-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IEa7zVoVyUwY9je/Dv0+Yi2PDpqcKxvz5fljeoNoMMS0+cB5FKRQ6LPBM9YidK4x 5Z4tGwaYLyGGc26aWF2mNw== 0001127563-03-000009.txt : 20030228 0001127563-03-000009.hdr.sgml : 20030228 20030228123544 ACCESSION NUMBER: 0001127563-03-000009 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20030228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST II CENTRAL INDEX KEY: 0000052136 IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-11101 FILM NUMBER: 03585452 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 617-449-2840 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 6TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: TNE FUNDS TRUST DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDC NVEST FUNDS TRUST II CENTRAL INDEX KEY: 0000052136 IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 03585453 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 617-449-2840 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 6TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: TNE FUNDS TRUST DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 485APOS 1 trust2.txt TRUST 2 Registration Nos. 2-11101 811-242 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. ____ [ ] Post-Effective Amendment No. 118 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 52 [X] (Check appropriate box or boxes) CDC NVEST FUNDS TRUST II - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 399 Boylston Street, Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code (617) 449-2801 - -------------------------------------------------------------------------------- John E. Pelletier, Esq. CDC IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Name and address of agent for service) Copy to: John Loder, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110 Approximate Date of Proposed Public Offering It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [X] on May 1, 2003 pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. CDC Nvest logo - -------------------------------------------------------------------------------- CDC Nvest Equity Funds Prospectus May 1, 2003 >CDC Nvest AEW Real Estate Fund AEW Management and Advisors, L.P. >CDC Nvest Capital Growth Fund Westpeak Global Advisors, L.P. >CDC Nvest Growth and Income Fund Harris Associates L.P. >CDC Nvest International Equity Fund Loomis, Sayles & Company, L.P. >CDC Nvest Jurika & Voyles Relative Value Fund Jurika & Voyles, L.P. >CDC Nvest Jurika & Voyles Small Cap Growth Fund Jurika & Voyles, L.P. >CDC Nvest Large Cap Growth Fund Vaughan, Nelson, Scarborough & McCullough, L.P. >CDC Nvest Large Cap Value Fund Vaughan, Nelson, Scarborough & McCullough, L.P. >CDC Nvest Select Fund Harris Associates L.P. >CDC Nvest Targeted Equity Fund Capital Growth Management Limited Partnership The Securities and Exchange Commission has not approved any Fund's shares or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. For general information on the Funds or any of their services and for assistance in opening an account, contact your financial representative or call CDC Nvest Funds. CDC Nvest Funds 399 Boylston Street, Boston, Massachusetts 02116 800-225-5478 www.cdcnvestfunds.com What's Inside Goals, Strategies & Risks Page X Fund Fees & Expenses Page X Management Team Page X Fund Services Page X Financial Performance Page X 2 Table of Contents GOALS, STRATEGIES & RISKS CDC NVEST AEW REAL ESTATE FUND CDC NVEST CAPITAL GROWTH FUND CDC NVEST GROWTH AND INCOME FUND CDC NVEST INTERNATIONAL EQUITY FUND CDC NVEST JURIKA & VOYLES RELATIVE VALUE FUND CDC NVEST JURIKA & VOYLES SMALL CAP GROWTH FUND CDC NVEST LARGE CAP GROWTH FUND CDC NVEST LARGE CAP VALUE FUND CDC NVEST SELECT FUND CDC NVEST TARGETED EQUITY FUND FUND FEES & EXPENSES FUND FEES & EXPENSES MORE ABOUT RISK MORE ABOUT RISK MANAGEMENT TEAM MEET THE FUNDS' INVESTMENT ADVISERS AND SUBADVISERS MEET THE FUNDS' PORTFOLIO MANAGERS ADVISER AND SUBADVISER PAST PERFORMANCE INFORMATION FUND SERVICES INVESTING IN THE FUNDS HOW SALES CHARGES ARE CALCULATED WAYS TO REDUCE OR ELIMINATE SALES CHARGES IT'S EASY TO OPEN AN ACCOUNT BUYING SHARES SELLING SHARES SELLING SHARES IN WRITING EXCHANGING SHARES RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES HOW FUND SHARES ARE PRICED DIVIDENDS AND DISTRIBUTIONS TAX CONSEQUENCES COMPENSATION TO SECURITIES DEALERS ADDITIONAL INVESTOR SERVICES FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE GLOSSARY OF TERMS GLOSSARY OF TERMS If you have any questions about any of the terms used in this Prospectus, please refer to the "Glossary of Terms." To learn more about the possible risks of investing in the Funds, please refer to the section entitled "More About Risk." This section details the risks of practices in which the Funds may engage. Please read this section carefully before you invest. Fund shares are not bank deposits and are not guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or any other government agency, and are subject to investment risks, including possible loss of the principal invested. 3 Goals, Strategies & Risks CDC Nvest AEW Real Estate Fund Adviser: AEW Management and Advisors, L.P. ("AEW") Manager: Matthew A. Troxell Category: Mid-Cap Equity Ticker Symbol: Class A Class B Class C NRFAX NRFBX NRCFX Investment Goal The Fund seeks to provide investors with above-average income and long-term growth of capital. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in investments of real estate investment trusts ("REITs") and/or real estate-related companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. REITs are generally dedicated to owning, and usually operating, income-producing real estate, or dedicated to financing real estate. The Fund primarily invests in equity REITs, which own or lease real estate and derive their income primarily from rental income. Real estate-related companies are those companies whose principal activity involves the development, ownership, construction, management or sale of real estate; companies with significant real estate holdings; and companies that provide products or services related to the real estate industry. AEW employs a value-oriented investment strategy designed to identify securities that are priced below what it believes is their intrinsic value. AEW believes that ultimately the performance of real estate equity securities is dependent upon the performance of the underlying real estate assets and company management as well as the overall influence of capital markets. Consequently, when selecting securities for the Fund, AEW draws upon the combined expertise of its real estate, research and securities professionals. When selecting investments for the Fund, AEW generally considers the following factors that it believes help to identify those companies whose shares represent the greatest value and price appreciation potential: o Valuation: AEW has developed a proprietary model to assess the relative value of each stock in the Fund's investment universe. This model is designed to estimate what an issuer's anticipated cash flows are worth to a stock investor (a capital markets value) and to a direct real estate investor (a real estate value). The model helps AEW to identify stocks that it believes trade at discounts to either or both of these model values relative to similar stocks. AEW will generally sell a security once it is considered overvalued or when AEW believes that there is greater relative value in other securities in the Fund's investment universe. o Price: AEW examines the historic pricing of each company in the Fund's universe of potential investments. Those stocks that have under performed in price, either in absolute terms or relative to the Fund's universe in general, are generally given greater weight than those that have over performed. o Income: AEW further evaluates companies and REITs by analyzing their dividend yields as well as other factors that influence the sustainability and growth of dividends. These factors include cash flow, leverage and payout ratios. o Catalysts: When evaluating a security, AEW also seeks to identify potential catalysts that, in its opinion, could cause the marketplace to re-value the security upwards in the near term. These catalysts can be macro-economic, market-driven or company-specific in nature. The Fund may also: 4 o Hold cash and/or invest up to 100% of its assets in U.S. government securities or money market instruments for temporary defensive purposes in response to adverse market, economic or political conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: Securities of real estate-related companies and REITs in which the Fund may invest may be considered equity securities, thus subjecting the Fund to market risks. This means that you may lose money on your investment due to sudden, unpredictable drops in value or periods of below-average performance in a given stock or in the stock market as a whole. Real estate securities/REITs: Because the Fund concentrates its investments in the real estate industry, the Fund's performance will be dependent in part on the performance of the real estate market and the real estate industry in general. The real estate industry is particularly sensitive to economic downturns. Securities of companies in the real estate industry, including REITs, are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. In addition, the value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon cash flow from their investments to repay financing costs and also on the ability of the REITs' managers. The Fund will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the Fund. Small-cap companies: Companies in the real estate industry, including REITs, in which the Fund may invest may have relatively small market capitalizations. Small-cap companies and REITs, which AEW considers to be those with market capitalizations of $1 billion or less, tend to have more limited markets and resources than companies with larger market capitalizations. Consequently, share prices of small-cap companies and REITs can be more volatile than, and perform differently from, larger company stocks. For additional information see the section entitled "More About Risk." 5 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each calendar year since its first full year of operations. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return 2001 2002 12.99% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Morgan Stanley REIT Index, an unmanaged index of stocks issued by REITs. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Morgan Stanley REIT Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. - -------------------------------------------------------------------------------- Average Annual Total Returns Past 1 Since Classes A, B and (for the periods ended December 31, 2002) Year C Inception (12/29/00) - -------------------------------------------------------------------------------- Class A - Return Before Taxes % % - -------------------------------------------------------------------------------- Return After Taxes on Distributions* % % - -------------------------------------------------------------------------------- Return After Taxes on Distributions & % % Sales of Fund Shares* - -------------------------------------------------------------------------------- Class B - Return Before Taxes % % - -------------------------------------------------------------------------------- Class C - Return Before Taxes % % - -------------------------------------------------------------------------------- Morgan Stanley REIT Index** % % - -------------------------------------------------------------------------------- * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 12/31/00. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 6 Goals, Strategies & Risks CDC Nvest Capital Growth Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Westpeak Global Advisors, L.P. ("Westpeak") Manager: Team Management Category: Large-Cap Equity Ticker Symbol: Class A Class B Class C NEFCX NECBX NECGX Investment Goal The Fund seeks long-term growth of capital. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest substantially all of its assets in the common stock of U.S. large and mid-capitalization companies in any industry. Westpeak constructs a portfolio of large- and mid-capitalization stocks that exhibit reasonable growth potential. Westpeak believes risk and return can be accurately measured and controlled through thoughtful portfolio construction. Therefore, its focus will be on the aggregate characteristics of the portfolio and not just individual stocks. The portfolio emphasizes the characteristics that Westpeak believes are most likely to be rewarded by the market in the period ahead based upon current and historical probabilities. Westpeak will seek to construct a portfolio of growth stocks with reasonable relative valuation. The Fund's industry weightings will not vary significantly from the Russell 1000 Growth Index. Using proprietary quantitative research based on macroeconomic, market and company-specific information, Westpeak analyzes each stock and ranks it based on characteristics such as: / earnings growth / potential earnings surprises / earnings-to-price / earnings momentum In selecting investments for the Fund's portfolio, Westpeak employs the following process: o Westpeak invests principally in the stock of large- and mid-capitalization companies in the Russell 3000 Growth Index. o Westpeak screens these stocks using fundamental growth and value criteria and calculates a "fundamental rank" for each stock. This rank reflects a historical analysis of the company using approximately 70 growth, value and industry characteristics. o All of the stocks are then screened using various analysts' historical and projected earnings estimates for the company and each is assigned an "expectations rank." This rank accounts for the company's recent and historical earnings revisions and the potential for "positive earnings surprises" (whether its business has the potential to improve in the near future). o The fundamental and expectations ranks for each stock are placed in a valuation matrix to evaluate whether to buy, sell or hold a stock. 7 o The final step is the use of proprietary methodology to arrange the selected stocks into an optimal portfolio using their respective fundamental and expectation ranks and risk characteristics. The desired result is a diversified portfolio of 75 to 125 stocks that Westpeak believes will produce the highest long-term returns and which has characteristics similar to that of the Fund's benchmark, the Russell 1000 Growth Index. The Fund may also: o Hold up to 10% of its assets in smaller capitalization companies. o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Although the Fund is diversified, its focused approach means that its relatively small number of holdings may result in greater share price fluctuations than a more diversified mutual fund. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Small capitalization companies may be subject to more abrupt price movements, limited markets and less liquidity than larger, more established companies which could adversely affect the value of the portfolio. For additional information see the section entitled "More About Risk." 8 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current subadviser assumed that function on February 16, 1998. This chart and table reflect results achieved by the previous subadviser using different investment strategies for periods prior to February 16, 1998. The Fund's performance may have been different under its current advisory arrangements and investment strategies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 7.89% -1.64% 30.76% 17.05% 17.23% 29.08% 24.74% -19.52% -20.46% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Russell 1000 Growth Index, an unmanaged index measuring the performance of those Russell 1000 companies selected for their greater growth orientation. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Growth Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Total Returns Since Class B Since Class C (for the periods ended December 31, 2002) Inception Inception Past 1 Year Past 5 Years Past 10 Years (9/13/93) (12/30/94) - ------------------------------------------------------------------------------------------------------------------------------------ Class A - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions* % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions & Sales of Fund Shares* % % - ------------------------------------------------------------------------------------------------------------------------------------ Class B - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Class C - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Russell 1000 Growth Index** % % % % - ------------------------------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated 9/30/93 for Class B shares and 12/31/94 for Class C shares. 9 For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 10 Goals, Strategies & Risks CDC Nvest Growth and Income Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Harris Associates, L.P. ("Harris Associates") Manager: Robert M. Levy, Edward S. Loeb and Michael J. Mangan Category: Large-Cap Equity Ticker Symbol: Class A Class B Class C NEFOX NEGBX NECOX Investment Goal The Fund seeks opportunities for long-term capital growth and income. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest substantially all its assets in common stock of large- and mid-capitalization companies in any industry. Harris Associates uses a value investment philosophy in selecting equity securities. This philosophy is based upon the belief that, over time, a company's stock price converges with the company's true business value. By "true business value," Harris Associates means its estimate of the price a knowledgeable buyer would pay to acquire the entire business. Harris Associates believes that investing in securities priced significantly below their true business value presents the best opportunity to achieve the Fund's investment objectives. The Fund may also: o Invest in foreign securities traded in U.S. markets (through American Depositary Receipts ("ADRs") or stocks sold in U.S. dollars). ADRs are securities issued by a U.S. bank that represent shares of a foreign company. o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. Foreign securities: ADRs may be more volatile than U.S. securities and carry political, economic and information risks that are associated with foreign securities. For additional information see the section entitled "More About Risk." 11 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current subadviser assumed that function on July 1, 2002. Therefore, the chart and table reflect results achieved by different subadvisers under different investment strategies. The Fund's performance may have been different under its current advisory arrangements and investment strategies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. Total Return - -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 7.95% 0.99% 35.11% 17.21% 33.43% 23.93% 9.45% -7.31% -14.58% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compared to those of the Russell 1000 Value Index, an unmanaged index measuring the performance of those Russell 1000 companies selected for their greater value orientation. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Value Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Total Returns Since Class B Since Class C (for the periods ended December 31, 2002) Inception Inception Past 1 Year Past 5 Years Past 10 Years (9/13/93) (5/1/95) - ------------------------------------------------------------------------------------------------------------------------------------ Class A - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions* % % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions % % % & Sales of Fund Shares* - ------------------------------------------------------------------------------------------------------------------------------------ Class B - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Class C - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Russell 1000 Value Index**+ % % % % % - ------------------------------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 9/30/93 for Class B shares and 5/31/95 for Class C shares. + The Russell 1000 Value Index replaced the S&P 500 Index as the Fund's comparative index because CDC IXIS Advisers believes it is more representative of the types of stocks in which the Fund can invest. For the period ended December 31, 2002, the one-year, five-year, ten-year, since 9/30/93 for Class B shares and since 5/31/95 for Class C shares average annual total returns of the S&P 500 Index were __%, __%, __%, __% and __%, respectively. Class A shares commenced operations 5/6/31. 12 For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 13 Goals, Strategies & Risks CDC Nvest International Equity Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Alexander Muromcew, John Tribolet and Eswar Menon Category: International Equity Ticker Symbol: Class A Class B Class C NEFIX NEIBX NECIX Investment Goal The Fund seeks total return from long-term capital growth and dividend income. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in equity investments. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. The Fund will invest primarily in companies organized or headquartered outside of the United States. The Fund will hold securities from at least three different countries, including those within emerging markets. The Fund will focus on securities with large market capitalizations but may invest in securities with any size capitalizations. Loomis Sayles uses a bottom-up, fundamental research process to build the Fund's portfolio. Combining careful research with visits with management, Loomis Sayles looks for growth oriented stocks of well-managed companies that are industry leaders globally and possess strong competitive positions with pricing power and strong distribution. Improving business or financial fundamentals are catalysts for buy decisions while deteriorating fundamentals or better opportunities in other companies will trigger sell decisions. In addition to its bottom-up approach to security selection, an overlay of country and industry macro data is used to provide guidelines for portfolio weighting with a view towards minimizing portfolio risk. The strong Loomis Sayles research team is combined with a global network of research contacts to provide a steady stream of information and ideas. Together with discipline and a thorough decision-making process, the Loomis Sayles research operation seeks to provide investors with a successful investment strategy. Loomis Sayles uses a "No-Walls Decision MakingSM" investment process, in which the managers all meet in person to exchange ideas and make portfolio decisions. Each buy and sell decision is subject to intense scrutiny by the entire team, which allows the skill and unique perspective of each manager on the team to be leveraged. The Fund may also: o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Small capitalization companies may be subject to more abrupt price movements, limited markets and less liquidity than larger, more established companies which could adversely affect the value of the portfolio. 14 Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. For additional information see the section entitled "More About Risk." 15 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current subadviser assumed that function on February 14, 1997. This chart and table reflect results achieved by the previous subadviser under different investment strategies for periods prior to February 14, 1997. The Fund's performance may have been different under its current advisory arrangements and investment strategies. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 29.39% 8.06% 5.78% 3.27% -7.56% 6.69% 87.59% -28.56% -23.47% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Morgan Stanley Capital International Europe, Australasia and Far East Index ("MSCI EAFE"), an unmanaged index of the performance of companies representing stock markets in Europe, Australia, New Zealand and the Far East. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The MSCI EAFE returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Total Returns Since Class B Since Class C (for the periods ended December 31, 2002) Inception Inception Past 1 Year Past 5 Years Past 10 Years (9/13/93) (12/30/94) - ------------------------------------------------------------------------------------------------------------------------------------ Class A - Return Before Taxes % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions* % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions % % & Sales of Fund Shares* - ------------------------------------------------------------------------------------------------------------------------------------ Class B - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Class C - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ MSCI EAFE** % % % % - ------------------------------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 9/30/93 for Class B shares and 12/31/94 for Class C shares. Class A shares commenced operations 5/21/92. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 16 Goals, Strategies & Risks CDC Nvest Jurika & Voyles Relative Value Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Jurika & Voyles, L.P. ("Jurika & Voyles") Managers: Guy R. Elliffe, Eric R. Hull and Nicholas E. Moore Category: Large Cap Equity Ticker Symbol: Class A Class B Class C NJVAX NJVBX NJVCX Investment Goal The Fund seeks long-term growth of capital. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies To pursue its investment goal, the Fund invests in equity securities of quality companies with mid to large market capitalizations. Under normal market conditions, the Fund expects to invest approximately 80%, but no less than 65%, of its total assets in equity securities of companies with market capitalizations within the range of the Russell 1000 Index, a nationally recognized index of mid- and large-cap securities. The Fund's average and median market capitalization will fluctuate over time as a result of market valuation levels and the availability of specific investment opportunities. When selecting equity securities for the Fund, Jurika & Voyles will emphasize "in-house" research, which includes personal contacts, site visits and meetings with company management. Through this research, Jurika & Voyles looks for quality companies that possess several of the following characteristics, although not all of the companies selected will have these attributes: / Strong, competitive advantage - companies that "do what they do" better than anyone else are the prime candidates. / Clearly defined business focus - companies that "stick to their knitting" - focusing only on a particular niche or segment of a broader market. / Strong financial health - companies with strong cash flows, low debt-to-total capital ratios, healthy balance sheets and higher returns on equity than the market average. / Quality management - companies with experienced management, low turnover and a long-term track record of success in an industry. / Right price - companies that sell at a discount to Jurika & Voyles' estimation of their true value. / Catalyst for growth - It is not enough to invest in an inexpensive company. There must be some factor (typically a new product, improving industry trend or economic condition) that will lead to an increase in the price of the stock. The Fund may also: o Invest in foreign issuers, primarily through Depositary Receipts. o Invest in other investment companies. o Invest in real estate investment trusts ("REITs"). 17 o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in other investment companies: May indirectly bear service and other fees in addition to its own expenses. REITs: Subject to changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate. For additional information see the section entitled "More About Risk." 18 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The performance results below reflect results achieved by the Fund's predecessor under different advisory arrangements. Because the Fund's current advisory arrangement differs from the advisory arrangement of its predecessor, the past performance results shown below may have been different had the current arrangements been in place during the periods shown. The bar chart shows the Fund's adjusted total returns for Class A shares for each calendar year since the first full year of operations of the Fund's predecessor. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. Total Return+ - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 27.78% 20.01% 21.23% 5.85% 11.65% 14.43% -8.02% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows the Fund's average annual total returns (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception, if shorter) compared to those of the Russell 1000 Index, a nationally recognized index comprised of the 1,000 largest companies within the Russell 3000 Index, based on market capitalization. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------ Average Annual Total Returns+ Since Fund (for the periods ended December 31, 2002) Inception Past 1 Year Past 5 Years (9/30/94) - ------------------------------------------------------------------------------------------ Class A - Return Before Taxes % % % - ------------------------------------------------------------------------------------------ Return After Taxes on Distributions* % % % - ------------------------------------------------------------------------------------------ Return After Taxes on Distributions & % % % Sales of Fund Shares* - ------------------------------------------------------------------------------------------ Class B - Return Before Taxes % % % - ------------------------------------------------------------------------------------------ Class C - Return Before Taxes % % % - ------------------------------------------------------------------------------------------ Russell 1000 Index** % % % - ------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. + The returns shown above reflect the results of the Jurika & Voyles Value+Growth Fund through November 30, 2001, whose assets and liabilities were reorganized into the Fund on November 30, 2001. Until November 30, 2001, the Fund's predecessor had only one class of shares and offered those shares without a sales charge. Returns prior to that date have been restated to reflect expenses and sales loads, if applicable, of the Fund's multiple class structure. Classes A, B and C shares commenced operations on November 30, 2001. During all periods shown, the Fund's total annual operating expenses have been limited under a binding expense cap arrangement. Therefore, the restatement of 19 the Fund's performance to reflect Classes A, B and C expenses is based on the net expenses of these classes after taking into effect the Fund's current expense cap arrangements. See "Fund Fees & Expenses." For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 20 Goals, Strategies & Risks CDC Nvest Jurika & Voyles Small Cap Growth Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Jurika & Voyles, L.P. ("Jurika & Voyles") Manager: Team Management Category: Small-Cap Equity Ticker Symbol: Class A Class B Class C NFBSX NFBBX NFBCX Investment Goal The Fund seeks long-term growth of capital. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in investments in companies that have market capitalization within the capitalization range of the Russell 2000 Index, a nationally recognized index of small-cap companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. When selecting small-cap companies, Jurika & Voyles will emphasize "in-house" research, which includes personal contacts, site visits and meetings with company management. Through this research, Jurika & Voyles looks for small-cap companies that possess several of the following characteristics, although not all of the companies selected will have these attributes: / Strong competitive advantage - companies that "do what they do" better than anyone else are prime candidates. / Clearly defined business focus - companies that "stick to their knitting," focusing only on a particular niche or segment of a broader market. / Strong financial health - companies with strong cash flows, low debt-to-total capital ratios, healthy balance sheets and higher returns on equity than the market average. / Quality management - companies with experienced management, low turnover and a long-term track record of success in an industry. / Right price - companies that sell at a discount to Jurika & Voyles' estimation of their true value. / Catalyst for growth - It is not enough to invest in an inexpensive company. There must be some factor (typically a new product, improving industry trend or economic condition) that will lead to an increase in the price of the stock. The Fund may also: o Invest in convertible preferred stock and convertible debt securities. o Invest in securities offered in initial public offerings (IPO's). o Invest in warrants. 21 o Invest up to 25% of its total assets in securities of foreign issuers, primarily through sponsored and unsponsored Depositary Receipts. Some examples of Depositary Receipts are American Depositary Receipts, European Depositary Receipts and Global Depositary Receipts. The Fund will limit its investment in any one foreign country to 5% of its total assets and will invest no more than 5% of its total assets in securities denominated in foreign currencies. o Invest in real estate investment trusts ("REITs"). o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Small capitalization companies may be subject to more abrupt price movements, limited markets and less liquidity than larger, more established companies which could adversely affect the value of the portfolio. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. The Fund's investment in short-term trading strategies, with respect to intial public offerrings, may make the value of an investment in this Fund fluctuate even more than an investment in other small-cap funds. Securities issued in IPOs tend to involve greater market risk than other equity securities due, in part, to public perception and the lack of publicly available information and trading history. This may impact the Fund's performance and result in higher portfolio turnover, which may increase the tax liability to shareholders and the brokerage expenses incurred by the Fund. Foreign securities: Depositary Receipts may be more volatile than U.S. securities and carry political, economic and information risks that are associated with foreign securities. REITs: Subject to changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate. For additional information see the section entitled "More About Risk." 22 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The performance results below reflect results achieved by the Fund's predecessor under different advisory arrangements. Because the Fund's current advisory arrangement differs from the advisory arrangement of its predecessor, the past performance results shown below may have been different had the current arrangements been in place during the periods shown. The bar chart shows the Fund's adjusted total returns for Class A shares for each calendar year since the first full year of operations of the Fund's predecessor. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return+ 1995 1996 1997 1998 1999 2000 2001 2002 43.08% 24.24% 16.44% -19.45% 46.50% -21.42% -13.55% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Russell 2000 Index, an unmanaged index of the 2000 smallest companies in the Russell 3000 Index. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 2000 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------ Average Annual Total Returns+ Since Fund (for the periods ended December 31, 2002) Inception Past 1 Year Past 5 Years (9/30/94) - ------------------------------------------------------------------------------------------ Class A - Return Before Taxes - ------------------------------------------------------------------------------------------ Return After Taxes on Distributions* - ------------------------------------------------------------------------------------------ Return After Taxes on Distributions & Sales of Fund Shares* - ------------------------------------------------------------------------------------------ Class B - Return Before Taxes - ------------------------------------------------------------------------------------------ Class C - Return Before Taxes - ------------------------------------------------------------------------------------------ Russell 2000 Index** - ------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. + The returns shown above reflect the results of the Jurika & Voyles Small-Cap Fund through November 30, 2001, whose assets and liabilities were acquired by the Fund on November 30, 2001. As a result of this transaction, the Fund assumed the financial and performance history of the Jurika & Voyles Small-Cap Fund. Until November 30, 2001, the 23 Fund's predecessor had only one class of shares and offered those shares without a sales charge. Returns prior to that date have been restated to reflect expenses and sales loads, if applicable, of the Fund's multiple class structure. Classes A, B and C shares commenced operations on November 30, 2001. During all periods shown, the Fund's total annual operating expenses have been limited under a binding expense cap arrangement. Therefore, the restatement of the Fund's expenses to reflect Classes A, B and C performance is based on the net expenses of these classes after taking into effect the Fund's current expense cap arrangements. See "Fund Fees & Expenses". For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 24 Goals, Strategies & Risks CDC Nvest Large Cap Growth Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Vaughan, Nelson, Scarborough & McCullough, L.P. ("Vaughan Nelson") Managers: William R. Berger, Brian A. Grove and Curt E. Rohrman Category: Large-Cap Equity Ticker Symbol: Class A Class B Class C NRLAX NRLBX NRLCX Investment Goal The Fund seeks long-term growth of capital by investing in equity securities of companies with large market capitalizations that the subadviser believes have better than average long-term growth potential. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market circumstances, the Fund will invest at least 80% of its net assets in investments in companies that have market capitalization within the capitalization range of the Russell 1000 Growth Index, a nationally recognized index of growth-oriented companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Vaughan Nelson uses rigorous fundamental research and active management to analyze a broad selection of company or industry sectors and to seek companies with the following characteristics, although not all of the companies selected will have these attributes: / Sustainable competitive advantage / Positive Earnings Trends / Quality Management / Strong Financials In selecting investments for the Fund's portfolio, Vaughan Nelson employs the following strategy: o Screen for companies with at least $1 billion in market capitalization. o Screen for strong earnings and revenue growth over rolling 1, 3 and 5-year periods. o Apply growth rate analysis and industry research to select 40-50 strong stocks for the portfolio. o Vaughan Nelson targets stocks for sale due to underperformance in earnings relative to targets, unfavorable changes in the company or its industry or when price targets are achieved. The Fund may also: o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. 25 o Invest in foreign securities including American Depositary Receipts , which are securities issued by a U.S. bank that represent shares of a foreign company. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Because of these and other risks, the Fund may underperform certain other stock funds during periods when large company growth stocks are generally out of favor. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. For additional information see the section entitled "More About Risk." 26 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The performance results below reflect the results achieved by the Fund's predecessor under different advisory arrangements and different investment strategies. The Fund's current subadviser assumed that function on July 1, 2001. This chart and table reflect results achieved by the previous adviser for periods prior to July 1, 2001. The Fund's performance may have been different had its current arrangements been in place during the periods shown. The bar chart shows the Fund's total returns for Class A shares for each calendar year since the first full year of operations of the Fund's predecessor. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return+ 1999 2000 2001 2002 54.58% -9.20% -22.85% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception, if shorter) compare to those of the Russell 1000 Growth Index, an unmanaged index measuring the performance of those Russell 1000 companies selected for their greater growth orientation. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Growth Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ---------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns+ Since Class A Inception Since Classes B and C (for the periods ended December 31, 2002) Past 1 Year (9/1/98)++ Inception (10/29/99) - ---------------------------------------------------------------------------------------------------------------------- Class A - Return Before Taxes - ---------------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - ---------------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - ---------------------------------------------------------------------------------------------------------------------- Class B - Return Before Taxes - ---------------------------------------------------------------------------------------------------------------------- Class C - Return Before Taxes - ---------------------------------------------------------------------------------------------------------------------- Russell 1000 Growth Index** - ----------------------------------------------------------------------------------------------------------------------
+ The returns shown above reflect the results of the Kobrick Growth Fund through November 16, 2001, whose assets and liabilities were reorganized into the Fund on November 16, 2001. ++ Until October 29, 1999, the Fund had only one class of shares and offered those shares without a sales charge. Returns prior to that date for Class A shares have been adjusted to reflect sales loads of the Fund's multiple class structure. See "Fund Fees & Expenses." Class A shares commenced operations on September 1, 1998. Classes B and C shares commenced operations on October 29, 1999. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may 27 differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 9/30/98 for Class A shares and 10/31/99 for Classes B and C shares. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 28 Goals, Strategies & Risks CDC Nvest Large Cap Value Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Vaughan, Nelson, Scarborough & McCullough, L.P. ("VNSM") Manager: Margaret M. Buescher and Mark J. Roach Category: Large-Cap Equity Ticker Symbol: Class A Class B Class C NEEIX NEBIX NECEX Investment Goal The Fund seeks total return from capital growth and dividend income. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in investments in companies that have market capitalization within the capitalization range of the Russell 1000 Value Index, a nationally recognized index of large-cap companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Vaughan Nelson uses rigorous fundamental research and active management to analyze a broad selection of company or industry sectors and to seek companies with the following characteristics, although not all of the companies selected will have these attributes: / Strong balance sheets / Growing cash flows / Reasonable valuations based upon discounted cash flow models / Stable and proven management teams / High relative dividend yield In selecting investments for the Fund, Vaughan Nelson employs the following strategy: o It uses a value-driven investment philosophy that selects stocks selling at a relatively low value based upon discounted cash flow models. o Vaughan Nelson starts with an investment universe of 5,000 securities. Vaughan Nelson then uses value-driven quantitative screens to seek those companies that generally have market capitalizations in excess of $2 billion. These screens create a research universe of 300 to 400 companies. o Vaughan Nelson then uses fundamental analysis to build a portfolio of 45 to 70 securities consisting of quality companies in the opinion of Vaughan Nelson. This fundamental analysis focuses on the strength of a company's balance sheet, cash flow growth and management. o Vaughan Nelson will generally sell a stock when it reaches Vaughan Nelson's price target, when the company shows a deteriorating financial condition, or when it has repeated negative earnings surprises. The Fund may also: 29 o Invest in convertible and non-convertible preferred stock. o Invest in convertible and non-convertible investment grade bonds. o Invest in foreign securities including American Depositary Receipts, which are securities issued by a U.S. bank that represent shares of a foreign company. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. Fixed-income securities: Subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. For additional information see the section entitled "More About Risk." 30 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current subadviser assumed that function on June 1, 1999. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 1, 1999. The Fund's performance may have been different under its current advisory arrangements and investment policies. The bar chart shows the Fund's total returns for Class A shares for each calendar year since its first full year of operations. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return 1996 1997 1998 1999 2000 2001 2002 26.61% 22.64% 2.67% -1.94% 9.01% -3.52% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the average annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the Russell 1000 Value Index, an unmanaged index measuring the performance of those Russell 1000 companies selected for their greater value orientation. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Value Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ----------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns Since Class A Since Classes B and C (for the periods ended December 31, 2002) Past 1 Year Past 5 Years Inception (11/28/95) Inception (9/15/97) - ----------------------------------------------------------------------------------------------------------------------- Class A - Return Before Taxes - ----------------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - ----------------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - ----------------------------------------------------------------------------------------------------------------------- Class B - Return Before Taxes - ----------------------------------------------------------------------------------------------------------------------- Class C - Return Before Taxes - ----------------------------------------------------------------------------------------------------------------------- Russell 1000 Value Index** - -----------------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 11/30/95 for Class A shares and 9/30/97 for Classes B and C shares. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 31 32 Goals, Strategies & Risks CDC Nvest Select Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Harris Associates L.P. ("Harris Associates") Managers: William C. Nygren and Floyd J. Bellman Category: Mid-Cap Equity Ticker Symbol: Class A Class B Class C NRSAX NRSBX NRSCX Investment Goal The Fund seeks long-term capital appreciation. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies The Fund invests primarily in common stocks of U.S. companies. The Fund is non-diversified, which means that it is not limited under the Investment Company Act of 1940 (the "1940 Act") to a percentage of assets that it may invest in any one issuer. The Fund could own as few as 12 securities, but generally will have 15 to 20 securities in its portfolio. The Fund will normally invest in companies with mid-to-large capitalizations. Harris Associates uses a value investment philosophy in selecting equity securities. This philosophy is based upon the belief that, over time, a company's stock price converges with the company's true business value. By "true business value," Harris Associates means its estimate of the price a knowledgeable buyer would pay to acquire the entire business. Harris Associates believes that investing in securities priced significantly below their true business value presents the best opportunity to achieve the Fund's investment objectives. The Fund may also: o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. Non-diversification: Compared with other mutual funds, the Fund may invest a greater percentage of its assets in a particular issuer and may invest in fewer issuers. Therefore, the Fund may have more risk because changes in the value of a single security or the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Fund's net asset value. For additional information see the section entitled "More About Risk." 33 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each calendar year since its first full year of operations. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return 2002 ----% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the S&P 500 Index, a market value-weighted, unmanaged index of common stock prices for 500 selected stocks. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The S&P 500 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. - -------------------------------------------------------------------------------- Since Classes A, B Average Annual Total Returns Past 1 and C Inception (for the periods ended December 31, 2002) Year (3/15/01) - -------------------------------------------------------------------------------- Class A - Return Before Taxes % % - -------------------------------------------------------------------------------- Return After Taxes on Distributions* % % - -------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* % % - -------------------------------------------------------------------------------- Class B - Return Before Taxes % % - -------------------------------------------------------------------------------- Class C - Return Before Taxes % % - -------------------------------------------------------------------------------- S&P 500** % % - -------------------------------------------------------------------------------- * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. **The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 3/31/01. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 34 Goals, Strategies & Risks CDC Nvest Targeted Equity Fund Adviser: Capital Growth Management Limited Partnership ("CGM") Manager: G. Kenneth Heebner Category: Large-Cap Equity Ticker Symbol: Class A Class B Class C NEFGX NEBGX NEGCX Investment Goal The Fund seeks long-term growth of capital through investment in equity securities of companies whose earnings are expected to grow at a faster rate than that of the overall United States economy. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in equity investments. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. The Fund will generally invest in a focused portfolio of common stocks of large capitalization companies that CGM expects will grow at a faster rate than that of the overall United States economy. When CGM believes that market conditions warrant, however, CGM may select stocks based upon overall economic factors such as the general economic outlook, the level and direction of interest rates and potential impact of inflation. The Fund will not invest in small capitalization companies. In general, CGM seeks companies with the following characteristics, although not all of the companies selected will have these attributes: / well-established, with records of above-average growth / promise of maintaining their leadership positions in their industries / likely to benefit from internal revitalization or innovations, changes in consumer demand, or basic economic forces Rather than following a particular style, CGM employs a flexible approach and seeks to take advantage of opportunities as they arise. In making an investment decision, CGM generally employs the following methods: o It uses a top-down approach, meaning that it analyzes the overall economic factors that may affect a potential investment. o CGM then conducts a thorough analysis of certain industries and companies, evaluating the fundamentals of each on a case-by-case basis and focusing on companies that it determines are attractively valued. o CGM's ultimate decision to purchase a security results from a thorough assessment of all of the information that CGM deems to be relevant at the time of investment. o CGM will sell a stock if it determines that its investment expectations are not being met, if better opportunities are identified or if its price objective has been attained. The Fund may also: o Invest a significant portion of its assets in a single industry sector. o Invest in foreign securities. o Invest in other investment companies. o Invest in real estate investment trusts ("REITs"). o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. 35 o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Although the Fund is diversified, its focused approach means that its relatively small number of holdings may result in greater share price fluctuations than a more diversified mutual fund. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Focused investment risk: Because the Fund may invest in a small number of industries, it may have more risk because the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Fund's net asset value. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in other investment companies: May indirectly bear service and other fees in addition to its own expenses. REITs: Subject to changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate. For additional information see the section entitled "More About Risk." 36 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for other classes of shares offered by this Prospectus differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. - -------------------------------------------------------------------------------- Total Return 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 11.29% -7.05% 38.06% 20.88% 23.54% 33.40% 15.18% -4.55% -16.20% - -------------------------------------------------------------------------------- /\ - -- Highest Quarterly Return: ____________________% __ \/ Lowest Quarterly Return: ____________________% The table below shows how the annual total returns for each class of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods (or since inception if shorter) compare to those of the S&P 500 Index, a market value-weighted, unmanaged index of common stock prices for 500 selected stocks. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The S&P 500 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ------------------------------------------------------------------------------------------------------------------------------------ Since Class B Since Class C Average Annual Total Returns Inception Inception (for the periods ended December 31, 2002) Past 1 Year Past 5 Years Past 10 Years (2/28/97) (9/01/98) - ------------------------------------------------------------------------------------------------------------------------------------ Class A - Return Before Taxes % % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions* % % % - ------------------------------------------------------------------------------------------------------------------------------------ Return After Taxes on Distributions & Sales of Fund Shares* % % % - ------------------------------------------------------------------------------------------------------------------------------------ Class B - Return Before Taxes % % - ------------------------------------------------------------------------------------------------------------------------------------ Class C - Return Before Taxes % % - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index** % % % % % - ------------------------------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 9/30/98 for Class C shares. Class A shares commenced operations 11/27/68. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses." 37 Fund Fees & Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of each Fund. Shareholder Fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------- Class A Class B Class C - ----------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a percentage of offering price)(1)(2) 5.75% None 1.00%(4) - ----------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable)(2) (3) 5.00% 1.00% - ----------------------------------------------------------------------------------------------------- Redemption fees None* None* None* - -----------------------------------------------------------------------------------------------------
(1) A reduced sales charge on Class A and Class C shares applies in some cases. See the section entitled "Ways to Reduce or Eliminate Sales Charges" within the section entitled "Fund Services." (2) Does not apply to reinvested distributions. (3) A 1.00% contingent deferred sales charge ("CDSC") applies with respect to certain purchases of Class A shares greater than $1,000,000 redeemed within 1 year after purchase, but not to any other purchases or redemptions of Class A shares. See the section entitled "How Sales Charges Are Calculated" within the section entitled "Fund Services." (4) Accounts established prior to December 1, 2000, will not be subject to the 1.00% front-end sales charge for exchanges or additional purchases of Class C shares. *Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight delivery. Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as a percentage of average daily net assets)
- ----------------------------------------------------------------------------------------------------------------------------- AEW Real Estate Fund(1) Capital Growth Fund Growth and Income Fund - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- Management fees % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees % %* %* % %* %* % %* %* - ----------------------------------------------------------------------------------------------------------------------------- Other expenses % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Fee waiver and/or expense reimbursement % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Net expenses % % % % % % % % % - -----------------------------------------------------------------------------------------------------------------------------
38
- ----------------------------------------------------------------------------------------------------------------------------- Jurika & Voyles Relative Value Jurika & Voyles Small Cap International Equity Fund Fund(2) Growth Fund(3) - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- Management fees % % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees % %* %* % %* %* % %* %* - ----------------------------------------------------------------------------------------------------------------------------- Other expenses % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Fee waiver and/or expense reimbursement % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Net expenses % % % % % % % % % - -----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- Large Cap Growth Fund(4) Large Cap Value Fund(5) Select Fund(6) - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- Management fees % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees % %* %* % %* %* % %* %* - ----------------------------------------------------------------------------------------------------------------------------- Other expenses % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Fee waiver and/or expense reimbursement % % % % % % % % % - ----------------------------------------------------------------------------------------------------------------------------- Net expenses % % % % % % % % % - -----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------ Targeted Equity Fund - ------------------------------------------------------------ Class A Class B Class C - ------------------------------------------------------------ Management fees % % % - ------------------------------------------------------------ Distribution and/or service (12b-1) fees % %* %* - ------------------------------------------------------------ Other expenses % % % - ------------------------------------------------------------ Total annual fund % % % operating expenses - ------------------------------------------------------------ *Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the rules of the National Association of Securities Dealers, Inc. (1) AEW has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.50%, 2.25% and 2.25% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through ________, and will be reevaluated on an annual basis thereafter. (2) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.50%, 2.25% and 2.25% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through December 31, 2004. (3) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.75%, 2.50% and 2.50% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through December 31, 2004. (4) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.40%, 2.15% and 2.15% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through ____________, and will be reevaluated on an annual basis thereafter. (5) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.50%, 2.25% and 2.25% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through __________, and will be reevaluated on an annual basis thereafter. (6) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.70%, 2.45% and 2.45% of the Fund's average daily net assets for Classes A, B and C shares, respectively. This undertaking is in effect through ___________, and will be reevaluated on an annual basis thereafter. 39 Example This example*, which is based upon the expenses shown in the "Annual Fund Operating Expenses" table, is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes that: o You invest $10,000 in a Fund for the time periods indicated; o Your investment has a 5% return each year; o A Fund's operating expenses remain the same; and o All dividends and distributions are reinvested. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
