring the delivery of physical commodities;
10. Issue senior securities, except for permitted borrowings or as otherwise
permitted under the 1940 Act.
The percentages and percentage limitations set forth above in the
Statement, other than with respect to restriction (5) pertaining to borrowing,
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. Restrictions (4) and (10) shall be
interpreted based upon no-action letters and other pronouncements of the staff
of the Securities and Exchange Commission (the "SEC"). Under current
pronouncements, certain Fund positions are excluded from the definition of
"senior security" so long as the Fund maintains adequate cover, segregation of
assets or otherwise.
In addition, it is contrary to each Fund's present policy, which may be
changed without shareholder vote, to purchase any illiquid security, including
any securities whose disposition is restricted under federal securities laws and
securities that are not readily marketable, if, as a result, more than 15% of
the Fund's total assets (based on current value) would then be invested in such
securities. The staff of the SEC is presently of the view that repurchase
agreements maturing in more than seven days are illiquid securities and
therefore subject to this restriction. Until that position is revised, modified
or rescinded, each Fund will conduct its operations in a manner consistent with
this view. This limitation on investment in illiquid securities does not apply
to certain restricted securities, including securities issued pursuant to Rule
144A under the Securities Act of 1933 and certain commercial paper, that the
Fund's adviser has determined to be liquid under procedures approved by the
Funds' Board of Trustees.
Investment Restrictions of the Harris Associates Portfolio (The Oakmark Fund,
The Oakmark Equity and Income Fund and The Oakmark Small Cap Fund)
In addition to its investment goal and policies set forth in its
Prospectus, the following investment restrictions are policies of each Portfolio
advised by Harris Associates (The Oakmark Fund, The Oakmark Equity and Income
Fund and The Oakmark Small Cap Fund):
Each Portfolio advised by Harris Associates will not:
1. In regard to 75% of its assets, invest more than 5% of its assets (valued
at the time of investment) in securities of any one issuer, except in U.S.
government obligations;
2. Acquire securities of any one issuer which at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at the time of investment) in
securities of companies in any one industry, except that this restriction
does not apply to investments in U.S. government obligations;
4. Borrow money except from banks for temporary or emergency purposes in
amounts not exceeding 10% of the value of the Portfolio's assets at the
time of borrowing [the Portfolio will not purchase additional securities
when its borrowings, less receivables from portfolio securities sold,
exceed 5% of the value of the Portfolio's total assets];
5. Issue any senior security except in connection with permitted borrowings;
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6. Underwrite the distribution of securities of other issuers; however the
Portfolio may acquire "restricted" securities which, in the event of a
resale, might be required to be registered under the Securities Act of
1933 on the ground that the Portfolio could be regarded as an underwriter
as defined by that act with respect to such resale;
7. Make loans, but this restriction shall not prevent the Portfolio from (a)
investing in debt obligations, (b) investing in repurchase agreements,(1)
or (c) [with respect to Oakmark Equity and Income Fund and Oakmark Small
Cap Fund only] lending its portfolio securities [The Portfolio will not
lend securities having a value in excess of 33% of its assets, including
collateral received for loaned securities (valued at the time of any
loan)];
8. Purchase and sell real estate or interests in real estate, although it may
invest in marketable securities of enterprises which invest in real estate
or interests in real estate;
9. Purchase and sell commodities or commodity contracts, except that it may
enter into forward foreign currency contracts;
10. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission or
(b) where the acquisition results from a dividend or a merger,
consolidation or other reorganization;(2)
11. Make margin purchases or participate in a joint or on a joint or several
basis in any trading account in securities;
12. Invest in companies for the purpose of management or the exercise of
control;
13. Invest more than 15% of its net assets (valued at the time of investment)
in illiquid securities, including repurchase agreements maturing in more
than seven days;
14. Invest more than 2% of its net assets (valued at the time of investment)
in warrants not listed on the New York or American stock exchanges, valued
at cost, nor more than 5% of its net assets in all warrants, provided that
warrants acquired in units or attached to other securities shall be deemed
to be without value for purposes of this restriction;
15. [with respect to Oakmark Fund and Small Cap Fund only] Invest more than
25% of its total assets (valued at the time of investment) in securities
of non-U.S. issuers (other than securities represented by American
Depositary Receipts) [with respect to Equity and Income Fund only] Invest
more than 10% of its total assets (valued at the time of investment) in
securities of non-U.S. issuers (other than securities represented by
American Depositary Receipts);(3)
16. Make short sales of securities unless the Portfolio owns at least an equal
amount of such securities, or owns securities that are convertible or
exchangeable, or anticipated to be convertible or exchangeable, into at
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(1) A repurchase agreement involves a sale of securities to a Portfolio with the
concurrent agreement of the seller (bank or securities dealer) to repurchase the
securities at the same price plus an amount equal to an agreed-upon interest
rate within a specified time. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Portfolio could experience both delays in
liquidating the underlying securities and losses. No Portfolio may invest more
than 15% of its net assets in repurchase agreements maturing in more than seven
days and other illiquid securities.
(2) In addition to this investment restriction, the 1940 Act provides that a
Portfolio may neither purchase more than 3% of the voting securities of any one
investment company nor invest more than 10% of the Portfolio's assets (valued at
the time of investment) in all investment company securities purchased by the
Portfolio. Investment in the shares of another investment company would require
the Portfolio to bear a portion of the management and advisory fees paid by that
investment company, which might duplicate the fees paid by the Portfolio.
(3) Although securities represented by American Depositary Receipts ("ADRs") are
not subject to restriction 15, none of these Portfolios has any present
intention to invest more than the indicated percentage of its total assets in
ADRs and securities of foreign issuers.
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least an equal amount of such securities with no restriction other than
the payment of additional consideration;
17. Purchase or write a call option or a put option if the aggregate premium
paid for all call and put options then held exceed 20% of its net assets
(less the amount by which any such positions are in-the-money);
18. Invest in futures or options on futures, except that it may invest in
forward foreign currency contracts.
The first 10 restrictions listed above, except the bracketed portions, are
fundamental policies and may be changed only with the approval of the holders of
a "majority of the outstanding voting securities" of the respective Portfolio,
which is defined in the 1940 Act (the "1940 Act") as the lesser of (i) 67% of
the shares of the Portfolio present at a meeting if more than 50% of the
outstanding shares of the Portfolio are present in person or represented by
proxy or (ii) more than 50% of the outstanding shares of the Portfolio. Those
restrictions not designated as "fundamental," and a Portfolio's investment
objective, may be changed by the board of trustees without shareholder approval.
A Portfolio's investment objective will not be changed without at least 30 days'
notice to shareholders.
Notwithstanding the foregoing investment restrictions, a Portfolio may
purchase securities pursuant to the exercise of subscription rights provided
that such purchase will not result in the Portfolio's ceasing to be a
diversified investment company. Japanese and European corporations frequently
issue additional capital stock by means of subscription rights offerings to
existing shareholders at a price substantially below the market price of the
shares. The failure to exercise such rights would result in a Portfolio's
interest in the issuing company being diluted. The market for such rights is not
well developed in all cases and, accordingly, a Portfolio may not always realize
full value on the sale of rights. The exception applies in cases where the
limits set forth in the investment restrictions would otherwise be exceeded by
exercising rights or would have already been exceeded as a result of
fluctuations in the market value of a Portfolio's portfolio securities with the
result that the Portfolio would be forced either to sell securities at a time
when it might not otherwise have done so, or to forego exercising the rights.
Investment Restrictions of the Loomis Sayles Portfolios (The Loomis Sayles Small
Cap Growth Fund and The Loomis Sayles Bond Fund)
In addition to its investment goal and policies set forth in its
Prospectus, the following investment restrictions are policies of each Portfolio
advised by Loomis Sayles (the Loomis Sayles Small Cap Growth Fund and the Loomis
Sayles Bond Fund), and those marked with an asterisk are fundamental policies of
each Portfolio and therefore cannot be changed without approval of the holders
of a majority of the outstanding shares of the relevant Portfolio:
Each Portfolio advised by Loomis Sayles will not:
1. Invest in companies for the purpose of exercising control or management.
*2. 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.
*3. Invest in oil, gas or other mineral leases, rights or royalty contracts or
in real estate, commodities or commodity contracts. (This restriction does
not prevent any Portfolio from engaging in transactions in futures
contracts relating to securities indices, interest rates or financial
instruments or options, or from investing in issuers that invest or deal
in the foregoing types of assets or from purchasing securities that are
secured by real estate.)
*4. Make loans, except that the Loomis Sayles Small Cap Growth Fund may lend
its portfolio securities to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). (For purposes of this
investment restriction, neither (i) entering into repurchase agreements
nor (ii) purchasing debt obligations in which a Portfolio may invest
consistent with its investment policies is considered the making of a
loan.)
5. With respect to 75% of its assets, purchase any security (other than U.S.
Government securities) if, as a result, more than 5% of the Portfolio's
assets (taken at current value) would then be invested in securities of a
single issuer.
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6. With respect to 75% of its assets, acquire more than 10% of the
outstanding voting securities of an issuer.
7. Pledge, mortgage, hypothecate or otherwise encumber any of its assets,
except that each Portfolio may pledge assets having a value not exceeding
10% of its assets to secure borrowings permitted by restriction (9) below.
(For the purposes 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 or other encumbrance of assets.)
*8. Purchase any security (other than U.S. Government Securities) if, as a
result, more than 25% of the Portfolio's 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).
*9. Borrow money in excess of 10% of its assets (taken at cost) or 5% of its
assets (taken at current value), whichever is lower, nor borrow any money
except as a temporary measure for extraordinary or emergency purposes.
10. Purchase securities on margin (except such short term credits as are
necessary for clearance of transactions) or make short sales (except
where, by virtue of ownership of other securities, it has the right to
obtain, without payment of additional consideration, securities equivalent
in kind and amount to those sold).
11. 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 Loomis Sayles 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.)
12. Purchase any illiquid security, including any security that is not readily
marketable, if, as a result, more than 15% of the Portfolio's net assets
(based on current value) would then be invested in such securities.
13. Write or purchase puts, calls, or combinations of both, except that each
Portfolio may (1) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or subsidiaries
of such companies, (2) purchase and sell put and call options on
securities, and (3) write, purchase and sell put and call options on
currencies and enter into currency forward contracts.
*14. Issue senior securities. (For the purposes of this restriction, none of
the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (7) above; any borrowing
permitted by restriction (9) above; any collateral arrangements with
respect to options, futures contracts, and options on futures contracts
and with respect to initial and variation margin; and the purchase or sale
of options, forward contracts, futures contracts, or options on futures
contracts.)
15. The Portfolios have other non-fundamental investment parameters, as listed
below.
o Loomis Sayles Bond Fund. The Portfolio normally will invest at least 65% of
its assets in fixed income securities.
o Loomis Sayles Small Cap Growth Fund. The Portfolio normally will invest at
least 65% of its assets in equity securities of companies with market
capitalizations that fall within the capitalization range of the Russell
2000 Index.
Each Portfolio intends, based on the views of the staff of the SEC, to
restrict its investments in repurchase agreements maturing in more than seven
days, together with other investments in illiquid securities, to the percentage
permitted by restriction (12) above.
The investment policies of each Portfolio advised by Loomis Sayles set
forth in its Prospectus and in its Statement of Additional Information may be
changed by the Portfolio's Board of Trustees without shareholder approval except
that the investment objective of each Portfolio as set forth in its Prospectus
and any Portfolio policy explicitly identified above as "fundamental" may not be
changed without the approval of the holders of a majority of the outstanding
shares of the relevant Portfolio. Except in the case of the 15% limitation on
illiquid securities, the percentage limitations set forth above and in each
Portfolio's Prospectus will apply at the time a security is
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purchased and will not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such purchase.
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MANAGEMENT OF THE TRUST
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The Funds are governed by a Board of Trustees which is responsible for
generally overseeing the conduct of Fund business and for protecting the
interests of shareholders. The trustees meet periodically throughout the year to
oversee the Funds' activities, review contractual arrangements with companies
that provide services to the Funds and review the Funds' performance.
Trustees
Trustees of the Trust and their ages (in parentheses), addresses and
principal occupations during the past five years are listed below. Those marked
with an asterisk (*) are deemed an "interested person" of the Trust, as defined
in the 1940 Act.
Graham T. Allison, Jr. - Trustee (59); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138; Member of the Contract Review and Governance
Committee for the Trust; Douglas Dillon Professor and Director for the
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 (54); 452 Fifth Avenue, New York, New York 10018;
Member of the Audit and Transfer Agent and Shareholder Services Committee
for the Trust; President and CEO, Cain Brothers & Company, Incorporated
(investment banking), Trustee, Universal Health Realty Income Trust
(NYSE); Norman Rockwell Museum; Sharon Health Corporation and National
Committee for Quality Healthcare (all not-for-profit organizations).
Kenneth J. Cowan - Trustee (67); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Member of the Contract Review and Governance Committee for
the Trust; Retired; Director, A Young Woman's Residence; 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
Trust; 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,
Genesis Cable (cable communications); Director, Prime Communications
(cable communications); Director, Neptune Communications (undersea cable
systems); Director, Sequana Therapeutics (biotechnology); 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 (57); Exchange Place, Boston, MA 02109; Member of the
Audit and Transfer Agent and Shareholder Services Committee for the Trust;
Senior Vice President and Director, The Boston Consulting Group, Inc.
(management consulting); Director, GTE Corporation (communications
services); Director, Rohm and Haas Company (specialty chemicals).
John A. Shane - Trustee (66); 200 Unicorn Park Drive, Woburn, Massachusetts
01801; Member of the Audit and Transfer Agent and Shareholder Services
Committee for the Trust; President, Palmer Service Corporation (venture
capital organization); General Partner, Palmer Partners L.P.; Director,
Abt Associates, Inc. (consulting firm); Director, Arch Communications
Group, Inc. (paging service); Director, Dowden Publishing Company, Inc.
(publisher of medical magazines); 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); President and Chief Executive Officer, Nvest, L.P. and Nvest
Companies, L.P. ("Nvest Companies"); Chairman of the Board and Director,
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President and Chief Executive Officer, Nvest Corporation; Chairman of the
Board and Director, NEF Corporation; Chairman of the Board and Director,
BBAI; formerly, Director, New England Financial.
Pendleton P. White - Trustee (68); 6 Breckenridge Lane, Savannah, Georgia 31411;
Member of the Contract Review and Governance Committee for the Trust;
Retired; formerly, President and Chairman of the Executive Committee,
Studwell Associates (executive search consultants); formerly, Trustee, The
Faulkner Corporation (community hospital corporation).
The Contract Review and Governance Committee of the 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 identified in the audits. This Committee
also reviews and monitors compliance with stated investment objectives and
policies, SEC and Internal Revenue Service ("IRS") regulations 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
as follows:
Neal G. Litvack - President (44) - President and Chief Executive Officer, NEF
Corporation and New England Funds Management, L.P.(since November 1999);
Director, Harris Associates, Inc.; Manager, Kobrick Funds, LLC since July
1999; Executive Vice President, Retail Marketing, Nvest Companies, L.P.
(since February 1997); Executive Vice President, Retail Marketing,
Fidelity Investments (up to 1997).
Thomas 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); Senior Vice President, General
Counsel, Secretary and Clerk, NEF Corporation; Senior Vice President,
General Counsel, Secretary and Clerk, Nvest Funds Distributor, L.P.;
Senior Vice President and General Counsel, Secretary and Clerk, Nvest
Management; Executive Vice President and General Counsel, Nvest Services
Company; formerly, Senior Vice President and General Counsel, Funds
Distributor, Inc. (mutual funds service company); formerly, Counsel, The
Boston Company Advisors, Inc.; formerly, Associate, Ropes & Gray (law
firm).
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 Trust's trustees is also a trustee of certain
other investment companies for which Nvest Funds Distributor, L.P. acts as
principal underwriter. Except as indicated above, the address of each trustee
and officer of the Trust is 399 Boylston Street, Boston, Massachusetts 02116.
Trustee Fees
The Trust pays no compensation to its officers or to its trustees who are
interested persons thereof.
Each trustee who is not an interested person of the Trust or an interested
person of Nvest Funds Trust I or Nvest Funds Trust II (collectively the
"Trusts") receives, in the aggregate for serving on the boards 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 December 31,
1999 a total of 22 active 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 net assets of each fund.
