SEMIANNUAL REPORT
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[LOGO] NvestFunds(SM)
Where The Best Minds Meet(R)
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Nvest Bullseye Fund
Where
The Best
Minds Meet(R)
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June 30, 2000
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<PAGE>
PRESIDENT'S MESSAGE
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August 2000
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[PHOTO]
John T. Hailer
President and Chief
Executive Officer
Nvest Funds
"No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes."
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months -- three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
Your choice of investment tools
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions.
No matter how you react to shifting markets, don't let short-term events derail
your long-range program. Consult your financial representative before you make
any changes.
Nvest is poised for global growth
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
/s/ John T. Hailer
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
NVEST BULLSEYE FUND
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Investment Results Through June 30, 2000
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Putting Performance in Perspective
The charts comparing Nvest Bullseye Fund's performance with a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index, and would
incur transaction costs and other expenses, even if they could.
Growth of a $10,000 Investment in Class A Shares
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
March 1998 (Inception) Through June 2000
NAV MSC S&P 500
------------------------------------
6/00 13,537 12,758 13,603
3/00 14,641 13,799 13,123
12/99 13,833 13,038 12,829
9/99 9,609 9,056 11,167
6/99 10,840 10,217 11,912
3/99 9,752 9,191 11,128
12/98 10,120 9,538 10,601
9/98 8,464 7,977 11,770
6/98 9,672 9,116 11,394
3/98 10,000 9,425 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
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NVEST BULLSEYE FUND
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Average Annual Total Returns -- 6/30/00
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Class A (Inception 3/31/98) 6 Months 1 Year Since Inception
Net Asset Value (1),(4) -2.14% 24.87% 14.41%
With Maximum Sales Charge(2),(4) -7.74 17.66 11.45
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Class B (Inception 3/31/98) 6 Months 1 Year Since Inception
Net Asset Value(1),(4) -2.51% 23.94% 13.65%
With CDSC(3),(4) -7.39 18.94 12.51
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Class C (Inception 3/31/98) 6 Months 1 Year Since Inception
Net Asset Value(1),(4) -2.46% 24.03% 13.65%
With CDSC(3),(4) -3.43 23.03 13.65
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Since Fund's
Comparative Performance 6 Months 1 Year Inception
S&P 500 Index(5) -0.42% 7.24% 14.64%
Morningstar Mid Cap Value Average(6) 1.31 -2.56 1.03
Lipper Multi-Cap Core Average(7) 2.53 11.54 11.13
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Notes to Charts
These returns represent past performance and do not guarantee future results.
Share price and return will vary, and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown.
(1) These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
(2) These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
(3) These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
(4) The Fund waived certain fees and expenses during the period indicated, and
its returns would have been lower had these fees not been waived.
(5) S&P 500 is an unmanaged index of U.S. common stock performance. You may not
invest directly in an index.
(6) Morningstar Mid Cap Value Average is the average performance without sales
charges of all mutual funds with a similar investment objective as
calculated by Morningstar, Inc.
(7) Lipper Multi-Cap Core Average is the average performance without sales
charges of all mutual funds with similar current investment style or
objective as determined by Lipper Inc.
2
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NVEST BULLSEYE FUND
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Interview with Your Portfolio Manager
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[PHOTO]
Nick Moore
Jurika & Voyles, L.P.
Q. How did Nvest Bullseye Fund perform during the first half of 2000?
For the six months ended June 30, 2000, the return on Class A shares of Nvest
Bullseye Fund was -2.14% at net asset value. For the same period, the return on
the Fund's benchmark, the Standard & Poor's 500 Index, was -0.42%. Standard &
Poor's Index is comprised of 500 common stocks and designed to reflect the
overall stock market. Although our selection process is designed to seek
relatively few, attractively priced stocks with the best long-term growth
prospects, during intervals of turbulence the Fund's narrow focus is likely to
make it more volatile -- on the upside and the downside -- than the market as a
whole.
Q. What was the investment environment like during the period?
The most notable event was the sharp downturn in the technology-laden NASDAQ
index, which occurred in March. Prices of some high-flying, "new economy"
companies had been bid up by investors to more than 100 times earnings, in an
environment described as exuberant. But when the balloon burst, these same
issues experienced severe losses. For a time, some "old economy" stocks assumed
market leadership, but as June drew to a close the technology sector was
experiencing a tenuous rebound, as investors who had fled the market in March
began to buy back issues that were selling off their historic peaks.
Q. How did you respond in that environment?
We had anticipated increased volatility in the technology sector, so our goal
was to sidestep most of the problems, to the extent possible. As the year began
we rotated out of technology stocks, selling on strength and investing the
proceeds in some well-known, widely owned companies that are highly "liquid,"
meaning that they are actively traded. We invested a portion of assets in
electric utilities, for defensive purposes, and in such high-quality health care
stocks as Pharmacia, Baxter and Pfizer -- all large, widely held companies.
These moves helped Nvest Bullseye Fund through the dramatic sell-off in
technology stocks.
3
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NVEST BULLSEYE FUND
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As the correction broadened, it impacted the price of some companies we believed
were extremely attractive. We used the price downturn to edge back into the
technology sector in search of "growth at a reasonable price." The companies we
selected were those we believe have the best prospects, with strong demand for
products or services, solid market share and dynamic earnings growth potential.
One example is SanDisk, a firm that produces solid-state memory cards for
digital cameras, cellular telephones and portable music players.
A by-product of our nimble responses to market volatility was a higher portfolio
turnover than is normal for this Fund, which may increase shareholders'
potential tax liability. However, Nvest Bullseye Fund's highly concentrated
investment approach makes it important to respond rapidly to change when the
market is as volatile as it has been.
Your Fund's Investments -- 6/30/00
% of
Security Net Assets
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1. Pfizer, Inc. 6.8
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2. Expeditors International 6.6
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3. SanDisk Corp. 6.6
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4. Baxter International, Inc. 6.4
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5. Kimberly-Clark Corp. 6.3
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6. Sabre Group Holdings, Inc. 5.1
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7. Remedy Corp. 5.1
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8. McGraw-Hill Co., Inc. 5.1
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9. OM Group, Inc. 5.0
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10. Nortel Networks Corp. 4.9
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11. First Data Corp. 4.9
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12. Blockbuster, Inc. 4.9
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13. Rudolph Technologies, Inc. 4.8
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14. STMicroelectronics NV 4.6
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15. Southwest Airlines 4.5
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16. Cognex Corp. 4.3
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17. Pharmacia Corp. 4.2
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18. Texas Instruments, Inc. 3.8
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19. AMR Corp. 3.6
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20. C-Cube Microsystems, Inc. 3.1
Portfolio holdings and asset allocations will vary.
Q. Which stocks were the Fund's strongest performers, and which didn't do as
well as you would have liked?
Southwest Airlines performed well, despite the run-up in energy prices during
the period, because the company passed along higher costs to their customers in
the form of price increases. Most of Nvest Bullseye Fund's health care stocks
also
4
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NVEST BULLSEYE FUND
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Interview with Your Portfolio Manager
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provided good results. McGraw-Hill, the publishing company that owns Standard &
Poor's, was also one of the portfolio's winners, benefiting from the market's
turn toward high-quality growth companies selling at reasonable prices.
Edison International was a disappointment, as this $25 billion holding company
struggled to reset investor expectations about its business model. One of the
Fund's health care companies, Bristol-Meyers Squibb, hit a rough patch in the
market, as did Sabre Group, the worldwide provider of travel reservations and
information systems. In our opinion, the market misread the company's business
prospects, punishing its share price for little fundamental reason.
Q. What is your current outlook?
Inflation is a source of concern for the market for a number of reasons,
including the pressure it puts on the Federal Reserve Board to raise short-term
interest rates, taking liquidity out of the system. However, we believe that the
long-term outlook for inflation is benign. In addition, we believe the sharp
decline in the market earlier this year was a correction within a long-term bull
market, not the beginning of a bear market.
We don't expect technology stocks, as a sector, to repeat their stellar
performance of last year. Despite the collapse in their stock prices, the sector
as a whole remains overvalued. However, this spring's price correction succeeded
in wringing some of the excesses out of this exciting market, and we are
forecasting vigorous earnings growth from many promising high-tech companies. A
wide range of outcomes is possible in these volatile times, so we will continue
to actively manage Nvest Bullseye Fund in search of long-term capital growth
from its concentrated portfolio of stocks.
This portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Bullseye Fund is non-diversified, meaning it concentrates its assets in
fewer stocks, which can significantly affect your Fund's performance. Value
stocks, the Fund's primary investment medium, can fall out of favor with
investors and may underperform growth stocks during certain market conditions.
It may also invest in foreign securities, which have special risks. An "all-cap"
portfolio, it may own small-cap companies, which are more volatile than the
overall market. REITs (real estate investment trusts) are another investment
alternative available to the Fund; REITs change in price with underlying real
estate values and have other mortgage-related risks. These risks affect your
investment's value. See a prospectus for details. Frequent portfolio turnover
may increase your risk of greater tax liability, which could lower your return
from this Fund.