- ----------------------------------------------------------------------------------------------------------------------------- AEW Real Estate Fund Capital Growth Fund - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- (1) (2) (1) (2) (1) (2) (1) (2) - ----------------------------------------------------------------------------------------------------------------------------- 1 year $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 3 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 5 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 10 years** $ $ $ $ $ $ $ $ $ $ - -----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- Growth and Income Fund International Equity Fund - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- (1) (2) (1) (2) (1) (2) (1) (2) - ----------------------------------------------------------------------------------------------------------------------------- 1 year $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 3 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 5 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 10 years** $ $ $ $ $ $ $ $ $ $ - -----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- Jurika & Voyles Relative Value Fund Jurika & Voyles Small Cap Growth Fund - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- (1) (2) (1) (2) (1) (2) (1) (2) - ----------------------------------------------------------------------------------------------------------------------------- 1 year $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 3 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 5 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 10 years** $ $ $ $ $ $ $ $ $ $ - -----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- Large Cap Growth Fund Large Cap Value Fund - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- (1) (2) (1) (2) (1) (2) (1) (2) - ----------------------------------------------------------------------------------------------------------------------------- 1 year $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 3 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 5 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 10 years** $ $ $ $ $ $ $ $ $ $ - -----------------------------------------------------------------------------------------------------------------------------
40
- ----------------------------------------------------------------------------------------------------------------------------- Select Fund Targeted Equity Fund - ----------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Class A Class B Class C - ----------------------------------------------------------------------------------------------------------------------------- (1) (2) (1) (2) (1) (2) (1) (2) - ----------------------------------------------------------------------------------------------------------------------------- 1 year $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 3 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 5 years $ $ $ $ $ $ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- 10 years** $ $ $ $ $ $ $ $ $ $ - -----------------------------------------------------------------------------------------------------------------------------
(1) Assumes redemption at end of period. (2) Assumes no redemption at end of period. * The example is based on the Net Expenses for the 1-year period for AEW Real Estate Fund, Jurika & Voyles Relative Value Fund, Jurika & Voyles Small Cap Growth Fund, Large Cap Growth Fund, Large Cap Value Fund and Select Fund illustrated in the Example and on the Total Annual Fund Operating expenses for the remaining years. The example is based on Total Annual Fund Operating Expenses for the other Funds for all periods. ** Class B shares automatically convert to Class A shares after 8 years; therefore, in years 9 and 10 Class B amounts are calculated using Class A expenses. 41 More About Risk The Funds have principal investment strategies that come with inherent risks. The following is a list of risks to which each Fund may be subject because of its investment in various types of securities or engagement in various practices. Correlation Risk (All Funds except AEW Real Estate and Select Funds) The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk (All Funds) The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Funds that invest in securities rated below investment grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P, respectively), or that are unrated but judged to be of comparable quality by the Fund's subadviser are subject to greater credit risk than Funds that do not invest in such securities. Currency Risk (All Funds except AEW Real Estate, Capital Growth and Growth and Income Funds) The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Emerging Markets Risk (International Equity Fund) The risk associated with investing in securities traded in developing securities markets, which may be smaller and have shorter operating histories than developed markets. Emerging markets involve risks in addition to and greater than those generally associated with investing in developed foreign markets. The extent of economic development, political stability, market depth, infrastructure and capitalization, and regulatory oversight in emerging market economies is generally less than in more developed markets. Extension Risk (Large Cap Value Fund) The risk that an unexpected rise in interest rates will extend the life of a mortgage- or asset-backed security beyond the expected prepayment time, typically reducing the security's value. Information Risk (All Funds) The risk that key information about a security is inaccurate or unavailable. Securities issued in initial public offerings, or IPOs, involve greater information risk than other equity securities due to the lack of public information. Interest Rate Risk (All Funds) The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk (All Funds except Select Fund) The risk associated with securities or practices (e.g., borrowing) that multiply small index or market movements into larger changes in value. When a derivative security (a security whose value is based on another security or index) is used as a hedge against an offsetting position that a Fund also holds, any loss generated by the derivative security should be substantially offset by gains on the hedged instrument, and vice versa. To the extent that a Fund uses a derivative security for purposes other than as a hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the risks of that derivative security and any loss generated by the derivative security will not be offset by a gain. Liquidity Risk (All Funds) The risk that certain securities may be difficult or impossible to sell at the time and at the price that the seller would like. This may result in a loss or may otherwise be costly to a Fund. These types of risks may also apply to restricted securities, Section 4(2) Commercial Paper, or Rule 144A Securities. Management Risk (All Funds) The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk (All Funds) The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. IPO securities tend to involve greater market risk than other equity securities due, in part, to public perception and the lack of public information and trading history. Opportunity Risk (All Funds) The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are invested in less profitable investments. Options, Futures and Swap Contracts Risks (All Funds except AEW Real Estate and Select Funds) These transactions are subject to changes in the underlying security on which such transactions are based. It is important to note that even a small investment in these types of derivative securities may give rise to leverage risk, and can have a significant impact on a Fund's exposure to stock market values, interest rates or the currency exchange rate. These types of transactions will be used primarily for hedging purposes. Political Risk (All Funds) The risk of losses directly attributable to government or political actions. Prepayment Risk (AEW Real Estate and Large Cap Value Funds) The risk that unanticipated prepayments may occur, reducing the return from mortgage- or asset-backed securities, or real estate investment trusts. Small Capitalization Companies Risk (AEW Real Estate, Capital Growth, International Equity and Jurika & Voyles Small Cap Growth Funds) These companies carry special risks, including narrower markets, more limited financial and management resources, less liquidity and greater volatility than large company stocks. Valuation Risk (All Funds) The risk that a Fund has valued certain securities at a higher price than the price at which it can be sold. Management Team Meet the Funds' Investment Advisers and Subadvisers The CDC Nvest Funds family currently includes 26 mutual funds with a total of $ ___ billion in assets under management as of December 31, 2002. CDC Nvest Funds are distributed through CDC IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers the CDC Nvest Equity Funds except the CDC Nvest Balanced Fund (the "Funds" or each a "Fund"), which, along with the CDC Nvest Balanced Fund, the CDC Nvest Income Funds, CDC Nvest Star Funds and CDC Nvest Tax Free Income Funds, constitute the "CDC Nvest Funds." CDC Nvest Cash Management Trust - Money Market Series and CDC Nvest Tax Exempt Money Market Trust constitute the "Money Market Funds." Advisers CDC IXIS Advisers, located at 399 Boylston Street, Boston, Massachusetts 02116, serves as the adviser to each of the Funds except AEW Real Estate Fund (for which AEW serves as adviser) and Targeted Equity Fund (for which CGM serves as adviser). CDC IXIS Advisers is a subsidiary of CDC IXIS Asset Management North America, L.P. ("CDC IXIS North America"), which is a subsidiary of CDC IXIS Asset Management. CDC IXIS Asset Management is the investment management arm of France's Caisse des Depots et Consignations ("CDC"), a major diversified financial institution. As of December 31, 2002, CDC IXIS North America's 14 principal subsidiaries, including 11 affiliated asset management firms and three distribution and service units, collectively had $ ____billion in assets under management. CDC IXIS Advisers oversees, evaluates, and monitors the subadvisory services provided to each Fund except AEW Real Estate Fund and Targeted Equity Fund. It also provides general business management and administration to each Fund except AEW Real Estate Fund and Targeted Equity Fund. CDC IXIS Advisers does not determine what investments will be purchased by the Funds. AEW, CGM and the subadvisers listed below make the investment decisions for their respective Funds. The combined advisory and subadvisory fees paid by the Funds during the fiscal year ended December 31, 2002 as a percentage of each Fund's average daily net assets were ____% for the Capital Growth Fund, ____% for the Growth and Income Fund, ____% for the International Equity Fund, ___% for the Jurika & Voyles Relative Value Fund (after waiver or reimbursement), __% for the Jurika & Voyles Small Cap Growth Fund (after waiver or reimbursement), ___% for the Large Cap Growth Fund (after waiver or reimbursement), __% for the Large Cap Value Fund (after waiver or reimbursement) and __% for the Select Fund (after waiver or reimbursement). AEW, located at World Trade Center East, Two Seaport Lane, Boston, Massachusetts 02210, serves as the adviser to the AEW Real Estate Fund. AEW is a subsidiary of CDC IXIS North America. Together with other AEW adviser affiliates, AEW managed $6.3 billion of client capital as of December 31, 2002. For the fiscal year ended January 31, 2003, AEW Real Estate Fund paid ___ % (after waiver or reimbursement) of its average daily net assets to AEW in advisory fees. CGM, located at One International Place, Boston, Massachusetts 02110, has served as adviser to the Targeted Equity Fund since CGM's inception in 1989. It also serves as investment adviser to six additional mutual funds and various institutional investors. CGM is an affiliate of CDC IXIS North America and had over $2.8 billion in assets under management as of December 31, 2002. For the fiscal year ended December 31, 2002, Targeted Equity Fund paid ____% of its average daily net assets to CGM in advisory fees. Subadvisers Harris Associates, located at Two North LaSalle Street, Chicago, Illinois 60602, serves as subadviser to the Growth and Income Fund and the Select Fund. Harris Associates, a subsidiary of CDC IXIS North America, managed $30.1 billion in assets as of December 31, 2002, and, together with its predecessor, has managed investments since 1970. It also manages investments for other mutual funds as well as assets of individuals, trusts, retirement plans, endowments, foundations, and several private partnerships. Prior to July 1, 2002, Westpeak was the subadviser to the Growth and Income Fund. The advisory fee rates under the Fund's agreement with Westpeak are the same as they are under the current agreement with Harris Associates. Jurika & Voyles, located at Lake Merritt Plaza, 1999 Harrison, Suite 700, Oakland, California 94612, serves as subadviser to Jurika & Voyles Relative Value Fund and Jurika & Voyles Small Cap Growth Fund. Jurika & Voyles, founded in 1983, had discretionary management authority with respect to over $1 billion of assets as of December 31, 2002, for various clients including corporations, pension plans, 401(k) plans, profit sharing plans, trusts and estates, foundations and charities, mutual funds and individuals. Jurika & Voyles is a subsidiary of CDC IXIS North America. Jurika & Voyles employs a team approach in managing the Jurika & Voyles Small Cap Growth Fund's portfolio. Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as subadviser to the International Equity Fund. Loomis Sayles is a subsidiary of CDC IXIS North America. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $54 billion in assets under management as of December 31, 2002. Loomis Sayles is well known for its professional research staff, which is one of the largest in the industry. Vaughan Nelson, located at 600 Travis Street, Suite 6300, Houston, Texas 77002, serves as subadviser to the Large Cap Growth Fund and the Large Cap Value Fund. Vaughan Nelson is a subsidiary of CDC IXIS North America. Originally incorporated in 1970, Vaughan Nelson focuses primarily on managing equity and fixed-income funds for clients who consist of foundations, university endowments and corporate retirement and family/individual core funds. As of December 31, 2002, Vaughan Nelson had $3.6 billion in assets under management. Westpeak, located at 1470 Walnut Street, Boulder, Colorado 80302, serves as subadviser to the Capital Growth Fund. Westpeak is a subsidiary of CDC IXIS North America. Westpeak employs a team approach in managing the Fund's portfolio. Members of the Fund's portfolio management team include: Robert A. Franz, Westpeak's Chief Investment Officer and Thomas M. Anichini, a Vice President of Westpeak. Founded in 1991, Westpeak had $3.8 billion in assets under management as of December 31, 2002. Subadvisory Agreements Each Fund has received an exemptive order from the Securities and Exchange Commission (the "SEC") which permits CDC IXIS Advisers to amend or continue existing subadvisory agreements when approved by the Board of Trustees, without shareholder approval. The exemption also permits CDC IXIS Advisers to enter into new subadvisory agreements with subadvisers that are not affiliated with CDC IXIS Advisers without shareholder approval, if approved by the Board of Trustees. Shareholders will be notified of any subadviser changes. Portfolio Trades In placing portfolio trades, each Fund's adviser or subadviser may use brokerage firms that market the Fund's shares or are affiliated with CDC IXIS North America, CDC IXIS Advisers or any adviser or subadviser. In placing trades, any adviser or subadviser will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. Management Team Meet the Funds' Portfolio Managers Thomas M. Anichini Thomas M. Anichini is a member of the portfolio team which manages Westpeak's segment of the Capital Growth Fund. He is also a member of the team that manages Westpeak's segment of the CDC Nvest Star Growth Fund and the CDC Nvest Star Value Fund. Mr. Anichini, Vice President and Portfolio Manager of Westpeak Global Advisors, joined the company in October 1999. Prior to joining Westpeak, he was a Principal at Mercer Investment Consulting, Inc. from June 1996 through September 1999. Mr. Anichini received a B.S. from the University of Illinois and an M.B.A. from the University of Chicago. He holds the designation of Chartered Financial Analyst and has over 11 years of investment experience. Floyd J. Bellman Floyd J. Bellman has co-managed the Select Fund since its inception. Since February 2000, he has also assisted in managing the Harris Associates segment of CDC Nvest Star Value Fund. Mr. Bellman, Vice President of the Investment Advisory Department and Partner of Harris Associates, joined the firm in 1995. He received a BBA in Finance from the University of Wisconsin-Whitewater. Mr. Bellman holds the designation of Chartered Financial Analyst and has over 22 years of investment experience. William R. Berger William R. Berger co-manages the Large Cap Growth Fund having previously co-managed the Fund from July 2001 to November 2002. He also co-manages Vaughan Nelson's segment of the CDC Nvest Star Growth Fund. Mr. Berger, Senior Portfolio Manager, joined the firm in 1998. Prior to joining Vaughan Nelson, he was Vice President and Portfolio Manager at Securities Management and Research, Inc. from 1993 through 1998. Mr. Berger received a B.S. from Miami University (Ohio) and an M.B.A. from the Wharton School at the University of Pennsylvania. He holds the designation of Chartered Financial Analyst and Certified Public Accountant. Mr. Berger has over 14 years of investment management experience. Margaret M. Buescher Margaret M. Buescher has served as co-manager of the Large Cap Value Fund from June 1999 to August 2000, as sole manager from September 2000 to October 2002 and as co-manager thereafter. She also co-manages Vaughan Nelson's segment of the CDC Nvest Star Value Fund. Ms. Buescher, Senior Portfolio Manager of Vaughan Nelson, joined the company in 1994. Ms. Buescher received a B.A. from Vanderbilt University. She holds the designation of Chartered Financial Analyst and has over 27 years of investment experience. Guy R. Elliffe Guy R. Elliffe has co-managed the Jurika & Voyles Relative Value Fund since commencement of operations. He also serves as co-portfolio manager on the value component of the equity portion of the CDC Nvest Balanced Fund. Mr. Elliffe, Senior Vice President, Principal and Director of Research of Jurika & Voyles, joined the company in 1995. Mr. Elliffe received a B.A. from the University of Otago (New Zealand) and a Certificate of Finance and Investment from the Institute of Actuaries in London. He holds the designation of Chartered Financial Analyst and has over 22 years of investment experience. Robert A. Franz Robert A. Franz is a member of the portfolio team that manages the Capital Growth Fund. He is also a member of the team that manages Westpeak's segment of the CDC Nvest Star Value and CDC Nvest Star Growth Funds. Mr. Franz is Principal and Chief Investment Officer of Westpeak Global Advisors, which he joined in 1991. He received a B.A. from Pomona College and has over 18 years of investment experience. Brian A. Grove Brian A. Grove co-manages the Large Cap Growth Fund. He also co-manages Vaughan Nelson's segment of the CDC Nvest Star Growth Fund. Mr. Grove, Senior Portfolio Manager of Vaughan Nelson, joined the firm in 1997. Mr. Grove received a B.A. and an M.B.A. from Vanderbilt University and a J.D. from the University of Houston and is a member of the Texas Bar. He holds the designation of Chartered Financial Analyst and has over 19 years of investment management experience. G. Kenneth Heebner G. Kenneth Heebner has managed the Targeted Equity Fund since 1976. Mr. Heebner currently serves as senior portfolio manager of CGM, which he co-founded in 1989. Mr. Heebner received a B.S. from Amherst College and an M.B.A. from Harvard Business School. He holds the designation of Chartered Financial Analyst and is a 37-year veteran of the investment industry. Eric R. Hull Eric R. Hull has co-managed Jurika & Voyles Relative Value Fund since commencement of operations. He also serves as co-portfolio manager on the value component of the equity portion of the CDC Nvest Balanced Fund. Mr. Hull, Senior Vice President, Principal and Senior Research Analyst of Jurika & Voyles, joined the company in 1994. Mr. Hull received a B.S. in Business Administration from the University of California at Berkeley. He holds the designation of Chartered Financial Analyst and has over 17 years of investment experience. Robert M. Levy Robert M. Levy serves as portfolio manager to the Growth and Income Fund. He also co-manages the Harris segment of the CDC Nvest Star Value Fund. Mr. Levy is Partner, President and Chief Investment Officer of Harris Associates, which he joined in 1985. Mr. Levy received a B.A. from Vanderbilt University and an M.B.A. from the Wharton School of Business at the University of Pennsylvania. He holds the designation of Chartered Financial Analyst and has over 25 years of investment experience. Edward S. Loeb Edward S. Loeb serves as portfolio manager to the Growth and Income Fund. Mr. Loeb, Partner and Director of Institutional Portfolios of Harris Associates, joined the firm in 1989. Mr. Loeb received an M.B.A. from Northwestern University and a B.A. from Princeton University. He holds the designation of Chartered Financial Analyst and has over 13 years of investment experience. Michael J. Mangan Michael J. Mangan serves as portfolio manager to the Growth and Income Fund. Mr. Mangan, Portfolio Manager of Harris Associates, joined the firm in 1997. Prior to joining Harris Associates, Mr. Mangan was a Portfolio Manager with Stein Roe & Farnam from 1988 - 1997. Mr. Mangan received a B.B.A. from the University of Iowa and an M.B.A. from Northwestern University. He is a CPA, holds the designation of Chartered Financial Analyst and has over 13 years of investment management experience. Eswar Menon Eswar Menon serves as co-portfolio manager for the International Equity Fund, concentrating on emerging markets. He also co-manages the Loomis Sayles' segment of the CDC Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles Worldwide Fund, Loomis Sayles International Equity Fund, and Loomis Sayles Emerging Markets Fund and leads a team of managers responsible for the management of the International segment of the Loomis Sayles Global Technology Fund. Mr. Menon, Vice President of Loomis Sayles, joined the company in 1999. Prior to joining Loomis Sayles, Mr. Menon was the Portfolio Manager for Emerging Countries at Nicholas Applegate Capital Management from 1995 until 1999. Mr. Menon received an M.B.A. from the University of Chicago, an M.S. from the University of California, and a B.S. from Indian Institute of Technology, Madras, India. He has over 13 years of investment experience. Nicholas E. Moore Nicholas E. Moore has co-managed Jurika & Voyles Relative Value Fund since commencement of operations. He also serves as co-portfolio manager on the value component of the equity portion of the CDC Nvest Balanced Fund. Mr. Moore, Senior Vice President, Principal and Senior Research Analyst of Jurika & Voyles, joined the company in June 1998. Prior to joining Jurika & Voyles, Mr. Moore was Vice President and Portfolio Manager at Orbitex Management from January until June 1998. Prior to that he served as portfolio manager for the Franklin Templeton Group from 1986 until January 1998. Mr. Moore received a B.A. from Menlo College in California. He has over 17 years of investment experience. Alexander Muromcew Alexander Muromcew serves as co-portfolio manager for the International Equity Fund, concentrating on Asian markets. Mr. Muromcew, Vice President of Loomis Sayles, joined the company in 1999. He also co-manages the Loomis Sayles segment of the CDC Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles Emerging Markets Fund. Prior to joining Loomis Sayles, Mr. Muromcew was a portfolio manager at Nicholas Applegate Capital Management since 1996. He received an M.B.A. from Stanford University and a B.A. from Dartmouth College and has over 12 years of investment experience. William C. Nygren William C. Nygren has co-managed the Select Fund since its inception. He has also managed Oakmark Select Fund since 1996 and the Oakmark Fund since 2000. Mr. Nygren, Portfolio Manager and Partner, joined Harris Associates in 1983 as an analyst and also served as Director of Research from September 1990 to March 1998. He received an M.S. in Finance from the University of Wisconsin and a B.S. in Accounting from the University of Minnesota. Mr. Nygren has over 21 years of investment management experience. Mark J. Roach Mark J. Roach has served as co-portfolio manager of the Large Cap Value Fund since November 2002. He also serves as co-portfolio manager of the CDC Nvest Star Value Fund. Mr. Roach, a Portfolio Manager of Vaughan Nelson, joined the firm in 2002. Prior to joining the Vaughan Nelson he was a Security Analyst for USAA Investment Management Company from 2001 to 2002, an Equity Analyst with Fifth Third Bank from 1999 to 2001 and a Senior Analyst with The Applied Finance Group, Ltd. from 1998 to 1999. Mr. Roach received a B.A. from Baldwin Wallace College and an M.B.A from the Universit of Chicago. He has over 11 years of investment management experience. Curt E. Rohrman Curt E. Rohrman has served as co-portfolio manager of the Large Cap Growth Fund since November 2002. He also serves as co-portfolio manager of Vaughan Nelson's segment of the CDC Nvest Star Growth Fund. Mr. Rohrman, a Senior Portfolio Manager of Vaughan Nelson, joined the firm in 2002. Prior to joining Vaughan Nelson he was a Portfolio Manager with USAA Investment Management Company from 1997 to 2002. Mr. Rohrman received a B.B.A. in finance and marketing from Texas Christian University and an M.B.A. in finance from the University of Texas at Austin. He holds the designation of Chartered Financial Analyst and has over 18 years of investment experience. John Tribolet John Tribolet serves as co-portfolio manager for the International Equity Fund, concentrating on European markets. He also co-manages the Loomis Sayles segment of the CDC Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles Emerging Markets Fund. Mr. Tribolet, Vice President of Loomis Sayles, joined the company in 1999. Prior to joining Loomis Sayles, Mr. Tribolet was a portfolio manager for European Equities at Nicholas Applegate Capital Management from 1997 until 1999. Mr. Tribolet received a B.S. from Columbia University. He has over 11 years of investment experience. Matthew A. Troxell Matthew A. Troxell has managed the AEW Real Estate Fund since its inception. Mr. Troxell joined AEW in 1994 and is a Principal of the company. Mr. Troxell, a member of the National Association of Real Estate Investment Trusts, received a B.A. from Tufts University. He holds the designation of Chartered Financial Analyst and has over 21 years of experience in investment analysis and portfolio management. Management Team Adviser and Subadviser Past Performance Information Adviser - AEW (AEW Composite) The returns shown below represent composite returns derived from performance data furnished by AEW relating to a group of private accounts managed by AEW Capital Management, L.P. (the "AEW Composite") with substantially similar investment objectives, strategies and policies as the CDC Nvest AEW Real Estate Fund. (AEW is a limited partnership that is a controlled affiliate of AEW Capital Management, L.P. and a subsidiary of CDC IXIS North America.) Matthew Troxell, CDC Nvest AEW Real Estate Fund's portfolio manager, has been the lead manager for the accounts underlying the AEW Composite since July 1999. The accounts underlying the AEW Composite have not been subject to the same types of expenses to which the CDC Nvest AEW Real Estate Fund is subject nor to the diversification requirements, investment limitations and other restrictions to which the Fund is subject under the Investment Company Act of 1940 and the Internal Revenue Code. The AEW Composite's performance results may have been less favorable had they been subject to these expenses or restrictions or to other restrictions applicable to investment companies under relevant laws. In addition, the CDC Nvest AEW Real Estate Fund may be subject to more frequent inflows and outflows of assets than the accounts underlying the AEW Composite, which may negatively impact performance. The information regarding the performance of the AEW Composite does not represent CDC Nvest AEW Real Estate Fund's performance. Such information should not be considered a prediction of the future performance of the Fund. CDC Nvest AEW Real Estate Fund commenced operations on September 1, 2000 and has the historical performance record shown on page ____. The table below shows the average annual total return of the AEW Composite for the one-year period ended December 31, 2002 and for the period from July 1, 1999 through December 31, 2002. The AEW Composite returns are also compared against the Morgan Stanley REIT Index. The past performance data for the AEW Composite has been adjusted to reflect the aggregate management fees and other expenses actually paid by the accounts underlying the AEW Composite and assumes the reinvestment of all dividends and distributions. The fees and expenses paid by CDC Nvest AEW Real Estate Fund are higher than the aggregate fees and expenses paid by the accounts underlying the AEW Composite. The performance of the AEW Composite would have been lower than that shown