During the fiscal year ended September 30, 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:
<PAGE>
<TABLE>
<CAPTION>
Pension or
----------
Aggregate Retirement Benefits Estimated Annual Total Compensation from
--------- ------------------- ---------------- -----------------------
Compensation from Accrued as Part of Benefits Upon the Nvest Fund Complex*
----------------- ------------------ ------------- -----------------------
Name of Trustee Nvest Funds Trust III Fund Expenses Retirement Paid To Trustees
--------------- --------------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Graham T. Allison, Jr. $11,959 $0 $0 $60,000
Daniel M. Cain $11,959 $0 $0 $64,000
Kenneth J. Cowan $11,959 $0 $0 $64,000
Richard Darman $11,959 $0 $0 $60,000
Sandra O. Moose $11,959 $0 $0 $60,000
John A. Shane $11,959 $0 $0 $60,000
Pendleton P. White $11,959 $0 $0 $60,000
</TABLE>
* The Nvest Fund Complex consists of 22 active funds, including the funds of
Nvest Funds Trust III.
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 each Fund on the normal payment date for such fees. As a result
of this method of calculating the deferred payments, each Fund, upon making the
deferred payments, will be in the same financial position as if the fees had
been paid on the normal payment dates.
As of February 1, 2000, the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of each Fund.
As of February 1, 2000, there were no shares of any Fund outstanding.
Advisory Agreement
Under each Fund's advisory agreement between the Trust and Nvest Funds
Management, L.P. ("Nvest Management"), on behalf of the Fund, Nvest Management
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 will invest all or
substantially all of the assets of a Fund in a registered, open-end management
investment company, in accordance with Section 12(d)(1)(E) under the 1940 Act.
Nvest Management is responsible for obtaining and evaluating such economic,
statistical and financial data and information and performing such additional
investment research as is necessary to manage the Fund's assets in accordance
with the investment objectives and policies.
Each Fund's advisory agreement provides that it will continue in effect
for two years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Trust's Board of Trustees
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 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. Any amendment to
an advisory agreement must be approved by vote of a majority of outstanding
voting securities of the relevant Fund and by a vote of the majority of the
Trustees of the Trust who are not such interested persons, cast in person at a
meeting called for the purpose of voting on such approval. Each advisory
agreement may be terminated without penalty by vote of the Trust's Board of
Trustees 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 advisor upon 90
days' written notice, and each terminates automatically in the event of its
assignment. In addition, each advisory agreement will automatically terminate if
the Trust or the Fund shall at any time be required by Nvest Funds Distributor,
L.P. to eliminate all reference to the words "Nvest" or the letters "Nvest
Management" in the name of the Trust or the relevant Fund, unless the
continuance of the agreement after such change of name is approved by a majority
of the outstanding voting securities of the relevant Fund and by a majority of
the Trustees who are not interested persons of the Trust or the Fund's adviser.
Each advisory agreement provides that the adviser shall not be subject to
any liability in connection with the performance of its service 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, NEF Corporation, is a wholly-owned subsidiary of Nvest
Holdings, L.P. ("Nvest Holdings"), which in turn is a wholly-owned
<PAGE>
subsidiary of Nvest Companies. NEF Corporation is also the sole general partner
of Nvest Funds Distributor, L.P., (the "Distributor") and the sole shareholder
of Nvest Services Company, the transfer and dividend disbursing agent of the
Funds. Nvest Companies owns the entire limited partnership interest in each of
Nvest Management and Nvest Funds Distributor, L.P. Nvest Services Company, Inc.
will also do business as Nvest Services Company, Nvest Services Co. and Nvest
Funds Service Company.
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 mutual life insurance company. MetLife
owns approximately 46% (and in the aggregate, directly and indirectly,
approximately 47%) 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 fourteen principal subsidiary or
affiliated asset management firms of Nvest Companies, collectively, have more
than $127 billion of assets under management or administration as of September
30, 1999.
Special Servicing Agreement
The Trust has received an order from the SEC (the "Order") pursuant to
Section 17(d) and Rule 17d-1 under the 1940 Act which permits a Fund to invest
all or substantially all of its assets in a single underlying mutual fund (the
Portfolios) pursuant to Section 12(d)(1)(E) of the 1940 Act. Pursuant to the
Order each Fund has entered into a Special Servicing Agreement (the "Special
Service Agreement") with an underlying fund (a Portfolio) wherein certain
shareholder related expenses of the Fund will be borne by the underlying fund.
Under the terms of the Special Service Agreement among each Fund, its
corresponding Portfolio and Nvest Services Company, Inc., Nvest Services
Company, Inc. will provide services pertaining to the operation of the Fund,
including shareholder servicing and fund administration. Each Portfolio has
agreed to pay Nvest Services Company, Inc. an annual fee equal to 0.12% of the
assets that a Fund has invested in that Portfolio. However, the Portfolio will
not be required to pay Nvest Services Company, Inc. any amount in excess of the
financial benefits derived from the operation of that Fund. Currently, only the
Portfolios advised by Harris Associates will participate in the Special Service
Agreement.
The cost-benefit analysis was initially reviewed by the Board of Trustees
of each Portfolio before participating in any Special Service Agreement. For
future years, there will be an annual review of the Special Service Agreement to
determine its continued appropriateness for each Portfolio.
Administration Agreement
Pursuant to an Administration Agreement entered into between Nvest
Management and each Fund, a Fund will pay Nvest Management at the annual rate of
0.10% of the Fund's average daily net assets for the initial two-year term. At
the expiration of this period, each Fund will pay Nvest Management the lesser of
(i) 0.25% of the Fund's average daily net assets, or (ii) the actual expenses
incurred by Nvest Management in providing certain services to a Fund; provided
however, that the minimum payment due to Nvest Management under the
Administration Agreement will be no less than 0.10% of the Fund's average daily
net assets. These expenses consist of the provision of necessary executive and
other personnel for managing the affairs of a Fund. The Administration Agreement
is effective for a period of two years and may only be amended by a majority
vote of the non-interested Trustees of the Trust as that term is defined in the
1940 Act.
<PAGE>
Service Agreement
Pursuant to separate Service Agreements entered into between Harris
Associates and Nvest Management and Loomis Sayles and Nvest Management, for
providing administrative services to a Fund, Harris Associates or Loomis Sayles
pays Nvest Management 0.25% annually of a Fund's average daily net assets less
the fee paid by the Portfolio to Nvest Services Company, Inc. under the Special
Servicing Agreement.
The Portfolio Advisers
Loomis, Sayles and Company, L.P. was organized in 1926 and is one of the
oldest and largest 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 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, Incorporated, is a wholly-owned subsidiary of Nvest
Holdings. Nvest Companies owns the entire limited partnership interest in Loomis
Sayles.
Certain officers of Loomis Sayles have responsibility for the management
of other client portfolios. The Detroit office of Loomis Sayles makes the
investment decisions for the Nvest Value and Nvest Balanced Funds, and for the
segments of the Nvest Star Advisers and Nvest Star Small Cap Funds' portfolios
that are managed by Loomis Sayles, the Boston office makes the investment
decisions for Nvest Strategic Income Fund, Nvest International Equity Fund,
Loomis Sayles Small Cap Growth Fund and Loomis Sayles Bond Fund and the New York
office makes the investment decisions for Nvest High Income Fund. These offices
make investment decisions for the relevant Fund or Portfolio independently of
one another. The other investment companies and clients served by Loomis Sayles
sometimes invest in securities in which Nvest Value, Nvest Balanced, Nvest Star
Advisers, Nvest Star Small Cap, Nvest High Income, Nvest Strategic Income, Nvest
International Equity, Loomis Sayles Small Cap Growth and Loomis Sayles Bond
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 or Portfolios purchases or
sells. In other cases, however, it is believed that these practices may benefit
the relevant Fund or Portfolio. It is the opinion of the Trusts' Trustees that
the desirability of retaining Loomis Sayles as subadviser for Nvest Strategic
Income, Nvest Value, Nvest Balanced, Nvest Star Advisers, Nvest Star Small Cap,
Nvest High Income, Nvest International Equity, Loomis Sayles Small Cap Growth
and Loomis Sayles Bond Funds outweighs the disadvantages, if any, which might
result from these practices.
Harris Associates L.P. 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.
Certain officers and employees of Harris have respectability 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 The Oakmark Fund, The Oakmark Equity and Income
Fund, The Oakmark Small Cap Fund, Nvest Star Advisers Fund, Nvest Star Worldwide
Fund and/or Nvest 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 The Oakmark
Fund, The Oakmark Equity and Income Fund, The Oakmark Small Cap Fund, Nvest Star
Advisers Fund, Nvest Star Worldwide Fund and Nvest Star Small Cap Fund to
participate in larger volume transactions in this manner will in some cases
produce better executions for these Funds
<PAGE>
and therefore the Portfolios. However, in some cases, this procedure could have
a detrimental effect on the price and amount of a security available to these
Funds and Portfolios or the price at which a security may be sold. The trustees
of the Trusts are of the view that the benefits of retaining Harris as a
subadviser to the Nvest Star Advisers Fund, Nvest Star Worldwide Fund and Nvest
Star Small Cap Fund as well as an adviser to The Oakmark Fund, The Oakmark
Equity and Income Fund and The Oakmark Small Cap Fund outweigh the
disadvantages, if any, that might result from participating in such
transactions.
Distribution Agreement and Rule 12b-1 Plans.
Under an agreement with the Trust, Nvest Funds Distributor, L.P. (the
"Distributor"), serves as the principal distributor of each class of shares of
the Funds. Under this agreement, Nvest Funds Distributor, L.P. is not obligated
to sell a specific number of shares of any Fund. Nvest Funds Distributor, L.P.
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. Except as provided in the Administration
Agreement, 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.
Nvest Funds Distributor, L.P. is compensated under the 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, or the Portfolios
under the Special Service Agreement, 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 to be 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 monthly fees out of its net assets. Pursuant to Rule 12b-1
under the 1940 Act, the 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 Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plans or the Distribution Agreement (the
"Independent Trustees").
Under Service Plans adopted under rule 12b-1, 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. 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. In the case
of Class B shares, the Distributor pays investment dealers at the time of sale
the first year's service fee, in the amount of up to 0.25% of the amount
invested.
Each Fund's Class B and Class C shares also pays 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 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. The Distributor retains
the balance of the fee as compensation for its services as distributor of the
Class B and Class C shares. In the case of Class C shares, the Distributor
retains the 0.75% distribution fee assessed against such shares during the first
year of investment.
The Plans may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
relevant class of shares of the relevant Fund. The Plans may be amended by vote
of the trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose. Any change in a 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 Trust's Board of Trustees review quarterly a
written report of such costs as well as the purposes for which such costs have
been incurred. For so long as the Plans are in effect, selection and nomination
of those trustees who are not interested persons of the 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, an affiliate of the Distributor, for
the sale of the Funds' shares. New England Securities is registered as a
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act"), as
amended. The Distributor may at its
<PAGE>
expense pay an amount not to exceed 0.50% of the amount invested to dealers who
have selling agreements with the Distributor.
The Distribution Agreement for the Funds may be terminated at any time
upon 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 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 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 corporate parents, no interested person of the Trust nor any
trustee of the Trust has 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 Trust and
the Funds and if it should cease to be the principal distributor of the Funds'
shares, the Trust 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 Nvest Funds Trust I, Nvest Funds Trust II, Nvest Kobrick
Investment Trust, Nvest Cash Management Trust and Nvest Tax Exempt Money Market
Trust.
The portion of the various fees and expenses for Class A, B and C shares
that are paid (reallowed) to securities dealers are shown below:
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares 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 netinvestment) (% 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%
<CAPTION>
Investments of $1 million or more
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $3 million none 1.00%(2) 0.25% 1.25%
Excess over $3 million (1) none 0.50%(2) 0.25% 0.75%
Investments with no Sales Charge (3) none 0.00% 0.25% 0.25%
</TABLE>
* Total Return Bond Fund may impose a maximum sales charge of 4.50% for all
investments made under $100,000.
(1) For investments by Retirement Plans, the Distributor may pay a 0.50%
commission for investments in excess of $3 million and up to $10 million.
(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 in the Prospectus under the
section entitled "Ways to Reduce or Eliminate Sales Charges."
The Class B and Class C service fees are payable regardless of the amount
of the Distributor's related expenses. The portion of the various fees and
expenses for Class B and Class C shares that are paid to securities dealers are
shown below:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Maximum Maximum Maximum
Reallowance or First Year First Year
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>
Each Fund 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 ("CDSC"). Proceeds from the CDSC on Class A and
Class C shares are paid to the Distributor and are used to defray the expenses
for services that it provides the Trust. Proceeds from the CDSC on Class B
shares are paid to Nvest Funds Distributor, L.P. 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.
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, (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 recordkeeping or miscellaneous
administrative services. Payment for travel, lodging and related expenses may be
provided for attendance at Nvest Funds' seminars and conferences, e.g., due
diligence meetings held for training and educational purposes. The payment of
these concessions and any other compensation offered will conform with state and
federal laws and the rules of any self-regulatory organization, such as the
National Association of Securities Dealers, Inc. The participation of such firms
in financial assistance programs is at the discretion of the firm.
Custodial Arrangements
State Street Bank and Trust Company ("State Street Bank"), 225 Franklin
Street, Boston, Massachusetts 02110, is the Trust's custodian. As such, State
Street Bank holds in safekeeping certified 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 of the Funds in connection with Fund
transactions and collects all dividends and other distributions made with
respect to portfolio securities. State Street Bank also maintains certain
accounts and records of the Trust and calculates the total net asset value,
total net income and net asset value per share of each Fund on a daily basis.
Independent Accountants
The Trust's independent accountants are PricewaterhouseCoopers, LLP, 160
Federal Street, Boston, Massachusetts, 02110. The independent accountants of the
Trust conduct an annual audit of that Trust's financial statements, assist in
the preparation of federal and state income tax returns and consult with the
Trust as to matters of accounting and federal and state income taxation.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Portfolio Turnover
Each Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. Purchases and
sales are made for each Fund whenever necessary, in management's opinion, to
meet that Fund's objective. Each Fund expects to have an annual portfolio
turnover rate not exceeding 20% for its initial fiscal year. The portfolio
turnover rate for each Portfolio's fiscal year ended September 30, 1999 were as
follows: 13% for The Oakmark Fund, 81% for The Oakmark Equity and Income Fund,
68% for The Oakmark Small Cap Fund, 163% for the Loomis Sayles Small Cap Growth
Fund and 33% for the Loomis Sayles Bond Fund.
<PAGE>
Brokerage Transactions
For Portfolios advised by Harris Associates (Oakmark Fund, Oakmark Equity and
Income Fund and Oakmark Small Cap Fund):
Portfolio transactions for each Portfolio are placed with those securities
brokers and dealers that Harris Associates believes will provide the best value
in transaction and research services for that Portfolio, either in a particular
transaction or over a period of time. Subject to that standard, portfolio
transactions for each Portfolio may be executed through Harris Associates
Securities L.P. ("HASLP"), a registered broker-dealer and an affiliate of Harris
Associates.
In valuing brokerage services, Harris Associates makes a judgment as to
which brokers are capable of providing the most favorable net price (not
necessarily the lowest commission) and the best execution in a particular
transaction. Best execution connotes not only general competence and reliability
of a broker, but specific expertise and effort of a broker in overcoming the
anticipated difficulties in fulfilling the requirements of particular
transactions, because the problems of execution and the required skills and
effort vary greatly among transactions.
Although some transactions involve only brokerage services, many involve
research services as well. In valuing research services, Harris Associates makes
a judgment of the usefulness of research and other information provided by a
broker to Harris Associates in managing a Portfolio's investment portfolio. In
some cases, the information, e.g., data or recommendations concerning particular
securities, relates to the specific transaction placed with the broker, but for
the greater part the research consists of a wide variety of information
concerning companies, industries, investment strategy and economic, financial
and political conditions and prospects, useful to Harris Associates in advising
the Portfolios.
Harris Associates is the principal source of information and advice to the
Portfolios, and is responsible for making and initiating the execution of the
investment decisions for each Portfolio. However, the board of trustees
recognizes that it is important for Harris Associates, in performing its
responsibilities to the Portfolios, to continue to receive and evaluate the
broad spectrum of economic and financial information that many securities
brokers have customarily furnished in connection with brokerage transactions,
and that in compensating brokers for their services, it is in the interest of
the Portfolios to take into account the value of the information received for
use in advising the Portfolios. Consequently, the commission paid to brokers
(other than HASLP) providing research services may be greater than the amount of
commission another broker would charge for the same transaction. The extent, if
any, to which the obtaining of such information may reduce the expenses of
Harris Associates in providing management services to the Portfolios is not
determinable. In addition, it is understood by the board of trustees that other
clients of Harris Associates might also benefit from the information obtained
for the Portfolios, in the same manner that the Portfolios might also benefit
from information obtained by Harris Associates in performing services to others.