5
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PORTFOLIO COMPOSITION
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Investments as of June 30, 2000
(unaudited)
Common Stock -- 100.4% of Total Net Assets
Shares Description Value (a)
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Airlines -- 8.1%
30,000 AMR Corp. (c) .............................. $ 793,125
51,500 Southwest Airlines ......................... 975,281
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1,768,406
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Chemicals -- 5.0%
24,800 OM Group, Inc. ............................. 1,091,200
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Computer Hardware -- 6.6%
23,600 SanDisk Corp. (c) .......................... 1,444,025
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Computer Software & Services -- 5.1%
20,000 Remedy Corp. (c) ........................... 1,115,000
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Electronic Components -- 3.1%
35,000 C-Cube Microsystems, Inc. (c) .............. 686,875
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Electronics -- 4.2%
18,000 Cognex Corp. (c) ........................... 931,500
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Health Care -- Drugs -- 10.9%
30,800 Pfizer, Inc. ............................... 1,478,400
17,850 Pharmacia Corp. ............................ 922,622
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2,401,022
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Medical Services -- 6.4%
20,000 Baxter International, Inc. ................. 1,406,250
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Paper & Forest Products -- 6.3%
24,000 Kimberly-Clark Corp. ....................... 1,377,000
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Publishing -- 5.1%
20,600 McGraw-Hill Co., Inc. ...................... 1,112,400
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Retail -- 4.9%
110,000 Blockbuster, Inc. .......................... 1,065,625
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Semiconductors -- 8.4%
15,700 STMicroelectronics NV ...................... 1,007,744
12,000 Texas Instruments, Inc. .................... 824,250
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1,831,994
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Semiconductor -- Electronics -- 4.8%
27,000 Rudolph Technologies, Inc. (c) ............. 1,046,250
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Services -- 5.1%
39,500 Sabre Group Holdings, Inc. (c) ............. 1,125,750
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Services -- Data Processing -- 4.9%
21,500 First Data Corp. ........................... 1,066,937
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6 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO COMPOSITION -- continued
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Investments as of June 30, 2000
(unaudited)
Common Stock -- continued
Shares Description Value (a)
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Telecommunications -- Equipment -- 4.9%
15,700 Nortel Networks Corp. ...................... $ 1,071,525
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Transportation -- 6.6%
30,500 Expeditors International ................... 1,448,750
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Total Common Stock (Identified
Cost $21,673,610) ......................... 21,990,509
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Total Investments -- 100.4%
(Identified Cost $21,673,610) (b) ......... 21,990,509
Other assets less liabilities .............. (88,682)
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Total Net Assets -- 100% ................... $21,901,827
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(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 2000 the
net unrealized appreciation on investments
based on cost of $21,673,610 for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost ............................ $ 2,048,039
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value ............................ (1,731,140)
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Net unrealized appreciation ....................... $ 316,899
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(c) Non-income producing security.
See accompanying notes to financial statements. 7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
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June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $21,673,610) ............... $ 21,990,509
Cash ............................................................. 4,820
Receivable for:
Fund shares sold ............................................... 9,298
Dividends and interest ......................................... 9,452
Unamortized organization expense ................................. 11,497
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22,025,576
LIABILITIES
Payable for:
Fund shares redeemed ........................................... $ 55,533
Accrued expenses:
Management fees ................................................ 28,005
Deferred trustees' fees ........................................ 3,110
Accounting and administrative .................................. 1,269
Transfer agent ................................................. 11,570
Other .......................................................... 24,262
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123,749
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NET ASSETS ......................................................... $ 21,901,827
============
Net Assets consist of:
Paid in capital ................................................ $ 15,662,066
Undistributed net investment income (loss) ..................... (83,752)
Accumulated net realized gain (loss) ........................... 6,006,614
Unrealized appreciation (depreciation) on investments .......... 316,899
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NET ASSETS ......................................................... $ 21,901,827
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Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($10,637,215 / 628,514 shares of beneficial interest) .......... $ 16.92
========
Offering price per share (100/94.25 of $16.92) ................... $ 17.95*
========
Net asset value and offering price of Class B shares
($9,883,311 / 592,884 shares of beneficial interest) ........... $ 16.67**
========
Net asset value and offering price of Class C shares
($1,381,301 / 82,872 shares of beneficial interest) ............ $ 16.67**
========
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
8 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
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Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ........................................................ $ 103,064
Interest ......................................................... 54,214
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157,278
Expenses
Management fees ................................................ $ 107,220
Service fees - Class A ......................................... 13,400
Service and distribution fees - Class B ........................ 49,426
Service and distribution fees - Class C ........................ 9,835
Trustees' fees and expenses .................................... 3,587
Accounting and administrative .................................. 1,380
Custodian ...................................................... 30,703
Transfer agent ................................................. 49,141
Audit and tax services ......................................... 16,417
Legal .......................................................... 1,445
Printing ....................................................... 11,538
Registration ................................................... 30,619
Miscellaneous .................................................. 4,578
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Total expenses ................................................... 329,289
Less reductions .................................................. (89,885) 239,404
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Net investment loss .............................................. (82,126)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments - net ........................ 2,979,705
Unrealized appreciation (depreciation) on investments - net ...... (3,421,523)
-----------
Net gain (loss) on investment transactions ....................... (441,818)
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NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............. $ (523,944)
===========
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
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(unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1999 2000
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<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ................................ $ (214,793) $ (82,126)
Net realized gain on investments ............................ 3,877,349 2,979,705
Unrealized appreciation (depreciation) on investments ....... 2,400,768 (3,421,523)
------------ ------------
Increase (decrease) in net assets from operations ........... 6,063,324 (523,944)
------------ ------------
Increase (decrease) in net assets
derived from capital share transactions ................... (4,781,203) (114,293)
------------ ------------
Total increase (decrease) in net assets ....................... 1,282,121 (638,237)
NET ASSETS
Beginning of the period ..................................... 21,257,943 22,540,064
------------ ------------
End of the period ........................................... $ 22,540,064 $ 21,901,827
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period ........................................... $ (1,626) $ (83,752)
============ ============
</TABLE>
10 See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
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For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------- ---------------------------------------------
March 31, 1998(a) Six Months March 31, 1998(a) Six Months
through Year Ended Ended through Year Ended Ended
December 31, December 31, June 30, December 31, December 31, June 30,
1998 1999 2000 1998 1999 2000
--------------- ------------ ---------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............. $ 12.50 $ 12.65 $ 17.29 $ 12.50 $ 12.60 $ 17.10
--------- --------- --------- --------- --------- ---------
Income (loss) from
investment operations
Net investment
income (loss) ................... (0.02)(b) (0.09)(b) (0.03) (0.08)(b) (0.19)(b) (0.09)
Net realized and
unrealized gain
(loss) on investments ........... 0.17 4.73 (0.34) 0.18 4.69 (0.34)
--------- --------- --------- --------- --------- ---------
Total from investment
operations ...................... 0.15 4.64 (0.37) 0.10 4.50 (0.43)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period ................... $ 12.65 $ 17.29 $ 16.92 $ 12.60 $ 17.10 $ 16.67
========= ========= ========= ========= ========= =========
Total return (%) (c) .............. 1.2 36.7 (2.1) 0.8 35.7 (2.5)
Ratio of operating
expenses to average
net assets (%) .................. 3.14(d) 2.77 2.52(d) 3.89(d) 3.52 3.27(d)
Ratio of operating
expenses to average
net assets after
expense reductions (%) (e) ....... 1.75(d) 1.75 1.73(d)(f) 2.50(d) 2.50 2.48(d)(f)
Ratio of net investment
income (loss) to
average net
assets (%) ...................... (0.28)(d) (0.71) (0.33)(d) (1.03)(d) (1.45) (1.09)(d)
Portfolio turnover
rate (%) ........................ 68 138 168 68 138 168
Net assets,
end of period (000) ............. $ 9,653 $ 10,549 $ 10,637 $ 8,618 $ 9,774 $ 9,883
</TABLE>
(a) Commencement of operations.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the period.
(c) A sales charge in the case of Class A shares and a contingent deferred
sales charge in the case of Class B shares is not reflected in total return
calculations. Periods less than one year are not annualized.
(d) Computed on an annualized basis.
(e) Expense ratios have been adjusted for the expense limitations described in
Note 4 to the Financial Statements.
(f) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions reduce
operating expenses of the Fund.