below if it had been subject to the fees and expenses of CDC Nvest AEW Real Estate Fund. Average Annual Total Returns (1) (for the period ended December 31, 2002) - -------------------------------------------------------------------------------- 1 Year Since July 1, 1999 - -------------------------------------------------------------------------------- AEW Composite _____% _____% - -------------------------------------------------------------------------------- Morgan Stanley REIT Index _____% _____% - -------------------------------------------------------------------------------- (1) The AEW Composite consists of all client accounts whose portfolios were managed by Matthew Troxell at AEW Capital Management, L.P. for the one-year period ending December 31, 2002 and for the period from July 1, 1999 until December 31, 2002 using investment policies and strategies substantially similar to those that are used to manage CDC Nvest AEW Real Estate Fund. The average annual total return for the AEW Composite was calculated using a time-weighted rate of return which differs in part from the prescribed formula used by mutual funds to calculate their returns. The Morgan Stanley REIT Index is a market capitalization-weighted, unmanaged, total-return index of REITs that meet certain liquidity requirements. The index was designed to track the total-return performance of a broad group of REIT stocks assuming dividend reinvestment in the index. You cannot invest directly in an index. The Morgan Stanley REIT Index returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments. Subadviser - Harris Associates (Harris Large Cap Value Composite) The returns shown below represent the returns derived from performance data furnished by Harris Associates relating to a group of accounts advised by Harris Associates with substantially similar investment objectives, strategies and policies as CDC Nvest Growth and Income Fund (the "Harris Large Cap Value Composite"). The accounts underlying the Harris Large Cap Value Composite have not been subject to the same types of expenses to which CDC Nvest Growth and Income Fund is subject nor to the diversification requirements, investment limitations and other restrictions to which the Fund is subject under the Investment Company Act of 1940 and the Internal Revenue Code. The Harris Large Cap Value Composite's performance results may have been less favorable had they been subject to these expenses or restrictions or to other restrictions applicable to investment companies under relevant laws. In addition, the Fund may be subject to more frequent inflows and outflows of assets than the accounts underlying the Harris Large Cap Value Composite, which may negatively impact performance. The information regarding the performance of the Harris Large Cap Value Composite does not represent CDC Nvest Growth and Income Fund's performance. Such information should not be considered a prediction of the future performance of the Fund. CDC Nvest Growth and Income Fund commenced operations on May 6, 1931, and has the historical performance record shown on page ____. Harris Associates did not become the CDC Nvest Growth and Income Fund's subadviser until July 1, 2002. The table below shows the average annual total returns for the Harris Large Cap Value Composite for one year and since its inception. The Harris Large Cap Value Composite returns are also compared against the S&P 500 Index and the Russell 1000 Value Index. The past performance data for the Harris Large Cap Value Composite has been adjusted to reflect the aggregate management fees and other expenses actually paid by the accounts underlying the Harris Large Cap Value Composite and assumes the reinvestment of all dividends and distributions. The fees and expenses paid by CDC Nvest Growth and Income Fund are higher than the aggregate fees and expenses paid by the accounts underlying the Harris Large Cap Value Composite. The performance of the Harris Large Cap Value Composite would have been lower than that shown below if they had been subject to the fees and expenses of CDC Nvest Growth and Income Fund. Average Annual Total Returns (1) 1 Year Since Inception ------ --------------- (for the period ended December 31, 2002) Harris Large Cap Value Composite ____% ____%(2) Russell 1000 Value Index ____% ____%(2) S&P 500 Index ____% ____%(2) (1) Average Annual Total Returns: The Harris Large Cap Value Composite consists of all client accounts whose portfolios are managed using investment policies and strategies substantially similar to those that will be used to manage CDC Nvest Growth and Income Fund. The Russell 1000 Value Index is a subset of stocks from the larger Russell 1000 Index, selected for their greater value orientation. The S&P 500 Index is a commonly used benchmark of U.S. equity securities. The indices are unmanaged, have no operating costs, and are included in the table to facilitate your comparison of the Harris Large Cap Value Composite's performance to broad-based market indices. These comparative indices' returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. (2) As of inception of the Harris Large Cap Value Composite, July 1, 1998. Subadviser - Harris Associates (Harris Concentrated Accounts) The returns shown below represent the returns derived from performance data furnished by Harris Associates relating to a mutual fund (the "Oakmark Select Fund") and a group of accounts (the "Harris Associates Concentrated Composite" and, together with the Oakmark Select Fund, the "Harris Concentrated Accounts") advised by Harris Associates with substantially similar investment objectives, strategies and policies as CDC Nvest Select Fund. The Harris Concentrated Accounts, and in particular, the accounts underlying the Harris Associates Concentrated Composite, have not been subject to the same types of expenses to which CDC Nvest Select Fund is subject. In addition, the accounts underlying the Harris Associates Concentrated Composite have not been subject to the diversification requirements, investment limitations and other restrictions to which CDC Nvest Select Fund is subject under the Investment Company Act of 1940 and the Internal Revenue Code. The Harris Concentrated Accounts' performance results may have been less favorable had they been subject to these expenses or restrictions or, in the case of the accounts underlying the Harris Associates Concentrated Composite, to other restrictions applicable to investment companies under relevant laws. In addition, CDC Nvest Select Fund may be subject to more frequent inflows and outflows of assets than the Harris Concentrated Accounts, which may negatively impact performance. The information regarding the performance of the Harris Concentrated Accounts does not represent CDC Nvest Select Fund's performance. Such information should not be considered a prediction of the future performance of the Fund. CDC Nvest Select Fund commenced operations on March 15, 2001, and has the historical performance record shown on page ___. The table below shows the average annual total returns for the accounts underlying the Harris Associates Concentrated Composite and the Oakmark Select Fund for one year, five years and ten years or since inception if shorter. The Harris Concentrated Accounts are also compared against the S&P 500 Index, the Morningstar Mid Cap Value Average and the Lipper Multicap Value Average. The past performance data for the Harris Concentrated Accounts has been adjusted to reflect the management fees and other expenses actually paid by the Harris Concentrated Accounts and assumes the reinvestment of all dividends and distributions. The fees and expenses paid by CDC Nvest Select Fund will be higher than the fees and expenses paid by the Harris Concentrated Accounts. The performance of the Harris Concentrated Accounts would have been lower than that shown below if they had been subject to the fees and expenses of CDC Nvest Select Fund. Average Annual Total Returns (1) For the period ending December 31, 2002
1 Year 5 Years 10 Years Since Inception ------ ------- -------- --------------- Harris Associates Concentrated Composite _____% _____% ____% ____%(2) S&P 500 Index ____% _____% _____% _____%(2) Morningstar Mid Cap Value Average ____% ____% _____% _____%(2) Lipper Multicap Value Average _____% _____% _____% _____%(2) Oakmark Select Fund _____% _____% -- _____%(3) S&P 500 Index _____% _____% -- _____%(3) Morningstar Mid Cap Value Average _____% _____% -- _____%(3) Lipper Multicap Value Average ____% ____% -- _____%(3)
(1) Average Annual Total Returns: The Harris Concentrated Accounts consist of all client accounts whose portfolios are managed using investment policies and strategies substantially similar to those that will be used to manage CDC Nvest Select Fund. The S&P 500 Index is a commonly used benchmark of U.S. equity securities. The index is unmanaged, has no operating costs, and is included in the table to facilitate your comparison of the Harris Concentrated Accounts' performance to a broad-based market index. The S&P 500 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. The Morningstar Mid Cap Value and Lipper Multicap Value Averages are each an average of the total returns of mutual funds with an investment style similar to that of the CDC Nvest Select Fund as calculated by Morningstar, Inc. and Lipper, Inc. The Morningstar Mid Cap Value and Lipper Multicap Value Average returns have been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments but do not reflect any sales charges. (2) As of inception of the Harris Associates Concentrated Composite, January 1, 1991. (3) As of inception of the Oakmark Select Fund, November 1, 1996. Fund Services Investing in the Funds Choosing a Share Class Each Fund offers Classes A, B and C shares to the public. Each class has different costs associated with buying, selling and holding Fund shares, which allows you to choose the class that best meets your needs. Which class is best for you depends upon the size of your investment and how long you intend to hold your shares. Class B shares, Class C shares and certain shareholder features may not be available to you if you hold your shares in a street name account. Your financial representative can help you decide which class of shares is most appropriate for you. Class A Shares o You pay a sales charge when you buy Fund shares. There are several ways to reduce this charge. See the section entitled "Ways to Reduce or Eliminate Sales Charges." o You pay lower annual expenses than Class B and Class C shares, giving you the potential for higher returns per share. o You do not pay a sales charge on orders of $1 million or more, but you may pay a charge on redemption if you redeem these shares within 1 year of purchase. Class B Shares o You do not pay a sales charge when you buy Fund shares. All of your money goes to work for you right away. o You pay higher annual expenses than Class A shares. o You will pay a charge on redemptions if you sell your shares within 6 years of purchase, as described in the section entitled "How Sales Charges Are Calculated." o Your Class B shares will automatically convert into Class A shares after 8 years, which reduces your annual expenses. o Investors purchasing $1 million or more of Class B shares may want to consider the lower operating expense of Class A shares. You may pay a charge on redemption if you redeem Class A shares within 1 year of purchase. Class C Shares o You pay a sales charge when you buy Fund shares. There are several ways to reduce this charge. See the section entitled "Ways to Reduce or Eliminate Sales Charges." o You pay higher annual expenses than Class A shares. o You will pay a charge on redemptions if you sell your shares within 1 year of purchase. o Your Class C shares will not automatically convert into Class A shares. If you hold your shares for longer than 8 years, you'll pay higher expenses than shareholders of other classes. o Investors purchasing $1 million or more of Class C shares may want to consider the lower operating expense of Class A shares. You may pay a charge on redemption if you redeem Class A shares within 1 year of purchase. For past expenses of Classes A, B and C shares, see the section entitled "Fund Fees & Expenses" in this Prospectus. Certificates Certificates will not be issued automatically for any class of shares. Upon written request, you may receive certificates for Class A shares only. Fund Services How Sales Charges Are Calculated Class A Shares The price that you pay when you buy Class A shares (the "offering price") is their net asset value plus a sales charge (sometimes called a "front-end sales charge") which varies depending upon the size of your purchase. Class A Sales Charges Your Investment As a % of offering price As a % of your investment - -------------------------------------------------------------------------------- Less than $ 50,000 5.75% 6.10% - -------------------------------------------------------------------------------- $ 50,000 - $ 99,999 4.50% 4.71% - -------------------------------------------------------------------------------- $ 100,000 - $249,999 3.50% 3.63% - -------------------------------------------------------------------------------- $ 250,000 - $499,999 2.50% 2.56% - -------------------------------------------------------------------------------- $ 500,000 - $999,999 2.00% 2.04% - -------------------------------------------------------------------------------- $1,000,000 or more* 0.00% 0.00% - -------------------------------------------------------------------------------- * For purchases of Class A shares of the Fund of $1 million or more or purchases by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal Revenue Code with investments of $1 million or more or that have 100 or more eligible employees), there is no front-end sales charge, but a CDSC of 1.00% may apply to redemptions of your shares within one year of the date of purchase. See the section entitled "Ways to Reduce or Eliminate Sales Charges." Class B Shares The offering price of Class B shares is their net asset value, without a front-end sales charge. However, there is a CDSC on shares that you sell within 6 years of buying them. The amount of the CDSC, if any, declines each year that you own your shares. The holding period for purposes of timing the conversion to Class A shares and determining the CDSC will continue to run after an exchange to Class B shares of another CDC Nvest Fund. The CDSC equals the following percentages of the dollar amounts subject to the charge: --------------------------------------------------------- Class B Contingent Deferred Sales Charges --------------------------------------------------------- Year Since Purchase CDSC on Shares Being Sold --------------------------------------------------------- 1st 5.00% --------------------------------------------------------- 2nd 4.00% --------------------------------------------------------- 3rd 3.00% --------------------------------------------------------- 4th 3.00% --------------------------------------------------------- 5th 2.00% --------------------------------------------------------- 6th 1.00% --------------------------------------------------------- thereafter 0.00% --------------------------------------------------------- Class C Shares The offering price of Class C shares is their net asset value, plus a front-end sales charge of 1.00% (1.01% of your investment). Class C shares are also subject to a CDSC of 1.00% on redemptions made within one year of the date of purchase. The holding period for determining the CDSC will continue to run after an exchange to Class C shares of another CDC Nvest Fund. --------------------------------------------------------- Class C Contingent Deferred Sales Charges --------------------------------------------------------- Year Since Purchase CDSC on Shares Being Sold --------------------------------------------------------- 1st 1.00% --------------------------------------------------------- thereafter 0.00% --------------------------------------------------------- Accounts established in other CDC Nvest Funds prior to December 1, 2000, will not be subject to the 1.00% front-end sales charge for exchange or additional purchases of Class C shares. How the CDSC Is Applied to Your Shares The CDSC is a sales charge you pay when you redeem certain Fund shares. The CDSC: o is calculated based on the number of shares you are selling; o is based on either your original purchase price or the current net asset value of the shares being sold, whichever is lower; o is deducted from the proceeds of the redemption, not from the amount remaining in your account; and o for year one applies to redemptions through the day that is one year after the date on which your purchase was accepted, and so on for subsequent years. A CDSC will not be charged on: o increases in net asset value above the purchase price; or o shares you acquired by reinvesting your dividends or capital gains distributions. To keep your CDSC as low as possible, each time that you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these shares available to meet your request, we will sell the shares with the lowest CDSC. Exchanges into Shares of the Money Market Funds If you exchange shares of a Fund into shares of a Money Market Fund, the holding period for purposes of determining the CDSC and conversion into Class A shares stops until you exchange back into shares of another CDC Nvest Fund. If you choose to redeem those Money Market Fund shares, a CDSC may apply. Fund Services Ways to Reduce or Eliminate Sales Charges Class A Shares Reducing Sales Charges There are several ways you can lower your sales charge for Class A shares (described in the chart on the previous page), including: o Letter of Intent -- allows you to purchase Class A shares of any CDC Nvest Fund over a 13-month period but pay sales charges as if you had purchased all shares at once. This program can save you money if you plan to invest $50,000 or more over 13 months. Purchases of Class B and Class C shares may be used toward meeting the letter of intent. o Combining Accounts -- allows you to combine shares of multiple CDC Nvest Funds and classes for purposes of calculating your sales charge. You may combine your purchases with those of qualified accounts of a spouse, parents, children, siblings, grandparents, grandchildren, in-laws, individual fiduciary accounts, sole proprietorships, single trust estates and any other group of individuals acceptable to the Distributor. These privileges do not apply to the SIMPLE IRAs, or to Money Market Funds unless shares are purchased through an exchange from another CDC Nvest Fund. Class A or Class C Shares Eliminating Sales Charges and CDSCs Class A shares may be offered without front-end sales charges or a CDSC, and Class C shares may be offered without a front-end sales charge, to the following individuals and institutions: o Any government entity that is prohibited from paying a sales charge or commission to purchase mutual fund shares; o Selling brokers, sales representatives, registered investment advisers, financial planners or other intermediaries under arrangements with the Distributor; o Fund Trustees and other individuals who are affiliated with any CDC Nvest Fund or Money Market Fund (this also applies to any spouse, parents, children, siblings, grandparents, grandchildren and in-laws of those mentioned); o Participants in certain Retirement Plans with at least 100 eligible employees (one-year CDSC may apply); o Non-discretionary and non-retirement accounts of bank trust departments or trust companies only if they principally engage in banking or trust activities; and o Investments of $25,000 or more in CDC Nvest Funds or Money Market Funds by clients of an adviser or subadviser to any CDC Nvest Fund or Money Market Fund. Repurchasing Fund Shares You may apply proceeds from redeeming Class A or Class C shares of the Funds (without paying a front-end sales charge) to repurchase Class A or Class C shares, respectively, of any CDC Nvest Fund. To qualify, you must reinvest some or all of the proceeds within 120 days after your redemption and notify CDC Nvest Funds or your financial representative at the time of reinvestment that you are taking advantage of this privilege. You may reinvest your proceeds either by returning the redemption check or by sending a new check for some or all of the redemption amount. Please note: for federal income tax purposes, a redemption is a sale that involves tax consequences, even if the proceeds are later reinvested. Please consult your tax adviser to discuss how a redemption would affect you. If you repurchase Class A shares of $1 million or more within 30 days after you redeem such shares, the Distributor will rebate the amount of the CDSC charged on the redemption. Classes A, B or C Shares Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for any share class will generally be eliminated in the following cases: o to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); o to make payments through a systematic withdrawal plan; or o due to shareholder death or disability. If you think you may be eligible for a sales charge elimination or reduction, contact your financial representative or CDC Nvest Funds. Check the Statement of Additional Information (the "SAI") for details. Fund Services It's Easy to Open an Account To Open an Account with CDC Nvest Funds: 1. Read this Prospectus carefully. 2. Determine how much you wish to invest. The following chart shows the investment minimums for various types of accounts:
- ------------------------------------------------------------------------------------------------------------------------------------ Type of Account Minimum to Open Minimum to Open an Account Using Minimum Existing an Account Investment Builder or Payroll Deduction for Accounts - ------------------------------------------------------------------------------------------------------------------------------------ Any account other than those listed below $2,500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------------------ Accounts registered under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to Minors Act ("UTMA") $2,500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------------------ Individual Retirement Accounts ("IRAs") $500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------------------ Coverdell Education Savings Accounts $500 $25 $100 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement plans with tax benefits such as corporate pension, profit sharing and Keogh plans $250 $25 $100 - ------------------------------------------------------------------------------------------------------------------------------------ Payroll Deduction Investment Programs for SARSEP*, SEP, SIMPLE IRA, 403(b)(7) and certain other retirement plans $25 N/A $25 - ------------------------------------------------------------------------------------------------------------------------------------
*Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP plans established prior to January 1, 1997, may remain active and continue to add new employees. 3. Complete the appropriate parts of the account application, carefully following the instructions. If you have any questions, please call your financial representative or CDC Nvest Funds at 800-225-5478. For more information on CDC Nvest Funds' investment programs, refer to the section entitled "Additional Investor Services" in this Prospectus. 4. Use the following sections as your guide for purchasing shares. Self-Servicing Your Account Buying or selling shares is easy with the services described below: CDC Nvest Funds Personal Access Line(R) 800-225-5478, press 1 CDC Nvest Funds Web Site www.cdcnvestfunds.com You have access to your account 24 hours a day by calling the Personal Access Line(R) from a touch-tone telephone or by visiting us online. Using these customer service options, you may: o purchase, exchange or redeem shares in your existing accounts (certain restrictions may apply); o review your account balance, recent transactions, Fund prices and recent performance; o order duplicate account statements; and o obtain tax information. Please see the following pages for other ways to buy, exchange or sell your shares. Fund Services Buying Shares
Opening an Account Adding to an Account Through Your Investment Dealer o Call your investment dealer for information about opening or adding to an account. By Mail o Make out a check in U.S. dollars o Make out a check in U.S. for the investment amount, dollars for the investment payable to "CDC Nvest Funds." amount, payable to "CDC Nvest Third party checks and "starter" Funds." Third party checks and checks will not be accepted. "starter" checks will not be accepted. o Mail the check with your o Fill out the investment slip [envelope icon] completed application to CDC from an account statement or Nvest Funds, P.O. Box 8551, include a letter specifying the Boston, MA 02266-8551. Fund name, your class of shares, your account number and the registered account name(s). By Exchange (See the section entitled "Exchanging Shares" for more details.) o Obtain a current prospectus for o Call your investment dealer or [exchange icon] the Fund into which you are CDC Nvest Funds at 800-225-5478 or exchanging by calling your visit www.cdcnvestfunds.com to investment dealer or CDC Nvest request an exchange. Funds at 800-225-5478. o Call your investment dealer or CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. By Wire o Call CDC Nvest Funds at o Visit www.cdcnvestfunds.com to 800-225-5478 to obtain an account add shares to your account by wire. number and wire transfer Instruct your bank to transfer funds instructions. Your bank may to State Street Bank & Trust Company, [wire icon] charge you for such a transfer. ABA# 011000028, and DDA # 99011538. o Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer. Through Automated Clearing House ("ACH") o Ask your bank or credit union o Call CDC Nvest Funds at whether it is a member of the 800-225-5478 or visit [ACH icon] ACH system. www.cdcnvestfunds.com to add shares to your account through ACH. o Complete the "Bank Information" o If you have not signed up for section on your account the ACH system, please call CDC Nvest application. Funds or visit www.cdcnvestfunds.com for a Service Options Form. o Mail your completed application to CDC Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551. Automatic Investing Through Investment Builder o Indicate on your application o Please call CDC Nvest Funds at [builder icon] that you would like to begin an 800-225-5478 or visit automatic investment plan through www.cdcnvestfunds.com for a Service Investment Builder and the amount Options Form. A signature guarantee of the monthly investment ($25 may be required to add this privilege. minimum). o Include a check marked "Void" or o See the section entitled a deposit slip from your bank "Additional Investor Services." account.
Fund Services Selling Shares To Sell Some or All of Your Shares Certain restrictions may apply. See section entitled "Restrictions on Buying, Selling and Exchanging Shares." Through Your Investment Dealer o Call your investment dealer for information. By Mail o Write a letter to request a redemption. Specify the name of your Fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section entitled "Selling Shares in Writing." [envelope icon] o The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. o Mail your request by regular mail to CDC Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551, or by registered, express or certified mail to CDC Nvest Funds, 66 Brooks Drive, Braintree, MA 02184. o Your proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you on the business day after the request is received in good order. By Exchange (See the section entitled "Exchanging Shares" for more details.) o Obtain a current prospectus for the Fund into which you are exchanging by calling your investment dealer or CDC Nvest Funds at 800-225-5478. [exchange icon] o Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. By Wire o Complete the "Bank Information" section on your account application. [wire icon] o Call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com or indicate in your redemption request letter (see above) that you wish to have your proceeds wired to your bank. o Proceeds (less any applicable CDSC) will generally be wired on the next business day. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. Through Automated Clearing House o Ask your bank or credit union whether it is a member of the ACH system. o Complete the "Bank Information" section on your account application. [ACH icon] o If you have not signed up for the ACH system on your application, please call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com for a Service Options Form. o Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an ACH redemption. o Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days. By Telephone o Call CDC Nvest Funds at 800-225-5478 [telephone icon] to choose the method you wish to use to redeem your shares. You may receive your proceeds by mail, by wire or through ACH (see above). By Systematic Withdrawal Plan (See the section entitled "Additional Investor Services" for more details.) o Call CDC Nvest Funds at 800-225-5478 or your financial representative for more information. [systematic icon] o Because withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. Fund Services Selling Shares in Writing If you wish to redeem your shares in writing, all owners of the shares must sign the redemption request in the exact names in which the shares are registered and indicate any special capacity in which they are signing. In certain situations, you will be required to make your request to sell shares in writing. In these instances, a letter of instruction signed by the authorized owner is necessary. In certain situations, we also may require a signature guarantee or additional documentation. A signature guarantee protects you against fraudulent orders and is necessary if: o your address of record has been changed within the past 30 days; o you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; o a proceeds check for any amount is either mailed to an address other than the address of record or not payable to the registered owner(s); or o the proceeds are sent by check, wire, or in some circumstances ACH to a bank account other than a previously established bank on file. A notary public cannot provide a signature guarantee. A signature guarantee can be obtained from one of the following sources: o a financial representative or securities dealer; o a federal savings bank, cooperative, or other type of bank; o a savings and loan or other thrift institution; o a credit union; or o a securities exchange or clearing agency. The table below shows some situations in which additional documentation may be necessary. Please call your financial representative or CDC Nvest Funds regarding requirements for other account types.