HASLP may act as broker for a Portfolio in connection with the purchase or
sale of securities by or to the Portfolio if and to the extent permitted by
procedures adopted from time to time by the board of trustees of the Trust. The
board of trustees, including a majority of the trustees who are not "interested"
trustees, has determined that portfolio transactions for a Portfolio may be
executed through HASLP if, in the judgment of Harris Associates, the use of
HASLP is likely to result in prices and execution at least as favorable to the
Portfolio as those available from other qualified brokers and if, in such
transactions, HASLP charges the Portfolio commission rates at least as favorable
to the Portfolio as those charged by HASLP to comparable unaffiliated customers
in similar transactions. The board of trustees has also adopted procedures that
are reasonably designed to provide that any commissions, fees or other
remuneration paid to HASLP are consistent with the foregoing standard. The
Portfolios will not effect principal transactions with HASLP. In executing
transactions through HASLP, the Portfolios will be subject to, and intend to
comply with, section 17(e) of the 1940 Act and rules thereunder.
The reasonableness of brokerage commissions paid by the Portfolios in
relation to transaction and research services received is evaluated by the staff
of Harris Associates on an ongoing basis. The general level of brokerage charges
and other aspects of the Portfolios' portfolio transactions are reviewed
periodically by the board of trustees.
Transactions of the Portfolios in the over-the-counter market and the
third market are executed with primary market makers acting as principal except
where it is believed that better prices and execution may be obtained otherwise.
<PAGE>
Although investment decisions for the Portfolios are made independently
from those for other investment advisory clients of Harris Associates, it may
develop that the same investment decision is made for both a Portfolio and one
or more other advisory clients. If both a Portfolio and other clients purchase
or sell the same class of securities on the same day, the transactions will be
allocated as to amount and price in a manner considered equitable to each over
time.
The Portfolios do not purchase securities with a view to rapid turnover.
However, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons,
including general conditions in the securities market, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. A high rate of portfolio turnover
would result in increased transaction expense, which must be borne by the
Portfolio. High portfolio turnover may also result in the realization of capital
gains or losses and, to the extent net short-term capital gains are realized,
any distributions resulting from such gains will be considered ordinary income
for federal income tax purposes.
For the Portfolios advised by Loomis Sayles (Loomis Sayles Small Cap Growth Fund
and Loomis Sayles Bond Fund):
In placing orders for the purchase and sale of portfolio securities for
each Portfolio, Loomis Sayles always seeks the best price and execution.
Transactions in unlisted securities are carried out through broker/dealers who
make the primary market for such securities unless, in the judgment of Loomis
Sayles, a more favorable price can be obtained by carrying out such transactions
through other brokers or dealers.
Loomis Sayles selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates that,
when combined with the quality of the foregoing services, will produce best
price and execution for the transaction. This does not necessarily mean that the
lowest available brokerage commissions will be paid. However, the commissions
are believed to be competitive with generally prevailing rates. Loomis Sayles
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. The Portfolios will not pay a broker a commission at a higher rate than
otherwise available for the same transaction in recognition of the value of
research services provided by the broker or in recognition of the value of any
other services provided by the broker which do not contribute to the best price
and execution of the transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which Loomis Sayles believes will provide 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 Loomis Sayles' expenses. Such services may be
used by Loomis Sayles in servicing other client accounts and in some cases may
not be used with respect to the Portfolios. Receipt of services or products
other than research from brokers is not a factor in the selection of brokers.
<PAGE>
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DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
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Nvest Funds Trust III is organized as a Massachusetts business trust under
the laws of Massachusetts by an Agreement and Declaration of Trust (the
"Declaration of Trust") dated August 22, 1995, and is a "series" company as
described in Section 18(f)(2) of the 1940 Act. The Trust has eight separate
funds. Each fund in the Trust currently offers three classes of shares. The
other funds in the Trust are Nvest Select Fund, Nvest Bullseye Fund and Nvest
Equity Income Fund. Nvest Equity Income Fund was organized in 1995 and commenced
operations on November 28, 1995. Nvest Bullseye Fund was organized in 1998 and
commenced operations on March 31, 1998. Nvest Select Fund was organized in April
1999 but is not currently offered to the public. The Funds were organized in
1999 and intend to commence operations in 2000.
The Declaration of Trust of Nvest Funds Trust III currently permits the
Trust's Board of 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 Declaration of Trust further permits the 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 the 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 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 Declaration of Trust also permits the Board of Trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
The shares of all the Funds are divided into three classes, Class A, Class
B and Class C. Each Fund offers such classes of shares as set forth in such
Fund's Prospectus. Absent the Service Agreement, all expenses of each Fund
(excluding transfer agency fees and expenses of printing and mailing
Prospectuses to shareholders ("Other Expenses")) would be borne by its Class A,
B and C shares on a pro rata basis. The Class A, Class B and Class C structure
could be terminated should certain applicable 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, absent the Service Agreement, with the
expenses with respect to that class of a Fund and with a share of the general
expenses of the Trust. Any general expenses of the Trust that are not readily
identifiable as belonging to a particular class of a Fund are allocated by or
under the direction of the Trust's Board of Trustees in such manner as it
determines to be fair and equitable. While the expenses of the 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 the Trust.
The Declaration of Trust also permits the Board of Trustees, without
shareholder approval, to subdivide any series or class of shares into various
sub-series or sub-classes with such dividend preferences and other rights as the
Board of Trustees may designate. While the Board of Trustees has no current
intention to exercise this power, it is intended to allow it to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The 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 Declaration of Trust provides for the perpetual existence of the
Trust. The 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 the Declaration of Trust further
provides that the Board of Trustees may also terminate the 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.
<PAGE>
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.
Matters submitted by a Portfolio to its shareholders for a vote will be
passed along by the appropriate Fund to its shareholders and the Fund will vote
its entire interest in the Portfolio in proportion to the voters actually
received from the Fund's shareholders.
The Declaration of Trust provides that on any matter submitted to a vote
of all shareholders of the Trust, all Trust shares entitled to vote shall be
voted together irrespective of series or class unless the rights of a particular
series or class would be adversely affected by the vote, in which case a
separate vote of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under 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) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the 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 Trust has 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 the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the 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.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and require that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust provides for indemnification out of 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
<PAGE>
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 Declaration of Trust further provides that the Board of Trustees will
not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The by-laws of the Trust provide for
indemnification by the Trust of trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the 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.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Funds are summarized in the
Prospectus. 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.
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 wire or, in the case of
Class A, B and C shares, by electronic funds transfer using Automated Clearing
House ("ACH"), or by exchange, as described in the Prospectus through firms that
are members of the National Association of Securities Dealers, Inc. and that
have selling agreements with the Distributor. You may also use Nvest Funds
Personal Access Line(R) (800-225-5478, press 1) or Nvest Funds Web site
(www.nvestfunds.com) to purchase Fund shares. For more information, see the
section entitled "Shareholder Services."
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 net asset value of Fund shares is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading. The
Exchange is scheduled to be closed on the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. Net asset value per share is
determined by dividing the value of the total assets of a Fund, less all
liabilities, by the total number of shares outstanding.
The net asset value of each Portfolio is determined based upon the nature
of the securities as set forth in the prospectus and statement of additional
information of such Portfolio. Shares of each Portfolio in which a Fund may
invest are valued at the net asset value per share of each Portfolio as of the
close of regular trading on the Exchange on each day the Exchange is open for
trading. The net asset value per share of the Portfolios will be calculated and
reported to a Fund by each Portfolio's accounting agent.
<PAGE>
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REDUCED SALES CHARGES
Class A Shares Only
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Special purchase plans are summarized in the text of the Prospectus.
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 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
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.
<PAGE>
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
Nvest Cash Management Trust and Nvest Tax Exempt Money Market Trust (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 sales charge or contingent deferred
sales charge 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; and 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
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, Nvest Funds
Distributor, L.P. 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
Nvest Funds Distributor, L.P.; 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 contingent
deferred sales charge 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 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.
<PAGE>
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.
The reduction or elimination of the sales charges in connection with the
special purchase plans described above reflects the absence or reduction of
expenses associated with such sales.
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SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each financial
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
Portfolios under the Service Agreement 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 Nvest Funds Distributor, L.P. 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 Nvest Funds Distributor, L.P. at 800-225-5478 or your
investment dealer.
The Investment Builder Program is voluntary and may be terminated at any
time by Nvest Services Company upon notice to existing plan participants or at
any time by the investor by written notice to Nvest Services Company, which must
be received at least five business days prior to any payment date. The plan may
be discontinued by State Street Bank at any time without prior notice if any
check is not paid upon presentation; or by written notice to you at least thirty
days prior to any payment date. State Street Bank is under no obligation to
notify shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits
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
<PAGE>
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, and $100 for 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). Plan documents and further information can be obtained from Nvest
Funds Distributor, L.P.
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.
Systematic Withdrawal Plans
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 Nvest Funds Distributor, L.P.
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 (uncertified) 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 Nvest Funds Distributor, L.P. 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 Nvest Funds Distributor,
L.P. 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.
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.
<PAGE>
Exchange Privilege
A shareholder may exchange the shares of any Fund 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.
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 Nvest Fund, the shares received in
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 Class 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 Nvest 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. 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 Nvest Services Company, P.O. Box 8551,
Boston, MA 02266-8551. You must acknowledge receipt of a current Prospectus for
a Nvest Fund before an exchange for that Fund can be effected. For federal
income tax purposes, an exchange is treated as a sale of shares, and, therefore,
would be considered a taxable event on which you may realize a gain or a loss.
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 and the Money Market Funds
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 Value Fund seeks a reasonable long-term investment return from a
combination of market appreciation and dividend income from equity securities.
Nvest Balanced Fund seeks a reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
Nvest Growth and Income Fund seeks opportunities for long-term growth of
capital and income.
Nvest International Equity Fund seeks total return from long-term growth
of capital and dividend income primarily through investment in a diversified
portfolio of marketable international equity securities.
Nvest Star Advisers Fund seeks long-term growth of capital.
Nvest Star Worldwide Fund seeks long-term growth of capital.
Nvest Star Small Cap Fund seeks capital appreciation.
Nvest Equity Income Fund seeks current income and capital growth.
Nvest Bullseye Fund seeks long-term growth of capital.
Bond Funds:
Nvest Government Securities Fund seeks a high level of current income
consistent with safety of
<PAGE>
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.
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.
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 the
Adviser believes have better than average long-term potential.
As of December 31, 1999 the net assets of the Nvest Funds totaled over $8
billion.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the Prospectus in the "Additional Investor Services"
section, 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 Nvest Funds. Registration on all accounts must
be identical. The exchanges are made on the 15th of each month or the first
business day thereafter if the 15th is not a business day until the account is
exhausted or until Nvest Funds Distributor, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $100 or over. The
Service Options Form is available from Nvest Funds Distributor, L.P. or your
financial representative to establish an Automatic Exchange Plan.
<PAGE>
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 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 on-line 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.
<PAGE>
The processing of transactions over this site or telephonically will
involve the transmission of personal data including social security numbers,
account numbers and personal identification numbers. While Nvest Funds has taken
reasonable security precautions including data encryption designed to protect
the integrity of data transmitted to and from the areas of our Web site that
relate to the processing of transactions, we disclaim any liability for the
interception of such data.
You agree to immediately notify Nvest Funds if any of the following occurs:
1. You do not receive confirmation of a transaction submitted via the Internet
or telephonically within five (5) business days.
2. You receive confirmation of a transaction of which you have no knowledge and
was not initiated or authorized by you.
3. You transmit a transaction for which you do not receive a confirmation
number.
4. You have reason to believe that others may have gained access to your
personal identification number (PIN) or other personal data.
5. You notice an unexplained discrepancy in account balances or other changes
to your account, including address changes, and banking instructions on any
confirmations or statements.
Any costs incurred in connection with the use of the Nvest Funds Personal
Access Line(R) or the Nvest Funds Internet site including telephone line costs,
and Internet service provider costs are solely your responsibility. Similarly
Nvest Funds makes no warranties concerning the availability of Internet
services, or network availability.
Nvest Funds reserves the right to suspend, terminate or modify the Internet
capabilities offered to shareholders without notice.
You have the ability to restrict Internet and telephonic access to your accounts
by notifying Nvest Funds of your desire to do so.
Written notifications to Nvest Funds should be sent to:
Nvest Funds
PO Box 8551
Boston, MA 02266-8551
Notification may also be made by calling 800-225-5478 during normal business
hours.
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REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of shares of a Fund are summarized in the
Prospectus. As described in the Prospectus, a CDSC may be imposed on certain
purchases of Class A, Class B, and Class C shares. For purposes of the CDSC, an
exchange of shares from one Fund to another Fund is not considered a redemption
or a purchase. For federal tax purposes, however, such an exchange is considered
a sale and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or loss. In determining whether a CDSC is
applicable to a redemption of Class A, Class B or Class C shares, the
calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, for Class B shares it will be assumed that the
redemption is first of any Class A shares in the shareholder's Fund account,
second of shares held for over six years, third of shares issued in connection
with dividend reinvestment and fourth of shares held longest during the six-year
period. For Class C shares and Class A shares subject to CDSC, it will be
assumed that the redemption is first of any shares that have been in the
shareholder's Fund account for over a year, and second of any shares that have
been in the shareholder's Fund account for under a year. The charge will not be
applied to dollar amounts representing an increase in the net asset value of
shares since the time of purchase or reinvested distributions associated with
such shares. Unless you request otherwise at the time of redemption, the CDSC is
deducted from the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 Class B shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares under dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4%
(the applicable rate in the second year after purchase).
<PAGE>
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the 1934 Act, as
amended. 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 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 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 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 fifteen
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 Internal Revenue Code of 1986, as amended (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.
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 Trust's
board of Trustees determines it to be advisable and in the interest of the
remaining shareholders of a Fund. If portfolio securities are distributed in
lieu of cash, the shareholder may incur
<PAGE>
fees upon subsequent disposition of any such securities. Securities distributed
by a Fund in kind will be selected by the adviser or 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. The Funds do not currently intend to
impose any redemption charge (other than the CDSC imposed by the Funds'
distributor), although they reserve 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 the 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 may advertise the yield of its Class A,
Class B and Class C 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 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. 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 $1,000 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
<PAGE>
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.
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. 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. and Lipper,
Inc., 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
New York Stock 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 MidCap 400 Index consists of 400 domestic stocks
chosen for market size, liquidity, and industry group representation. It is also
a market-value weighted index and was the first benchmark of midcap stock price
movement.
The Standard & Poor's SmallCap 600 Index consists of 600 domestic stocks
chosen for market size, liquidity, (bid-asked spread, ownership, share turnover
and number of no trade days) and industry group representation. It is a
market-value weighted index (stock price times the number of shares
outstanding), with each stock's weight in the Index proportionate to its market
value.
The Salomon Brothers World Government Bond Index includes a broad range of
institutionally-traded fixed-rate government securities issued by the national
governments of the nine countries whose securities are most actively traded.
This index generally excludes floating- or variable-rate bonds, securities aimed
principally at non-institutional investors (such as U.S. Savings Bonds) and
private-placement type securities.
The Lehman Government Bond Index (the "Lehman Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; 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. Mortgage-backed securities, flower bonds and foreign targeted issues
are not included in the Lehman Government Index.
The Lehman Government/Corporate Bond Index (the "Lehman
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the Lehman Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rated
agency such as Standard & Poor's Ratings Group ("S&P") and Moody's Investors
Service, Inc. ("Moody's").
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 39,800 bonds.
The Dow Jones Industrial Average is a market value-weighted and unmanaged
index of 30 large industrial stocks traded on the New York Stock Exchange.
The Salomon Brothers Broad Investment Grade Bond Index is a price
composite of a broad range of
<PAGE>
institutionally based U.S. Government mortgage-backed and corporate debt
securities of investment outstanding of at least $1 million and with a remaining
period to maturity of at least one year.
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, Inc. ("Morningstar") or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is expressed in a
star-rating format. The risk-adjusted number is computed by subtracting a fund's
risk score (which is a function of the fund's monthly returns less the 3-month
T-bill return) from the fund's load-adjusted total return score. This numerical
score is then translated into rating categories, with the top 10% labeled five
star, the next 22.5% labeled four star, the next 35% labeled three star, the
next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects
either above-average returns or below-average risk or both. Each Fund may also
compare its performance or ranking against all funds tracked by Morningstar or
another independent service, including Lipper, Inc. ("Lipper").
Lipper Indexes 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, that 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 on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ Stock Market. 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 "EAFE Index") is a market-value weighted and unmanaged index of
common stocks traded outside the U.S. 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 value (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-value
weighted and unmanaged index of common stocks traded outside the U.S. 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 Value Line Index is an unmanaged and unweighted average of more than
1,000 stocks.