See accompanying notes to financial statements. 11
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period
(unaudited)
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------
March 31, 1998(a) Six Months
through Year Ended Ended
December 31, December 31, June 30,
1998 1999 2000
----------------- ------------ ----------
<S> <C> <C> <C>
Net asset value, beginning of period ..................... $ 12.50 $ 12.59 $ 17.09
--------- --------- ---------
Income (loss) from investment operations
Net investment income (loss) ............................. (0.08)(b) (0.18)(b) (0.13)
Net realized and unrealized gain
(loss) on investments .................................. 0.17 4.68 (0.29)
--------- --------- ---------
Total from investment operations ......................... 0.09 4.50 (0.42)
--------- --------- ---------
Net asset value, end of period ........................... $ 12.59 $ 17.09 $ 16.67
========= ========= =========
Total return (%) (c) ..................................... 0.7 35.7 (2.5)
Ratio of operating expenses to average
net assets (%) ......................................... 3.89(d) 3.52 3.27(d)
Ratio of operating expenses to average
net assets after expense reductions(%) (e) ............. 2.50(d) 2.50 2.48(d)(f)
Ratio of net investment income (loss) to
average net assets (%) ................................. (1.03)(d) (1.45) (1.09)(d)
Portfolio turnover rate (%) .............................. 68 138 168
Net assets, end of period (000) .......................... $ 2,987 $ 2,218 $ 1,381
</TABLE>
(a) Commencement of operations.
(b) Per share net investment income (loss) has been calculated using the
average shares outstanding during the period.
(c) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
(d) Computed on an annualized basis.
(e) Expense ratios have been adjusted for the expense limitations described in
Note 4 to the Financial Statements.
(f) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions reduce
operating expenses of the Fund.
12 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. Significant Accounting Policies. The Fund is a Series of Nvest Funds Trust
III, a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks long-term capital growth. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase. Class C shares do not pay front end
sales charges and do not convert to any other class of shares, but they do pay a
higher ongoing distribution fee than Class A shares and may be subject to a
contingent deferred sales charge if those shares are redeemed within one year.
Expenses of the Fund are borne pro rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro rata share of the net assets of the Fund, if the Fund were
liquidated. In addition, the Trustees approve separate dividends on each class
of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States for investment companies. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
a. Security Valuation. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
b. Security Transactions and Related Income. Security transactions are accounted
for on the trade date. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Interest income is increased
by the accretion of discount. In determining net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
c. Federal Income Taxes. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
d. Dividends and Distributions to Shareholders. Dividends and distributions are
recorded on the ex-dividend
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
date. The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for non-deductible expenses, net operating
losses and distributions from real estate investment trusts for book and tax
purposes. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassification to the capital accounts.
e. Repurchase Agreements. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
f. Organization Expense. Costs incurred in fiscal 1998 in connection with the
Fund's organization, amounting to $21,223 in the aggregate, were paid by the
Fund and are being amortized by the Fund over 60 months.
2. Purchases and Sales of Securities. For the six months ended June 30, 2000,
purchases and sales of securities (excluding short-term investments) were
$38,018,396 and $35,225,208 , respectively.
3a. Management Fees and Other Transactions with Affiliates. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 0.95% of the first $200 million of the Fund's
average daily net assets, 0.90% of the next $300 million and 0.85% of such
assets in excess of $500 million reduced by payments to the Fund's investment
subadviser, Jurika & Voyles L.P. ("Jurika & Voyles"), at the rate of 0.57% of
the first $200 million of the average daily net assets of the Fund, 0.50% of the
next $300 million of such assets and 0.43% of such assets in excess of $500
million. Certain officers and directors of Nvest Management are also officers or
Trustees of the Fund. Nvest Management and Jurika & Voyles are wholly owned
subsidiaries of Nvest Companies, L.P. ("Nvest") which is a subsidiary of
Metropolitan Life Insurance Company (see Note 7).
Fees earned by Nvest Management and Jurika & Voyles under the management and
subadvisory agreements in effect during the six months ended June 30, 2000 are
as follows:
Fees Earned
-----------
Nvest Management $ 42,888
Jurika & Voyles 64,332
--------
$107,220
========
The effective annualized management fee before the expense limitation for the
six months ended June 30, 2000 was 0.95%. As a result of the expense limitation
as described in Note 4, the effective annualized management fee for the six
months ended June 30, 2000 was 0.18%.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
b. Accounting and Administrative Expense. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $1,380 and are shown separately in the financial statements
as accounting and administrative. The effective annualized accounting and
administrative expense for the six months ended June 30, 2000 was 0.034%.
c. Transfer Agent Fees. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for shareholder accounts. NSC and
BFDS are also reimbursed by the Fund for out-of-pocket expenses. For the six
months ended June 30, 2000, the Fund paid NSC $49,665 as compensation for its
services as transfer agent.
d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest), a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by the Nvest Funds in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts. For
the six months ended June 30, 2000, the Fund paid Nvest Funds $13,400 in fees
under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays Nvest Funds a monthly service
fee at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B and Class C shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with Nvest Funds) incurred by Nvest Funds in providing personal
services to investors in Class B and Class C shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 2000, the Fund paid
Nvest Funds $12,357 and $2,459 in service fees under the Class B and Class C
plans, respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $37,069 and $7,376 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $41,208.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
e. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the Funds until distributed in accordance with the Plan.
4. Expense Limitations and Contingent Expense Obligation. The Fund has entered
into agreements with brokers whereby the brokers will rebate a portion of
brokerage commissions. Amounts earned by the Fund under such agreements are
presented as a reduction of expenses in the Statement of Operations. For the six
months ended June 30, 2000, the Fund's expenses were reduced by $2,514 under
these agreements.
Nvest Management has given a binding undertaking and Jurika & Voyles has
voluntarily agreed to defer their respective management and subadvisory fees
and, if necessary, Nvest Management has agreed to bear certain expenses
associated with the Fund to the extent necessary to limit the Fund's expenses to
the annual rates of 1.75%, 2.50% and 2.50%. The Fund is obligated to pay such
deferred fees in later periods to the extent the Fund's expenses fall below the
annual rate of 1.75%, 2.50% and 2.50% of the average net assets of the Fund's
Class A, Class B and Class C shares, respectively, provided however, that the
Fund is not obligated to pay any such deferred fees more than one year after the
end of the fiscal year in which the fee was deferred. Nvest Management's
undertaking will be in effect for the life of the Fund's current prospectus. As
a result of the Fund's expenses exceeding the expense limitation during the six
months ended June 30, 2000, Nvest Management deferred $23,039 of their $42,888
management fee and Jurika & Voyles deferred their entire subadvisory fee of
$64,332.
In conjunction with the above undertaking, a fee deferral agreement was in
effect for the period ended December 31, 1998, by which Nvest Management and
Jurika & Voyles deferred fees subject to the obligation of the Fund to pay such
fees in later periods to the extent that the Fund's expenses fall below the
annual rate of 1.75% for Class A shares, 2.50% for Class B shares and 2.50% for
Class C shares, provided however, that the Fund is not obligated to pay any such
deferred fees more than two years after the end of the fiscal year in which the
fee was deferred.
Fees deferred in 1998 (subject to repayment until December 31, 2000). Nvest
Management and Jurika & Voyles deferred their entire management and subadvisory
fees of $115,268.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- continued
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
5. Capital Shares. At June 30, 2000 there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B and
Class C. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
--------------------------- ---------------------------
Class A Shares Amount Shares Amount
------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold ........................................................ 156,650 $ 2,072,162 122,884 $ 2,109,303
Shares repurchased ................................................. (309,802) (4,026,800) (104,342) (1,783,755)
----------- ----------- ----------- -----------
Net increase (decrease) ............................................ (153,152) $(1,954,638) 18,542 $ 325,548
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
--------------------------- ---------------------------
Class B Shares Amount Shares Amount
------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold ........................................................ 152,642 $ 1,933,280 77,249 $ 1,308,885
Shares repurchased ................................................. (264,786) (3,376,826) (56,032) (950,563)
----------- ----------- ----------- -----------
Net increase (decrease) ............................................ (112,144) $(1,443,546) 21,217 $ 358,322
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
--------------------------- ---------------------------
Class C Shares Amount Shares Amount
------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares sold ........................................................ 17,629 $ 226,404 7,438 $ 126,605
Shares repurchased ................................................. (125,090) (1,609,423) (54,285) (924,768)
----------- ----------- ----------- -----------
Net increase (decrease) ............................................ (107,461) $(1,383,019) (46,847) $ (798,163)
----------- ----------- ----------- -----------
Increase (decrease) derived from capital shares transactions ....... (372,757) $(4,781,203) (7,088) $ (114,293)
=========== =========== =========== ===========
</TABLE>
6. Non-diversified Status. Compared with other mutual funds, the Fund may invest
a greater percentage of its assets in a particular company. Therefore, the
Fund's return could be significantly affected by the performance of any one of
the small number of stocks in its portfolio.
7. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
17
<PAGE>
================================================================================
NVEST EQUITY INCOME FUND
Supplement dated August 21, 2000 to Nvest Stock Funds Prospectus Class A, B
and C dated May 1, 2000
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the Fund.
18
<PAGE>
REGULAR INVESTING PAYS
================================================================================
Five Good Reasons to Invest Regularly
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you can
invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
The Power of Monthly Investing
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
19
<PAGE>
SAVING FOR RETIRMENT
================================================================================
An Early Start Can Make a Big Difference
--------------------------------------------------------------------------------
With today's life spans, you may be retired for 20 years or more after you
complete your working career. Living these retirement years the way you've
dreamed of will require considerable financial resources. While it's never too
late to start a retirement savings program, it's certainly never too early: The
sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulated the greater retirement nest egg? For
the answer, look at the chart.