Seller (Account Type) Requirements for Written Requests Qualified retirement benefit plans (except CDC Nvest Funds o The request must include the signatures of all those prototype documents) authorized to sign, including title. o Signature guarantee, if applicable (see above). Individual Retirement Accounts o Additional documentation and distribution forms may be required. Individual, joint, sole proprietorship, UGMA/UTMA o The request must include the signatures of all (minor accounts) persons authorized to sign, including title, if applicable. o Signature guarantee, if applicable (see above). o Additional documentation may be required. Corporate or association accounts o The request must include the signatures of all persons authorized to sign, including title. Owners or trustees of trust accounts o The request must include the signatures of all trustees authorized to sign, including title. o If the names of the trustees are not registered on the account, please provide a copy of the trust document certified within the past 60 days. o Signature guarantee, if applicable (see above). Joint tenancy whose co-tenants are deceased o The request must include the signatures of all surviving tenants of the account. o Copy of the death certificate. o Signature guarantee if proceeds check is issued to other than the surviving tenants. Power of Attorney (POA) o The request must include the signatures of the attorney-in-fact, indicating such title. o A signature guarantee. o Certified copy of the POA document stating it is still in full force and effect, specifying the exact Fund and account number, and certified within 30 days of receipt of instructions.* Executors of estates, administrators, o The request must include the signatures of all those guardians, conservators authorized to sign, including capacity. o A signature guarantee. o Certified copy of court document where signer derives authority, e.g., Letters of Administration, Conservatorship and Letters Testamentary.*
* Certification may be made on court documents by the court, usually certified by the clerk of the court. Power of Attorney certification may be made by a commercial bank, broker/member of a domestic stock exchange or a practicing attorney. Fund Services Exchanging Shares In general, you may exchange shares of your Fund for shares of the same class of another CDC Nvest Fund without paying a sales charge or a CDSC (see the sections entitled "Buying Shares" and "Selling Shares"). The exchange must be for the minimum to open an account (or the total net asset value of your account, whichever is less), or $100 if made under the Automatic Exchange Plan (see the section entitled "Additional Investor Services"). All exchanges are subject to the eligibility requirements of the CDC Nvest Fund or Money Market Fund into which you are exchanging and any other limits on sales of or exchanges into that Fund. The exchange privilege may be exercised only in those states where shares of the Funds may be legally sold. For federal income tax purposes, an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund is generally treated as a sale on which gain or loss may be recognized. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Before requesting an exchange into any other CDC Nvest Fund or Money Market Fund, please read its prospectus carefully. Please refer to the SAI for more detailed information on exchanging Fund shares. Restrictions on Buying, Selling and Exchanging Shares Purchase and Exchange Restrictions Although the Funds do not anticipate doing so, they reserve the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any purchase or exchange order by a particular purchaser (or group of related purchasers) if the transaction is deemed harmful to the best interests of the Fund's other shareholders or would disrupt the management of the Fund. Each Fund and the Distributor reserve the right to restrict purchases and exchanges for the accounts of "market timers" by limiting the transaction to a maximum dollar amount. An account will be deemed to be one of a market timer if: (i) more than two exchange purchases of a given Fund are made for the account in a calendar quarter or (ii) the account makes one or more exchange purchases of a given Fund in a calendar quarter in an aggregate amount in excess of 1% of the Fund's total net assets. Selling Restrictions The table below describes restrictions placed on selling shares of any Fund described in this Prospectus:
Restriction Situation The Fund may suspend the right of redemption or postpone payment for o When the New York Stock Exchange (the "Exchange") is more than 7 days: closed (other than a weekend/holiday) o During an emergency o Any other period permitted by the SEC The Fund reserves the right to suspend account services or refuse o With a notice of a dispute between registered owners transaction requests: o With suspicion/evidence of a fraudulent act The Fund may pay the redemption price in whole or in part by a o When it is detrimental for a Fund to make cash payment distribution in kind of readily marketable securities in lieu of determined in the sole discretion of the adviser or cash or may take up to 7 days to pay a redemption request in order subadviser to raise capital: The Fund may withhold redemption proceeds until the check or funds o When redemptions are made within 10 calendar days of have cleared: purchase by check or ACH of the shares being redeemed
If you hold certificates representing your shares, they must be sent with your request for it to be honored. It is recommended that certificates be sent by registered mail. Small Account Redemption When your Fund account falls below a set minimum (currently $2,000) as set by the Board of Trustees from time to time, the Fund may close your account and send you the proceeds or may charge a fee. You will have 30 days after being notified of the Fund's intention to close your account or charge a fee to increase its amount to the set minimum. This does not apply to certain qualified retirement plans or accounts that have fallen below the minimum solely because of fluctuations in the Fund's net asset value per share. Fund Services How Fund Shares Are Priced "Net asset value" is the price of one share of a Fund without a sales charge, and is calculated each business day using this formula: Net Asset Value = Total market value of securities + Cash and other assets - Liabilities ---------------------------------------------------------------------- Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule: o A share's net asset value is determined at the close of regular trading on the Exchange on the days the Exchange is open for trading. This is normally 4:00 p.m. Eastern time. Generally, a Fund's shares will not be priced on the days on which the Exchange is closed for trading. However, in CDC IXIS Advisers' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if CDC IXIS Advisers in its discretion determines that there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares. This may occur, for example, if the Exchange is closed but the NASDAQ Stock Market is open for trading. In addition, a Fund's shares will not be priced on the holidays listed in the SAI. See the section entitled "Net Asset Value and Public Offering Price" in the SAI for more details. o The price you pay for purchasing, redeeming or exchanging a share will be based upon the net asset value next calculated by each Fund's custodian (plus or minus applicable sales charges as described earlier in this Prospectus) after your order is received "in good order." o Requests received by the Distributor after the Exchange closes will be processed based upon the net asset value determined at the close of regular trading on the next day that the Exchange is open, with the exception that those orders received by your investment dealer before the close of the Exchange and received by the Distributor before 5:00 p.m. Eastern time* on the same day will be based on the net asset value determined on that day. o A Fund significantly invested in foreign securities may have net asset value changes on days when you cannot buy or sell its shares. *Under limited circumstances, the Distributor may enter into a contractual agreement pursuant to which it may accept orders after 5:00 p.m., but not later than 8:00 p.m. Generally, during times of substantial economic or market change, it may be difficult to place your order by phone. During these times, you may deliver your order in person to the Distributor or send your order by mail as described in the sections entitled "Buying Shares" and "Selling Shares." Generally, Fund securities are valued as follows: o Equity securities -- most recent sales or quoted bid price or as provided by a pricing service if a sales or quoted bid price is unavailable. o Debt securities (other than short-term obligations) -- based upon pricing service valuations, which determine valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. o Short-term obligations (remaining maturity of less than 60 days)-- amortized cost (which approximates market value). o Securities traded on foreign exchanges -- most recent sale/bid price on the non-U.S. exchange, unless the Fund believes that an occurrence after the close of the exchange will materially affect its value. In that case, it may be given fair value as determined by or pursuant to the procedures approved by the Board of Trustees at the time the Fund determines net asset value. o Options -- last sale price, or if not available, last offering price. o Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. o All other securities -- fair market value as determined by the adviser or subadviser of the Fund pursuant to procedures approved by the Board of Trustees. The effect of fair value pricing as described above for "Securities traded on foreign exchanges" and "All other securities" is that securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes actually reflects fair value. In unusual circumstances, instead of valuing securities in the usual manner, the Funds may value securities at fair value or estimate their value as determined in good faith by the Board of Trustees or persons acting at their direction pursuant to procedures approved by the Board of Trustees. Fair valuation may also be used by the Board of Trustees if extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. Fund Services Dividends and Distributions The Funds generally distribute most or all of their net investment income (other than capital gains) in the form of dividends. The following table shows when each Fund expects to distribute dividends. Each Fund expects to distribute all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. The Board of Trustees may adopt a different schedule as long as payments are made at least annually. Dividend Payment Schedule Annually Quarterly Capital Growth AEW Real Estate Growth and Income International Equity Jurika & Voyles Relative Value Jurika & Voyles Small Cap Growth Large Cap Growth Large Cap Value Select Targeted Equity Distributions will automatically be reinvested in shares of the same class of the distributing Fund at net asset value, unless you select one of the following alternatives: Participate in the Dividend Diversification Program, which allows you to have all dividends and distributions automatically invested at net asset value in shares of the same class of another CDC Nvest Fund registered in your name. Certain investment minimums and restrictions may apply. For more information about this program, see the section entitled "Additional Investor Services." Receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional shares of the same class of the Fund, or in the same class of another CDC Nvest Fund. Receive all distributions in cash. For more information or to change your distribution option, contact CDC Nvest Funds in writing or call 800-225-5478. If you earn more than $10 annually in taxable income from a CDC Nvest Fund held in a non-retirement plan account, you will receive a Form 1099 to help you report the prior calendar year's distributions on your federal income tax return. Be sure to keep this Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. Tax Consequences Each Fund intends to meet all requirements under Subchapter M of the Internal Revenue Code (the "Code") necessary to qualify for treatment as a "regulated investment company" and thus does not expect to pay any federal income tax on income and capital gains distributed to shareholders. Distributions derived from net short-term capital gains, i.e., gains from investments that a Fund held one year or less, or investment income are generally taxable at ordinary income rates. If you are a corporation investing in a Fund, a portion of these dividends may qualify for the dividends-received deduction provided that you meet certain holding period requirements. However, distributions by a Fund from REITs will not qualify for the corporate dividends-received deduction. In addition, distributions by the Fund to retirement plans that qualify for tax-exempt treatment under federal income tax laws generally will not be taxable. Distributions of gains from investments that a Fund owned for more than one year that are designated by a Fund as capital gain dividends will generally be taxable to a shareholder receiving such distributions as long-term capital gain, regardless of how long the shareholder has held Fund shares. Fund distributions paid to you are taxable whether you receive them in cash or reinvest them in additional shares. Distributions are taxable to you even if they are paid from income or gains earned by the Fund before your investment (and thus were included in the price you paid). Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized or realized but not distributed. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. We do not expect shareholders to be entitled to claim a credit or deduction with respect to foreign taxes. In addition, the Fund's investments in foreign securities or foreign currencies may increase or accelerate the Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Because the Fund invests in foreign securities, shareholders should consult their tax advisers about consequences of their investments under foreign laws. Dividends derived from interest on securities issued by the U.S. government or its agencies or instrumentalities may be exempt from state and local income taxes. AEW Real Estate Fund advises shareholders of the proportion of any Fund's dividends that are derived from such interest. A Fund's investments in certain debt obligations may cause that Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. REITs attempt to minimize their corporate tax costs by distributing at least 90% of their REIT taxable income to their interest holders. If a REIT failed to distribute such a percentage of its REIT taxable income or to satisfy the other requirements of REIT status, it would be taxed as a corporation, and amounts available for distribution to its shareholders (including AEW Real Estate, Jurika & Voyles Relative Value, Jurika & Voyles Small Cap Growth and Targeted Equity Funds) would be reduced by any corporate taxes payable by the REIT. Under current law, the Fund serves to block unrelated business taxable income ("UBTI") from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize UBTI by virtue of its investment in the Fund if either: (1) the Fund invests in REITs that hold residual interests in real estate mortgage conduits ("REMICs"); or (2) shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of the Code Section 514(b). If a charitable remainder trust (as defined in the Code Section 664) realizes any UBTI for a taxable year, it will lose its tax-exempt status for the year. The Fund may invest in REITs that hold residual interests in REMICs. The redemption, sale or exchange of Fund shares (including an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund) is a taxable event and may result in the recognition of a gain or loss. Gain or loss, if any, recognized on the redemption, sale, exchange or other disposition of Fund shares will be taxed as a long-term capital gain or loss if the shares are capital assets in the shareholder's hands and if the shareholder held the shares for more than one year. You should consult your tax adviser for more information on your own situation, including possible foreign, state or local taxes. The Bush Administration has announced a proposal to reduce or eliminate the tax on dividends; however, many of the details of the proposal (including how the proposal would apply to dividends paid by a regulated investment company) have not been specified. Moreover, the prospects for this proposal are unclear. Accordingly, it is not possible to evaluate how this proposal might affect the tax discussion above. Compensation to Securities Dealers As part of their business strategies, the Funds pay securities dealers that sell their shares. This compensation originates from two sources: sales charges (front-end or deferred) and 12b-1 fees (comprising the annual service and/or distribution fees paid under a plan adopted pursuant to Rule 12b-1 under the 1940 Act). The sales charges are detailed in the section entitled "How Sales Charges Are Calculated." Each class of Fund shares pays an annual service fee of 0.25% of its average daily net assets. In addition to a service fee, each Fund's Class B shares pay an annual distribution fee of 0.75% of their average daily net assets for 8 years (at which time they automatically convert into Class A shares). Class C shares are subject to a distribution fee of 0.75% of their average daily net assets. Generally, the 12b-1 fees are paid to securities dealers on a quarterly basis. The Distributor retains the first year of such fees for Class C shares. Because these distribution fees are paid out of the Funds' assets on an ongoing basis, over time these fees for Class B and Class C shares will increase the cost of your investment and may cost you more than paying the front-end sales charge on Class A shares. The Distributor may, at its expense, pay concessions in addition to the payments described above to dealers which satisfy certain criteria established from time to time by the Distributor relating to increasing net sales of shares of the CDC Nvest Funds over prior periods, and certain other factors. See the SAI for more details. Fund Services Additional Investor Services Retirement Plans CDC Nvest Funds offer a range of retirement plans, including Coverdell Education Savings Accounts, IRAs, SEPs, SARSEPs*, SIMPLE IRAs, 403(b) plans and other pension and profit sharing plans. Refer to the section entitled "It's Easy to Open an Account" for investment minimums. For more information about our Retirement Plans, call us at 800-225-5478. Investment Builder Program This is CDC Nvest Funds' automatic investment plan. You may authorize automatic monthly transfers of $25 or more from your bank checking or savings account to purchase shares of one or more CDC Nvest Funds. To join the Investment Builder Program, please refer to the section entitled "Buying Shares." Dividend Diversification Program This program allows you to have all dividends and any other distributions automatically invested in shares of the same class of another CDC Nvest Fund or Money Market Fund, subject to the eligibility requirements of that other fund and to state securities law requirements. Shares will be purchased at the selected Fund's net asset value without a front-end sales charge or CDSC on the dividend record date. Before establishing a Dividend Diversification Program into any other CDC Nvest Fund or Money Market Fund, please read its prospectus carefully. Automatic Exchange Plan CDC Nvest Funds have an automatic exchange plan under which shares of a class of a CDC Nvest Fund are automatically exchanged each month for shares of the same class of another CDC Nvest Fund or Money Market Fund. There is no fee for exchanges made under this plan, but there may be a sales charge in certain circumstances. Please see the section entitled "Exchanging Shares" above and refer to the SAI for more information on the Automatic Exchange Plan. Systematic Withdrawal Plan This plan allows you to redeem shares and receive payments from your Fund on a regular schedule. Redemption of shares that are part of the Systematic Withdrawal Plan is not subject to a CDSC. However, the amount or percentage you specify in the plan may not exceed, on an annualized basis, 10% of the value of your Fund account based upon the value of your Fund account on the day you establish your plan. For information on establishing a Systematic Withdrawal Plan, please refer to the section entitled "Selling Shares." CDC Nvest Funds Personal Access Line(R) This automated customer service system allows you to have access to your account 24 hours a day by calling 800-225-5478, and pressing 1. With a touch-tone telephone, you can obtain information about your current account balance, recent transactions, Fund prices and recent performance. You may also use Personal Access Line(R) to purchase, exchange or redeem shares in any of your existing accounts. Certain restrictions may apply. CDC Nvest Funds Web Site Visit us at www.cdcnvestfunds.com to review your account balance and recent transactions, to view daily prices and performance information or to order duplicate account statements and tax information. You may also go online to purchase, exchange or redeem shares in your existing accounts. Certain restrictions may apply. Electronic Mail Delivery This delivery option allows you to receive important Fund documents via the Internet instead of in paper form through regular U.S. mail. Eligible documents include quarterly statements, prospectuses, annual and semiannual reports and proxies. Electronic Delivery will cut down on the amount of paper mail you receive, speed up the availability of your documents and lower expenses to your Fund. To establish this option on your account(s), complete the appropriate section of your new account application or visit us at www.cdcnvestfunds.com. * Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available, replacing SARSEP plans. SARSEP plans established prior to January 1, 1997, may remain active and continue to add new employees. Financial Performance The financial highlights tables are intended to help you understand each Fund's financial performance for the last five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the return that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by ___________________________, independent accountants, whose report, along with each Fund's financial statements, are incorporated by reference in the SAI, which is available without charge upon request. To be updated. Glossary of Terms American Depository Receipts (ADRs) -- Instruments issued by U.S. banks that represent an interest in equity securities held by arrangement with the bank. These instruments can be either "sponsored" or "unsponsored." Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities. Bid price -- The price a prospective buyer is ready to pay. This term is used by traders who maintain firm bid and offer prices in a given security by standing ready to buy or sell security units at publicly quoted prices. Bottom-up analysis -- The analysis of potential performance of individual stocks before considering the impact of economic trends. Such companies may be identified from research reports, stock screens or personal knowledge of the products and services. Capital gain distributions -- Payments to a Fund's shareholders of net profits earned from selling securities in a Fund's portfolio. Capital gain distributions are usually paid once a year. Credit rating -- Independent evaluation of a bond's creditworthiness. This measurement is usually calculated through an index compiled by companies such as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's, are generally considered investment grade. Debt-to-Total Capital Ratio -- Total debt (current and long-term) divided by total capital (debt and equity). This ratio provides information regarding the extent of a company's reliance on debt financing. A high ratio indicates a high degree of financial leverage and a high degree of risk. Derivative -- A financial instrument whose value and performance are based on the value and performance of another security or financial instrument. Discounted price -- The difference between a bond's current market price and its face or redemption value. Diversification -- The strategy of investing in a wide range of securities representing different market sectors to reduce the risk if an individual company or one sector suffers losses. Dividend yield -- The current or estimated annual dividend divided by the market price per share of a security. Duration -- An estimate of how much a bond's price fluctuates with changes in comparable interest rates. Earnings growth -- A pattern of increasing rates of growth in earnings per share from one period to another, which usually causes a stock's price to rise. European Depository Receipts (EDRs) -- Instruments issued by European banks that represent an interest in equity securities held by arrangement with the bank. Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities. FFO Multiple - The price per share of a REIT divided by its Funds from Operations (FFO). The FFO of a REIT is the measure of its operating performance showing its net income plus depreciation of real estate and excluding gains or losses from sales of property or debt restructuring. Fundamental analysis -- An analysis of the balance sheet and income statements of a company in order to forecast its future stock price movements. Fundamental analysis considers records of assets, earnings, sales, products, management and markets in predicting future trends in these indicators of a company's success or failure. By appraising a company's prospects, analysts using such an approach assess whether a particular stock or group of stocks is undervalued or overvalued at its current market price. Global Depository Receipts (GDRs) -- Instruments issued by companies and offered in many markets around the world that represent an interest in equity securities held by arrangement with the bank. Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities. Growth investing -- An investment style that emphasizes companies with strong earnings growth. Growth investing is generally considered more aggressive than "value" investing. Income distributions -- Payments to a Fund's shareholders resulting from the net interest or dividend income earned by a Fund's portfolio. Inflation -- A general increase in prices coinciding with a fall in the real value of money, as measured by the Consumer Price Index. Interest rate -- Rate of interest charged for the use of money, usually expressed at an annual rate. Market capitalization -- Market price multiplied by number of shares outstanding. Large capitalization companies generally have over $5 billion in market capitalization; medium cap companies between $1.5 billion and $5 billion; and small cap companies less than $1.5 billion. These capitalization figures may vary depending upon the index being used and/or the guidelines used by the portfolio manager. Maturity -- The final date on which the payment of a debt instrument (e.g., bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds generally have maturities of up to 5 years; intermediate-term bonds between 5 and 15 years; and long-term bonds over 15 years. Net asset value (NAV) per share -- The market value of one share of a Fund on any given day without taking into account any front-end sales charge or CDSC. It is determined by dividing a Fund's total net assets by the number of shares outstanding. Price-to-book value ratio -- Current market price of a stock divided by its book value. Some firms use the inverse ratio for this calculation (i.e., book-to-price ratio). Price-to-earnings ratio -- Current market price of a stock divided by its earnings per share. Also known as the "multiple," the price-to-earnings ratio gives investors an idea of how much they are paying for a company's earning power and is a useful tool for evaluating the costs of different securities. The ratio may be calculated using "trailing" earnings or estimates of future (or "forward") earnings. Some firms use the inverse ratio for this calculation (i.e., earnings-to-price ratio). Qualitative analysis -- An analysis of the qualities possessed by a company, including its management, products and competitive positions, to help determine if the company can execute its strategies. Return on equity -- The amount, expressed as a percentage, earned on a company's common stock investment for a given period. It is calculated by dividing common stock equity (net worth) at the beginning of the accounting period into net income for the period after preferred stock dividends but before common stock dividends. This tells common shareholders how effectively their money is being employed. Rule 144A securities -- Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless a manager has determined, under guidelines established by a Fund's trustees, that a particular issue of Rule 144A securities is liquid. Target price -- Price that an investor is hoping a stock he or she has just bought will rise to within a specified period of time. An investor may buy XYZ at $20, with a target price of $40 in one year's time, for instance. Technical analysis -- The research into the demand and supply for securities, options, mutual funds and commodities based on trading volume and price studies. Technical analysis uses charts or computer programs to identify and project price trends in a market, security, mutual fund or futures contract. Top-down approach -- The method in which an investor first looks at trends in the general economy, and next selects industries and then companies that the investor believes should benefit from those trends. Total return -- The change in value of an investment in a Fund over a specific time period expressed as a percentage. Total returns assume all distributions are reinvested in additional shares of a Fund. Value investing -- A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets are not fully reflected in their stock prices. Value stocks will tend to have a lower price-to-earnings ratio than growth stocks. Volatility -- The general variability of a portfolio's value resulting from price fluctuations of its investments. In most cases, the more diversified a portfolio is, the less volatile it will be. Yield -- The rate at which a Fund earns income, expressed as a percentage. Mutual fund yield calculations are standardized, based upon a formula developed by the SEC. Yield-to-maturity -- The concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield (the interest rate on a debt security the issuer promises to pay to the holder until maturity, expressed as an annual percentage of face value) and the time between interest payments. If you would like more information about the Funds, the following documents are available free upon request: Annual and Semiannual Reports -- Provide additional information about each Fund's investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. Statement of Additional Information (SAI) -- Provides more detailed information about the Funds and their investment limitations and policies, has been filed with the SEC and is incorporated into this Prospectus by reference. To order a free copy of the Funds' annual or semiannual report or their SAI, contact your financial representative, or the Funds at: CDC IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116 Telephone: 800-225-5478 Internet: www.cdcnvestfunds.com Important Notice Regarding Delivery of Shareholder Documents: In our continuing effort to reduce your fund's expenses and the amount of mail that you receive from us, we combine mailings of prospectuses, annual or semiannual reports and proxy statements to your household. If more than one family member in your household owns the same fund or funds described in a single prospectus, report or proxy statement, you will receive one mailing unless you request otherwise. Additional copies of our prospectuses, reports or proxy statements may be obtained at anytime by calling 800-225-5478. If you are currently receiving multiple mailings to your household and would like to receive only one mailing or if you wish to receive separate mailings for each member of your household in the future, please call us at the telephone number listed above and we will resume separate mailings within 30 days of your request. Your financial representative or CDC Nvest Funds will also be happy to answer your questions or to provide any additional information that you may require. Information about the Funds, including their reports and SAI, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Funds' reports and SAI are available free from the SEC's Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. CDC IXIS Asset Management Distributors, L.P., and other firms selling shares of CDC 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 its Web site at www.NASDR.com. (Investment Company Act File No. 811-4323) (Investment Company Act File No. 811-242) (Investment Company Act File No. 811-7345) (Investment Company Act File No. 811-09945) CDC Nvest logo - -------------------------------------------------------------------------------- CDC Nvest Equity Funds - Class Y Shares Prospectus May 1, 2003 >CDC Nvest AEW Real Estate Fund AEW Management and Advisors, L.P. >CDC Nvest Growth and Income Fund Harris Associates L.P. >CDC Nvest International Equity Fund Loomis, Sayles & Company, L.P. >CDC Nvest Jurika & Voyles Relative Value Fund Jurika & Voyles, L.P. >CDC Nvest Jurika & Voyles Small Cap Growth Fund Jurika & Voyles, L.P. >CDC Nvest Large Cap Growth Fund Vaughan, Nelson, Scarborough & McCullough, L.P. >CDC Nvest Targeted Equity Fund Capital Growth Management Limited Partnership The Securities and Exchange Commission has not approved any Fund's shares or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. For general information on the Funds or any of their services and for assistance in opening an account, contact your financial representative or call CDC Nvest Funds. CDC Nvest Funds 399 Boylston Street, Boston, Massachusetts 02116 800-225-5478 www.cdcnvestfunds.com What's Inside Goals, Strategies & Risks Page X Fund Fees & Expenses Page X Management Team Page X Fund Services Page X Financial Performance Page X 2 Table of Contents GOALS, STRATEGIES & RISKS CDC NVEST AEW REAL ESTATE INCOME FUND CDC NVEST GROWTH AND INCOME FUND CDC NVEST INTERNATIONAL EQUITY FUND CDC NVEST JURIKA & VOYLES RELATIVE VALUE FUND CDC NVEST JURIKA & VOYLES SMALL CAP GROWTH FUND CDC NVEST LARGE CAP GROWTH FUND CDC NVEST TARGETED EQUITY FUND FUND FEES & EXPENSES FUND FEES & EXPENSES MORE ABOUT RISK MORE ABOUT RISK MANAGEMENT TEAM MEET THE FUNDS' INVESTMENT ADVISERS AND SUBADVISERS MEET THE FUNDS' PORTFOLIO MANAGERS ADVISER AND SUBADVISER PAST PERFORMANCE INFORMATION FUND SERVICES IT'S EASY TO OPEN AN ACCOUNT BUYING SHARES SELLING SHARES SELLING SHARES IN WRITING EXCHANGING SHARES RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES HOW FUND SHARES ARE PRICED DIVIDENDS AND DISTRIBUTIONS TAX CONSEQUENCES COMPENSATION TO SECURITIES DEALERS FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE GLOSSARY OF TERMS GLOSSARY OF TERMS If you have any questions about any of the terms used in this Prospectus, please refer to the "Glossary of Terms." To learn more about the possible risks of investing in the Funds, please refer to the section entitled "More About Risk." This section details the risks of practices in which the Funds may engage. Please read this section carefully before you invest. Fund shares are not bank deposits and are not guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or any other government agency, and are subject to investment risks, including possible loss of the principal invested. 3 Goals, Strategies & Risks CDC Nvest AEW Real Estate Fund Adviser: AEW Management and Advisors, L.P. ("AEW") Manager: Matthew A. Troxell Category: Mid-Cap Equity Ticker Symbol: Class Y NRFYX Investment Goal The Fund seeks to provide investors with above-average income and long-term growth of capital. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in investments of real estate investment trusts ("REITs") and/or real estate-related companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. REITs are generally dedicated to owning, and usually operating, income-producing real estate, or dedicated to financing real estate. The Fund primarily invests in equity REITs, which own or lease real estate and derive their income primarily from rental income. Real estate-related companies are those companies whose principal activity involves the development, ownership, construction, management or sale of real estate; companies with significant real estate holdings; and companies that provide products or services related to the real estate industry. AEW employs a value-oriented investment strategy designed to identify securities that are priced below what it believes is their intrinsic value. AEW believes that ultimately the performance of real estate equity securities is dependent upon the performance of the underlying real estate assets and company management as well as the overall influence of capital markets. Consequently, when selecting securities for the Fund, AEW draws upon the combined expertise of its real estate, research and securities professionals. When selecting investments for the Fund, AEW generally considers the following factors that it believes help to identify those companies whose shares represent the greatest value and price appreciation potential: o Valuation: AEW has developed a proprietary model to assess the relative value of each stock in the Fund's investment universe. This model is designed to estimate what an issuer's anticipated cash flows are worth to a stock investor (a capital markets value) and to a direct real estate investor (a real estate value). The model helps AEW to identify stocks that it believes trade at discounts to either or both of these model values relative to similar stocks. AEW will generally sell a security once it is considered overvalued or when AEW believes that there is greater relative value in other securities in the Fund's investment universe. o Price: AEW examines the historic pricing of each company in the Fund's universe of potential investments. Those stocks that have under performed in price, either in absolute terms or relative to the Fund's universe in general, are generally given greater weight than those that have over performed. o Income: AEW further evaluates companies and REITs by analyzing their dividend yields as well as other factors that influence the sustainability and growth of dividends. These factors include cash flow, leverage and payout ratios. o Catalysts: When evaluating a security, AEW also seeks to identify potential catalysts that, in its opinion, could cause the marketplace to re-value the security upwards in the near term. These catalysts can be macro-economic, market-driven or company-specific in nature. The Fund may also: 4 o Hold cash and/or invest up to 100% of its assets in U.S. government securities or money market instruments for temporary defensive purposes in response to adverse market, economic or political conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: Securities of real estate-related companies and REITs in which the Fund may invest may be considered equity securities, thus subjecting the Fund to market risks. This means that you may lose money on your investment due to sudden, unpredictable drops in value or periods of below-average performance in a given stock or in the stock market as a whole. Real estate securities/REITs: Because the Fund concentrates its investments in the real estate industry, the Fund's performance will be dependent in part on the performance of the real estate market and the real estate industry in general. The real estate industry is particularly sensitive to economic downturns. Securities of companies in the real estate industry, including REITs, are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. In addition, the value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon cash flow from their investments to repay financing costs and also on the ability of the REITs' managers. The Fund will indirectly bear its proportionate share of expenses, including management fees, paid by each REIT in which it invests in addition to the expenses of the Fund. Small-cap companies: Companies in the real estate industry, including REITs, in which the Fund may invest may have relatively small market capitalizations. Small-cap companies and REITs, which AEW considers to be those with market capitalizations of $1 billion or less, tend to have more limited markets and resources than companies with larger market capitalizations. Consequently, share prices of small-cap companies and REITs can be more volatile than, and perform differently from, larger company stocks. For additional information see the section entitled "More About Risk." 5 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations. - -------------------------------------------------------------------------------- Total Return 2001 2002 13.31% - -------------------------------------------------------------------------------- /\ Highest Quarterly Return: _______________________% - -- __ \/ Lowest Quarterly Return: ________________________% The table below shows the Fund's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compared to those of the Morgan Stanley REIT Index, an unmanaged index of stocks issued by REITs. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Morgan Stanley REIT Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. - -------------------------------------------------------------------------------- Average Annual Total Returns Past 1 Since Class (for the periods ended December 31, 2002) Year Inception (8/31/00) - -------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------- Morgan Stanley REIT Index** - -------------------------------------------------------------------------------- * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. ** The returns of the Index do not reflect the effect of taxes. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 6 Goals, Strategies & Risks CDC Nvest Growth and Income Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Harris Associates, L.P. ("Harris Associates") Manager: Robert M. Levy, Edward S. Loeb and Michael J. Mangan Category: Large-Cap Equity Ticker Symbol: Class Y NEOYX Investment Goal The Fund seeks opportunities for long-term capital growth and income. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest substantially all its assets in common stock of large- and mid-capitalization companies in any industry. Harris Associates uses a value investment philosophy in selecting equity securities. This philosophy is based upon the belief that, over time, a company's stock price converges with the company's true business value. By "true business value," Harris Associates means its estimate of the price a knowledgeable buyer would pay to acquire the entire business. Harris Associates believes that investing in securities priced significantly below their true business value presents the best opportunity to achieve the Fund's investment objectives. The Fund may also: o Invest in foreign securities traded in U.S. markets (through American Depositary Receipts ("ADRs") or stocks sold in U.S. dollars). ADRs are securities issued by a U.S. bank that represent shares of a foreign company. o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. Foreign securities: ADRs may be more volatile than U.S. securities and carry political, economic and information risks that are associated with foreign securities. For additional information see the section entitled "More About Risk." 7 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current subadviser assumed that function on July 1, 2002. Therefore, the chart and table reflect results achieved by different subadvisers under different investment strategies. The Fund's performance may have been different under its current advisory arrangements and investment strategies. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations. - ------------------------------------------------------------------------------- Total Return 1999 2000 2001 2002 9.77% -6.97% -13.99% - ------------------------------------------------------------------------------- /\ Highest Quarterly Return: ________________________% - -- __ \/ Lowest Quarterly Return: _________________________% The table below shows the Fund's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compared to those of the Russell 1000 Value Index, an unmanaged index measuring the performance of those Russell 1000 companies selected for their greater value orientation. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Value Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. - -------------------------------------------------------------------------------- Average Annual Total Returns Since Class Inception (for the periods ended December 31, 2002) Past 1 Year (11/18/98) - -------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------- Russell 1000 Value Index**+ - -------------------------------------------------------------------------------- * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from 11/30/98. + The Russell 1000 Value Index replaced the S&P 500 Index as the Fund's comparative index because CDC IXIS Advisers believes it is more representative of the types of stocks in which the Fund can invest. For the period ended December 31, 2002, the one-year, five-year and since 11/30/98 average annual total returns of the S&P 500 Index were ___%, ___% and ___%, respectively. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 8 Goals, Strategies & Risks CDC Nvest International Equity Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Alexander Muromcew, John Tribolet and Eswar Menon Category: International Equity Ticker Symbol: Class Y NEIYX Investment Goal The Fund seeks total return from long-term capital growth and dividend income. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in equity investments. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. The Fund will invest primarily in companies organized or headquartered outside of the United States. The Fund will hold securities from at least three different countries, including those within emerging markets. The Fund will focus on securities with large market capitalizations but may invest in securities with any size capitalizations. Loomis Sayles uses a bottom-up, fundamental research process to build the Fund's portfolio. Combining careful research with visits with management, Loomis Sayles looks for growth oriented stocks of well-managed companies that are industry leaders globally and possess strong competitive positions with pricing power and strong distribution. Improving business or financial fundamentals are catalysts for buy decisions while deteriorating fundamentals or better opportunities in other companies will trigger sell decisions. In addition to its bottom-up approach to security selection, an overlay of country and industry macro data is used to provide guidelines for portfolio weighting with a view towards minimizing portfolio risk. The strong Loomis Sayles research team is combined with a global network of research contacts to provide a steady stream of information and ideas. Together with discipline and a thorough decision-making process, the Loomis Sayles research operation seeks to provide investors with a successful investment strategy. Loomis Sayles uses a "No-Walls Decision MakingSM" investment process, in which the managers all meet in person to exchange ideas and make portfolio decisions. Each buy and sell decision is subject to intense scrutiny by the entire team, which allows the skill and unique perspective of each manager on the team to be leveraged. The Fund may also: o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. 9 Small capitalization and emerging growth companies may be subject to more abrupt price movements, limited markets and less liquidity than larger, more established companies which could adversely affect the value of the portfolio. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. For additional information see the section entitled "More About Risk." 10 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current subadviser assumed that function on February 14, 1997. This chart and table reflect results achieved by the previous subadviser under different investment strategies for periods prior to February 14, 1997. The Fund's performance may have been different under its current advisory arrangements and investment strategies. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations.