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, Inc. 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
<PAGE>
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
<TABLE>
<CAPTION>
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$50 $3,698 $9,208 $17,417 $29,647 $47,868 $75,015
$75 5,548 13,812 26,126 44,471 71,802 112,522
$100 7,396 18,417 34,835 59,295 95,737 150,029
$150 11,095 27,625 52,252 88,942 143,605 225,044
$200 14,793 36,833 69,669 118,589 191,473 300,059
$500 36,983 92,083 174,173 296,474 478,683 750,148
</TABLE>
Investments at 10% Rate of Return
<TABLE>
<CAPTION>
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$50 $3,904 $10,328 $20,896 $38,285 $66,895 $113,966
$75 5,856 15,491 31,344 57,427 100,342 170,949
$100 7,808 20,655 41,792 76,570 133,789 227,933
$150 11,712 30,983 62,689 114,855 200,684 341,899
$200 15,616 41,310 83,585 153,139 267,578 455,865
$500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The Funds' advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the Nvest Funds. The Funds' advertising and sales literature may include
historical and current performance and total returns of investment alternatives
to the Nvest Funds. Articles, releases, advertising and literature may discuss
the range of services offered by the Trust and Nvest Funds Distributor, L.P., as
distributor and 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 Trust and their features and benefits,
including the details of the pricing structure.
Nvest Funds Distributor, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and rates 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 Nvest
Funds Distributor, L.P.'s selection including, but not limited to, the scores
and categories in which Nvest Funds Distributor, L.P. excelled, the names of
funds and fund companies that have previously won the award and comparative
information and data about those against whom Nvest Funds Distributor, L.P.
competed for the award, honor or citation.
Nvest Funds Distributor, L.P. 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 Nvest Funds
Distributor, L.P.
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.
<PAGE>
The Funds may enter into arrangements with banks exempted from
broker/dealer registration under the 1934 Act. Advertising and sales literature
developed to publicize such arrangements will explain the relationship of the
bank to the Nvest Funds and Nvest Funds Distributor, L.P. 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, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUNDS
- --------------------------------------------------------------------------------
The performance information below shows each Portfolio's aggregate and
average annual total returns for the one-year, five-year and since-inception
periods as of December 31, 1999, as applicable restated to reflect each Fund's
expenses for Class A, B and C shares.
Performance Results - Percent Change
For the Periods ended 12/31/99
<TABLE>
<CAPTION>
Core Equity Fund Aggregate Total Return Average Annual Total Return
- ----------------
Since Since
1 Year 5 Year Inception# 1 Year 5 Year Inception#
<S> <C> <C> <C> <C> <C> <C>
Class A Shares: As a % of:
Net Asset Value -10.82% 189.40% 490.34% -10.82% 11.23% 20.82%
Maximum Offering Price -15.95% 178.51% 462.14% -15.95% 10.14% 19.97%
Class B Shares: As a % of:
Net Asset Value -11.57% 181.15% 464.56% -11.57% 10.41% 20.05%
Maximum Offering Price -16.57% 170.62% 464.56% -16.57% 9.31% 20.05%
Class C Shares: As a % of:
Net Asset Value -11.57% 183.15% 464.56% -11.57% 10.61% 20.05%
Maximum Offering Price -12.57% 172.62% 464.56% -12.57% 9.53% 20.05%
</TABLE>
# Calculated from August 5, 1991.
<PAGE>
Stock and Bond Fund
- -------------------
<TABLE>
<CAPTION>
Aggregate Total Return Average Annual Total Return
1 Year Since Inception# 1 Year Since Inception#
<S> <C> <C> <C> <C>
Class A Shares: As a % of:
Net Asset Value 7.55% 78.91% 7.55% 14.99%
Maximum Offering Price 1.37% 68.63% 1.37% 13.37%
Class B Shares: As a % of:
Net Asset Value 6.80% 74.07% 6.80% 14.24%
Maximum Offering Price 1.80% 71.07% 1.80% 13.76%
Class C Shares: As a % of:
Net Asset Value 6.80% 74.07% 6.80% 14.24%
Maximum Offering Price 5.80% 74.07% 5.80% 14.24%
</TABLE>
* Calculated from August 4, 1999.
Small Cap Value Fund
- --------------------
<TABLE>
<CAPTION>
Aggregate Total Return Average Annual Total Return
1 Year Since Inception# 1 Year Since Inception#
<S> <C> <C> <C> <C>
Class A Shares: As a % of:
Net Asset Value -8.27% 60.08% -8.27% 11.96%
Maximum Offering Price -13.54% 50.88% -13.54% 10.38%
Class B Shares: As a % of:
Net Asset Value -9.02% 55.53% -9.02% 11.19%
Maximum Offering Price -14.02% 52.53% -14.02% 10.67%
Class C Shares: As a % of:
Net Asset Value -9.02% 55.53% -9.02% 11.19%
Maximum Offering Price -10.02% 55.53% -10.02% 11.19%
</TABLE>
# Calculated from August 4, 1999.
Small Cap Growth Fund*
- ----------------------
<TABLE>
<CAPTION>
Aggregate Total Return Average Annual Total Return
1 Year Since Inception# 1 Year Since Inception#
<S> <C> <C> <C> <C>
Class A Shares: As a % of:
Net Asset Value 91.45% 169.88% 91.45% 39.23%
Maximum Offering Price 80.44% 154.36% 80.44% 36.51%
Class B Shares: As a % of:
Net Asset Value 90.70% 165.44% 90.70% 38.46%
Maximum Offering Price 85.70% 162.44% 85.70% 37.94%
Class C Shares: As a % of:
Net Asset Value 90.70% 165.44% 90.70% 38.46%
Maximum Offering Price 89.70% 165.44% 89.70% 38.46%
</TABLE>
# Calculated from December 31, 1996.
<PAGE>
Total Return Bond Fund**
- ------------------------
<TABLE>
<CAPTION>
Aggregate Total Return Average Annual Total Return
Since Since
1 Year 5 Year Inception# 1 Year 5 Year Inception#
<S> <C> <C> <C> <C> <C> <C>
Class A Shares: As a % of:
Net Asset Value 4.15% 76.65% 154.81% 4.15% 9.95% 11.45%
Maximum Offering Price -0.54% 68.71% 143.34% -0.54% 9.11% 10.85%
Class B Shares: As a % of:
Net Asset Value 3.40% 70.80% 140.28% 3.40% 9.33% 10.69%
Maximum Offering Price -1.60% 68.80% 140.28% -1.60% 9.12% 10.69%
Class C Shares: As a % of:
Net Asset Value 3.40% 70.80% 140.28% 3.40% 9.33% 10.69%
Maximum Offering Price 2.40% 70.80% 140.28% 2.40% 9.33% 10.69%
</TABLE>
# Calculated from May 16, 1991.
* Assuming deduction of the current maximum sales load, Small Cap Growth
Fund's Class A shares' aggregate total return for the one-year and
since-inception periods would have been 80.25% and 148.15%, respectively,
had the voluntary expense limitation not been in effect, and their average
annual total returns since inception would have been 33.75% had the
voluntary expense limitation not been in effect. Based on net asset values,
Class A shares' aggregate total return for the one-year and since-inception
periods would have been 91.26%. and 163.67%, respectively and their average
annual total return since-inception would have been 39.04% without the
voluntary limitation. Assuming redemption at the end of the period, the
Fund's Class B shares' aggregate total return for the one-year and
since-inception periods would have been 85.51% and 156.23%, respectively,
had a voluntary limitation not been in effect, and their average annual
total return since-inception would have been 37.75%. Based on net asset
values, the Fund's Class B shares' aggregate annual total return for the
one-year and since-inception periods would have been 90.51% and 159.23%,
respectively, and their average annual total return since-inception would
have been 38.27%. The Fund's Class C shares' aggregate total return for the
one-year and since-inception periods would have been 89.51% and 159.23%,
respectively, and their average annual total return since-inception would
have been 38.27% without the voluntary limitation. Based on net asset
values, the Fund's Class C shares' aggregate annual total return for the
one-year and since-inception periods would have been 90.51% and 159.23%,
respectively, and their average annual total return since-inception would
have been 38.27%.
** Assuming deduction of the current maximum sales load, Total Return Bond
Fund's Class A shares' aggregate total return for the one-year, five-year
and since-inception periods would have been -0.54%, 68.71% and 140.73%,
respectively, had the voluntary expense limitation not been in effect, and
their average annual total returns for the five-year and since-inception
periods would have been 9.11% and 10.67%, respectively, had the voluntary
expense limitation not been in effect. Based on net asset values, Class A
shares' aggregate total return for the one-year, five-year and
since-inception periods would have been 4.15%, 76.65% and 152.20%,
respectively and their average annual total return for the five-year and
since-inception periods would have been 9.95% and 11.27%, respectively,
without the voluntary limitation. Assuming redemption at the end of the
period, the Fund's Class B shares' aggregate total return for the one-year,
five-year and since-inception periods would have been -1.60%, 68.80% and
137.67%, respectively, had a voluntary limitation not been in effect, and
their average annual total return for the five-year and since-inception
periods would have been 9.12% and 10.51%, respectively. Based on net asset
values, the Fund's Class B shares' aggregate annual total return for the
one-year, five-year and since-inception periods would have been 3.40%,
70.80% and 137.67%, respectively, and their average annual total return for
the five-year and since-inception periods would have been 9.33% and 10.51%,
respectively, without the voluntary limitation. The Fund's Class C shares'
aggregate total return for the one-year, five-year and since-inception
periods would have been 2.40%, 70.80% and 137.67%, respectively, and their
average annual total return for the five-year and since-inception periods
would have been 9.33% and 10.51%, respectively, without the voluntary
limitation. Based on net asset values, the Fund's Class C shares' aggregate
annual total return for the one-year, five-year and since-inception periods
would have been 3.40%, 70.80% and 137.67%, respectively, and their average
annual total return for the five-year and since-inception periods would have
been 9.33% and 10.51%, respectively, without the voluntary limitation.
- --------------------------------------------------------------------------------
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 net
short-term capital gains and to distribute annually all net realized long-term
capital gains, if any, after offsetting any capital loss carryovers.
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 business on the Exchange on the
record date for each dividend or distribution. Shareholders, however, may elect
to receive their 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 Distributor, L.P. In order for a change to be in effect
for any dividend or distribution, it must be received by Nvest Funds
Distributor, L.P. 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
<PAGE>
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 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 and cash items, including receivables, 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 U.S. Government Securities or securities of 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 generally will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gains
distributions.
If a Fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the Fund would be subject to tax on
its taxable income at corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to shareholders as ordinary income. In addition,
the Fund could be required to recognize unrealized gains, pay substantial taxes
and interest and make substantial distributions before requalifying as a
regulated investment company that is accorded special tax treatment.
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 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.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by each Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. If a Portfolio
derives dividends from domestic corporations, a portion of the dividends paid by
a Fund that invests in the Portfolio may qualify for the deduction for dividends
received by corporations. Properly designated distributions of long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of the Fund. A loss on
the sale of shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain dividends paid to the
shareholder with respect to such shares.
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.
If a Fund were to choose to invest in more than one Portfolio, a Fund
would not be able to offset gains realized by one Portfolio in which such Fund
invests against losses realized by another Portfolio in which such Fund invests.
The Fund's use of a fund of funds structure could therefore adversely affect the
amount, timing and character of distributions to shareholders.
<PAGE>
Income received by a Portfolio from sources within a foreign country may
be subject to withholding and other taxes imposed by that country. If more than
50% of the value of an underlying Portfolio's total assets at the close of its
taxable year consists of stock or securities of foreign corporations, the
Portfolio will be eligible and may elect to "pass-through" to its shareholders,
including a Fund, the amount of foreign income and similar taxes paid by the
Portfolio. Pursuant to this election, the Fund would be required to include in
gross income (in addition to taxable dividends actually received) its pro rata
share of the foreign income and similar taxes paid by the Portfolio, and would
be entitled either to deduct its pro rata share of foreign income and similar
taxes in computing its taxable income or to use it as a foreign tax credit
against its U.S. federal income taxes, subject to limitations. The Fund would
not, however, be eligible to elect to "pass-through" to its shareholders the
ability to claim a deduction or credit with respect to foreign income and
similar taxes paid by the Portfolio.
Each Portfolio's transactions, if any, in foreign currencies are likely to
result in a difference between the Portfolio's book income and taxable income.
This difference may cause a portion of the Portfolio's income distributions to
constitute a return of capital gain for tax purposes or require the Portfolios
to make distributions exceeding book income to avoid excise tax liability and to
qualify as a regulated investment company.
A Fund may receive exempt-interest dividends from its investment in a
Portfolio. The Fund is not, however, eligible to "pass-through" to its
shareholders such tax-exempt income since it holds share only of a Portfolio.
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 (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. In some cases,
shareholders will not be permitted to take sales charges into account for
purposes of determining the amount of gain or loss realized on the disposition
of their Fund shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the shares, (2) the shares are
disposed of before the 91st day after the date on which they were acquired, and
(3) the shareholder subsequently acquires shares of the same or another Fund or
fund and the otherwise applicable sales charge is reduced under a "reinvestment
right" received upon the initial purchase of shares. The term "reinvestment
right" means any right to acquire stock of one or more funds (including a Fund)
without the payment of a sales charge or with the payment of a reduced sales
charge. Sales charges affected by this rule are treated as if they were incurred
with respect to the shares acquired under the reinvestment right. This provision
may be applied to successive acquisitions of Fund shares.
Each Fund may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
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.
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 a 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).
Each Portfolio intends to qualify annually and elects to be treated as a
regulated investment company under the Code. In any year in which a Portfolio
qualifies as a regulated investment company and timely distributes all of
<PAGE>
its taxable income, the Portfolio generally will not pay any federal income or
excise tax, and the corresponding Fund will qualify as a regulated investment
company.
Distributions of a Portfolio's ordinary income and net short-term capital
gains are treated as ordinary income by a Fund that invests in the Portfolio.
Properly designated distributions of a Portfolio's net long-term capital gains
are treated as long-term capital gain by a Fund that invests in the Portfolio,
regardless of how long the Fund held the Portfolio's shares.
Depending on a Fund's percentage ownership in a Portfolio both before and
after a redemption, a Fund's redemption of shares of such Portfolio may cause
the Fund to be treated as not receiving capital gain income on the amount by
which the distribution exceeds the Fund's tax basis in the shares of the
Portfolio, but instead to be treated as receiving a dividend taxable as ordinary
income on the full amount of the distribution. This could cause shareholders of
the Fund to recognize higher amounts of ordinary income than if the shareholders
had held the shares of the Portfolio directly.
- --------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
Harris Associates
The following information relates to certain investment practices in which
certain Portfolios advised by Harris Associates may engage, whether as a primary
or secondary strategy:
Securities Of Non-U.S. Issuers. The Portfolios each may invest a minor portion
of their assets (up to 25% for Oakmark Fund and Small Cap Fund and up to 10% for
Equity and Income Fund) in securities of non-U.S. issuers.
International investing permits an investor to take advantage of the
growth in markets outside the United States. Investing in securities of non-U.S.
issuers may entail a greater degree of risk (including risks relating to
exchange rate fluctuations, tax provisions, or expropriation of assets) than
does investment in securities of domestic issuers. The Portfolios may invest in
securities of non-U.S. issuers directly or in the form of American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), or other securities representing underlying shares of foreign issuers.
Positions in these securities are not necessarily denominated in the same
currency as the common stocks into which they may be converted. ADRs are
receipts typically issued by an American bank or trust company and trading in
U.S. markets evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. Generally ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. GDRs are
receipts that may trade in U.S. or non-U.S. markets. The Portfolios may invest
in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored
depositary receipt, the issuer typically pays some or all of the expenses of the
depository and agrees to provide its regular shareholder communications to
depositary receipt holders. An unsponsored depositary receipt is created
independently of the issuer of the underlying security. The depositary receipt
holders generally pay the expenses of the depository and do not have an
undertaking from the issuer of the underlying security to furnish shareholder
communications.
With respect to portfolio securities of non-U.S. issuers or denominated in
foreign currencies, a Portfolio's investment performance is affected by the
strength or weakness of the U.S. dollar against these currencies. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions."
You should understand and consider carefully the risks involved in
international investing. Investing in securities of non-U.S. issuers, which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; different accounting, auditing and financial reporting standards;
different settlement periods and trading practices; less liquidity and
frequently greater price volatility; imposition of foreign taxes; and sometimes
less advantageous legal, operational
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and financial protections applicable to foreign subcustodial arrangements.
Although the Portfolios try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation of assets, confiscatory taxation, seizure or nationalization of
foreign bank deposits or other assets, establishment of exchange controls, the
adoption of foreign government restrictions, or other political, social or
diplomatic developments that could adversely affect investment in these
countries.
Emerging Markets. Investments in emerging markets securities include special
risks in addition to those generally associated with foreign investing. Many
investments in emerging markets can be considered speculative, and the value of
those investments can be more volatile than in more developed foreign markets.