Two Hypothetical Investments
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Investor A Investor B
Age 65 $214,295 $157,909
Assumes an 8% fixed rate of return. This illustration does not reflect the
effect of any taxes. Results are not indicative of the past or future results of
any Nvest Fund. The value and returns on Nvest funds will fluctuate with
changing market conditions.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start and the power
of compounding.
Nvest Funds has prepared a number of informative retirement planning guides.
Call your financial representative or Nvest Funds today at 800-225-5478, and ask
for the guide that best fits your personal needs. We will include a prospectus,
which contains more information, including charges and other ongoing expenses.
Please read the prospectus carefully before you invest.
20
<PAGE>
NVEST FUNDS
================================================================================
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund GOVERNMENT INCOME FUNDS
Bullseye Fund Limited Term U.S. Government Fund
Equity Income Fund Government Securities Fund
SMALL-CAP EQUITY FUNDS MONEY MARKET FUNDS*
Star Small Cap Fund Cash Management Trust
Kobrick Emerging Growth Fund Tax Exempt Money Market Trust
* Investments in money market funds are not
insured or guaranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our Web site at www.nvestfunds.com
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P, and other firms selling shares of Nvest Funds
are members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
[LOGO] Nvest Funds(SM)
Where The Best Minds Meet(R)
BE58-0600
[LOGO] Printed On Recycled Paper
<PAGE>
SEMIANNUAL REPORT
================================================================================
[LOGO] NvestFunds(SM)
Where The Best Minds Meet(R)
--------------------------------------------------------------------------------
Nvest Equity Income Fund
Where
The Best
Minds Meet(R)
Please read the prospectus
supplement on page 21.
-------------
June 30, 2000
-------------
<PAGE>
PRESIDENTS MESSAGE
================================================================================
AUGUST 2000
--------------------------------------------------------------------------------
[PICTURE OF JOHN HAILER GOES HERE]
John
T. Hailer President and
Chief Executive Officer
Nvest Funds
In an effort to protect the U.S. economy from the specter of renewed inflation,
the Federal Reserve Board has raised interest rates six times in the past 12
months - three times during the first six months of 2000. Because higher
interest rates cut into corporate profits and make financial assets less
attractive, the markets have been undergoing a period of heightened volatility.
YOUR CHOICE OF INVESTMENT TOOLS
Investors react to volatility in different ways. Some seek safer harbors; others
define risk as opportunity and add selectively to their portfolios. Regardless
of which type of investor you may resemble, remember that Nvest funds cover a
wide spectrum of investments, from conservative to aggressive. These include a
comprehensive family of equity and fixed-income funds that may complement your
current holdings, as well as funds that combine different investment styles in a
single portfolio.
For example, Nvest Star funds' multi-manager approach can help you through
periods of market volatility by offering you greater diversification than
single-manager funds. Each Nvest Star fund is composed of four separate segments
run by managers with distinct investment disciplines -- a strategy that allows
investors to benefit from different investment styles and diversified portfolio
holdings, seeking superior long-term results with reduced risk. We search for
the strongest candidates to manage each segment, using approaches that
complement one another in varying market conditions. No matter how you react to
shifting markets, don't let short-term events derail your long-range program.
Consult your financial representative before you make any changes.
NVEST IS POISED FOR GLOBAL GROWTH
As you may know, Nvest Companies is under agreement to be acquired by CDC Asset
Management, a leading French institutional money management company and a major
global financial institution. CDC's expertise in European stock and bond markets
will be a resource for the premier U.S. investment management teams who manage
our funds. Nvest Funds will continue to operate independently, but with broader
resources to bring you attractive, innovative products and services. Since your
vote will be required, you will receive proxy information in September. In the
meantime, if you would like more information, you are welcome to call your
financial representative or us, or visit our web site, www.nvestfunds.com.
[JOHN HAILERS SIGNATURE GOES HERE]
"No matter how you react to shifting markets, don't let short-term events derail
your long- range program. Consult your financial representative before you make
any changes."
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
NVEST EQUITY INCOME FUND
================================================================================
INVESTMENT RESULTS THROUGH JUNE 30, 2000
--------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing Nvest Equity Income Fund's performance to a benchmark index
provide you with a general sense of how your Fund performed. To put this
information in context, it may be helpful to understand the special differences
between the two. Your Fund's total return for the period shown below appears
with and without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
Your Fund's benchmark has changed from the Standard & Poor's Composite Index of
500 Stocks ("S&P 500") to the Russell 1000 Value Index to better reflect its
investment goal, strategy and the type of stocks normally included in the
portfolio.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[GROWTH OF $10,000 CHART GOES HERE]
November 1995 (Inception) through June 2000
NAV MSC SP500 R 1000 Value
--------------------------------------------------------------------
6/00 15,790 14,882 25,927 21,276
12/99 16,135 15,207 26,037 20,413
6/99 17,366 16,368 24,177 21,463
12/98 16,455 15,509 21,510 19,016
6/98 17,002 16,025 19,694 18,444
12/97 16,026 15,105 16,737 16,444
6/97 14,629 13,788 15,140 14,315
12/96 13,068 12,316 12,555 12,164
6/96 11,356 10,703 11,245 10,748
12/95 10,321 9,728 10,215 10,374
11/95 10,000 9,425 10,000 10,000
This illustration represents past performance and does not guarantee future
results. Share price and return will vary and you may have a gain or loss when
you sell your shares. Other classes of shares are available for which
performance, fees and expenses will differ. All results include reinvestment of
dividends and capital gains.
1
<PAGE>
NVEST EQUITY INCOME FUND
================================================================================
AVERAGE ANNUAL TOTAL RETURNS-- 6/30/00
--------------------------------------------------------------------------------
CLASS A (Inception 11/28/95) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) -2.46% -9.37% 10.39%
With Maximum Sales Charge(2) -8.09 -14.59 8.97
--------------------------------------------------------------------------------
CLASS B (Inception 9/15/97) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) -2.86% -10.09% -0.01%
With CDSC(3) -7.72 -14.58 -1.06
--------------------------------------------------------------------------------
CLASS C (Inception 9/15/97) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) -2.86% -10.08% 0.02%
With CDSC(3) -3.83 -10.98 0.02
<TABLE>
<CAPTION>
SINCE SINCE SINCE
FUND'S FUND'S FUND'S
CLASS A CLASS B CLASS C
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR INCEPTION INCEPTION INCEPTION
<S> <C> <C> <C> <C> <C>
S&P 500(4) -0.42% 7.24% 23.08% 18.26% 18.26%
Russell 1000 Value Index(5) -4.23 -8.92 16.38 6.97 6.97
Morningstar Large Value Average(6) -1.92 -5.21 14.34 6.63 6.63
Lipper Equity Income Average(7) -1.91 -6.71 12.30 4.93 4.93
</TABLE>
NOTES TO CHARTS
Fund performance for the period through May 31, 1999 reflects that of the prior
subadviser, Loomis, Sayles & Company, L.P. Vaughan, Nelson, Scarborough &
McCullough, L.P. (VNSM) became the subadviser on June 1, 1999.
These returns represent past performance and do not guarantee future results.
Share price and return will vary and you may have a gain or loss when you sell
your shares. Recent returns may be higher or lower than those shown. If the
Fund's investment adviser and subadviser had not waived or reimbursed certain
Fund expenses, total returns would have been lower.
1 These results include reinvestment of any dividends and capital gains, but
do not include a sales charge.
2 These results include reinvestment of any dividends and capital gains, and
the maximum sales charge of 5.75%.
3 These results include reinvestment of any dividends and capital gains.
Performance for Class B shares assumes a maximum 5.00% contingent deferred
sales charge applied when you sell shares. Class C share performance
assumes a 1.00% CDSC when you sell shares within one year of purchase.
4 S&P 500 is an unmanaged index of U.S. common stock performance. You may not
invest directly in an index.
5 Russell 1000 Value Index is an unmanaged index of the largest 1000 U.S.
companies within the Russell 3000, selected for their value orientation.
You may not invest directly in an index. Class B and Class C share since
inception return is calculated from 9/30/97.
6 Morningstar Large Value Average is the average performance without sales
charges of all mutual funds with similar investment objectives as
calculated by Morningstar, Inc. Class A share since inception return is
calculated from 11/30/95. Class B and C share since inception performance
is calculated from 9/30/97.
7 Lipper Equity Income Average is the average performance without sales
charges of all mutual funds with a similar current investment style or
objective as determined by Lipper Inc. Class A share since inception return
is calculated from 11/30/95. Class B and C share since inception
performance is calculated from 9/30/97.
2
<PAGE>
NVEST EQUITY INCOME FUND
================================================================================
INTERVIEW WITH YOUR PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PICTURES OF MARGARET BUESCHER AND JEAN MALO GO HERE]
Margaret Buescher,
Jean Malo
Vaughan, Nelson, Scarborough & McCullough, L.P
Q. Please tell us about Nvest Equity Income Fund's performance during the first
half of 2000.