- ---------------------------------------------------------------------------------------------------------- Total Return 1994 1995 1996 1997 1998 1999 2000 2001 2002 8.93% 6.56% 3.95% -6.74% 7.29% 88.61% -28.16% -22.97% - ----------------------------------------------------------------------------------------------------------
/\ Highest Quarterly Return: ________________________% - -- __ \/ Lowest Quarterly Return: ________________________% The table below shows the Fund's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compared to those of the Morgan Stanley Capital International Europe, Australasia and Far East Index (" MSCI EAFE"), an unmanaged index of the performance of companies representing stock markets in Europe, Australia, New Zealand and the Far East. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The MSCI EAFE returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments.
- -------------------------------------------------------------------------------------------------------------- Average Annual Total Returns Since Class (for the periods ended December 31, 2002) Inception Past 1 Year Past 5 Year (9/9/93) - -------------------------------------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------------------------------- MSCI EAFE** - --------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated as of 9/30/93. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 11 Goals, Strategies & Risks CDC Nvest Jurika & Voyles Relative Value Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Jurika & Voyles, L.P. ("Jurika & Voyles") Managers: Guy R. Elliffe, Eric R. Hull and Nicholas E. Moore Category: Large Cap Equity Ticker Symbol: Class Y NJVYX Investment Goal The Fund seeks long-term growth of capital. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies To pursue its investment goal, the Fund invests in equity securities of quality companies with mid to large market capitalizations. Under normal market conditions, the Fund expects to invest approximately 80%, but no less than 65%, of its total assets in equity securities of companies with market capitalizations within the range of the Russell 1000 Index, a nationally recognized index of mid- and large-cap securities. The Fund's average and median market capitalization will fluctuate over time as a result of market valuation levels and the availability of specific investment opportunities. When selecting equity securities for the Fund, Jurika & Voyles will emphasize "in-house" research, which includes personal contacts, site visits and meetings with company management. Through this research, Jurika & Voyles looks for quality companies that possess several of the following characteristics, although not all of the companies selected will have these attributes: o Strong, competitive advantage - companies that "do what they do" better than anyone else are the prime candidates. o Clearly defined business focus - companies that "stick to their knitting" - focusing only on a particular niche or segment of a broader market. o Strong financial health - companies with strong cash flows, low debt-to-total capital ratios, healthy balance sheets and higher returns on equity than the market average. o Quality management - companies with experienced management, low turnover and a long-term track record of success in an industry. o Right price - companies that sell at a discount to Jurika & Voyles' estimation of their true value. o Catalyst for growth - It is not enough to invest in an inexpensive company. There must be some factor (typically a new product, improving industry trend or economic condition) that will lead to an increase in the price of the stock. The Fund may also: o Invest in foreign issuers, primarily through Depositary Receipts. o Invest in other investment companies. o Invest in real estate investment trusts ("REITs"). 12 o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in other investment companies: May indirectly bear service and other fees in addition to its own expenses. REITs: Subject to changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate. For additional information see the section entitled "More About Risk." 13 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The performance results below reflect results achieved by the Fund's predecessor under different advisory arrangements. Because the Fund's current advisory arrangement differs from the advisory arrangement of its predecessor, the past performance results shown below may have been different had the current arrangements been in place during the periods shown. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since the first full year of operations of the Fund's predecessor.
- ---------------------------------------------------------------------------------------------- Total Return+ 1995 1996 1997 1998 1999 2000 2001 2002 28.09% 20.31% 21.54% 6.12% 11.92% 14.71% -7.87% - ----------------------------------------------------------------------------------------------
/\ Highest Quarterly Return: _________________________% - -- __ \/ Lowest Quarterly Return: _________________________% The table below shows the Fund's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception, if shorter) compared to those of the Russell 1000 Index, a nationally recognized index comprised of the 1,000 largest companies within the Russell 3000 Index, based on market capitalization. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- -------------------------------------------------------------------------------------------------------------- Average Annual Total Returns + Past 1 Year Past 5 Years Since Fund Inception (for the periods ended December 31, 2002) (9/30/94) - -------------------------------------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------------------------------------- Russell 1000 Index** - --------------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of fund shares at the end of the measurement period. ** The returns of the Index do not reflect the effect of taxes. + The returns shown above reflect the results of the Fund' predecessor, the Jurika & Voyles Value+Growth Fund through November 30, 2001, whose assets and liabilities were reorganized into the Fund on November 30, 2001. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 14 Goals, Strategies & Risks CDC Nvest Jurika & Voyles Small Cap Growth Fund Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Jurika & Voyles, L.P. ("Jurika & Voyles") Manager: Team Management Category: Small-Cap Equity Ticker Symbol: Class Y NFBYX Investment Goal The Fund seeks long-term growth of capital. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in investments in companies that have market capitalization within the capitalization range of the Russell 2000 Index, a nationally recognized index of small-cap companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. When selecting small-cap companies, Jurika & Voyles will emphasize "in-house" research, which includes personal contacts, site visits and meetings with company management. Through this research, Jurika & Voyles looks for small-cap companies that possess several of the following characteristics, although not all of the companies selected will have these attributes: o Strong competitive advantage - companies that "do what they do" better than anyone else are prime candidates. o Clearly defined business focus - companies that "stick to their knitting," focusing only on a particular niche or segment of a broader market. o Strong financial health - companies with strong cash flows, low debt-to-total capital ratios, healthy balance sheets and higher returns on equity than the market average. o Quality management - companies with experienced management, low turnover and a long-term track record of success in an industry. o Right price - companies that sell at a discount to Jurika & Voyles' estimation of their true value. o Catalyst for growth - It is not enough to invest in an inexpensive company. There must be some factor (typically a new product, improving industry trend or economic condition) that will lead to an increase in the price of the stock. The Fund may also: o Invest in convertible preferred stock and convertible debt securities. o Invest in securities offered in initial public offerings (IPO's). o Invest in warrants. 15 o Invest up to 25% of its total assets in securities of foreign issuers, primarily through sponsored and unsponsored Depositary Receipts. Some examples of Depositary Receipts are American Depositary Receipts, European Depositary Receipts and Global Depositary Receipts. The Fund will limit its investment in any one foreign country to 5% of its total assets and will invest no more than 5% of its total assets in securities denominated in foreign currencies. o Invest in real estate investment trusts ("REITs"). o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Small capitalization and emerging growth companies may be subject to more abrupt price movements, limited markets and less liquidity than larger, more established companies which could adversely affect the value of the portfolio. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Value stocks present the risk that they may fall out of favor with investors and underperform growth stocks during any given period. The Fund's investment in short-term trading strategies, with respect to intial public offerrings, may make the value of an investment in this Fund fluctuate even more than an investment in other small-cap funds. Securities issued in IPOs tend to involve greater market risk than other equity securities due, in part, to public perception and the lack of publicly available information and trading history. This may impact the Fund's performance and result in higher portfolio turnover, which may increase the tax liability to shareholders and the brokerage expenses incurred by the Fund. Foreign securities: Depositary Receipts may be more volatile than U.S. securities and carry political, economic and information risks that are associated with foreign securities. REITs: Subject to changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate. For additional information see the section entitled "More About Risk." 16 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The performance results below reflect results achieved by the Fund's predecessor under different advisory arrangements. Because the Fund's current advisory arrangement differs from the advisory arrangement of its predecessor, the past performance results shown below may have been different had the current arrangements been in place during the periods shown. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since the first full year of operations of the Fund's predecessor.
- ---------------------------------------------------------------------------------------------- Total Return+ 1995 1996 1997 1998 1999 2000 2001 2002 52.21% 32.16% 23.86% -14.32% 55.83% -16.41% -13.29% - ----------------------------------------------------------------------------------------------
/\ Highest Quarterly Return _____________________% - -- __ \/ Lowest Quarterly Return: _____________________% The table below shows the Fund's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compared to those of the Russell 2000 Index, an unmanaged index of the 2000 smallest companies in the Russell 3000 Index. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 2000 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
- ---------------------------------------------------------------------------------------------------------- Average Annual Total Returns+ Since Fund Inception (for the periods ended December 31, 2002) Past 1 Year Past 5 Years (9/30/94) - ---------------------------------------------------------------------------------------------------------- Class Y - Return Before Taxes % % % - ---------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions* % % % - ---------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* % % % - ---------------------------------------------------------------------------------------------------------- Russell 2000 Index % % % - ---------------------------------------------------------------------------------------------------------- Morningstar Small Growth Funds Average** % % % - ---------------------------------------------------------------------------------------------------------- Lipper Small-Cap Growth Funds Average** % % % - ----------------------------------------------------------------------------------------------------------
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. ** The returns of the Index do not reflect the effect of taxes. + The returns shown above reflect the results of the Fund's predecessor, the Jurika & Voyles Small-Cap Fund through November 30, 2001, whose assets and liabilities were acquired by the Fund on November 30, 2001. As a result of this transaction, the Fund assumed the financial and performance history of the Jurika & Voyles Small-Cap Fund. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 17 Goals, Strategies & Risks CDC Nvest Large Cap Growth Adviser: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") Subadviser: Vaughan, Nelson, Scarborough & McCullough, L.P. ("Vaughan Nelson") Managers: William R. Berger, Brian A. Grove and Curt E. Rohrman Category: Large-Cap Equity Ticker Symbol: Class Y NRLYX Investment Goal The Fund seeks long-term growth of capital by investing in equity securities of companies with large market capitalizations that the subadviser believes have better than average long-term growth potential. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market circumstances, the Fund will invest at least 80% of its net assets in investments in companies that have market capitalization within the capitalization range of the Russell 1000 Growth Index, a nationally recognized index of growth-oriented companies. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Vaughan Nelson uses rigorous fundamental research and active management to analyze a broad selection of company or industry sectors and to seek companies with the following characteristics, although not all of the companies selected will have these attributes: o Sustainable competitive advantage o Positive Earnings Trends o Quality Management o Strong Financials In selecting investments for the Fund's portfolio, Vaughan Nelson employs the following strategy: o Screen for companies with at least $1 billion in market capitalization. o Screen for strong earnings and revenue growth over rolling 1, 3 and 5-year periods. o Apply growth rate analysis and industry research to select 40-50 strong stocks for the portfolio. o Vaughan Nelson targets stocks for sale due to underperformance in earnings relative to targets, unfavorable changes in the company or its industry or when price targets are achieved. The Fund may also: o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. o Invest in foreign securities including American Depositary Receipts , which are securities issued by a U.S. bank that represent shares of a foreign company. 18 A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Because of these and other risks, the Fund may underperform certain other stock funds during periods when large company growth stocks are generally out of favor. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. For additional information see the section entitled "More About Risk." 19 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The performance results below reflect the results achieved by the Fund's predecessor under different advisory arrangements and different investment strategies. The Fund's current subadviser assumed that function on July 1, 2001. This chart and table reflect results achieved by the previous adviser for periods prior to July 1, 2001. The Fund's performance may have been different had its current arrangements been in place during the periods shown. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since the first full year of operations of the Fund's predecessor. - -------------------------------------------------------------------------------- Total Return+ 2000 2001 2002 -8.87% -22.65% - -------------------------------------------------------------------------------- /\ Highest Quarterly Return: _________________________% - -- __ \/ Lowest Quarterly Return: _________________________% The table below shows the Fund's predecessor's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception, if shorter) compared to those of the Russell 1000 Growth Index, an unmanaged index measuring the performance of those Russell 1000 companies selected for their greater growth orientation. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Russell 1000 Growth Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. - -------------------------------------------------------------------------------- Average Annual Total Returns+ Past 1 Year Since Class (for the periods ended December 31, 2002) Inception (10/29/99) - -------------------------------------------------------------------------------- Class Y - Return Before Taxes % % - -------------------------------------------------------------------------------- Return After Taxes on Distributions* % % - -------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* % % - -------------------------------------------------------------------------------- Russell 1000 Growth Index** % % - -------------------------------------------------------------------------------- * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. ** The returns of the Index do not reflect the effect of taxes. The returns of the Index are calculated from October 31, 1999. + The returns shown above reflect the results of the Kobrick Growth Fund through November 16, 2001, whose assets and liabilities were reorganized into the Fund on November 16, 2001. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 20 Goals, Strategies & Risks CDC Nvest Targeted Equity Fund Adviser: Capital Growth Management Limited Partnership ("CGM") Manager: G. Kenneth Heebner Category: Large-Cap Equity Ticker Symbol: Class Y NEGYX Investment Goal The Fund seeks long-term growth of capital through investment in equity securities of companies whose earnings are expected to grow at a faster rate than that of the overall United States economy. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in equity investments. In accordance with applicable Securities and Exchange Commission requirements, the Fund will notify shareholders prior to any change to such policy taking effect. The Fund will generally invest in a focused portfolio of common stocks of large capitalization companies that CGM expects will grow at a faster rate than that of the overall United States economy. When CGM believes that market conditions warrant, however, CGM may select stocks based upon overall economic factors such as the general economic outlook, the level and direction of interest rates and potential impact of inflation. The Fund will not invest in small capitalization companies. In general, CGM seeks companies with the following characteristics, although not all of the companies selected will have these attributes: o well-established, with records of above-average growth o promise of maintaining their leadership positions in their industries o likely to benefit from internal revitalization or innovations, changes in consumer demand, or basic economic forces Rather than following a particular style, CGM employs a flexible approach and seeks to take advantage of opportunities as they arise. In making an investment decision, CGM generally employs the following methods: o It uses a top-down approach, meaning that it analyzes the overall economic factors that may affect a potential investment. o CGM then conducts a thorough analysis of certain industries and companies, evaluating the fundamentals of each on a case-by-case basis and focusing on companies that it determines are attractively valued. o CGM's ultimate decision to purchase a security results from a thorough assessment of all of the information that CGM deems to be relevant at the time of investment. o CGM will sell a stock if it determines that its investment expectations are not being met, if better opportunities are identified or if its price objective has been attained. The Fund may also: o Invest a significant portion of its assets in a single industry sector. o Invest in foreign securities. 21 o Invest in other investment companies. o Invest in real estate investment trusts ("REITs"). o Engage in active and frequent trading of securities. Frequent trading may produce high transaction costs and a high level of taxable capital gains, which may lower the Fund's return. o Purchase money market or high quality debt securities for temporary defensive purposes in response to adverse market, economic, political or other conditions. These investments may prevent the Fund from achieving its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks Equity securities: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Although the Fund is diversified, its focused approach means that its relatively small number of holdings may result in greater share price fluctuations than a more diversified mutual fund. Growth stocks are generally more sensitive to market movements than other types of stocks primarily because their stock prices are based heavily on future expectations. Focused investment risk: Because the Fund may invest in a small number of industries, it may have more risk because the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Fund's net asset value. Foreign securities: Subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in other investment companies: May indirectly bear service and other fees in addition to its own expenses. REITs: Subject to changes in underlying real estate values, rising interest rates, limited diversification of holdings, higher costs and prepayment risk associated with related mortgages, as well as other risks particular to investments in real estate. For additional information see the section entitled "More About Risk." 22 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods (or since inception if shorter) compare with those of a broad measure of market performance and those of certain indices of funds with similar objectives. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class Y shares for each calendar year since its first full year of operations. - -------------------------------------------------------------------------------- Total Return 2000 2001 2002 -4.23% -15.86% - -------------------------------------------------------------------------------- /\ Highest Quarterly Return: ________________________% - -- __ \/ Lowest Quarterly Return: ________________________% The table below shows the Fund's average annual total returns (before and after taxes) for the one-year, five-year and ten-year periods (or since inception if shorter) compared to those of the S&P 500 Index, a market value-weighted, unmanaged index of common stock prices for 500 selected stocks. You may not invest directly in an index. The Fund's total returns reflect the expenses of the Fund's Class Y shares. Class Y total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The S&P 500 Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. - -------------------------------------------------------------------------------- Average Annual Total Returns Past 1 Year Since Class (for the periods ended December 31, 2002) Inception (6/30/99) - -------------------------------------------------------------------------------- Class Y - Return Before Taxes - -------------------------------------------------------------------------------- Return After Taxes on Distributions* - -------------------------------------------------------------------------------- Return After Taxes on Distributions & Sales of Fund Shares* - -------------------------------------------------------------------------------- S&P 500 Index** - -------------------------------------------------------------------------------- * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. ** The returns of the Index do not reflect the effect of taxes. For past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses." 23 Fund Fees & Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of each Fund. Shareholder Fees (fees paid directly from your investment) - ------------------------------------------------------------------------------- All Funds Class Y - ------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None - ------------------------------------------------------------------------------- Maximum deferred sales charge (load) None - ------------------------------------------------------------------------------- Redemption fees None* - ------------------------------------------------------------------------------- * Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight delivery. Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as a percentage of average daily net assets)
- ------------------------------------------------------------------------------------------------ AEW Real Estate Growth and Income International Equity Fund(1) Fund Fund - ------------------------------------------------------------------------------------------------ Class Y Class Y Class Y - ------------------------------------------------------------------------------------------------ Management fees - ------------------------------------------------------------------------------------------------ Distribution and/or service (12b-1) fees - ------------------------------------------------------------------------------------------------ Other expenses - ------------------------------------------------------------------------------------------------ Total annual fund operating expenses - ------------------------------------------------------------------------------------------------ Fee waiver and/or expense reimbursement - ------------------------------------------------------------------------------------------------ Net expenses - ------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- Jurika & Voyles Jurika & Voyles Small Large Cap Growth Targeted Equity Relative Value Fund(2) Cap Growth Fund(3) Fund(4) Fund - ---------------------------------------------------------------------------------------------------------------------- Class Y Class Y Class Y Class Y - ---------------------------------------------------------------------------------------------------------------------- Management fees - ---------------------------------------------------------------------------------------------------------------------- Distribution and/or service (12b-1) fees - ---------------------------------------------------------------------------------------------------------------------- Other expenses - ---------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses - ---------------------------------------------------------------------------------------------------------------------- Fee waiver and/or expense reimbursement - ---------------------------------------------------------------------------------------------------------------------- Net expenses - ----------------------------------------------------------------------------------------------------------------------
24 (1) AEW has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.25% of the Fund's average daily net assets for Class Y shares. This undertaking is in effect through ________, and will be reevaluated on an annual basis thereafter. (2) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.25% of the Fund's average daily net assets for Class Y shares. This undertaking is in effect through December 31, 2004. (3) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.50% of the Fund's average daily net assets for Class Y shares. This undertaking is in effect through December 31, 2004. (4) CDC IXIS Advisers has given a binding undertaking to this Fund to limit the amount of the Fund's total annual fund operating expenses to 1.15% of the Fund's average daily net assets for Class Y shares. This undertaking is in effect through ____________, and will be reevaluated on an annual basis thereafter. 25 Example This example*, which is based upon the expenses shown in the "Annual Fund Operating Expenses" table, is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes that: o You invest $10,000 in a Fund for the time periods indicated and then redeem all of your shares at the end of those periods; o Your investment has a 5% return each year; o A Fund's operating expenses remain the same; and o All dividends and distributions are reinvested. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
- ------------------------------------------------------------------------------------------------------------------------ AEW Real Estate Fund Growth and Income Fund International Equity Fund - ------------------------------------------------------------------------------------------------------------------------ Class Y Class Y Class Y - ------------------------------------------------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Jurika & Voyles Relative Jurika & Voyles Small Cap Large Cap Growth Targeted Equity Value Fund Growth Fund Fund Fund - ------------------------------------------------------------------------------------------------------------------------ Class Y Class Y Class Y Class Y - ------------------------------------------------------------------------------------------------------------------------ 1 year - ------------------------------------------------------------------------------------------------------------------------ 3 years - ------------------------------------------------------------------------------------------------------------------------ 5 years - ------------------------------------------------------------------------------------------------------------------------ 10 years - ------------------------------------------------------------------------------------------------------------------------