This difference reflects the greater uncertainties of investing in less
established markets and economies. Emerging markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets is
uninvested and no return is earned thereon. The inability to make intended
security purchases due to settlement problems could cause a Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a
Portfolio due to subsequent declines in the value of those securities or, if a
Portfolio has entered into a contract to sell a security, in possible liability
to the purchaser. Costs associated with transactions in emerging markets
securities are typically higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain foreign markets (including emerging markets) may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in an emerging market's balance of payments or for other
reasons, a country could impose temporary restrictions on foreign capital
remittances. A Portfolio could be adversely affected by delays in, or a refusal
to grant, required governmental approval for repatriation of capital, as well as
by the application to the Portfolio of any restrictions on investments.
The risk also exists that an emergency situation may arise in one or more
emerging markets. As a result, trading of securities may cease or may be
substantially curtailed and prices for a Portfolio's securities in such markets
may not be readily available. A Portfolio may suspend redemption of its shares
for any period during which an emergency exists, as determined by the SEC.
Accordingly, if a Portfolio believes that appropriate circumstances exist, it
will promptly apply to the SEC for a determination that such an emergency is
present. During the period commencing from a Portfolio's identification of such
condition until the date of the SEC action, that Portfolio's securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Portfolio's board of trustees.
Income from securities held by a Portfolio could be reduced by taxes
withheld from that income, or other taxes that may be imposed by the emerging
market countries in which the Portfolio invests. Net asset value of a Portfolio
may also be affected by changes in the rates or methods of taxation applicable
to the Portfolio or to entities in which the Portfolio has invested. Many
emerging markets have experienced substantial rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had and may continue to
have adverse effects on the economies and securities markets of certain emerging
market countries. In an attempt to control inflation, certain emerging market
countries have imposed wage and price controls. Of these countries, some, in
recent years, have begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest or principal on debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through ownership or control of many companies. The future actions of those
governments could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities in
a Portfolio's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic
<PAGE>
and social instability have occurred throughout the history of certain emerging
market countries and could adversely affect Portfolio assets should any of those
conditions recur.
Currency Exchange Transactions. Each Portfolio may enter into currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate for purchasing
or selling currency prevailing in the foreign exchange market or through a
forward currency exchange contract ("forward contract"). A forward contract is
an agreement to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the contract.
Forward contracts are usually entered into with banks, foreign exchange dealers
or broker/dealers, are not exchange-traded and are usually for less than one
year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a Portfolio may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. A Portfolio's currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of a Portfolio accruing in connection with
the purchase or sale of portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. When a Portfolio owns
or anticipates owning securities in countries whose currencies are linked, the
Portfolio may aggregate such positions as to the currency hedged.
If a Portfolio enters into a forward contract hedging an anticipated or
actual holding of portfolio securities, liquid assets of the Portfolio, having a
value at least as great as the amount of the excess, if any, of the Portfolio's
commitment under the forward contract over the value of the portfolio position
being hedged, will be segregated on the books of the Portfolio and held by the
Portfolio's custodian and marked to market daily, while the contract is
outstanding.
At the maturity of a forward contract to deliver a particular currency, a
Portfolio may sell the portfolio security related to such contract and make
delivery of the currency received from the sale, or it may retain the security
and either purchase the currency on the spot market or terminate its contractual
obligation to deliver the currency by entering into an offsetting contract with
the same currency trader for the purchase on the same maturity date of the same
amount of the currency.
It is impossible to forecast precisely the market value of a portfolio
security being hedged with a forward currency contract. Accordingly, at the
maturity of a contract it may be necessary for a Portfolio to purchase
additional currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of currency the
Portfolio is obligated to deliver under the forward contract and if a decision
is made to sell the security and make delivery of the currency. Conversely, it
may be necessary to sell on the spot market some of the currency received upon
the sale of the portfolio security if the sale proceeds exceed the amount of
currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If the Portfolio
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the currency. Should forward prices decline during the
period between the Portfolio's entering into a forward contract for the sale of
a currency and the date it enters into an offsetting contract for the purchase
of the currency, the Portfolio will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Portfolio will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell. A default on the contract would
deprive the Portfolio of unrealized profits or force the Portfolio to cover its
commitments for purchase or sale of currency, if any, at the current market
price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Portfolio of engaging in currency exchange transactions varies with such factors
as the currency involved, the length of the contract period, and prevailing
market conditions. Since currency exchange transactions are usually conducted on
a principal basis, no fees or commissions are involved.
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European Currency Unification. Effective January 1, 1999, eleven of the fifteen
member countries of the European Union adopted a single European currency, the
euro. The countries participating in the Economic and Monetary Union ("EMU") are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. The four European Union countries not currently
participating in the EMU are Great Britain, Denmark, Sweden and Greece. A new
European Central Bank manages the monetary policy of the new unified region, and
the exchange rates among the EMU member countries are permanently fixed.
National currencies will continue to circulate until they are replaced by euro
coins and bank notes by the middle of 2002.
This change is likely to impact significantly the European capital markets
in which the Portfolios may invest their assets. The change to the new euro
currency could have adverse effects on a Portfolio's ability to value its
portfolio holdings in foreign securities, and could increase the costs
associated with the Portfolio's operations. Harris Associatesis working with the
providers of services to the Portfolios in the areas of clearance and settlement
of trades in an effort to avoid any material impact on the Portfolios due to the
euro conversion; there can be no assurance, however, that the steps taken by
Harris Associateswill be sufficient to avoid any adverse impact on the
Portfolios.
Debt Securities. Each Portfolio may invest in debt securities, including
lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's
("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly
called "junk bonds")and securities that are not rated. There are no restrictions
as to the ratings of debt securities acquired by a Portfolio or the portion of a
Portfolio's assets that may be invested in debt securities in a particular
ratings category, except that Equity and Income Fund will not invest more than
20% of its total assets in such securities, and each of the other Portfolios
will not invest more than 25% of its total assets in such securities.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in making their principal and interest payments.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and a Portfolio may have greater difficulty selling its
portfolio securities. The market value of those securities and their liquidity
may be affected by adverse publicity and investor perceptions.
A description of the characteristics of bonds in each ratings category is
included in the appendix to this statement of additional information.
When-Issued, Delayed-Delivery and Other Securities. Each Portfolio may purchase
securities on a when-issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time a Portfolio
enters into the commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have changed. A
Portfolio makes such commitments only with the intention of actually acquiring
the securities, but may sell the securities before settlement date if Harris
Associates deems it advisable for investment reasons. A Portfolio may utilize
spot and forward foreign currency exchange transactions to reduce the risk
inherent in fluctuations in the exchange rate between one currency and another
when securities are purchased or sold on a when-issued or delayed-delivered
basis.
At the time a Portfolio enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets of the Portfolio having a value
at least as great as the purchase price of the securities to be purchased will
be segregated on the books of the Portfolio and held by the custodian throughout
the period of the obligation. The use of these investment strategies, as well as
any borrowing by a Portfolio, may increase net asset value fluctuation.
A Portfolio may also enter into a contract with a third party that
provides for the sale of securities held by the Portfolio at a set price, with a
contingent right for the Portfolio to receive additional proceeds from the
purchaser upon the occurrence of designated future events, such as a tender
offer for the securities of the subject company by
<PAGE>
the purchaser, and satisfaction of any applicable conditions. Under such an
arrangement, the amount of contingent proceeds that the Portfolio will receive
from the purchaser, if any, will generally not be determinable at the time such
securities are sold. The Portfolio's rights under such an arrangement will not
be secured and the Portfolio may not receive the contingent payment if the
purchaser does not have the resources to make the payment. The Portfolio's
rights under such an arrangement also generally will be illiquid and subject to
the limitations on ownership of illiquid securities.
Illiquid Securities. No Portfolio may invest in illiquid securities, if as a
result such securities would comprise more than 15% of the value of the
Portfolio's assets.
If through the appreciation of illiquid securities or the depreciation of
liquid securities, the Portfolio should be in a position where more than 15% of
the value of its net assets are invested in illiquid assets, including
restricted securities, the Portfolio will take appropriate steps to protect
liquidity.
Illiquid securities may include restricted securities, which may be sold
only in privately negotiated transactions or in a public offering with respect
to which a registration statement is in effect under the Securities Act of 1933
(the "1933 Act"). Where a Portfolio holds restricted securities and registration
is required, the Portfolio may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the board of
trustees.
Notwithstanding the above, each Portfolio may purchase securities that,
although privately placed, are eligible for purchase and sale under Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Portfolios, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. Harris Associates, under the
supervision of the board of trustees, may consider whether securities purchased
under Rule 144A are liquid and thus not subject to the Portfolio's restriction
of investing no more than 15% of its assets in illiquid securities. (See
restriction 13 under "Investment Restrictions.") A determination of whether a
Rule 144A security is liquid or not is a question of fact. In making this
determination Harris Associates will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, Harris Associatescould consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, (4) and the nature of the security and of market
place trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of a Portfolio's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
Short Sales. Each Portfolio may sell securities short, on a limited basis, 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 Portfolio's
short positions remain open. A Portfolio may make short sales of securities only
if at all times when a short position is open the Portfolio owns at least an
equal amount of such securities or securities convertible into or exchangeable
for, or anticipated to be convertible into or exchangeable for, securities of
the same issue as, and equal in amount to, the securities sold short with no
restriction other than the payment of additional consideration.
In a short sale, a Portfolio does not deliver from its portfolio the
securities sold and does not receive immediately the proceeds from the short
sale. Instead, the Portfolio 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 Portfolio, to the purchaser of such
securities. Such broker/dealer is entitled to retain the proceeds from the short
sale until the Portfolio delivers to such broker/dealer the securities sold
short. In addition, the Portfolio is required to pay to 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
Portfolio must deposit and continuously maintain in a separate account with the
Portfolio's custodian an equivalent amount of the securities sold short or
securities convertible into
<PAGE>
or exchangeable for such securities without the payment of additional
consideration. A Portfolio 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 Portfolio receives the proceeds of the sale. A Portfolio 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 Portfolio against the 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 upon the amount of securities sold short relative to the amount the
Portfolio owns, either directly or indirectly, and, in the case where the
Portfolio 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 a
Portfolio replaces the borrowed security, the Portfolio will incur a loss and if
the price declines during this period, the Portfolio 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 Portfolio may have to pay in connection with such
short sale. Certain provisions of the Internal Revenue Code may limit the degree
to which a Portfolio is able to enter into short sales. There is no limitation
on the amount of each Portfolio'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. No Portfolio currently expects that more than 20% of its total assets
would be involved in short sales.
Private Placements. Each Portfolio may acquire securities in private placements.
Because an active trading market may not exist for such securities, the sale of
such securities may be subject to delay and additional costs. No Portfolio will
purchase such a security if more than 15% of the value of such Portfolio's net
assets would be invested in illiquid securities.
Lending Of Portfolio Securities. Each Portfolio except Oakmark Fund may lend its
portfolio securities to broker/dealers and banks to the extent indicated in
restriction 7 under the section entitled "Investment Restrictions of the Harris
Associate Portfolios." Any such loan must be continuously secured by collateral
in cash or cash equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by a Portfolio. The Portfolio
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned, and would also receive an additional return
that may be in the form of a fixed fee or a percentage of the earnings on the
collateral. The Portfolio would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days. In
the event of bankruptcy or other default of the borrower, the Portfolio could
experience delays in liquidating the loan collateral or recovering the loaned
securities and incur expenses related to enforcing its rights. In addition,
there could be a decline in the value of the collateral or in the value of the
securities loaned while the Portfolio seeks to enforce its rights thereto and
the Portfolio could experience subnormal levels of income and lack of access to
income during this period.
Other Investment Companies. Certain markets are closed in whole or in part to
direct equity investments by foreigners. A Portfolio may be able to invest in
such markets solely or primarily through governmentally authorized investment
vehicles or companies.
Each Portfolio generally may invest up to 10% of its assets in the
aggregate in shares of other investment companies and up to 5% of its assets in
any one investment company, as long as no investment represents more than 3% of
the outstanding voting stock of the acquired investment company at the time of
investment.
Investment in another investment company may involve the payment of a
premium above the value of such issuers' portfolio securities, and is subject to
market availability. The Portfolios do not intend to invest in such vehicles or
funds unless, in the judgment of Harris Associates, the potential benefits of
the investment justify the payment of any applicable premium or sales charge. As
a shareholder in an investment company, a Portfolio would bear its ratable share
of that investment company's expenses, including its advisory and administration
fees. At the same time the Portfolio would continue to pay its own management
fees and other expenses.
Options. Each Portfolio may purchase and sell both call options and put options
on securities. An option on a security is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from
<PAGE>
(call) or sell to (put) the seller (writer) of the option the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of an option on an individual security has the
obligation upon exercise of a call option to deliver the underlying security
upon payment of the exercise price or upon exercise of a put option to pay the
exercise price upon delivery of the underlying security.
It is expected that a Portfolio will not purchase a call option or a put
option if the aggregate value of all call and put options held by the Portfolio
would exceed 5% of the Portfolio's net assets.
Each Portfolio will write call options and put options only if they are
"covered." For example, in the case of a call option, the option is "covered" if
the Portfolio owns the security underlying the option or has an absolute and
immediate right to acquire that security without additional consideration (or,
if additional consideration is required, assets having a value at least equal to
that amount are segregated on the books of a Portfolio) upon conversion or
exchange of other securities held in its portfolio.
If an option written by a Portfolio expires, the Portfolio realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Portfolio expires, the Portfolio realizes a capital
loss equal to the premium paid.
Prior to the earlier of exercise or expiration, the writer may close out
the option by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security or index, exercise price and expiration).
There can be no assurance, however, that a closing purchase or sale transaction
can be effected when a Portfolio desires.
If a Portfolio closes out an option it has written, it will realize a
capital gain from a closing purchase transaction if the cost of the closing
option is less than the premium received from writing the option, or, if it is
more, the Portfolio will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase the option,
the Portfolio will realize a capital gain or, if it is less, the Portfolio will
realize a capital loss. The principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price of the underlying security in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by a Portfolio is an asset of the
Portfolio, valued initially at the premium paid for the option. The premium
received for an option written by a Portfolio is recorded as a deferred credit.
The value of an option purchased or written is marked-to-market daily and is
valued at the closing price on the exchange on which it is traded, or, if not
traded on an exchange or no closing price is available, at the mean between the
last bid and asked prices.
There are several risks associates with transactions in options. For
example, there are significant differences between the securities markets and
the options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when, and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. If a Portfolio was unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become worthless.
If a Portfolio was unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security until the
option expired. As the writer of a covered call option on a security, a
Portfolio foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call. If trading were suspended
in an option purchased or written by a Portfolio, that Portfolio would not able
to close out the option. If restrictions on exercise were imposed, the Portfolio
might be unable to exercise an option it has purchased.
Temporary Strategies. Each Portfolio has the flexibility to respond promptly to
changes in market and economic conditions. In the interest of preserving
shareholders' capital, Harris Associatesmay employ a temporary defensive
investment strategy if it determines such a strategy to be warranted. Pursuant
to such a defensive strategy, a Portfolio 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
<PAGE>
impossible to predict whether, when or for how long a Portfolio will employ
defensive strategies.
In addition, pending investment of proceeds from new sales of Portfolio
shares or to meet ordinary daily cash needs, each Portfolio temporarily may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and may
invest any portion of its assets in money market instruments.
Loomis Sayles
The following information relates to certain investment practices in which
certain Portfolios advised by Loomis Sayles may engage, whether as a primary or
secondary strategy:
U.S. Government Securities. U.S. Government securities include direct
obligations of the U.S. Treasury, as well as securities issued or guaranteed by
U.S. Government agencies, authorities and instrumentalities, including, among
others, the Government National Mortgage Association, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, the Federal
Housing Administration, the Resolution Funding Corporation, the Federal Farm
Credit Banks, the Federal Home Loan Bank, the Tennessee Valley Authority, the
Student Loan Marketing Association and the Small Business Administration. More
detailed information about some of these categories of U.S. Government
securities follows.
U.S. Treasury Bills--Direct obligations of the U.S. 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 U.S. Government.
U.S. Treasury Notes and Bonds--U.S. Treasury Notes and Bonds are direct
obligations of the U.S. Treasury that are issued in maturities that vary between
one and forty years, with interest normally payable every six months. They are
backed by the full faith and credit of the U.S. Government.
"Ginnie Maes"--Ginnie Maes are debt securities issued by a mortgage banker
or other mortgagee that 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 Portfolios) each month. Unscheduled prepayments may
be made by homeowners, or as a result of a default. Prepayments are passed
through to the registered holder of Ginnie Maes along with regular monthly
payments of principal and interest.
"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. FNMA
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 U.S. Government.
"Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the U.S. 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 U.S. Government.
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 Portfolio's net asset value.