For the six months ended June 30, 2000, the Fund's Class A shares at net asset
value returned -2.46. This return includes reinvested distributions of $0.08.
Nvest Equity Income Fund fared better than the Russell 1000 Value Index, a
common measure of large-cap value stock performance and the Fund's new
benchmark, which returned -4.23%.
Q. What was the investment environment, especially as it affects the Fund?
The major market indices recorded only modest changes over the first half of the
year. But the relatively small movement in the Standard & Poor's 500 and Nasdaq
Composite indexes concealed a volatile period. Most noteworthy were sharp drops
in speculative technology stocks, as investors reassessed the outlook for
Internet stocks in particular. In our opinion, these Internet-centered declines
went a long way toward reducing excessively high valuations. But the biggest
weight on the markets' shoulders was the series of interest rate increases
imposed by the Federal Reserve Board since June of 1999.
Higher interest rates mean higher costs for businesses of all kinds. As costs
rise and profits come under pressure, expansion plans or product introductions
may have to be put off. When the rate increases began, stock valuations were
already high by historic standards, so it is no surprise that increasing rates
depressed the prices of many stocks. Volatility such as we saw this winter and
spring is a sign of investor indecision, and by the end of the period changes in
preferences were becoming evident. We believe investor attention has become more
balanced between the highest-price growth stocks and value stocks, narrowing the
gap between the two sectors.
3
<PAGE>
NVEST EQUITY INCOME FUND
================================================================================
Q. Given that market environment, what strategies did you pursue?
Our investment approach focuses on carefully researched value stocks, those
selling at prices that do not reflect the companies' prospects. The measurements
we use to search for unrecognized value include the strength of a company's
management, the possibility of increased earnings and low stock prices relative
to potential worth.
The Federal Reserve's goal in raising interest rates is to take steam out of the
economy and forestall the threat of inflation. There have been some early signs
of a slowdown in the form of decelerating sales of cars and new homes. For that
reason we are underweighting the Fund's exposure to stocks in cyclical
industries and basic manufacturing, both of which have tended to ebb and flow
with the economy.
Instead, our strategy has been to favor industries in which demand tends to be
stable throughout economic cycles. Healthcare fits that description, and the
Fund holds drug and hospital supply companies Merck, Johnson & Johnson and
Baxter International in the portfolio. We have also found good value in real
estate investment trusts (REITs). Stocks of many successful REITs have suffered
from neglect, with some selling at prices below the value of the properties they
own and manage. The sector's high yields should help satisfy the Fund's income
objective. REITs in the portfolio include Equity Residential Properties Trust,
managers of apartment complexes nationwide, and Weingarten Realty, which runs
shopping centers in the South and West.
TOP 10 PORTFOLIO HOLDINGS -- 6/30/00
% OF
COMPANY NET ASSETS
----------------------------------------------------
1. American General Corp. 4.4
2. Citigroup, Inc. 4.2
3. Duke Power Co. 3.9
4. Chase Manhattan Corp. 3.9
5. Shell Transport & Trading Co. 3.7
6. American International Group, Inc. 3.6
7. Merck & Co. 3.5
8. Bank of New York Co., Inc. 3.5
9. Morgan Stanely Dean Witter & Co. 3.5
10. Baxter International, Inc. 3.5
Portfolio holdings and asset allocations will vary.
4
<PAGE>
NVEST EQUITY INCOME FUND
We also increased exposure to the financial sector. These stocks should perform
well once the economy begins to moderate and interest rates level off. There is
also the possibility of further consolidation within the industry.
Q. What investments affected performance the most, either positively or
negatively?
Among the positives were Nvest Equity Income Fund's commitments to healthcare
and REITs. Merrill Lynch, a brokerage and investment banking giant and one of
the few truly global financial services companies, was also a standout amid
mixed results for financial stocks. Merrill has reported growing earnings and
launched a major initiative aimed at gaining a larger share of on-line financial
activity.
On the negative side, results in Procter and Gamble were very disappointing, as
the company announced reduced profit expectations and its shares fell sharply.
We have since eliminated this holding because we believe that recovery will take
some time. Shares of data processing services provider Electronic Data Systems
fell on reports that its revenues were not growing as quickly as expected;
however, we believe this situation is temporary and have maintained the Fund's
position.
Q. What is your outlook for the rest of 2000 and into next year?
We think the Federal Reserve Board is likely to succeed in slowing the economy's
growth rate without setting off a recession. We also don't expect a resurgence
of inflationary pressures, in part because of steady gains in workplace
productivity or the amount of output for each hour of labor.
As it becomes clear that economic activity is slowing in response to higher
rates, the current series of rate increases may end. The prices of stocks in
many sectors have already declined to levels that reflect prospects for slower
economic times, and investor preference for value over high-tech "sizzle" seems
to be growing. Consequently, with the markets beginning to show a taste for
reasonable valuations, we think Nvest Equity Income Fund's current mix of
reasonably priced securities will benefit investors who seek income and
long-term capital appreciation.
This portfolio managers' commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
Nvest Equity Income Fund invests primarily in value stocks, which can fall out
of favor with investors and which may underperform growth stocks during certain
conditions. The fund may also invest in foreign securities, which have special
risks that may affect the value of your investment. See a prospectus for
details. Past performance does not guarantee future results. REITs are subject
to changes in underlying real estate values, rising interest rates, limited
diversification of holdings, higher costs and prepayment risk associated with
related mortgages.
5
<PAGE>
PORTFOLIO COMPOSITION
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK -- 94.5% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
AEROSPACE-- 1.4%
6,500 Honeywell International, Inc. $218,969
---------
BANKS-- 16.9%
12,300 Bank of New York Co., Inc. 571,950
13,400 Bank One Corp. 355,938
13,800 Chase Manhattan Corp. 635,662
11,200 Citigroup, Inc. 674,800
4,500 J.P. Morgan & Co., Inc. 495,562
---------
2,733,912
---------
BUSINESS SERVICES-- 1.1%
4,300 Electronic Data Systems Corp. 177,375
---------
CHEMICALS-- 1.9%
7,000 E.l. du Pont de Nemours & Co. 306,250
---------
COMMUNICATION SERVICES-- 3.3%
3,000 Sprint Corp. 153,000
8,500 WorldCom, Inc. 389,938
---------
542,938
---------
COMPUTERS & BUSINESS EQUIPMENT-- 5.7%
10,200 Compaq Computer Corp. 260,738
3,500 Hewlett-Packard Co. 437,062
2,000 International Business Machines Corp. 219,125
---------
916,925
---------
DOMESTIC OIL-- 3.1%
6,400 Exxon Mobil Corp. 502,400
---------
DRUGS & HEALTHCARE-- 9.6%
8,000 Baxter International, Inc. 562,500
4,100 Johnson & Johnson, Inc. 417,688
7,500 Merck & Co. 574,687
---------
1,554,875
---------
ELECTRIC UTILITIES-- 3.9%
11,300 Duke Power Co. 637,037
---------
ELECTRICAL EQUIPMENT-- 1.2%
3,700 General Electric Co. 196,100
---------
FINANCIAL SERVICES-- 4.6%
6,000 Fannie Mae 313,125
3,700 Merrill Lynch & Co., Inc. 425,500
---------
738,625
---------
FOOD & BEVERAGES-- 4.9%
6,300 PepsiCo, Inc. 279,956
6,800 Quaker Oats Co. 510,850
---------
790,806
---------
See accompanying notes to financial statements.
6
<PAGE>
PORTFOLIO COMPOSITION-CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
COMMON STOCK -- CONTINUED
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
FOREST PRODUCTS-- 0.9%
3,300 Weyerhaeuser Co. $ 141,900
---------
INSURANCE-- 10.0%
11,700 American General Corp. 713,700
5,000 American International Group, Inc. 587,500
5,300 Chubb Corp. 325,950
--------
1,627,150
---------
INTERNATIONAL OIL-- 6.7%
8,700 BP Amoco PLC (ADR) 492,094
12,000 Shell Transport & Trading Co. (ADR) 599,250
--------
1,091,344
---------
OFFICE FURNISHINGS & SUPPLIES-- 2.2%
5,400 Avery Dennison Corp. 362,475
--------
PAPER-- 2.0%
5,600 Kimberly-Clark Corp. 321,300
--------
REAL ESTATE-- 6.5%
19,400 Duke-Weeks Realty Corp. (REIT) 434,075
9,100 Equity Residential Properties Trust (REIT) 418,600
4,800 Weingarten Realty Investors (REIT) 193,800
--------
1,046,475
---------
RETAIL-DEPARTMENT STORE-- 2.3%
19,400 Family Dollar Stores, Inc. 379,513
-------
TELECOMMUNICATIONS-- 4.9%
10,000 AT&T Corp. 316,250
7,800 GTE Corp. 485,550
-------
801,800
-------
TOBACCO-- 1.4%
8,500 Philip Morris Companies, Inc. 225,781
-------
TRANSPORTATION-- 0.0%
86 Hvide Marine, Inc. (c) 511
54 Hvide Marine, Inc. (warrants) (c) 81
---
592
---
Total Common Stock (Identified
Cost $15,501,937) 15,314,542
----------
See accompaying notes to financial statements.