* The example is based on the Net Expenses shown above for the 1-year period for AEW Real Estate Fund, Jurika & Voyles Relative Value Fund, Jurika & Voyles Small Cap Growth Fund and Large Cap Growth Fund illustrated in the Example and on the Total Annual Fund Operating Expenses for the remaining years. The example is based on Total Annual Fund Operating Expenses for the other Funds for all periods. 26 More About Risk The Funds have principal investment strategies that come with inherent risks. The following is a list of risks to which each Fund may be subject because of its investment in various types of securities or engagement in various practices. Correlation Risk (All Funds except AEW Real Estate Fund) The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk (All Funds) The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Funds that invest in securities rated below investment grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P, respectively), or that are unrated but judged to be of comparable quality by the Fund's subadviser are subject to greater credit risk than Funds that do not invest in such securities. Currency Risk (All Funds except AEW Real Estate and Growth and Income Funds) The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Emerging Markets Risk (International Equity Fund) The risk associated with investing in securities traded in developing securities markets, which may be smaller and have shorter operating histories than developed markets. Emerging markets involve risks in addition to and greater than those generally associated with investing in developed foreign markets. The extent of economic development, political stability, market depth, infrastructure and capitalization, and regulatory oversight in emerging market economies is generally less than in more developed markets. Information Risk (All Funds) The risk that key information about a security is inaccurate or unavailable. Securities issued in initial public offerings, or IPOs, involve greater information risk than other equity securities due to the lack of public information. Interest Rate Risk (All Funds) The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk (All Funds) The risk associated with securities or practices (e.g., borrowing) that multiply small index or market movements into larger changes in value. When a derivative security (a security whose value is based on another security or index) is used as a hedge against an offsetting position that a Fund also holds, any loss generated by the derivative security should be substantially offset by gains on the hedged instrument, and vice versa. To the extent that a Fund uses a derivative security for purposes other than as a hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the risks of that derivative security and any loss generated by the derivative security will not be offset by a gain. Liquidity Risk (All Funds) The risk that certain securities may be difficult or impossible to sell at the time and at the price that the seller would like. This may result in a loss or may otherwise be costly to a Fund. These types of risks may also apply to restricted securities, Section 4(2) Commercial Paper, or Rule 144A Securities. Management Risk (All Funds) The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk (All Funds) The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. IPO securities tend to involve greater market risk than other equity securities due, in part, to public perception and the lack of public information and trading history. Opportunity Risk (All Funds) The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are invested in less profitable investments. Options, Futures and Swap Contracts Risks (All Funds except AEW Real Estate Fund) These transactions are subject to changes in the underlying security on which such transactions are based. It is important to note that even a small investment in these types of derivative securities may give rise to leverage risk, and can have a significant impact 27 on a Fund's exposure to stock market values, interest rates or the currency exchange rate. These types of transactions will be used primarily for hedging purposes. Political Risk (All Funds) The risk of losses directly attributable to government or political actions. Prepayment Risk (AEW Real Estate Fund) The risk that unanticipated prepayments may occur, reducing the return from mortgage- or asset-backed securities, or real estate investment trusts. Small Capitalization Companies Risk (AEW Real Estate, Jurika & Voyles Small Cap Growth and International Equity Funds) These companies carry special risks, including narrower markets, more limited financial and management resources, less liquidity and greater volatility than large company stocks. Valuation Risk (All Funds) The risk that a Fund has valued certain securities at a higher price than the price at which it can be sold. 28 Management Team Meet the Funds' Investment Advisers and Subadvisers The CDC Nvest Funds family currently includes 26 mutual funds with a total of ______________________ in assets under management as of December 31, 2002. CDC Nvest Funds are distributed through CDC IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers Class Y shares of the CDC Nvest Equity Funds except the CDC Nvest Balanced Fund (the "Funds" or each a "Fund"), which, along with the CDC Nvest Balanced Fund, the CDC Nvest Income Funds, CDC Nvest Star Funds and CDC Nvest Tax Free Income Funds, constitute the "CDC Nvest Funds." CDC Nvest Cash Management Trust - Money Market Series and CDC Nvest Tax Exempt Money Market Trust constitute the "Money Market Funds." Advisers CDC IXIS Advisers, located at 399 Boylston Street, Boston, Massachusetts 02116, serves as the adviser to each of the Funds except AEW Real Estate Fund (for which AEW serves as adviser) and Targeted Equity Fund (for which CGM serves as adviser). CDC IXIS Advisers is a subsidiary of CDC IXIS Asset Management North America, L.P. ("CDC IXIS North America"), which is a subsidiary of CDC IXIS Asset Management. CDC IXIS Asset Management is the investment management arm of France's Caisse des Depots et Consignations ("CDC"), a major diversified financial institution. As of December 31, 2002, CDC IXIS North America's 14 principal subsidiaries, including 11 affiliated asset management firms and three distribution and service units, collectively had ___________ in assets under management. CDC IXIS Advisers oversees, evaluates, and monitors the subadvisory services provided to each Fund except AEW Real Estate Fund and Targeted Equity Fund. It also provides general business management and administration to each Fund except AEW Real Estate Fund and Targeted Equity Fund. CDC IXIS Advisers does not determine what investments will be purchased by the Funds. AEW, CGM and the subadvisers listed below make the investment decisions for their respective Funds. The combined advisory and subadvisory fees paid by the Funds during the fiscal year ended December 31, 2002 as a percentage of each Fund's average daily net assets were ____% for the Growth and Income Fund, ____% for the International Equity Fund, ___% for the Jurika & Voyles Relative Value Fund (after waiver or reimbursement), __% for the Jurika & Voyles Small Cap Growth Fund (after waiver or reimbursement) and __% for the Large Cap Growth Fund (after waiver or reimbursement). AEW, located at World Trade Center East, Two Seaport Lane, Boston, Massachusetts 02210, serves as the adviser to the AEW Real Estate Fund. AEW is a subsidiary of CDC IXIS North America. Together with other AEW adviser affiliates, AEW managed $6.3 billion of client capital as of December 31, 2002. For the fiscal year ended January 31, 2003, AEW Real Estate Fund paid ___ % (after waiver or reimbursement) of its average daily net assets to AEW in advisory fees. CGM, located at One International Place, Boston, Massachusetts 02110, has served as adviser to the Targeted Equity Fund since CGM's inception in 1989. It also serves as investment adviser to six additional mutual funds and various institutional investors. CGM is an affiliate of CDC IXIS North America and had over $2.8 billion in assets under management as of December 31, 2002. For the fiscal year ended December 31, 2002, Targeted Equity Fund paid ____% of its average daily net assets to CGM in advisory fees. Subadvisers Harris Associates, located at Two North LaSalle Street, Chicago, Illinois 60602, serves as subadviser to the Growth and Income Fund. Harris Associates, a subsidiary of CDC IXIS North America, managed $30.1 billion in assets as of December 31, 2002, and, together with its predecessor, has managed investments since 1970. It also manages investments for other mutual funds as well as assets of individuals, trusts, retirement plans, endowments, foundations, and several private partnerships. Prior to July 1, 2002, Westpeak Global Advisors, L.P. was the subadviser to the Growth and Income Fund. The 29 advisory fee rates under the Fund's agreement with Westpeak Global Advisors, L.P. are the same as they are under the current agreement with Harris Associates. Jurika & Voyles, located at Lake Merritt Plaza, 1999 Harrison, Suite 700, Oakland, California 94612, serves as subadviser to Jurika & Voyles Relative Value Fund and Jurika & Voyles Small Cap Growth Fund. Jurika & Voyles, founded in 1983, had discretionary management authority with respect to over $1 billion of assets as of December 31, 2002, for various clients including corporations, pension plans, 401(k) plans, profit sharing plans, trusts and estates, foundations and charities, mutual funds and individuals. Jurika & Voyles is a subsidiary of CDC IXIS North America. Jurika & Voyles employs a team approach in managing the Jurika & Voyles Small Cap Growth Fund's portfolio. Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as subadviser to the International Equity Fund. Loomis Sayles is a subsidiary of CDC IXIS North America. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $54 billion in assets under management as of December 31, 2002. Loomis Sayles is well known for its professional research staff, which is one of the largest in the industry. Vaughan Nelson, located at 600 Travis Street, Suite 6300, Houston, Texas 77002, serves as subadviser to the Large Cap Growth Fund and the Large Cap Value Fund. Vaughan Nelson is a subsidiary of CDC IXIS North America. Originally incorporated in 1970, Vaughan Nelson focuses primarily on managing equity and fixed-income funds for clients who consist of foundations, university endowments and corporate retirement and family/individual core funds. As of December 31, 2002, Vaughan Nelson had $3.6 billion in assets under management. Subadvisory Agreements Each Fund has received an exemptive order from the Securities and Exchange Commission (the "SEC") which permits CDC IXIS Advisers to amend or continue existing subadvisory agreements when approved by the Board of Trustees, without shareholder approval. The exemption also permits CDC IXIS Advisers to enter into new subadvisory agreements with subadvisers that are not affiliated with CDC IXIS Advisers without shareholder approval, if approved by the Board of Trustees. Shareholders will be notified of any subadviser changes. Portfolio Trades In placing portfolio trades, each Fund's adviser or subadviser may use brokerage firms that market the Fund's shares or are affiliated with CDC IXIS North America, CDC IXIS Advisers or any adviser or subadviser. In placing trades, any adviser or subadviser will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. 30 Management Team Meet the Funds' Portfolio Managers William R. Berger William R. Berger co-manages the Large Cap Growth Fund having previously co-managed the Fund from July 2001 to November 2002. He also co-manages Vaughan Nelson's segment of the CDC Nvest Star Growth Fund. Mr. Berger, Senior Portfolio Manager, joined the firm in 1998. Prior to joining Vaughan Nelson, he was Vice President and Portfolio Manager at Securities Management and Research, Inc. from 1993 through 1998. Mr. Berger received a B.S. from Miami University (Ohio) and an M.B.A. from the Wharton School at the University of Pennsylvania. He holds the designation of Chartered Financial Analyst and Certified Public Accountant. Mr. Berger has over 14 years of investment management experience. Guy R. Elliffe Guy R. Elliffe has co-managed the Jurika & Voyles Relative Value Fund since commencement of operations. He also serves as co-portfolio manager on the value component of the equity portion of the CDC Nvest Balanced Fund. Mr. Elliffe, Senior Vice President, Principal and Director of Research of Jurika & Voyles, joined the company in 1995. Mr. Elliffe received a B.A. from the University of Otago (New Zealand) and a Certificate of Finance and Investment from the Institute of Actuaries in London. He holds the designation of Chartered Financial Analyst and has over 22 years of investment experience. G. Kenneth Heebner G. Kenneth Heebner has managed the Targeted Equity Fund since 1976. Mr. Heebner currently serves as senior portfolio manager of CGM, which he co-founded in 1989. Mr. Heebner received a B.S. from Amherst College and an M.B.A. from Harvard Business School. He holds the designation of Chartered Financial Analyst and is a 37-year veteran of the investment industry. Eric R. Hull Eric R. Hull has co-managed Jurika & Voyles Relative Value Fund since commencement of operations. He also serves as co-portfolio manager on the value component of the equity portion of the CDC Nvest Balanced Fund. Mr. Hull, Senior Vice President, Principal and Senior Research Analyst of Jurika & Voyles, joined the company in 1994. Mr. Hull received a B.S. in Business Administration from the University of California at Berkeley. He holds the designation of Chartered Financial Analyst and has over 17 years of investment experience. Brian A. Grove Brian A. Grove co-manages the Large Cap Growth Fund. He also co-manages Vaughan Nelson's segment of the CDC Nvest Star Growth Fund. Mr. Grove, Senior Portfolio Manager of Vaughan Nelson, joined the firm in 1997. Mr. Grove received a B.A. and an M.B.A. from Vanderbilt University and a J.D. from the University of Houston and is a member of the Texas Bar. He holds the designation of Chartered Financial Analyst and has over 19 years of investment management experience. Robert M. Levy Robert M. Levy serves as portfolio manager to the Growth and Income Fund. He also co-manages the Harris segment of the CDC Nvest Star Value Fund. Mr. Levy is Partner, President and Chief Investment Officer of Harris Associates, which he joined in 1985. Mr. Levy received a B.A. from Vanderbilt University and an M.B.A. from the Wharton School of Business at the University of Pennsylvania. He holds the designation of Chartered Financial Analyst and has over 25 years of investment experience. Edward S. Loeb 31 Edward S. Loeb serves as portfolio manager to the Growth and Income Fund. Mr. Loeb, Partner and Director of Institutional Portfolios of Harris Associates, joined the firm in 1989. Mr. Loeb received an M.B.A. from Northwestern University and a B.A. from Princeton University. He holds the designation of Chartered Financial Analyst and has over 13 years of investment experience. Michael J. Mangan Michael J. Mangan serves as portfolio manager to the Growth and Income Fund. Mr. Mangan, Portfolio Manager of Harris Associates, joined the firm in 1997. Prior to joining Harris Associates, Mr. Mangan was a Portfolio Manager with Stein Roe & Farnam from 1988 - 1997. Mr. Mangan received a B.B.A. from the University of Iowa and an M.B.A. from Northwestern University. He is a CPA, holds the designation of Chartered Financial Analyst and has over 13 years of investment management experience. Eswar Menon Eswar Menon serves as co-portfolio manager for the International Equity Fund, concentrating on emerging markets. He also co-manages the Loomis Sayles' segment of the CDC Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles Worldwide Fund, Loomis Sayles International Equity Fund, and Loomis Sayles Emerging Markets Fund and leads a team of managers responsible for the management of the International segment of the Loomis Sayles Global Technology Fund. Mr. Menon, Vice President of Loomis Sayles, joined the company in 1999. Prior to joining Loomis Sayles, Mr. Menon was the Portfolio Manager for Emerging Countries at Nicholas Applegate Capital Management from 1995 until 1999. Mr. Menon received an M.B.A. from the University of Chicago, an M.S. from the University of California, and a B.S. from Indian Institute of Technology, Madras, India. He has over 13 years of investment experience. Nicholas E. Moore Nicholas E. Moore has co-managed Jurika & Voyles Relative Value Fund since commencement of operations. Mr. Moore, Senior Vice President, Principal and Senior Research Analyst of Jurika & Voyles, joined the company in June 1998. Prior to joining Jurika & Voyles, Mr. Moore was Vice President and Portfolio Manager at Orbitex Management from January until June 1998. Prior to that he served as portfolio manager for the Franklin Templeton Group from 1986 until January 1998. Mr. Moore received a B.A. from Menlo College in California. He has over 17 years of investment experience. Alexander Muromcew Alexander Muromcew serves as co-portfolio manager for the International Equity Fund, concentrating on Asian markets. Mr. Muromcew, Vice President of Loomis Sayles, joined the company in 1999. He also co-manages the Loomis Sayles segment of the CDC Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles Emerging Markets Fund. Prior to joining Loomis Sayles, Mr. Muromcew was a portfolio manager at Nicholas Applegate Capital Management since 1996. He received an M.B.A. from Stanford University and a B.A. from Dartmouth College and has over 12 years of investment experience. Curt E. Rohrman Curt E. Rohrman has served as co-portfolio manager of the Large Cap Growth Fund since November 2002. He also serves as co-portfolio manager of Vaughan Nelson's segment of the CDC Nvest Star Growth Fund. Mr. Rohrman, a Senior Portfolio Manager of Vaughan Nelson, joined the firm in 2002. Prior to joining Vaughan Nelson he was a Portfolio Manager with USAA Investment Management Company from 1997 to 2002. Mr. Rohrman received a B.B.A. in finance and marketing from Texas Christian University and an M.B.A. in finance from the University of Texas at Austin. He holds the designation of Chartered Financial Analyst and has over 18 years of investment experience. John Tribolet John Tribolet serves as co-portfolio manager for the International Equity Fund, concentrating on European markets. He also co-manages the Loomis Sayles segment of the CDC Nvest Star Worldwide Fund, the International Equities sector of Loomis Sayles Worldwide Fund, Loomis Sayles International Equity Fund and Loomis Sayles Emerging Markets Fund. Mr. 32 Tribolet, Vice President of Loomis Sayles, joined the company in 1999. Prior to joining Loomis Sayles, Mr. Tribolet was a portfolio manager for European Equities at Nicholas Applegate Capital Management from 1997 until 1999. Mr. Tribolet received a B.S. from Columbia University. He has over 11 years of investment experience. Matthew A. Troxell Matthew A. Troxell has managed the AEW Real Estate Fund since its inception. Mr. Troxell joined AEW in 1994 and is a Principal of the company. Mr. Troxell, a member of the National Association of Real Estate Investment Trusts, received a B.A. from Tufts University. He holds the designation of Chartered Financial Analyst and has over 21 years of experience in investment analysis and portfolio management. 33 Management Team Adviser and Subadviser Past Performance Information Adviser - AEW (AEW Composite) The returns shown below represent composite returns derived from performance data furnished by AEW relating to a group of private accounts managed by AEW Capital Management, L.P. (the "AEW Composite") with substantially similar investment objectives, strategies and policies as the CDC Nvest AEW Real Estate Fund. (AEW is a limited partnership that is a controlled affiliate of AEW Capital Management, L.P. and a subsidiary of CDC IXIS North America.) Matthew Troxell, CDC Nvest AEW Real Estate Fund's portfolio manager, has been the lead manager for the accounts underlying the AEW Composite since July 1999. The accounts underlying the AEW Composite have not been subject to the same types of expenses to which the CDC Nvest AEW Real Estate Fund is subject nor to the diversification requirements, investment limitations and other restrictions to which the Fund is subject under the Investment Company Act of 1940 and the Internal Revenue Code. The AEW Composite's performance results may have been less favorable had they been subject to these expenses or restrictions or to other restrictions applicable to investment companies under relevant laws. In addition, the CDC Nvest AEW Real Estate Fund may be subject to more frequent inflows and outflows of assets than the accounts underlying the AEW Composite, which may negatively impact performance. The information regarding the performance of the AEW Composite does not represent CDC Nvest AEW Real Estate Fund's performance. Such information should not be considered a prediction of the future performance of the Fund. CDC Nvest AEW Real Estate Fund commenced operations on September 1, 2000 and has the historical performance record shown on page ____. The table below shows the average annual total return of the AEW Composite for the one-year period ended December 31, 2002 and for the period from July 1, 1999 through December 31, 2002. The AEW Composite returns are also compared against the Morgan Stanley REIT Index. The past performance data for the AEW Composite has been adjusted to reflect the aggregate management fees and other expenses actually paid by the accounts underlying the AEW Composite and assumes the reinvestment of all dividends and distributions. The fees and expenses paid by CDC Nvest AEW Real Estate Fund are higher than the aggregate fees and expenses paid by the accounts underlying the AEW Composite. The performance of the AEW Composite would have been lower than that shown below if it had been subject to the fees and expenses of CDC Nvest AEW Real Estate Fund. Average Annual Total Returns (1) (for the period ended December 31, 2002) - -------------------------------------------------------------------------------- 1 Year Since July 1, 1999 - -------------------------------------------------------------------------------- AEW Composite _____% _____% - -------------------------------------------------------------------------------- Morgan Stanley REIT Index _____% _____% - -------------------------------------------------------------------------------- (1) The AEW Composite consists of all client accounts whose portfolios were managed by Matthew Troxell at AEW Capital Management, L.P. for the one-year period ending December 31, 2002 and for the period from July 1, 1999 until December 31, 2002 using investment policies and strategies substantially similar to those that are used to manage CDC Nvest AEW Real Estate Fund. The average annual total return for the AEW Composite was calculated using a time-weighted rate of return which differs in part from the prescribed formula used by mutual funds to calculate their returns. The Morgan Stanley REIT Index is a market capitalization-weighted, unmanaged, total-return index of REITs that meet certain liquidity requirements. The index was designed to track the total-return performance of a broad group of REIT stocks assuming dividend reinvestment in the index. You cannot invest directly in an index. The Morgan Stanley REIT Index returns have not been adjusted for ongoing management, distribution and operating expenses applicable to mutual fund investments. 34 Subadviser - Harris Associates (Harris Large Cap Value Composite) The returns shown below represent the returns derived from performance data furnished by Harris Associates relating to a group of accounts advised by Harris Associates with substantially similar investment objectives, strategies and policies as CDC Nvest Growth and Income Fund (the "Harris Large Cap Value Composite"). The accounts underlying the Harris Large Cap Value Composite have not been subject to the same types of expenses to which CDC Nvest Growth and Income Fund is subject nor to the diversification requirements, investment limitations and other restrictions to which the Fund is subject under the Investment Company Act of 1940 and the Internal Revenue Code. The Harris Large Cap Value Composite's performance results may have been less favorable had they been subject to these expenses or restrictions or to other restrictions applicable to investment companies under relevant laws. In addition, the Fund may be subject to more frequent inflows and outflows of assets than the accounts underlying the Harris Large Cap Value Composite, which may negatively impact performance. The information regarding the performance of the Harris Large Cap Value Composite does not represent CDC Nvest Growth and Income Fund's performance. Such information should not be considered a prediction of the future performance of the Fund. CDC Nvest Growth and Income Fund commenced operations on May 6, 1931, and has the historical performance record shown on page ____. Harris Associates did not become the CDC Nvest Growth and Income Fund's subadviser until July 1, 2002. The table below shows the average annual total returns for the Harris Large Cap Value Composite for one year and since its inception. The Harris Large Cap Value Composite returns are also compared against the S&P 500 Index and the Russell 1000 Value Index. The past performance data for the Harris Large Cap Value Composite has been adjusted to reflect the aggregate management fees and other expenses actually paid by the accounts underlying the Harris Large Cap Value Composite and assumes the reinvestment of all dividends and distributions. The fees and expenses paid by CDC Nvest Growth and Income Fund are higher than the aggregate fees and expenses paid by the accounts underlying the Harris Large Cap Value Composite. The performance of the Harris Large Cap Value Composite would have been lower than that shown below if they had been subject to the fees and expenses of CDC Nvest Growth and Income Fund. Average Annual Total Returns (1) (for the period ended December 31, 2002) 1 Year Since Inception ------ --------------- Harris Large Cap Value Composite ____% ____%(2) Russell 1000 Value Index ____% ____%(2) S&P 500 Index ____% ____%(2) (1) Average Annual Total Returns: The Harris Large Cap Value Composite consists of all client accounts whose portfolios are managed using investment policies and strategies substantially similar to those that will be used to manage CDC Nvest Growth and Income Fund. The Russell 1000 Value Index is a subset of stocks from the larger Russell 1000 Index, selected for their greater value orientation. The S&P 500 Index is a commonly used benchmark of U.S. equity securities. The indices are unmanaged, have no operating costs, and are included in the table to facilitate your comparison of the Harris Large Cap Value Composite's performance to broad-based market indices. These comparative indices' returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. (2) As of inception of the Harris Large Cap Value Composite, July 1, 1998. 35 Fund Services It's Easy to Open an Account To Open an Account with CDC Nvest Funds: 1. Read this Prospectus carefully. 2. Read the following eligibility and minimum investment requirements to determine if you may purchase Class Y shares. Class Y shares of the Fund may be purchased by the following entities at the following investment minimums. A minimum initial investment is $1 million and $10,000 is the minimum subsequent investment for: o Other mutual funds, endowments, foundations, bank trust departments or trust companies. There is no initial or subsequent investment minimum for: o Retirement Plans (401(a), 401(k), 457 or 403(b) plans) that have total investment assets of at least $10 million. Plan sponsor accounts can be aggregated to meet this minimum. o Insurance Company Accounts of New England Financial, Metropolitan Life Insurance Company ("MetLife") or their affiliates. o Separate Accounts of New England Financial, MetLife or their affiliates. o Wrap Fee Programs of certain broker-dealers not being paid by the Fund, CDC IXIS Advisers or the Distributor. Such wrap fee programs may be subject to additional or different conditions, including a wrap account fee. Each broker-dealer is responsible for transmitting to its customer a schedule of fees and other information regarding any such conditions. If the participant who purchased Class Y shares through a wrap fee program should terminate the wrap fee arrangement with the broker-dealer, then the Class Y shares will, at the discretion of the broker-dealer, automatically be converted to a number of Class A shares of the same Fund having the same dollar value of the shares converted, and the broker-dealer may thereafter be entitled to receive from that Fund an annual service fee of 0.25% of the value of Class A shares owned by that shareholder. o Certain Individual Retirement Accounts if the amounts invested represent rollover distributions from investments by any of the Retirement Plans set forth above. o Deferred Compensation Plan Accounts of New England Life Insurance Company ("NELICO"), MetLife or their affiliates ("Deferred Compensation Accounts"). o Service Accounts through an omnibus account by investment advisers, financial planners, broker-dealers or other intermediaries who have entered into a service agreement with a Fund. A fee may be charged to shareholders purchasing through a service account if they effect transactions through such parties and they should contact such parties regarding information regarding such fees. o Former shareholders of the Jurika & Voyles Value + Growth Fund and Jurika & Voyles Small-Cap Fundwho received Class Y shares in the reorganizations of their Funds may continue to purchase Class Y shares of the CDC Nvest Jurika & Voyles Relative Value Fund and CDC Nvest Small Cap Growth Fund, respectively. 3. You should contact CDC Nvest Funds at 800-225-5478 for an application or if you have any questions about purchasing Fund shares. 4. Use the sections of this Prospectus that follow as your guide for purchasing shares. Certificates You will not receive certificates representing Class Y shares. 36 Fund Services Buying Shares
Opening an Account Adding to an Account Through Your Investment Dealer o Call your investment dealer for information about opening or adding to an account. By Mail o Make out a check in U.S. o Make out a check in U.S. dollars for the investment dollars for the investment amount, payable to "CDC Nvest amount, payable to "CDC Nvest Funds." Third party checks and Funds." Third party checks and "starter" checks will not be "starter" checks will not be accepted. accepted. o Mail the check with your o Fill out the investment [envelope icon] completed application to CDC slip from an account statement Nvest Funds, P.O. Box 8551, or include a letter specifying Boston, MA 02266-8551. the Fund name, your class of shares, your account number and the registered account name(s). By Exchange (See the section entitled "Exchanging Shares" for more details.) o Obtain a current prospectus o Call your investment dealer [exchange icon] for the Fund into which you are or CDC Nvest Funds at exchanging by calling your 800-225-5478 to request investment dealer or CDC Nvest an exchange. Funds at 800-225-5478. o Call your investment dealer or CDC Nvest Funds to request an exchange. By Wire o Call CDC Nvest Funds at o Visit www.cdcnvestfunds.com 800-225-5478 to obtain an to add shares to your account account number and wire transfer by wire. Instruct your bank to instructions. Your bank may transfer funds to State Street charge you for such a transfer. Bank & Trust Company, ABA# [wire icon] 011000028, and DDA # 99011538. o Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer.