When-Issued Securities. When-issued securities are agreements with banks or
broker/dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when the Portfolio that invests in fixed income securities anticipates a decline
in interest rates and is able to obtain a more advantageous yield by committing
currently to purchase securities to be issued later. When the
<PAGE>
Portfolio purchases securities on a when-issued or delayed-delivery basis, it is
required to create a segregated account with the Trust's custodian and to
maintain in that account liquid assets in an amount equal to or greater than, on
a daily basis, the amount of the Portfolio's when-issued or delayed-delivery
commitments. The Portfolio will make commitments to purchase on a when-issued or
delayed-delivery basis only securities meeting that Portfolio's investment
criteria. The Portfolio may take delivery of these securities or, if it is
deemed advisable as a matter of investment strategy, the Portfolio may sell
these securities before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Portfolio will meet its
obligations from then available cash flow or the sale of securities, or from the
sale of the when-issued or delayed-delivery securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).
Zero Coupon Bonds. Zero coupon bonds 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.
Such bonds 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 bonds, prevailing interest rates, the liquidity of the
security and the perceived credit quality of the issuer. The market prices of
zero coupon bonds 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 non-zero coupon bonds having similar
maturities and credit quality. In order to satisfy a requirement for
qualification as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"), the Portfolio must distribute each year
at least 90% of its net investment income, including the original issue discount
accrued on zero coupon bonds. Because a Portfolio investing in zero coupon bonds
will not on a current basis receive cash payments from the issuer in respect of
accrued original issue discount, the Portfolio 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 Portfolio. 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 Portfolio to sell
such securities at such time.
Repurchase Agreements. Under a repurchase agreement, the Portfolio purchases a
security and obtains a simultaneous commitment from the seller (a bank or, to
the extent permitted by the 1940 Act, a recognized securities dealer) to
repurchase the security at an agreed upon price and date (usually seven days or
less from the date of original purchase). The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Portfolio the
opportunity to earn a return on temporarily available cash at minimal 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 U.S.
Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Portfolio would attempt to exercise
rights with respect to the underlying security, including possible disposition
in the market. However, the Portfolio 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 Portfolio seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of income during this period and (c)
inability to enforce rights and the expenses involved in attempted enforcement.
Real Estate Investment Trusts. Real estate investment trusts (REITs) involve
certain unique risks in addition to those risks associated with investing in the
real estate industry in general (such as possible declines in the value of real
estate, lack of availability of mortgage funds, or extended vacancies of
property). Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs, while mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. REITs are also subject to the
possibilities of failing to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended, and failing to maintain their
exemptions from registration under the 1940 Act.
Investment in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume, and may be subject
to more abrupt or erratic price movements than larger securities.
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 Loomis Sayles has determined, under
guidelines established by the Trust's trustees, that the particular issue of
Rule 144A securities is liquid. Under the guidelines, Loomis Sayles considers
such factors as: (1) the frequency of trades and quotes for a security; (2) the
<PAGE>
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades in the security.
Foreign Currency Transactions. Since investment in securities of foreign issuers
will usually involve currencies of foreign countries, and since a Portfolio may
temporarily hold funds in bank deposits in foreign currencies during the course
of investment programs, the value of the assets of a Portfolio as measured in
U.S. dollars may be affected by changes in currency exchange rates and exchange
control regulations, and the Portfolio may incur costs in connection with
conversion between various currencies.
A Portfolio may enter into forward contracts under two circumstances.
First, when a Portfolio enters into a contract for the purchase or sale of a
security denominated or traded in a market in which settlement is made in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the investment is purchased or sold and the date on which payment is
made or received.
Second, when Loomis Sayles believes that the currency of a particular
country may suffer a substantial decline against another currency, it may enter
into a forward contract to sell, for a fixed amount of another currency, the
amount of the first currency approximating the value of some or all of the
Portfolio's investments denominated in the first currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in a
currency will change as a consequence of market movements in the value of those
investments between the date the forward contract is entered into and the date
it matures.
The Portfolios generally will not enter into forward contracts with a term
of greater than one year.
Options on foreign currencies are similar to forward contracts, except
that one party to the option (the holder) is not contractually bound to buy or
sell the specified currency. Instead, the holder has discretion whether to
"exercise" the option and thereby require the other party to buy or sell the
currency on the terms specified in the option. Options transactions involve
transaction costs and, like forward contract transactions, involve the risk that
the other party may default on its obligations (if the options are not traded on
an established exchange) and the risk that expected movements in the relative
value of currencies may not occur, resulting in an imperfect hedge or a loss to
the Portfolio.
Each Portfolio, in conjunction with its transactions in forward contracts,
options, and futures, will maintain in a segregated account with its custodian
liquid assets with a value, marked to market on a daily basis, sufficient to
satisfy the Portfolio's outstanding obligations under such contracts, options,
and futures.
Options. An option 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 may be traded on or off an
established securities exchange.
If the holder of an option wishes to terminate its position, it may seek
to effect a closing sale transaction by selling an option identical to the
option previously purchased. The effect of the purchase is that the previous
option position will be canceled. The Portfolio will realize a profit from
closing out an option if the price received for selling the offsetting position
is more than the premium paid to purchase the option; the Portfolio will realize
a loss from closing out an option transaction if the price received for selling
the offsetting option is less than the premium paid to purchase the option.
The use of options involves risks. One risk arises because of the
imperfect correlation between movements in the price of options and movements in
the price of the securities that are the subject of the hedge. The Portfolio's
hedging strategies will not be fully effective if such imperfect correlation
occurs.
Price movement correlation may be distorted by illiquidity in the options
markets and the participation of speculators in such markets. If an insufficient
number of contracts are traded, commercial users may not deal in
<PAGE>
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,
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, the trading activities of speculators in the options markets may
create temporary price distortions unrelated to the market in the underlying
securities.
An exchange-traded option may be closed out only on an exchange that
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 Portfolio would have to exercise the
option in order to accomplish the desired hedge. 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.
The successful use of options depends in part on the ability of Loomis
Sayles to forecast correctly the direction and extent of interest rate, stock
price or currency value movements within a given time frame. To the extent
interest rates, stock prices or currency values move in a direction opposite to
that anticipated, the Portfolio 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 or the relevant stock
price or relevant currency values move during the period that the Portfolio
holds options positions, the Portfolio will pay the cost of taking those
positions (i.e., brokerage costs). As a result of these factors, the Portfolio's
total return for such period may be less than if it had not engaged in the
hedging transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original option
transaction. While the Portfolio 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 Portfolio, there can be no assurance that the
Portfolio will be able to liquidate an over-the-counter option at a favorable
price at any time prior to its expiration. Accordingly, the Portfolio might have
to exercise an over-the-counter option it holds in order to achieve the intended
hedge. Over-the-counter options are not subject to the protections afforded
purchasers of listed options by the Options Clearing Corporation or other
clearing organization.
The staff of the SEC has taken the position that over-the-counter options
should be treated as illiquid securities for purposes of the Portfolio's
investment restriction prohibiting it from investing more than 15% of its net
assets in illiquid securities. The Portfolios intend to comply with this
position.
Income earned by a Portfolio from its hedging activities will be treated
as capital gain and, if not offset by net recognized capital losses incurred by
the Portfolio, will be distributed to shareholders in taxable distributions.
Although gain from options transactions may hedge against a decline in the value
of the Portfolio'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.
Small Companies. Investments in companies with relatively small market
capitalizations may involve greater risk than is usually associated with more
established companies. These companies often have limited product lines,
markets, or financial resources, and they may be dependent upon a relatively
small management group. Their securities may have limited marketability and may
be subject to more abrupt and erratic movements in price than securities of
companies with larger capitalizations or market averages in general. The net
asset values of Portfolios that invest in companies with smaller capitalizations
therefore may fluctuate more widely than market averages.
Private Placements. The Portfolios may invest in securities that are purchased
in private placements and, accordingly, are subject to restrictions on resale as
a matter of contract or under federal securities laws. Because
<PAGE>
there may be relatively few potential purchasers for these securities,
especially under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, a Portfolio could find
it more difficult to sell the securities when Loomis Sayles believes that it is
advisable to do so or may be able to sell the securities only at prices lower
than if the securities were more widely held. At times, it also may be more
difficult to determine the fair value of the securities for purposes of
computing a Portfolio's net asset value.
While private placements may offer opportunities for investment that are
not otherwise available on the open market, the securities so purchased are
often "restricted securities," which are securities that cannot be sold to the
public without registration under the Securities Act of 1933, as amended (the
"Securities Act") or the availability of an exemption from registration (such as
Rule 144 or Rule 144A under the Securities Act), or that are not readily
marketable because they are subject to other legal or contractual delays or
restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments such as private placements. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and may be difficult or impossible for a Portfolio to sell them promptly at an
acceptable price. A Portfolio may have to bear the extra expense of registering
the securities for resale and the risk of substantial delay in effecting the
registration. In addition, market quotations typically are less readily
available for these securities. The judgment of Loomis Sayles may at times play
a greater role in valuing these securities than in the case of unrestricted
securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, in a privately negotiated transaction to a limited number
of purchasers, in limited quantities after they have been held for a specified
period of time and other conditions are met pursuant to an exemption from
registration or in a public offering for which a registration statement is in
effect under the Securities Act. A Portfolio may be deemed to be an underwriter
for purposes of the securities if the registration statement prepared by the
issuer, or the prospectus forming a part of the registration statement, is
materially inaccurate or misleading.
<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, if
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
<PAGE>
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 the 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.
<PAGE>
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
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and Affiliates Fortune
Adam Smith's Money World Fox Network and Affiliates
America On Line Fund Action
Anchorage Daily News Fund Decoder
Atlanta Constitution Global Finance
Atlanta Journal (the) Guarantor
Arizona Republic Hartford Courant
Austin American Statesman Houston Chronicle
Baltimore Sun INC
Bank Investment Marketing Indianapolis Star
Barron's Individual Investor
Bergen County Record (NJ) Institutional Investor
Bloomberg Business News International Herald Tribune
Bnai Brith Jewish Monthly Internet
Bond Buyer Investment Advisor
Boston Business Journal Investment Company Institute
Boston Globe Investment Dealers Digest
Boston Herald Investment Profiles
Broker World Investment Vision
Business Radio Network Investor's Daily
Business Week IRA Reporter
CBS and affiliates Journal of Commerce
CFO Kansas City Star
Changing Times KCMO (Kansas City)
Chicago Sun Times KOA-AM (Denver)
Chicago Tribune LA Times
Christian Science Monitor Leckey, Andrew (syndicated column)
Christian Science Monitor News Service Lears
Cincinnati Enquirer Life Association News
Cincinnati Post Lifetime Channel
CNBC Miami Herald
CNN Milwaukee Sentinel
Columbus Dispatch Money
CompuServe Money Maker
Dallas Morning News Money Management Letter
Dallas Times-Herald Morningstar
Denver Post Mutual Fund Market News
Des Moines Register Mutual Funds Magazine
Detroit Free Press National Public Radio
Donoghues Money Fund Report National Underwriter
Dorfman, Dan (syndicated column) NBC and affiliates
Dow Jones News Service New England Business
Economist New England Cable News
FACS of the Week New Orleans Times-Picayune
Forbes Palm Beach Post
Fort Worth Star-Telegram Pension World
Pensions and Investments Standard & Poor's Stock Guide
Personal Investor Stanger's Investment Advisorx
Philadelphia Inquirer Stockbrokers Register
Porter, Sylvia (syndicated column) Strategic Insight
Portland Oregonian Tampa Tribune
Prodigy Time
<PAGE>
Public Broadcasting Service Tobias, Andrew (syndicated column)
Quinn, Jane Bryant (syndicated column) Toledo Blade
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business (syndicated column) Wall St. Journal
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry Management WHDH
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook 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, L.P. ("Back Bay Advisors") Harris Associates L.P., Loomis, Sayles
& Company, L.P. ("Loomis Sayles"), Capital Growth Management Limited Partnership
("CGM") and Westpeak Investment Advisors, L.P. ("Westpeak"). Reference also may
be made to the Funds of their respective fund groups, namely, the Loomis Sayles
Funds and the Oakmark Funds.
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., Marlborough Capital Advisors,
L.P., Reich & Tang Capital Management, Reich and Tang Mutual Funds Group and
Jurika & Voyles and their fund group.
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 Corporation ("Janus Capital"),
Montgomery Asset Management, L.P. ("Montgomery") and Robertson, Stephens &
Company Investment Management, L.P. ("Robertson Stephens").
Nvest Funds' advertising and promotional material will include, but is not
limited to, discussions of the following information about both affiliated and
unaffiliated entities:
o Specific and general assessments and forecasts regarding U.S., world
economies, the economics of specific nations and their impact on the Nvest
Funds
o Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions
o Specific and general investment philosophies, strategies, processes,
techniques and types of analysis
o Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
o The corporate histories, founding dates and names of founders of the
entities
o Awards, honors and recognition given to the firms
o The names of those with ownership interest and the percentage of ownership
o The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists, principals
and other staff members and employees
o The specific credentials of the above individuals, including, but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and degrees,
awards and honors
o The specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments
<PAGE>
o Current and historical statistics about:
o total dollar amount of assets managed
o Nvest Funds' assets managed in total and by Fund
o the growth of assets
o asset types managed
o numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
o 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 the subadviser.
o The general and specific strategies applied by the advisers in the
management of Nvest Funds portfolios including, but not limited to:
o the pursuit of growth, value, income oriented, risk management or other
strategies
o the manner and degree to which the strategy is pursued
o whether the strategy is conservative, moderate or extreme and an
explanation of other features, attributes
o the types and characteristics of investments sought and specific
portfolio holdings
o the actual or potential impact and result from strategy implementation
o through its own areas of expertise and operations, the value added by
subadvisers to the management process
o 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
o 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.
o Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than Nvest Funds, and those families of
funds, other than Nvest Funds. Specific references may include actual
performance of the underlying Portfolio in addition to adjusted performance
of the Nvest Fund. 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' adviser and subadvisers, including, but not limited
to, those provided by Morningstar, Lipper, Inc., Forbes and Worth.
In addition, communications and materials developed by Nvest Funds will
make reference to the following information about Nvest Companies and its
affiliates:
Nvest Companies is part of an affiliated group including Nvest, L.P., a
publicly traded company listed on the NYSE. Nvest Companies has 14 principal
subsidiary or affiliated asset management firms, which collectively had more
than $127 billion of assets under management as of September 30, 1999. In
addition, promotional materials may include:
<PAGE>
o Specific and general references to Nvest Funds multi-manager approach
through Nvest Companies affiliates and outside firms including, but not
limited to, the following:
o 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
o 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
o in this and other contexts reference may be made to Nvest Funds
tagline 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(R).
Financial Adviser Services ("FAS"), a division 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: the Nvest Funds, the Loomis Sayles Funds, the Oakmark Funds and the
Reich & Tang Funds.
FAS 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 FAS and the types of services it provides
which may include: seminars; its 800 number, Web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper, Inc.;
statistics about the advisers', fund groups' or a specific fund's assets under
management; the histories of the advisers and biographical references to
portfolio managers and other staff including, but not limited to, background,
credentials, honors, awards and recognition received by the advisers and their
personnel; and commentary about the advisers, their funds and their personnel
from third-party sources including newspapers, magazines, periodicals, radio,
television or other electronic media.
References may be included in Nvest Funds' advertising and promotional
literature about its 401(k) and retirement plans. The information may include,
but is not limited to:
o Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and 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 firms including, but not limited to, DC Xchange,
William Mercer and other organizations involved in 401(k) and retirement
programs with whom Nvest Funds may or may not have a relationship.
o Specific and general reference 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, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
o Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
o 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 regulation. This includes past, current and future
initiatives, interpretive releases and
<PAGE>
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
o 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
o current and prospective ERISA regulation and requirements.
o 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:
o increased employee retention
o reinforcement or creation of morale
o deductibility of contributions for participants
o deductibility of expenses for employers
o tax deferred growth, including illustrations and charts
o loan features and exchanges among accounts
o educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, availability of wholesalers and other personnel.
o Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, Nvest Funds and
investing in its 401(k) and retirement plans, including, but not limited to:
o the significant economies of scale experienced by mutual fund companies
in the 401(k) and retirement benefits arena
o broad choice of investment options and competitive fees
o plan sponsor and participant statements and notices
o the plan prototype, summary descriptions and board resolutions
o plan design and customized proposals
o Trusteeship, record keeping and administration
o the services of State Street Bank, including, but not limited to,
trustee services and tax reporting
o the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
o the services of Trust Consultants Inc. (TCI), including, but not limited
to, sales support, plan record keeping, document service support, plan
sponsor support, compliance testing and Form 5500 preparation.
<PAGE>
o Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
o access to expertise on investments
o assistance in interpreting past, present and future market trends and
economic events
o providing information to clients including participants during
enrollment and on an ongoing basis after participation
o promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
Nvest Funds advertising and sales literature will include but it is not
limited to, discussions of the following information regarding Access Shares.