7
<PAGE>
PORTFOLIO COMPOSITION - CONTINUED
================================================================================
Investments as of June 30, 2000
(unaudited)
CONVERTIBLE PREFERRED STOCK - 5.6%
SHARES DESCRIPTION VALUE (A)
--------------------------------------------------------------------------------
FINANCIAL SERVICES-- 5.6%
21,000 Morgan Stanely Dean Witter & Co., 6% Reset
PERQS Exchangeable for shares of Oracle
Corp. Common Stock, Zero Coupon $ 567,000
26,000 Morgan Stanley Dean Witter & Co., 6% Reset
PERQS Exchangeable for shares of Home Depot
Common Stock, Zero Coupon 331,500
---------
898,500
---------
Total Convertible Preferred Stock
(Identified Cost $838,108) 898,500
---------
Total Investments-- 100.1%
(Identified Cost $16,340,045) (b) 16,213,042
Other assets less liabilities (10,411)
---------
Total Net Assets-- 100% $ 16,202,631
=========
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 2000 the net unrealized depreciation
on investments based on cost of $16,340,045 for federal income tax purposes
was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $ 1,560,797
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (1,687,800)
---------
Net unrealized depreciation $ (127,003)
=============
(c) Non-income producing.
At December 31, 1999 the Fund had a capital loss carryover of approximately
$238,648 which expires on December 31, 2007. This may be available to
offset future realized capital gains, if any, to the extent provided by
regulations.
ADR An American Depositary Receipt (ADR) is a certificate issued by a Custodian
Bank representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States.
PERQS Performance Equity-Linked Redemption Quarterly-Pay Securities.
REIT Real Estate Investment Trust
See accompanying notes to financial statements.
8
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
================================================================================
June 30, 2000
(unaudited)
<TABLE>
ASSETS
<S> <C> <C> <C>
Investments at value (Identified cost $16,340,045) $ 16,213,042
Cash 52,045
Receivable for:
Fund shares sold 9,860
Dividends and interest 36,246
Unamortized organization expenses 1,379
-------
16,312,572
LIABILITIES
Payable for:
Fund shares redeemed $ 71,560
Accrued expenses:
Management fees 1,384
Deferred trustees' fees 3,845
Accounting and administrative 1,525
Other expenses 31,627
------
109,941
-------
NET ASSETS $ 16,202,631
==========
Net Assets consist of:
Paid in capital 17,099,430
Undistributed net investment income 27,968
Accumulated net realized gain (loss) (797,764)
Unrealized appreciation (depreciation) on investments (127,003)
---------------
NET ASSETS $ 16,202,631
==========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($7,965,812 / 478,251 shares of beneficial interest) $ 16.66
================
Offering price per share (100/94.25 of $16.66) $ 17.67*
================
Net asset value and offering price of Class B shares
($7,438,445 / 448,022 shares of beneficial interest) $ 16.60**
================
Net asset value and offering price of Class C shares
($798,374 / 48,062 shares of beneficial interest) $ 16.61**
================
</TABLE>
* Based upon single purchases of less than $50,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF OPERATIONS
================================================================================
Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 215,751
Interest 1,660
----------
217,411
Expenses
Management fees $ 63,028
Service fees - Class A 11,278
Service and distribution fees - Class B 39,840
Service and distribution fees - Class C 5,088
Trustees' fees and expenses 3,471
Accounting and administrative 3,183
Custodian 26,293
Transfer agent 45,583
Audit and tax services 13,730
Legal 2,911
Printing 12,308
Registration 17,446
Miscellaneous 5,760
--------
Total expenses 249,919
Less reductions (85,616) 164,303
--------- ----------
Net investment income 53,108
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments - net (559,119)
Unrealized appreciation (depreciation) on investments - net (188,567)
---------
Net gain (loss) on investment transactions (747,686)
---------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (694,578)
==========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
----------------------------------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 155,346 $ 53,108
Net realized gain (loss) on investments 470,948 (559,119)
Unrealized appreciation (depreciation) on investments (1,477,659) (188,567)
---------- --------
Increase (decrease) in net assets from operations (851,365) (694,578)
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (97,786) (39,667)
Class B (35,542) (4,823)
Class C (4,872) (651)
Net realized gain on investments
Class A (2,457) 0
Class B (2,078) 0
Class C (306) 0
---- -
(143,041) (45,141)
-------- -------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS (13,298,989) (5,327,404)
----------- ----------
Total increase (decrease) in net assets (14,293,395) (6,067,123)
NET ASSETS
Beginning of the period 36,563,149 22,269,754
---------- ----------
End of the period $ 22,269,754 $ 16,202,631
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period $ 20,001 $ 27,968
=============== ===============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
NOVEMBER 28, 1995(A)
THROUGH SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------
1995 1996 1997 1998 1999 2000
----------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.50 $ 12.86 $ 15.15 $ 17.59 $ 17.62 $ 17.16
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income ............. 0.04 0.31 0.25 0.26(b) 0.17 0.09
Net Realized and Unrealized Gain
(Loss) on Investments ............. 0.36 3.11 3.15 0.20(c) (0.51) (0.51)
---- ---- ---- ---- ----- -----
Total From Investment Operations .. 0.40 3.42 3.40 0.46 (0.34) (0.42)
---- ---- ---- ---- ----- -----
Less Distributions
Dividends From Net Investment Income (0.04) (0.30) (0.26) (0.26) (0.12) (0.08)
Distributions From Net Realized
Capital Gains ..................... 0.00 (0.83) (0.70) (0.17) (0.00)(f) 0.00
---- ----- ----- ----- ----- ----
Total Distributions ............... (0.04) (1.13) (0.96) (0.43) (0.12) (0.08)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period .... $ 12.86 $ 15.15 $ 17.59 $ 17.62 $ 17.16 $ 16.66
======= ======= ======= ======= ======= =======
Total Return (%) (d) .............. 3.2 26.6 22.6 2.7 (1.9) (2.5)
Ratio of Operating Expenses to
Average Net Assets (%) ............ 5.97(e) 3.67 3.10 1.92 2.12 2.40(e)
Ratio of Operating Expenses to
Average Net Assets After
Expense Reductions (%)(g).......... 1.50(e) 1.50 1.50 1.50 1.50 1.45(e)(h)
Ratio of Net Investment Income
to Average Net Assets (%) ......... 3.58(e) 2.06 1.76 1.48 0.94 0.96(e)
Portfolio Turnover Rate (%) ....... 0 45 33 61 93 23
Net Assets, End of Period (000) ... $ 2,064 $ 2,613 $14,681 $17,839 $11,291 $ 7,966
</TABLE>
The subadviser to the Fund prior to June 1, 1999 was Loomis, Sayles & Company,
L.P. Effective June 1, 1999 Vaughn, Nelson, Scarborough & McCullough, L.P.
became the subadviser.
(a) Commencement of operations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the period.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain/(loss) on investments for the period ended December 31,
1998, due to the timing of purchases and redemptions of fund shares in
relation to fluctuating market values of the investments of the Fund.
(d) A sales charge is not reflected in total return calculations. The periods
less than one year are not annualized.
(e) Computed on an annualized basis.
(f) Amount is less than $0.01.
(g) Expense ratios have been adjusted for the expense limitations described in
Note 4 to the Financial Statements.
(h) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions reduce
operating expenses of the Fund.
See accompanying notes to financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
SEPTEMBER 15,
1997(A) SIX MONTHS
THROUGH ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------
1997 1998 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 17.06 $17.59 $17.62 $17.10
--------- ------ ------ ------
Income From
Investment Operations
Net Investment Income .............. 0.03 0.13(b) 0.03 0.02
Net Realized and Unrealized
Gain (Loss) on Investments ......... 0.60 0.20(C) (0.50) (0.51)
---- ---- ----- -----
Total From
Investment Operations .............. 0.63 0.33 (0.47) (0.49)
---- ---- ----- -----
Less Distributions
Dividends From Net
Investment Income .................. (0.04) (0.13) (0.05) (0.01)
Distributions From Net
Realized Capital Gains ............. (0.06) (0.17) (0.00)(F) 0.00
----- ----- ----- ----
Total Distributions ................ (0.10) (0.30) (0.05) (0.01)
----- ----- ----- -----
Net Asset Value, End of Period ..... $ 17.59 $17.62 $17.10 $16.60
======== ====== ====== ======
Total Return (%) (d) ............... 3.7 2.0 (2.7) (2.9)
Ratio of Operating Expenses
to Average Net Assets (%) .......... 3.85(e) 2.67 2.87 3.15(e)
Ratio of Operating Expenses
to Average Net Assets After
Expense Reductions (%) (g) ......... 2.25(e) 2.25 2.25 2.20(e)(h)
Ratio of Net Investment Income
to Average Net Assets (%) .......... 1.01(e) 0.73 0.19 0.22(e)
Portfolio Turnover Rate (%) ........ 33 61 93 23
Net Assets, End of Period (000) ... 9,375 $ 16,623 $ 9,643 $7,438
</TABLE>
The subadviser to the Fund prior to June 1, 1999 was Loomis, Sayles & Company,
L.P. Effective June 1, 1999 Vaughn, Nelson, Scarborough & McCullough, L.P.
became the subadviser.
(a) Commencement of operations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the period.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain/(loss) on investments for the period ended December 31,
1998, due to the timing of purchases and redemptions of fund shares in
relation to fluctuating market values of the investments of the Fund.
(d) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
(e) Computed on an annualized basis.
(f) Amount is less than $0.01.
(g) Expense ratios have been adjusted for the expense limitations described in
Note 4 to the Financial Statements.
(h) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions reduce
operating expenses of the Fund.
See accompanying notes to financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
For a share outstanding throughout each period.
(unaudited)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------
SEPTEMBER 15,
1997(A)
THROUGH SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------
<S> <C> <C> <C> <C>
1997 1998 1999 2000
--------- -------- -------- --------
Net Asset Value,
Beginning of Period ................ $ 17.06 $ 17.59 $ 17.63 $ 17.11
--------- -------- -------- --------
Income From
Investment Operations
Net Investment Income .............. 0.03 0.13(b) 0.03 0.02
Net Realized and Unrealized
Gain (Loss) on Investments ......... 0.60 0.21(c) (0.50 (0.51)
---- ---- ----- -----
Total From
Investment Operations .............. 0.63 0.34 (0.47 (0.49)
---- ---- ----- -----
Less Distributions
Dividends From Net
Investment Income .................. (0.04 (0.13) (0.05) (0.01)
Distributions From Net
Realized Capital Gains ............. (0.06) (0.17) (0.00)(f) 0.00
----- ----- ----- ----
Total Distributions ................ (0.10) (0.30) (0.05) (0.01)
----- ----- ----- -----
Net Asset Value, End of Period ..... $ 17.59 $ 17.63 $ 17.11 $ 16.61
========= ======== ========= =======
Total Return (%) (d) ............... 3.7 2.0 (2.7) (2.9)
Ratio of Operating Expenses
to Average Net Assets (%) .......... 3.85(e) 2.67 2.87 3.15(e)
Ratio of Operating Expenses
to Average Net Assets After
Expense Reductions (%)(g) .......... 2.25(e) 2.25 2.25 2.20(e)(h)
Ratio of Net Investment Income
to Average Net Assets (%) .......... 1.01(e) 0.73 0.19 0.18(e)
Portfolio Turnover Rate (%) ........ 33 61 93 23
Net Assets, End of Period (000) .... $ 1,596 $ 2,101 $ 1,336 $ 798
</TABLE>
The subadviser to the Fund prior to June 1, 1999 was Loomis, Sayles & Company,
L.P. Effective June 1, 1999 Vaughn, Nelson, Scarborough & McCullough, L.P.
became the subadviser.
(a) Commencement of operations.
(b) Per share net investment income has been calculated using the average
shares outstanding during the period.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain/(loss) on investments for the period ended December 31,
1998, due to the timing of purchases and redemptions of fund shares in
relation to fluctuating market values of the investments of the Fund.
(d) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
(e) Computed on an annualized basis.
(f) Amount is less than $0.01.
(g) Expense ratios have been adjusted for the expense limitations described in
Note 4 to the Financial Statements.
(h) The Fund has entered into agreements with brokers whereby the brokers
rebate a portion of brokerage commissions. The rebated commissions reduce
operating expenses of the Fund.
See accompanying notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a Series of Nvest Funds Trust
III, a Massachusetts business trust (the "Trust"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund seeks current income and capital growth.
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of the Trust in multiple series (each such series is a "Fund").
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase. Class C shares do not pay front end
sales charges and do not convert to any other class of shares, but they do pay a
higher ongoing distribution fee than Class A shares and may be subject to a
contingent deferred sales charge if those shares are redeemed within one year.
Expenses of the Fund are borne pro rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro rata share of the net assets of the Fund, if the Fund were
liquidated. In addition, the Trustees approve separate dividends on each class
of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are accounted
for on the trade date. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Interest income is increased
by the accretion of discount. In determining net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities resulting from changes in the exchange rate.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for organization
costs and distributions from Real Estate Investment Trusts for book and tax
purposes. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassification to the capital accounts.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
G. ORGANIZATION EXPENSE. Costs incurred in fiscal 1995 in connection with the
Fund's organization and registration, amounting to approximately $19,700 in the
aggregate, were paid by the Fund and are being amortized by the Fund over 60
months.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 2000
purchases and sales of securities (excluding short-term investments) were
$4,110,105 and $9,273,280, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its investment adviser, Nvest Funds Management, L.P. ("Nvest
Management") at the annual rate of 0.70% of the first $200 million of the Fund's
average daily net assets, 0.65% of the next $300 million and 0.60% of such
assets in excess of $500 million reduced by the payment of subadviser fees to
the Fund's investment subadviser Vaughn, Nelson, Scarborough & McCullough, L.P.
("VNSM") at the rate of 0.40% of the first $200 million of the average daily
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
net assets of the Fund, 0.325% of the next $300 million of such assets and
0.275% of such assets in excess of $500 million. Certain officers and directors
of Nvest Management are also officers or Trustees of the Fund. Nvest Management
and VNSM are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest"), which
is a subsidiary of Metropolitan Life Insurance Company (see Note 7).
Fees earned by Nvest Management and VNSM and under the management and
subadvisory agreements in effect during the six months ended June 30, 2000 are
as follows:
Fees Earned
-----------
Nvest Management $27,012
VNSM 36,016
-------
$63,028
=======
The effective annualized management fee before expense limitations for the six
months ended June 30, 2000 was 0.70%. As a result of the expense limitations as
described in Note 4, the effective annualized management fee for the six months
ended June 30, 2000 was 0.00%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund pays NSC a group fee for these
services equal to the annual rate of 0.035% of the first $5 billion of Nvest
Funds' average daily net assets, 0.0325% of the next $5 billion of the Nvest
Funds' average daily net assets, and 0.03% of the Nvest Funds' average daily net
assets in excess of $10 billion. For the six months ended June 30, 2000, these
expenses amounted to $3,183 and are shown separately in the financial statements
as accounting and administrative. The effective annualized accounting and
administrative expense for the six months ended June 30, 2000 was 0.034%.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent for
the Fund and Boston Financial Data Services ("BFDS") serves as the sub-transfer
agent for the Fund. NSC receives account fees for shareholder accounts. NSC and
BFDS are also reimbursed for out-of-pocket expenses. For the six months ended
June 30, 2000, the Fund paid NSC $49,144 as compensation for its services as
transfer agent.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays Nvest Funds Distributor, L.P. ("Nvest
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest), a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
Nvest Funds) incurred by the Nvest Funds in providing personal services to
investors in Class A shares and/or the maintenance of shareholder accounts. For
the six months ended June 30, 2000, the Fund paid Nvest Funds $11,278 in fees
under the Class A Plan.
Under the Class B and Class C Plan, the Fund pays Nvest Funds a monthly service
fee at the annual rate of 0.25% of
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
the average daily net assets attributable to the Fund's Class B and Class C
shares, as compensation for services provided and expenses (including certain
payments to securities dealers, who may be affiliated with Nvest Funds) incurred
by Nvest Funds in providing personal services to investors in Class B and Class
C shares and/or the maintenance of shareholder accounts. For the six months
ended June 30, 2000, the Fund paid Nvest Funds $9,960 and $1,272 in service fees
under the Class B and Class C plans, respectively.
Also under the Class B and Class C Plans, the Fund pays Nvest Funds monthly
distribution fees at the annual rate of 0.75% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with Nvest Funds) incurred by Nvest Funds in
connection with the marketing or sale of Class B and Class C shares. For the six
months ended June 30, 2000, the Fund paid Nvest Funds $29,880 and $3,816 in
distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
Nvest Funds by investors in shares of the Fund during the six months ended June
30, 2000 amounted to $30,583.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of Nvest
Management, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the Board of Trustees attended. Each
committee member receives an additional retainer fee at the annual rate of
$6,000 while each committee chairman receives a retainer fee (beyond the $6,000
fee) at the annual rate of $4,000. These fees are allocated to the various Nvest
Funds based on a formula that takes into account, among other factors, the
relative net assets of each Fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund or
certain other Nvest Funds on the normal payment date. Deferred amounts remain in
the funds until distributed in accordance with the Plan.
4. EXPENSE LIMITATIONS AND CONTINGENT EXPENSE OBLIGATION. The Fund has entered
into agreements with brokers whereby the brokers will rebate a portion of
brokerage commissions. Amounts earned by the Fund under such agreements are
presented as a reduction of expenses in the Statement of Operations. For the six
months ended June 30, 2000, the Fund's expenses were reduced by $4,452 under
these agreements.