They are:
o an innovative new fund structure that was created specifically for
investors who seek advice through financial representatives.
o offered in recognition of the demand for high quality investment
choices and sound financial advice. Investors who seek advice
through financial representatives may purchase the funds of
prominent money managers and pursue the benefits of:
x access to some of the top investment managers in the business
who are among Nvest Funds Best Minds.
x advantages of advice and sound strategies offered through/by
their financial representative.
x proven track record of the underlying fund.
o sold by commission-based financial intermediaries and
representatives. With public focus on advice and assistance through
financial representatives and consultants, investors are offered a
commission-based alternative to wrap and other advisory
arrangements.
o provide financial intermediaries the ability to tap into existing
no-load funds with strong performance records and rankings by
recognized ratings services such as, but not limited to, Morningstar
and Lipper
o intended to bridge the gap between load and no-load funds by
providing access to existing no-load funds on a load basis,
including but not limited to,
- targeting investors who seek advice through financial
intermediaries
- focusing on pursuing long-term strategies with the help of an
investment adviser.
o intended to level the playing field between fee-based financial
advisor arrangements and the sale of front-end and back-end
(contingent deferred sales charge) shares. e.g., a purchase of Class
C Access shares with an annual 100 basis point 12b-1 fee may compare
favorably on an annual basis with fee-based financial advisor
advisory charges.
o intended to increase and diversify the pool of potential investors
available to the underlying mutual fund with the potential to reduce
the underlying fund's expense ratio attributable to fixed costs.
In addition, statistics and other information regarding consumer's
demand, desire and interest in investment and financial advice may be referenced
and incorporated including, but not limited to, information from the Forum for
Investment Advice, the Investment Company Institute, International Association
of Financial Planners, the International Board of Certified Financial Planners
and other financial services organizations.
Comparisons and distinctions may be made between the structure and
other aspects of Master Feeder Funds, which are an underlying master fund or
trust to one or more feeder funds; Clone Funds, which replicate the
<PAGE>
investment policies and management of an existing fund; Fund of Funds, which
involve layered fees, expenses and multiple underlying funds, and Access Shares,
which are invested in one underlying fund, including but not limited to:
o the differences in expenses and costs
o methods of operations
o benefits and rewards to investors, including but not limited to, the expense
structure arrangements, the ability to access established funds and the
merits relative to fee-based, wrap and other advisory programs
o comparisons of the costs of advisory and wrap-fee arrangements
Comparisons and distinctions also may be made to funds in the same asset
categories and details and explanations may be provided regarding how the funds
fit into Nvest Funds overall product line, including but not limited to: product
overlap, style, diversification, risk/reward potential and funds strategies,
objectives and goals.
<PAGE>
APPENDIX D
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF
LOOMIS SAYLES BOND FUND FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1999
The percentages of the Loomis Sayles Bond Fund's assets invested as of December
31, 1999 in securities assigned to the various rating categories by S&P and
Moody's at the time of purchase or, if unrated, determined by Loomis Sayles to
be of comparable quality, were as follows:
S & P Unrated* Moody's Unrated**
----- -------- ------- ---------
AAA/Aaa
AA/Aa
A/A
BBB/Baa
BB/Ba
B/B
CCC/Caa
CC/Ca
C/C
D
- --------------------------------------------------------------------------------
*Unrated by S & P's but determined to be of comparable quality by Loomis Sayles.
**Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.
The percentages were calculated on a dollar-weighted average basis by
determining monthly the percentage of the Loomis Sayles Bond 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 Loomis Sayles Bond Fund's investments will be in subsequent
fiscal years.
<PAGE>
NEW ENGLAND 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 incorporated by reference to the initial Registration
Statement on Form N-1A (File No. 33-62061) filed on August 23, 1995
(the "Registration Statement").
(2) Amendment No. 1 dated March 2, 1998 to Registrant's Agreement and
Declaration of Trust is incorporated by reference to Post-Effective
Amendment ("PEA") No. 5 to the Registration Statement filed on
April 30, 1998.
(3) Amendment No.2 dated February 22, 1999 to Registrant's Agreement
and Declaration of Trust is incorporated by reference to PEA No. 7
to the Registration Statement filed on February 16, 1999.
(b) By-Laws.
The Registrant's By-Laws are incorporated herein by reference to
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 as
exhibit a(1) to PEA No. 6 to the Registration Statement filed on
December 2, 1998.
(d) Investment Advisory Contracts.
(1) (i) Advisory Agreement dated August 30, 1996 as amended May 1, 1998
between the Registrant, on behalf of New England Equity Income
Fund, and New England Funds Management, L.P. ("NEFM") is filed
herewith.
(ii) Advisory Agreement dated March 31, 1998 between the Registrant, on
behalf of New England Bullseye Fund, and NEFM is filed herewith.
(2) (i) Subadvisory Agreement dated July 27, 1999 between the Registrant,
on behalf of New England Equity Income Fund, NEFM and Vaughan,
Nelson, Scarborough & McCullough, L.P. is filed herewith.
(ii) Subadvisory Agreement dated March 31, 1998 between the Registrant,
on behalf of New England Bullseye Fund, NEFM and Jurika & Voyles,
L.P. is filed herewith.
(3) Form of Advisory Agreement between the Registrant, on behalf of New
England Core Equity Fund, New England Stock and Bond Fund, New
England Select Fund, New England Small Cap Value Fund, New England
Small Cap Growth Fund and New England Total Return Bond Fund, and
NEFM, 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) Form of Distribution Agreement between the Registrant, on behalf of
New England Equity Income Fund, and New England Funds, L.P. (the
"Distributor") is incorporated by reference to the Registration
Statement.
(2) Distribution Agreement dated March 31, 1998 between the Registrant,
on behalf of New England Bullseye Fund, and the Distributor is
filed herewith.
(3) Form of Distribution Agreement between the Registrant, on behalf of
New England Core Equity Fund, New England Stock and Bond Fund, New
England Select Fund, New England Small Cap Value Fund, New England
Small Cap Growth Fund and New England 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.
(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 between the Registrant and State Street Bank
relating to the applicability of the Custodian Contract and the
Sub-Transfer and Service Agreement to New England Core Equity Fund,
New England Stock and Bond Fund, New England Select Fund, New
England Small Cap Value Fund, New England Small Cap Growth Fund and
New England 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.
(h) Other Material Contracts
(1) Form of Transfer Agency Agreement between the Registrant and the
Distributor is incorporated by reference to PreEA No. 2 to the
Registration Statement filed on October 30, 1995.
(2) Form of Dealer Agreement of the Distributor is incorporated by
reference to PreEA No. 2 to the Registration Statement filed on
October 30, 1995.
(3) Power of Attorney for Trustees is incorporated by reference to PEA
No. 7 to the Registration Statement filed on February 16, 1999.
(4) Form of Special Servicing Agreement between the Registrant, on
behalf of New England Core Equity Fund, New England Stock and Bond
Fund, New England Select Fund, New England Small Cap Value Fund,
New England Small Cap Growth Fund and New England 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.
(5) Form of Administration Agreement between the Registrant, on behalf
of New England Core Equity Fund, New England Stock and Bond Fund,
New England Select Fund, New England Small Cap Value Fund, New
England Small Cap Growth Fund and New England Total Return Bond
Fund, and NEFM is incorporated by reference to exhibit h(5) to PEA
No. 7 to the Registration Statement filed on February 16, 1999.
(6) Form of Service Agreement between Registrant, on behalf of New
England Core Equity Fund, New England Stock and Bond Fund, New
England Select Fund, New England Small Cap Value Fund, New England
Small Cap Growth Fund and New England Total Return Bond Fund, each
Adviser of the Underlying Portfolio and NEFM is incorporated herein
by reference to exhibit h(6) to PEA No. 7 to this Registration
Statement filed on February 16, 1999.
(7) Form of Fee Waiver/Expense Reimbursement Undertakings between NEFM
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 this Registration Statement, filed on February 16,
1999.
(i) Legal Opinion.
Opinion of Ropes & Gray with respect to New England Bullseye Fund
is incorporated herein by reference to PEA No. 7 to the
Registration Statement, filed on February 16, 1999.
(j) Other Opinions.
Not applicable.
(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 New England
Equity Income Fund is incorporated by reference to the Registration
Statement.
(2) Form of Rule 12b-1 Plan relating to Class B shares of New England
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 New England
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 New England
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 New England
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 New England
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 New England Core Equity Fund, New England
Stock and Bond Fund, New England Select Fund, New England Small Cap
Value Fund, New England Small Cap Growth Fund and New England 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 New England Core Equity Fund, New England
Stock and Bond Fund, New England Select Fund, New England Small Cap
Value Fund, New England Small Cap Growth Fund and New England 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 New England Core Equity Fund, New England
Stock and Bond Fund, New England Select Fund, New England Small Cap
Value Fund, New England Small Cap Growth Fund and New England 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
To be filed by amendment in accordance with the compliance date set
forth in Section V(B)(4)(iii) of Securities and Exchange Release
No. IC-23958 (effective October 29, 1999).
Item 24. Persons Controlled by or under Common Control with the Fund.
None.
Item 25. Indemnification.
See Article 4 of the Registrant's By-Laws filed as Exhibit (b)(2) to
the Registration Statement filed on August 23, 1995 which is
incorporated by reference.
In addition, Nvest, L.P., the parent company of the Registrant's
adviser and distributor, maintains a directors and officers liability
insurance policy with maximum coverage of $15 million, under which the
trustees and officers of the Registrant are named insureds.
Item 26. Business and Other Connections of Investment Adviser
(a) NEFM, a wholly-owned subsidiary of Nvest, L.P., serves as investment
adviser to New England Bullseye Fund, New England Equity Income Fund,
New England Core Equity Fund, New England Stock and Bond Fund, New
England Select Fund, New England Small Cap Value Fund, New England
Small Cap Growth Fund and New England Total Return Fund. NEFM 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 NEFM during the past two years is
incorporated herein by reference to Schedules A and D of Form ADV filed
by NEFM 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 New England 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 New
England 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) New England Funds, L.P. also serves as principal underwriter for:
New England Funds Trust I
New England Funds Trust II
New England Tax Exempt Money Market Trust
New England Cash Management Trust
Kobrick Investment Trust
(b) The general partner and officers of the Registrant's principal
underwriter, New England Funds, 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>
NEF Corporation General Partner None
John T. Hailer President and Chief Executive Officer None
John E. Pelletier Senior Vice President, General Counsel, Secretary and Clerk
Secretary and Clerk
Scott E. Wennerholm Senior Vice President, Treasurer, Chief None
Financial Officer,and Chief Operating
Officer
Coleen D. Dinneen Vice President, Associate Counsel, Assistant Assistant Secretary
Secretary and Assistant Clerk
Martin G. Dyer Vice President and Assistant Secretary None
Kristin S. Vigneaux Vice President, Assistant Secretary and Assistant Secretary
Assistant Clerk
Beatriz Pina Smith Vice President and Assistant Treasurer None
Christine Howe Controller None
Frank S. Maselli Senior Vice President None
Caren I. Leedom Senior Vice President None
Kirk Williamson 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) Registrant
Rule 31a-1(b)(4)
Rule 31a-2(d)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(d)
(c) New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
(i) For all series of Registrant:
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f);
Rule 31a-2(d); and 31a-2(e)
(ii) For New England Core Equity Fund, New England Stock
and Bond Fund, New England Select Fund, New England Small
Cap Value Fund, New England Small Cap Growth Fund and New
England Total Return Bond Fund only: Rule 31a-1(a);
31a-1(b)(9), (10), (11); 31a-1(f); Rule 31a-2(e)
(d) For New England Bullseye Fund (managed by Jurika & Voyles):
Jurika & Voyles, L.P.
Lake Merritt Plaza,
1999 Harrison, Suite 700
Oakland, CA 94612
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f);
Rule 31a-2(e)
(e) For New England Equity Income Fund (managed by Vaughan, Nelson,
Scarborough & McCollough):
Vaughan, Nelson, Scarborough & McCollough
600 Travis
Suite 6300
Houston, TX 77002
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f);
Rule 31a-2(e)
(f) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
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>
NEW ENGLAND 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 effectiveness of this Post-Effective Amendment No. 9 to its
Registration Statement under Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment No. 9 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 26th day of January,
2000.
New England Funds Trust III
By: /s/ PETER S. VOSS*
------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ JOHN E. PELLETIER
-----------------
John E. Pelletier
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
PETER S. VOSS* January 26, 2000
- --------------
Peter S. Voss Chairman of the Board;
Chief Executive Officer;
Principal Executive
Officer; Trustee
/s/ THOMAS P. CUNNINGHAM Treasurer January 26, 2000
- ------------------------
Thomas P. Cunningham
GRAHAM T. ALLISON, JR.* Trustee January 26, 2000
- -----------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee January 26, 2000
- ------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee January 26, 2000
- ------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee January 26, 2000
- ------------------------
Richard Darman
SANDRA O. MOOSE* Trustee January 26, 2000
- ------------------------
Sandra O. Moose
JOHN A. SHANE* Trustee January 26, 2000
- ------------------------
John A. Shane
PENDELTON P. WHITE* Trustee January 26, 2000
- ------------------------
Pendelton P. White
*By: /s/ JOHN E. PELLETIER
------------------------
John E. Pelletier
Attorney-In-Fact
January 26, 2000
<PAGE>
NEW ENGLAND FUNDS TRUST III
EXHIBIT INDEX
EXHIBITS FOR ITEM 23 OF FORM N-1A
EXHIBIT EXHIBIT DESCRIPTION
(d)(1)(i) Advisory Agreement for New England Equity Income Fund
(d)(1)(ii) Advisory Agreement for New England Bullseye Fund
(d)(2)(i) Subadvisory Agreement for New England Equity Income Fund
(d)(2)(ii) Subadvisory Agreement for New England Bullseye Fund
(e)(2) Distribution Agreement for New England Bullseye Fund
<PAGE>
EXHIBIT (d)(1)(i)
NEW ENGLAND EQUITY INCOME FUND
Advisory Agreement
AGREEMENT made the 30th day of August, 1996, and amended this 1st day
of May, 1998, by and between NEW ENGLAND FUNDS TRUST III, a Massachusetts
business trust (the "Fund"), with respect to its New England Equity Income Fund
series (the "Series"), and NEW ENGLAND FUNDS MANAGEMENT, L.P., a Delaware
limited partnership (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) will perform certain services for the
Series;
NOW THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund
with Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Sections
1(b) and (c) hereof. The Manager hereby accepts such employment and
agrees, at its own expense, to furnish such services (either directly
or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth,
for the compensation herein provided; provided, however, that the
Manager shall have no obligation to pay the fees of any Sub-Adviser (as
defined in Section 1(b) hereof), to the extent that the Fund has
agreed, under any contract to which the Fund and the Sub-Adviser are
parties (a "Sub-Advisory Agreement") to pay such fees. The Manager
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
(b) The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management
Services (and assumption of related expenses) to one or more other
parties (each such party, a "Sub-Adviser"), pursuant in each case to a
written agreement with such Sub-Adviser that meets the requirements of
Section 15 of the Investment Company Act of 1940 and the rules
thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including
without limitation the requirements for approval by the trustees of the
Fund and the shareholders of the Series), subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission.
Any Sub-Adviser may (but need not) be affiliated with the Manager. If
different Sub-Advisers are engaged to provide Portfolio Management
Services with respect to different segments of the portfolio of the
Series, the Manager shall determine, in the manner described in the
prospectus of the Series from time to time in effect, what portion of
the assets belonging to the Series shall be managed by each
Sub-Adviser.
(c) The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Administrative Services to
one or more other parties (each such party, an "Administrator")
selected by the Manager. Any Administrator may (but need not) be
affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Series in accordance with the Series' investment objectives and
policies;
(b) taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities,
including the placing of orders for such purchase and sale; and
(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Series (exclusive of those related to and to be
performed under contract for custodial, transfer, dividend and plan
agency services by the entity or entities selected to perform such
services and exclusive of any managerial functions described in Section
4);
(c) compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator; and
(d) supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's
investment policies, restrictions and guidelines, if the Manager has
delegated to one or more Sub-Advisers any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or
to reimburse the Fund for:
(a) any of the costs of printing and mailing the items referred to
in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent
services;
(f) charges and expenses of independent accountants retained by
the Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes chargeable
to the Fund in connection with securities transactions to which the
Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or other
governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying its shares with federal and
state regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel, required
in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the Fund, and
notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities
furnished and expenses borne by the Manager hereunder, the Fund shall pay the
Manager compensation in an amount equal to the annual rate of 0.70% of the first
$200 million of the Series' average daily net assets, 0.65% of next $300 million
of such assets and 0.60% of such assets in excess of $500 million, minus any
fees payable by the Fund, with respect to the period in question, to any one or
more Sub-Advisers pursuant to any Sub-Advisory Agreements in effect with respect
to such period. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Board of Trustees of
the Fund may from time to time determine and specify in writing to the Manager.