Nvest Management and VNSM have given binding undertakings to defer their
respective management and subadvisory fees and, if necessary, Nvest Management
has agreed to bear certain expenses associated with with the Fund to the extent
necessary to limit the Fund's expenses to the annual rates of 1.50%, 2.25% and
2.25% of the average net assets of the Fund's Class A, Class B and Class C
shares, respectively. The Fund is obligated to pay such deferred fees in later
periods to the extent the Fund's expenses fall below the annual rates of 1.50%,
2.25% and 2.25% of the average net assets of the Fund's Class A, Class B and
Class C shares, respectively, provided however, that the Fund is not obligated
to pay any such deferred fees more than one year after the end of the fiscal
year in which the fee
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Period Ended June 30, 1998
(unaudited)
was deferred. Nvest Management's undertaking will be in effect for the life of
the Fund's current prospectus. As a result of the Fund's expenses exceeding the
expense limitation during the six months ended June 30, 2000, Nvest Management
and VNSM have deferred their entire management and subadvisory fees of $63,028
and Nvest Management assumed additional expenses of $18,136.
Under a previous fee deferral agreement Nvest Management deferred fees and
expenses subject to the obligation of the Fund to pay Nvest Management such fees
and expenses in later periods to the extent that the Fund's expenses fall below
the annual rate of 1.50% for Class A shares, 2.25% for Class B shares and 2.25%
for Class C shares; provided however, that the Fund is not obligated to pay any
such deferred fees or expenses more than two years after the end of the fiscal
year in which the fee or expense was deferred.
Expenses deferred in 1998 (subject to repayment until December 31, 2000): Nvest
Management deferred $29,753 of its management fees.
5. CAPITAL SHARES. At June 30, 2000, there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B and
Class C. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
-----------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 87,037 $ 1,513,831 33,794 $ 564,075
Shares issued in connection with the reinvestment of:
Dividends from net investment income 5,282 92,420 1,313 21,190
Distributions from net realized gains 136 2,361 0 0
--- ----- - -
92,455 1,608,612 35,107 585,265
Shares repurchased (446,573) (7,693,665) (215,041) (3,529,653)
-------- ---------- -------- ----------
Net increase (decrease) (354,118) $ (6,085,053) (179,934) $(2,944,388)
-------- ------------ -------- -----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
-----------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Shares sold 62,612 $ 1,085,853 30,275 $ 496,626
Shares issued in connection with the reinvestment of:
Dividends from net investment income 1,802 31,246 265 4,265
Distributions from net realized gains 107 1,861 0 0
--- ----- - -
64,521 1,118,960 30,540 500,891
Shares repurchased (443,688) (7,627,426) (146,556) (2,387,291)
-------- ---------- -------- ----------
Net increase (decrease) (379,167) $ (6,508,466) (116,016) $(1,886,400)
-------- ------------ ------- -----------
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
For the Six Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
-------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------
Shares sold 9,838 $ 173,140 20,010 $ 337,020
----- ------------ ------ ------------
Shares issued in connection with the reinvestment of:
Dividends from net investment income 248 4,290 32 511
Distributions from net realized gains 17 288 0 0
-- --- - -
10,103 177,718 20,042 337,531
Shares repurchased (51,187) (883,188) (50,070) (834,147)
------- -------- ------- --------
Net increase (decrease) (41,084) $(705,470) (30,028) $(496,616)
------- --------- ------- ---------
Increase (decrease) derived from
capital shares transactions (774,369) $(13,298,989) (325,978) $(5,327,404)
======== ============ ======== ===========
</TABLE>
6. LINE OF CREDIT. The Fund along with the other portfolios that comprise the
Nvest Funds (the "Funds") participate in a $100,000,000 committed line of credit
provided by Citibank, N.A. under a credit agreement (the "Agreement") dated
March 3, 2000. Advances under the Agreement are taken primarily for temporary or
emergency purposes. Borrowings under the Agreement bear interest at a rate tied
to one of several short-term rates that may be selected from time to time. In
addition, the Funds are charged a facility fee equal to 0.08% per annum on the
unused portion of the line of credit. The annual cost of maintaining the line of
credit and the facility fee is apportioned pro rata among the participating
Funds. There were no borrowings as of or during the six months ended June 30,
2000.
7. SUBSEQUENT EVENT. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots et Consignations,,
which is a major diversified financial institution. Nvest will be renamed CDC
Asset Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Nvest Funds or the investment management activities of the
Funds' investment advisers or subadvisers.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from the Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
20
<PAGE>
NVEST EQUITY INCOME FUND
Supplement dated August 21, 2000 to Nvest Stock Funds Prospectus
Class A, B and C dated May 1, 2000
Effective August 1, 2000, Margaret Buescher is the sole portfolio manager for
the Fund.
21
<PAGE>
REGULAR INVESTMING PAYS
FIVE GOOD REASONS TO INVEST REGULARLY
--------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement
or college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, Nvest Funds' automatic investment program, you can
invest as little as $100 a month in your Nvest fund automatically -- without
even writing a check. And, as you can see from the chart below, your monthly
investments can really add up over time.
THE POWER OF MONTHLY INVESTING
[A CHART THAT SHOWS INVESTMENTS OVER A 20 YEAR SPAN]
100 $200 $500
25 Years $91,236 $182,472 $456,181
Assumes an 8% fixed rate of return compounded monthly and does not allow for
taxes. Results are not indicative of the past or future results of any Nvest
Funds. The value and return on Nvest Funds fluctuate with changing market
conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, investors
should consider their financial ability to continue purchases during periods of
high or low prices.
You can start an Investment Builder program with your current Nvest Funds
account. To open an Investment Builder account today, call your financial
representative or Nvest Funds at 800-225-5478.
Please call Nvest Funds for a prospectus, which contains more information,
including charges and other ongoing expenses. Please read prospectus carefully
before you invest.
22
<PAGE>
SAVING FOR RETIREMENT
AN EARLY START CAN MAKE A BIG DIFFERENCE
--------------------------------------------------------------------------------
With today's life spans, you may be retired for 20 years or more after you
complete your working career. Living these retirement years the way you've
dreamed of will require considerable financial resources. While it's never too
late to start a retirement savings program, it's certainly never too early: The
sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer - for 25 years, in fact.
Can you guess which investor accumulated the greater retirement nest egg? For
the answer, look at the chart.
TWO HYPOTHETICAL INVESTMENTS
[A CHART DEPICTING TWO HYPOTHETICA INVESTMENTS APPEARS HERE]
Investor A Investor B
Age 65 $214,295 $157,909
Assumes an 8% fixed rate of return. This illustration does not reflect the
effect of any taxes. Results are not indicative of the past or future results of
any Nvest Fund. The value and returns on Nvest funds will fluctuate with
changing market conditions.
Investor A invested $20,000, less than half of Investor B's commitment - and for
less than half the time. Yet Investor A wound up with a much greater retirement
nest egg. The reason? It's all thanks to an early start and the power of
compounding.
Nvest Funds has prepared a number of informative retirement planning guides.
Call your financial representative or Nvest Funds today at 800-225-5478, and ask
for the guide that best fits your personal needs. We will include a prospectus,
which contains more information, including charges and other ongoing expenses.
Please read the prospectus carefully before you invest.
23
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
--------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
period, assuming all earnings are reinvested in additional shares of the fund.
Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year, when available.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration allows you to compare the volatility of different instruments.
As a general rule, for every 1% move in interest rates, a bond is expected to
fluctuate in value as indicated by its duration. For example, if interest rates
fall by 1%, a bond with a duration of 4 years should rise in value 4%.
Conversely, the bond should decline 4% in value if interest rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges. A small portion of
income may be subject to federal and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax.
24
<PAGE>
NVEST FUNDS
LARGE-CAP EQUITY FUNDS GLOBAL/INTERNATIONAL EQUITY
Capital Growth Fund Star Worldwide Fund
Kobrick Growth Fund International Equity Fund
Growth Fund
Growth and Income Fund CORPORATE INCOME FUNDS
Balanced Fund Short Term Corporate Income Fund
Star Value Fund Bond Income Fund
High Income Fund
ALL-CAP EQUITY FUNDS Strategic Income Fund
Star Advisers Fund
Kobrick Capital Fund
Bullseye Fund GOVERNMENT INCOME FUNDS
Equity Income Fund Limited Term U.S. Government Fund
Government Securities Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund MONEY MARKET FUNDS*
Kobrick Emerging Growth Fund Cash Management Trust
Tax Exempt Money Market Trust
*Investments in the money market
funds are not insured or
gauranteed by the FDIC or any
government agency.
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
To learn more, and for a free prospectus, contact your financial representative.
VISIT OUR WEB SITE AT WWW.NVESTFUNDS.COM
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when it
is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
Nvest Funds Distributor, L.P., and other firms selling shares of Nvest Funds are
members of the National Association of Securities Dealers, Inc. (NASD). As a
service to investors, the NASD has asked that we inform you of the availability
of a brochure on its Public Disclosure Program. The program provides access to
information about securities firms and their representatives. Investors may
obtain a copy by contacting the NASD at 800-289-9999 or by
visiting their Web site at www.NASDR.com.
<PAGE>
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