The Manager hereby acknowledges that the Fund's obligation to pay such
compensation is binding only on the assets and property belonging to the Series.
8. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, 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'
written notice to the Manager either by vote of the Board of Trustees
of the Fund or by vote of a majority of the outstanding voting
securities of the Series;
(c) this Agreement shall automatically terminate in the event of
its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund; and
(e) if New England Funds, L.P., the Fund's principal underwriter,
requires the Fund or the Series to change its name so as to eliminate
all references to the words "New England" or the letters "TNE" pursuant
to the provisions of the Fund's Distribution Agreement relating to the
Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of
the Fund who are not interested persons of the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on such
approval.
Termination of this Agreement pursuant to this section 10 shall be
without the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority
of the outstanding voting securities," "interested person," "affiliated person"
and "assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
<PAGE>
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/ Henry L.P. Schmelzer
----------------------------
Name: Henry L.P. Schmelzer
Title President
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: /s/ John E. Pelletier
----------------------------
Name: John E. Pelletier
Title: Managing Director, Senior Vice President, General Counsel,
Secretary & Clerk
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Fund") 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 Fund's New England Equity Income Fund series (the
"Series") on behalf of the Fund by officers of the Fund 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 individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
EXHIBIT (d)(1)(ii)
NEW ENGLAND BULLSEYE FUND
Advisory Agreement
AGREEMENT made the 31st day of March, 1998, by and between NEW ENGLAND
FUNDS TRUST III, a Massachusetts business trust (the "Fund"), with respect to
its New England Bullseye Fund series (the "Series"), and NEW ENGLAND FUNDS
MANAGEMENT, L.P., a Delaware limited partnership (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) will perform certain services for the
Series;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Sections
1(b) and (c) hereof. The Manager hereby accepts such employment and
agrees, at its own expense, to furnish such services (either directly
or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth,
for the compensation herein provided; provided, however, that the
Manager shall have no obligation to pay the fees of any Sub-Adviser (as
defined in Section 1(b) hereof), to the extent that the Fund has
agreed, under any contract to which the Fund and the Sub-Adviser are
parties (a "Sub-Advisory Agreement") to pay such fees. The Manager
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
(b) The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Portfolio Management
Services (and assumption of related expenses) to one or more other
parties (each such party, a "Sub-Adviser"), pursuant in each case to a
written agreement with such Sub-Adviser that meets the requirements of
Section 15 of the Investment Company Act of 1940 and the rules
thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including
without limitation the requirements for approval by the trustees of the
Fund and the shareholders of the Series), subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission.
Any Sub-Adviser may (but need not) be affiliated with the Manager. If
different Sub-Advisers are engaged to provide Portfolio Management
Services with respect to different segments of the portfolio of the
Series, the Manager shall determine, in the manner described in the
prospectus of the Series from time to time in effect, what portion of
the assets belonging to the Series shall be managed by each
Sub-Adviser.
(c) The Manager may delegate any or all of its responsibilities
hereunder with respect to the provision of Administrative Services to
one or more other parties (each such party, an "Administrator")
selected by the Manager. Any Administrator may (but need not) be
affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Series in accordance with the Series' investment objectives and
policies;
(b) taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities,
including the placing of orders for such purchase and sale; and
(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Series (exclusive of those related to and to be
performed under contract for custodial, transfer, dividend and plan
agency services by the entity or entities selected to perform such
services and exclusive of any managerial functions described in Section
4);
(c) compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator; and
(d) supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Series'
investment policies, restrictions and guidelines, if the Manager has
delegated to one or more Sub-Advisers any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or
to reimburse the Fund for:
(a) any of the costs of printing and mailing the items referred to
in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the Fund
for custodial, paying agent, shareholder servicing and plan agent
services;
(f) charges and expenses of independent accountants retained by
the Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes chargeable
to the Fund in connection with securities transactions to which the
Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or other
governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of the
Fund, including registering and qualifying its shares with Federal and
State regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel, required
in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the Fund, and
notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities
furnished and expenses borne by the Manager hereunder, the Fund shall pay the
Manager compensation at an annual rate in an amount equal to 0.95% of the first
$200 million of the average daily net assets of the Series, 0.90% of the next
$300 million of the average daily net assets of the Series and 0.85% of such
assets in excess of $500 million (or such lesser amount as the Manager may from
time to time agree to receive) minus any fees payable by the Fund, with respect
to the period in question, to any one or more Sub-Advisers pursuant to any
Sub-Advisory Agreements in effect with respect to such period. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Board of Trustees of the Fund may from time
to time determine and specify in writing to the Manager. The Manager hereby
acknowledges that the Fund's obligation to pay such compensation is binding
only on the assets and property belonging to the Series.
8. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, 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'
written notice to the Manager either by vote of the Board of Trustees
of the Fund or by vote of a majority of the outstanding voting
securities of the Series;
(c) this Agreement shall automatically terminate in the event of
its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund;
(e) if New England Funds, L.P., the Fund's principal underwriter,
requires the Fund or the Series to change its name so as to eliminate
all references to the words "New England" or the letters "TNE" pursuant
to the provisions of the Fund's Distribution Agreement relating to the
Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of
the Fund who are not interested persons of the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on such
approval.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
<PAGE>
NEW ENGLAND FUNDS TRUST III
on behalf of its New England Bullseye Fund series
By: /s/ Henry L.P. Schmelzer
----------------------------
Name: Henry L.P. Schmelzer
Title: President
NEW ENGLAND
FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: /s/ Bruce R. Speca
----------------------------
Name: Bruce R. Speca
Title: Executive Vice President & Director
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Fund") 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 Fund's New England Bullseye Fund series (the
"Series") on behalf of the Fund by officers of the Fund 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 individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
EXHIBIT (d)(2)(i)
NEW ENGLAND EQUITY INCOME FUND
Sub-Advisory Agreement
(Vaughan, Nelson, Scarborough & McCullough, L.P.)
Sub-Advisory Agreement (this "Agreement") entered into as of July 27,
1999, by and among New England Funds Trust III, a Massachusetts business trust
(the "Trust"), with respect to its New England Equity Income Fund series (the
"Series"), New England Funds Management, L.P., a Delaware limited partnership
(the "Manager"), and Vaughan, Nelson, Scarborough & McCullough, L.P., a Delaware
limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
August 30, 1996 (the "Advisory Agreement") with the Trust, relating to the
provision of portfolio management and administrative services to the Series;
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as
follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
b. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions
and performance of the Series in such form as may be mutually agreed
upon, and agrees to review the Series and discuss the management of it.
The Sub-Adviser shall permit all books and records with respect to the
Series to be inspected and audited by the Manager and the Administrator
at all reasonable times during normal business hours, upon reasonable
notice. The Sub-Adviser shall also provide the Manager with such other
information and reports as may reasonably be requested by the Manager
from time to time, including without limitation all material requested
by or required to be delivered to the Trustees of the Trust.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Custodian, as defined
in Section 3, to provide) timely information to the Sub-Adviser
regarding such matters as the composition of assets of the Series, cash
requirements and cash available for investment in the Series, and all
other information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy
of the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 6 hereof).
5. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
6. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Sub-Adviser shall be paid at the annual rate of 0.40% of the
first $200 million of the average daily net assets of the Series, 0.325% of the
next $300 million of such assets and 0.275% of such assets in excess of $500
million. Such compensation shall be paid by the Trust (except to the extent that
the Trust, the Sub-Adviser and the Manager otherwise agree in writing from time
to time). Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Manager is paid by the
Series pursuant to the Advisory Agreement.
7. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The Manager and
the Series recognize and agree that the Sub-Adviser may provide advice to or
take action with respect to other clients, which advice or action, including the
timing and nature of such action, may differ from or be identical to advice
given or action taken with respect to the Series. The Sub-Adviser shall for all
purposes hereof be deemed to be an independent contractor and shall, unless
otherwise provided or authorized, have no authority to act for or represent the
Series or the Manager in any way or otherwise be deemed an agent of the Series
or the Manager.
8. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties hereunder. The Manager shall hold harmless and
indemnify the Sub-Adviser for any loss, liability, cost, damage or expense
(including reasonable attorneys fees and costs) arising from any claim or demand
by any past or present shareholder of the Series that is not based upon the
obligations of the Sub-Adviser under this Agreement.
9. 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 for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the Trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, 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'
written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
c. this Agreement shall automatically terminate in the event of
its assignment or upon the termination of the Advisory Agreement; and
d. this Agreement may be terminated by the Sub-Adviser on ninety
days' written notice to the Manager and the Trust, or by the Manager on
ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 9 shall be
without the payment of any penalty.
10. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
Trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
11. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
12. General.
a. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be
entitled to the advice, recommendation or judgment of any specific
person; provided, however, that the persons identified in the
prospectus of the Series shall perform the portfolio management duties
described therein until the Sub-Adviser notifies the Manager that one
or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific
date.
b. If any term or provision or this Agreement or the application
thereof to any person or circumstances 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.
c. This Agreement shall be governed by and interpreted in
accordance with the laws of The Commonwealth of Massachusetts.
<PAGE>
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: /s/ John E. Pelletier
---------------------
Name: John E. Pelletier
Title: Managing Director, Senior Vice President, General Counsel,
Secretary & Clerk
NEW ENGLAND FUNDS TRUST III,
on behalf of its New England Equity Income Fund series
By: /s/ Bruce R. Speca
---------------------
Name: Bruce R. Speca
Title: President
Vaughan, Nelson, Scarborough & McCullough, L.P.
By Vaughan, Nelson, Scarborough & McCullough, Incorporated, its general partner
By: /s/ Lee A. Lahourcade
---------------------
Name: Lee A. Lahourcade
Title: President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Fund") is on file with the Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that his Agreement is
executed with respect to the Fund's New England Equity Income Fund series (the
"Series") on behalf of the Fund by officers of the Fund 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 individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
EXHIBIT (d)(2)(ii)
NEW ENGLAND BULLSEYE FUND
SUB-ADVISORY AGREEMENT
JURIKA & VOYLES, L.P.
Sub-Advisory Agreement (this "Agreement") entered into as of March
31st, 1998, by and among New England Funds Trust III, a Massachusetts business
trust (the "Trust"), with respect to its New England Bullseye Fund series (the
"Series"), New England Funds Management, L.P., a Delaware limited partnership
(the "Manager"), and Jurika & Voyles, L.P., a Delaware limited partnership (the
"Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated March
31st, 1998 (the "Advisory Agreement") with the Trust, relating to the provision
of portfolio management and administrative services to the Series;
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as
follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series, and have the authority on behalf of the Series to vote
all proxies and exercise all other rights of the Series as a security
holder of companies in which the Series from time to time invests. The
Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth
in the Trust's prospectus and statement of additional information
relating to the Series, (2) any additional policies or guidelines
established by the Manager or by the Trust's trustees that have been
furnished in writing to the Sub-Adviser and (3) the provisions of the
Internal Revenue Code (the "Code") applicable to "regulated investment
companies" (as defined in Section 851 of the Code), all as from time to
time in effect (collectively, the "Policies"), and with all applicable
provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and
the rules and regulations thereunder. Subject to the foregoing, the
Sub-Adviser is authorized, in its discretion and without prior
consultation with the Manager, to buy, sell, lend and otherwise trade
in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover
or any tax considerations; and the majority or the whole of the Series
may be invested in such proportions of stocks, bonds, other securities
or investment instruments, or cash, as the Sub-Adviser shall determine.
b. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions
and performance of the Series in such form as may be mutually agreed
upon, and agrees to review the Series and discuss the management of it.
The Sub-Adviser shall permit all books and records with respect to the
Series to be inspected and audited by the Manager and the Administrator
at all reasonable times during normal business hours, upon reasonable
notice. The Sub-Adviser shall also provide the Manager with such other
information and reports as may reasonably be requested by the Manager
from time to time, including without limitation all material requested
by or required to be delivered to the Trustees of the Trust
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Series' Custodian (as
defined in Section 3 hereof) to provide) timely information to the
Sub-Adviser regarding such matters as the composition of assets of the
Series, cash requirements and cash available for investment in the
Series, and all other information as may be reasonably necessary for
the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy
of the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name "Jurika & Voyles, L.P." and that all
use of any designation consisting in whole or part of "Jurika & Voyles, L.P."
under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager
on its own behalf and on behalf of the Series agrees not to use any such
designation in any advertisement or sales literature or other materials
promoting the Series, except with the prior written consent of the Sub-Adviser.
Without the prior written consent of the Sub-Adviser, the Manager shall not, and
the Manager shall use its best efforts to cause the Series not to, make
representations regarding the Sub-Adviser in any disclosure document,
advertisement or sales literature or other materials relating to the Series.
Upon termination of this Agreement for any reason, the Manager shall cease, and
the Manager shall use its best efforts to cause the Series to cease, all use of
any such designation as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Sub-Adviser shall be paid at the annual rate of 0.57% of the
first $200 million of the average daily net assets of the Series, 0.50% of the
next $300 million of the average daily net assets of the Series and 0.43% of
such assets in excess of $500 million (or such lesser amount as the Sub-Adviser
may from time to time agree to receive). Such compensation shall be paid by the
Trust (except to the extent that the Trust, the Sub-Adviser and the Manager
otherwise agree in writing from time to time). Such compensation shall be
payable monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Manager is paid by the Series pursuant to the Advisory
Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The Manager and
the Series recognize and agree that the Sub-Adviser may provide advice to or
take action with respect to other clients, which advice or action, including the
timing and nature of such action, may differ from or be identical to advice
given or action taken with respect to the Series. The Sub-Adviser shall for all
purposes hereof be deemed to be an independent contractor and shall, unless
otherwise provided or authorized, have no authority to act for or represent the
Series or the Manager in any way or otherwise be deemed an agent of the Series
or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, partners, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties hereunder.
The Manager shall hold harmless and indemnify the Sub-Adviser for any loss,
liability, cost, damage or expense (including reasonable attorneys fees and
costs) arising from any claim or demand by any past or present shareholder of
the Series that is not based upon the obligations of the Sub-Adviser under this
Agreement.
10. 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 for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, 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'
written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
c. this Agreement shall automatically terminate in the event of
its assignment or upon the termination of the Advisory Agreement; and
d. this Agreement may be terminated by the Sub-Adviser on ninety
days' written notice to the Manager and the Trust, or by the Manager on
ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. General.
a. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be
entitled to the advice, recommendation or judgment of any specific
person; provided, however, that the persons identified in the
prospectus of the Series shall perform the day-to-day portfolio
management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of
a specific date.
b. If any term or provision of this Agreement or the application
thereof to any person or circumstances 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.
c. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By:/s/ Bruce R. Speca
Name: Bruce R. Speca
Title: Executive Vice President & Director
Jurika & Volyes, L.P.
By Juricka & Voyles, Inc., its general partner
By: /s/ Glenn C. Voyles
---------------------
Name: Glenn C. Voyles
Title: Chairman
NEW ENGLAND FUNDS TRUST III,
on behalf of its New England Bullseye Fund series
By: /s/ Henry L.P. Schmelzer
---------------------
Name: Henry L.P. Schmelzer
Title: President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Fund") 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 Fund's New England Bullseye Fund series (the
"Series") on behalf of the Fund by officers of the Fund 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 individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
EXHIBIT (e)(2)
NEW ENGLAND BULLSEYE FUND
DISTRIBUTION AGREEMENT
AGREEMENT made this 31st of March, 1998 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").
W I T N E S S E T H:
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 BULLSEYE 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 "Nvest" and the Letters "TNE". The
Distributor and/or its parent organization and Nvest, L.P. ("Nvest"),
retain proprietary rights in the words "New England" and "Nvest" 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 Nvest to
give such consent as provided herein. The Distributor consents to the
use by the Series of the name "New England Bullseye Fund" or any other
name embodying the words "New England" or "Nvest" 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 Nvest 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 "Nvest" or the letters
"TNE" and will not thereafter transact any business in a name
containing the words "New England" or "Nvest" 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 "Nvest" 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 0.75% 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.
<PAGE>
NEW ENGLAND FUNDS TRUST III,
on behalf of its New England Bullseye series
By: /s/ Henry L.P. Schmelzer
------------------------
Name: Henry L.P. Schmelzer
Title: President
NEW ENGLAND FUNDS, L.P.
By: NEF Corporation, its general partner
By: /s/ Bruce R. Speca
------------------------
Name: Bruce R. Speca
Title: Executive Vice President & Director
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 Bullseye 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.