37 Through Automated Clearing House ("ACH") o Ask your bank or credit o Call CDC Nvest Funds at union whether it is a member of 800-225-5478 to add shares [ACH icon] the ACH system. to your account through ACH. o Complete the "Bank o If you have not signed up Information" section on your for the ACH system, please call account application. CDC Nvest Funds for a Service Options Form. o Mail your completed application to CDC Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551.
38 Fund Services Selling Shares To Sell Some or All of Your Shares Certain restrictions may apply. See section entitled "Restrictions on Buying, Selling and Exchanging Shares." Through Your Investment Dealer o Call your investment dealer for information. By Mail o Write a letter to request a redemption. Specify the name of your Fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section entitled "Selling Shares in Writing." [envelope icon] o The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. o Mail your request by regular mail to CDC Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551, or by registered, express or certified mail to CDC Nvest Funds, 66 Brooks Drive, Braintree, MA 02184. o Your proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you on the business day after the request is received in good order. By Exchange (See the section entitled "Exchanging Shares" for more details.) o Obtain a current prospectus for the Fund into which you are exchanging by calling your investment dealer or CDC Nvest Funds at 800-225-5478. [exchange icon] o Call CDC Nvest Funds to request an exchange. By Wire o Complete the "Bank Information" section on your account application. [wire icon] o Call CDC Nvest Funds at 800-225-5478 or indicate in your redemption request letter (see above) that you wish to have your proceeds wired to your bank. o Proceeds (less any applicable CDSC) will generally be wired on the next business day. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. Through Automated Clearing House o Ask your bank or credit union whether it is a member of the ACH system. o Complete the "Bank Information" section on your account application. [ACH icon] o If you have not signed up for the ACH system on your application, please call CDC Nvest Funds at 800-225-5478 for a Service Options Form. o Call CDC Nvest Funds to request an ACH redemption. o Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days. By Telephone o Call CDC Nvest Funds at 800-225-5478 [telephone icon] to choose the method you wish to 39 use to redeem your shares. You may receive your proceeds by mail, by wire or through ACH (see above). 40 Fund Services Selling Shares in Writing If you wish to redeem your shares in writing, all owners of the shares must sign the redemption request in the exact names in which the shares are registered and indicate any special capacity in which they are signing. In certain situations, you will be required to make your request to sell shares in writing. In these instances, a letter of instruction signed by the authorized owner is necessary. In certain situations, we also may require a signature guarantee or additional documentation. A signature guarantee protects you against fraudulent orders and is necessary if: o your address of record has been changed within the past 30 days; o you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; o a proceeds check for any amount is either mailed to an address other than the address of record or not payable to the registered owner(s); or o the proceeds are sent by check, wire, or in some circumstances ACH to a bank account other than a previously established bank on file. A notary public cannot provide a signature guarantee. A signature guarantee can be obtained from one of the following sources: o a financial representative or securities dealer; o a federal savings bank, cooperative, or other type of bank; o a savings and loan or other thrift institution; o a credit union; or o a securities exchange or clearing agency. 41 Fund Services Exchanging Shares You may exchange Class Y shares of your Fund for Class Y shares of any other CDC Nvest Fund that offers Class Y shares or for Class A shares of a Money Market Fund. Former shareholders of the Jurika & Voyles Balanced Fund, Jurika & Voyles Value+Growth Fund and Jurika & Voyles Small-Cap Fund who received Class Y shares of the CDC Nvest Balanced Fund, the Jurika & Voyles Relative Value Fund and Jurika & Voyles Small Cap Growth Fund, respectively, in the reorganization of their Funds may also exchange their shares (load free) for Class A shares of any CDC Nvest Fund that does not offer Class Y shares. Agents, general agents, directors and senior officers of NELICO and its insurance company subsidiaries may, at the discretion of NELICO, elect to exchange Class Y shares of any CDC Nvest Fund in a NELICO Deferred Compensation Account for Class A shares of any other CDC Nvest Fund which does not offer Class Y shares. Class A shares of any CDC Nvest Fund in a NELICO Deferred Compensation Account may also be exchanged for Class Y shares of any CDC Nvest Fund. All exchanges are subject to the eligibility requirements of the CDC Nvest Fund or Money Market Fund into which you are exchanging and any other limits on sales of or exchanges into that Fund. The exchange privilege may be exercised only in those states where shares of the Funds may be legally sold. For federal income tax purposes, an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund is treated as a sale on which gain or loss may be recognized. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Before requesting an exchange into any other CDC Nvest Fund or Money Market Fund, please read its prospectus carefully. Please refer to the Statement of Additional Information (the "SAI") for more detailed information on exchanging Fund shares. Restrictions on Buying, Selling and Exchanging Shares Purchase and Exchange Restrictions Although the Funds do not anticipate doing so, they reserve the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any purchase or exchange order by a particular purchaser (or group of related purchasers) if the transaction is deemed harmful to the best interests of the Fund's other shareholders or would disrupt the management of the Fund. Each Fund and the Distributor reserve the right to restrict purchases and exchanges for the accounts of "market timers" by limiting the transaction to a maximum dollar amount. An account will be deemed to be one of a market timer if: (i) more than two exchange purchases of a given Fund are made for the account in a calendar quarter or (ii) the account makes one or more exchange purchases of a given Fund in a calendar quarter in an aggregate amount in excess of 1% of the Fund's total net assets. Selling Restrictions The table below describes restrictions placed on selling shares of any Fund described in this Prospectus: Restriction Situation The Fund may suspend the right of redemption or postpone o When the New York Stock Exchange ( payment for more than 7 days: (the "Exchange") is closed (other than a weekend/holiday) o During an emergency o Any other period permitted by the SEC The Fund reserves the right to suspend account services o With a notice of a dispute between registered or refuse transaction requests: owners o With suspicion/evidence of a fraudulent act The Fund may pay the redemption price in whole or in part o When it is detrimental for a Fund to make cash by a distribution in kind of readily marketable payments as determined in the sole discretion of the securities in lieu of cash or may take up to 7 days to adviser or subadviser
42 pay a redemption request in order to raise capital: The Fund may withhold redemption proceeds until the check o When redemptions are made within 10 calendar days or funds have cleared: of purchase by check or ACH of the shares being redeemed
Small Account Redemption When your Fund account falls below a set minimum (currently $2,000) as set by the Board of Trustees from time to time, the Fund may close your account and send you the proceeds or may charge a fee. You will have 30 days after being notified of the Fund's intention to close your account or charge a fee to increase its amount to the set minimum. This does not apply to certain qualified retirement plans or accounts that have fallen below the minimum solely because of fluctuations in the Fund's net asset value per share. 43 Fund Services How Fund Shares Are Priced "Net asset value" is the price of one share of a Fund without a sales charge, and is calculated each business day using this formula: Net Asset Value = Total market value of securities + Cash and other assets - Liabilities ---------------------------------------------------------------------- Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule: o A share's net asset value is determined at the close of regular trading on the Exchange on the days the Exchange is open for trading. This is normally 4:00 p.m. Eastern time. Generally, a Fund's shares will not be priced on the days on which the Exchange is closed for trading. However, in CDC IXIS Advisers' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if CDC IXIS Advisers in its discretion determines that there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares. This may occur, for example, if the Exchange is closed but the NASDAQ Stock Market is open for trading. In addition, a Fund's shares will not be priced on the holidays listed in the SAI. See the section entitled "Net Asset Value and Public Offering Price" in the SAI for more details. o The price you pay for purchasing, redeeming or exchanging a share will be based upon the net asset value next calculated by each Fund's custodian (plus or minus applicable sales charges as described earlier in this Prospectus) after your order is received "in good order." o Requests received by the Distributor after the Exchange closes will be processed based upon the net asset value determined at the close of regular trading on the next day that the Exchange is open, with the exception that those orders received by your investment dealer before the close of the Exchange and received by the Distributor before 5:00 p.m. Eastern time* on the same day will be based on the net asset value determined on that day. A Fund significantly invested in foreign securities may have net asset value changes on days when you cannot buy or sell its shares. * Under limited circumstances, the Distributor may enter into a contractual agreement pursuant to which it may accept orders after 5:00 p.m., but not later than 8:00 p.m. Generally, during times of substantial economic or market change, it may be difficult to place your order by phone. During these times, you may deliver your order in person to the Distributor or send your order by mail as described in the sections entitled "Buying Shares" and "Selling Shares." Generally, Fund securities are valued as follows: o Equity securities -- most recent sales or quoted bid price or as provided by a pricing service if a sales or quoted bid price is unavailable. o Debt securities (other than short-term obligations) -- based upon pricing service valuations, which determine valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. o Short-term obligations (remaining maturity of less than 60 days) -- amortized cost (which approximates market value). o Securities traded on foreign exchanges -- most recent sale/bid price on the non-U.S. exchange, unless the Fund believes that an occurrence after the close of the exchange will materially affect its value. In that case, it may be given fair value as determined by or pursuant to the procedures approved by the Board of Trustees at the time the Fund determines net asset value. o Options -- last sale price, or if not available, last offering price. 44 o Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. o All other securities -- fair market value as determined by the adviser or subadviser of the Fund pursuant to procedures approved by the Board of Trustees. The effect of fair value pricing as described above for "Securities traded on foreign exchanges" and "All other securities" is that securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes actually reflects fair value. In unusual circumstances, instead of valuing securities in the usual manner, the Funds may value securities at fair value or estimate their value as determined in good faith by the Board of Trustees or persons acting at their direction pursuant to procedures approved by the Board of Trustees. Fair valuation may also be used by the Board of Trustees if extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. 45 Fund Services Dividends and Distributions The Funds generally distribute most or all of their net investment income (other than capital gains) in the form of dividends. The following table shows when each Fund expects to distribute dividends. Each Fund expects to distribute all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. The Board of Trustees may adopt a different schedule as long as payments are made at least annually. Dividend Payment Schedule Annually Quarterly Growth and Income AEW Real Estate International Equity Jurika & Voyles Relative Value Jurika & Voyles Small Cap Growth Large Cap Growth Targeted Equity Distributions will automatically be reinvested in shares of the same class of the distributing Fund at net asset value, unless you select one of the following alternatives: Receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional Class Y shares of the Fund, or in Class Y shares of another CDC Nvest Fund. Receive all distributions in cash. For more information or to change your distribution option, contact CDC Nvest Funds in writing or call 800-225-5478. If you earn more than $10 annually in taxable income from a CDC Nvest Fund held in a non-retirement plan account, you will receive a Form 1099 to help you report the prior calendar year's distributions on your federal income tax return. Be sure to keep this Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. Tax Consequences Each Fund intends to meet all requirements under Subchapter M of the Internal Revenue Code (the "Code") necessary to qualify for treatment as a "regulated investment company" and thus does not expect to pay any federal income tax on income and capital gains distributed to shareholders. Distributions derived from net short-term capital gains, i.e., gains from investments that a Fund held one year or less, or investment income are generally taxable at ordinary income rates. If you are a corporation investing in the Fund, a portion of these dividends may qualify for the dividends-received deduction provided that you meet certain holding period requirements. However, distributions by the Fund from REITs will not qualify for the corporate dividends-received deduction. In addition, distributions by the Fund to retirement plans that qualify for tax-exempt treatment under federal income tax laws generally will not be taxable. Distributions of gains from investments that a Fund owned for more than one year that are designated by a Fund as capital gain dividends will generally be taxable to a shareholder receiving such distributions as long-term capital gain, regardless of how long the shareholder has held Fund shares. Fund distributions paid to you are taxable whether you receive them in cash or reinvest them in additional shares. Distributions are taxable to you even if they are paid from income or gains earned by the Fund before your investment (and thus were included in the price you paid). Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized or realized but not distributed. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. We do not expect shareholders to be entitled to claim a credit or deduction with respect to foreign taxes. In addition, the Fund's investments in foreign securities or foreign currencies may increase or accelerate the Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Because the Fund invests in foreign securities, shareholders should consult their tax advisers about consequences of their investments under foreign laws. 46 Dividends derived from interest on securities issued by the U.S. government or its agencies or instrumentalities may be exempt from state and local income taxes. AEW Real Estate Fund advises shareholders of the proportion of any Fund's dividends that are derived from such interest. A Fund's investments in certain debt obligations may cause that Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. REITs attempt to minimize their corporate tax costs by distributing at least 90% of their REIT taxable income to their interest holders. If a REIT failed to distribute such a percentage of its REIT taxable income or to satisfy the other requirements of REIT status, it would be taxed as a corporation, and amounts available for distribution to its shareholders (including AEW Real Estate, Jurika & Voyles Relative Value and Targeted Equity Funds) would be reduced by any corporate taxes payable by the REIT. Under current law, the Fund serves to block unrelated business taxable income ("UBTI") from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize UBTI by virtue of its investment in the Fund if either: (1) the Fund invests in REITs that hold residual interests in real estate mortgage conduits ("REMICs"); or (2) shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of the Code Section 514(b). If a charitable remainder trust (as defined in the Code Section 664) realizes any UBTI for a taxable year, it will lose its tax-exempt status for the year. The Fund may invest in REITs that hold residual interests in REMICs. The redemption, sale or exchange of Fund shares (including an exchange of Fund shares for shares of another CDC Nvest Fund or Money Market Fund) is a taxable event and may result in the recognition of a gain or loss. Gain or loss, if any, recognized on the redemption, sale, exchange or other disposition of Fund shares will be taxed as a long-term capital gain or loss if the shares are capital assets in the shareholder's hands and if the shareholder held the shares for more than one year. You should consult your tax adviser for more information on your own situation, including possible foreign, state or local taxes. The Bush Administration has announced a proposal to reduce or eliminate the tax on dividends; however, many of the details of the proposal (including how the proposal would apply to dividends paid by a regulated investment company) have not been specified. Moreover, the prospects for this proposal are unclear. Accordingly, it is not possible to evaluate how this proposal might affect the tax discussion above. Compensation to Securities Dealers The Distributor may, at its expense, pay concessions to dealers which satisfy certain criteria established from time to time by the Distributor relating to increasing net sales of shares of the CDC Nvest Funds over prior periods, and certain other factors. See the SAI for more details. 47 Financial Performance The financial highlights tables are intended to help you understand each Fund's financial performance for the last five years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the return that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by ___________________________, independent accountants, whose report, along with each Fund's financial statements, are incorporated by reference in the SAI, which is available without charge upon request. To be updated. 48 Glossary of Terms American Depository Receipts (ADRs) -- Instruments issued by U.S. banks that represent an interest in equity securities held by arrangement with the bank. These instruments can be either "sponsored" or "unsponsored." Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities. Bid price -- The price a prospective buyer is ready to pay. This term is used by traders who maintain firm bid and offer prices in a given security by standing ready to buy or sell security units at publicly quoted prices. Bottom-up analysis -- The analysis of potential performance of individual stocks before considering the impact of economic trends. Such companies may be identified from research reports, stock screens or personal knowledge of the products and services. Capital gain distributions -- Payments to a Fund's shareholders of net profits earned from selling securities in a Fund's portfolio. Capital gain distributions are usually paid once a year. Credit rating -- Independent evaluation of a bond's creditworthiness. This measurement is usually calculated through an index compiled by companies such as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's, are generally considered investment grade. Debt-to-Total Capital Ratio -- Total debt (current and long-term) divided by total capital (debt and equity). This ratio provides information regarding the extent of a company's reliance on debt financing. A high ratio indicates a high degree of financial leverage and a high degree of risk. Derivative -- A financial instrument whose value and performance are based on the value and performance of another security or financial instrument. Discounted price -- The difference between a bond's current market price and its face or redemption value. Diversification -- The strategy of investing in a wide range of securities representing different market sectors to reduce the risk if an individual company or one sector suffers losses. Dividend yield -- The current or estimated annual dividend divided by the market price per share of a security. Duration -- An estimate of how much a bond's price fluctuates with changes in comparable interest rates. Earnings growth -- A pattern of increasing rates of growth in earnings per share from one period to another, which usually causes a stock's price to rise. European Depository Receipts (EDRs) -- Instruments issued by European banks that represent an interest in equity securities held by arrangement with the bank. Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities. FFO Multiple - The price per share of a REIT divided by its Funds from Operations (FFO). The FFO of a REIT is the measure of its operating performance showing its net income plus depreciation of real estate and excluding gains or losses from sales of property or debt restructuring. Fundamental analysis -- An analysis of the balance sheet and income statements of a company in order to forecast its future stock price movements. Fundamental analysis considers records of assets, earnings, sales, products, management and markets in predicting future trends in these indicators of a company's success or failure. By appraising a company's prospects, analysts using such an approach assess whether a particular stock or group of stocks is undervalued or overvalued at its current market price. Global Depository Receipts (GDRs) -- Instruments issued by companies and offered in many markets around the world that represent an interest in equity securities held by arrangement with the bank. Sponsored depository 49 receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities. Growth investing -- An investment style that emphasizes companies with strong earnings growth. Growth investing is generally considered more aggressive than "value" investing. Income distributions -- Payments to a Fund's shareholders resulting from the net interest or dividend income earned by a Fund's portfolio. Inflation -- A general increase in prices coinciding with a fall in the real value of money, as measured by the Consumer Price Index. Interest rate -- Rate of interest charged for the use of money, usually expressed at an annual rate. Market capitalization -- Market price multiplied by number of shares outstanding. Large capitalization companies generally have over $5 billion in market capitalization; medium cap companies between $1.5 billion and $5 billion; and small cap companies less than $1.5 billion. These capitalization figures may vary depending upon the index being used and/or the guidelines used by the portfolio manager. Maturity -- The final date on which the payment of a debt instrument (e.g., bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds generally have maturities of up to 5 years; intermediate-term bonds between 5 and 15 years; and long-term bonds over 15 years. Net asset value (NAV) per share -- The market value of one share of a Fund on any given day without taking into account any front-end sales charge or CDSC. It is determined by dividing a Fund's total net assets by the number of shares outstanding. Price-to-book value ratio -- Current market price of a stock divided by its book value. Some firms use the inverse ratio for this calculation (i.e., book-to-price ratio). Price-to-earnings ratio -- Current market price of a stock divided by its earnings per share. Also known as the "multiple," the price-to-earnings ratio gives investors an idea of how much they are paying for a company's earning power and is a useful tool for evaluating the costs of different securities. The ratio may be calculated using "trailing" earnings or estimates of future (or "forward") earnings. Some firms use the inverse ratio for this calculation (i.e., earnings-to-price ratio). Qualitative analysis -- An analysis of the qualities possessed by a company, including its management, products and competitive positions, to help determine if the company can execute its strategies. Return on equity -- The amount, expressed as a percentage, earned on a company's common stock investment for a given period. It is calculated by dividing common stock equity (net worth) at the beginning of the accounting period into net income for the period after preferred stock dividends but before common stock dividends. This tells common shareholders how effectively their money is being employed. Rule 144A securities -- Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless a manager has determined, under guidelines established by a Fund's trustees, that a particular issue of Rule 144A securities is liquid. Target price -- Price that an investor is hoping a stock he or she has just bought will rise to within a specified period of time. An investor may buy XYZ at $20, with a target price of $40 in one year's time, for instance. Technical analysis -- The research into the demand and supply for securities, options, mutual funds and commodities based on trading volume and price studies. Technical analysis uses charts or computer programs to identify and project price trends in a market, security, mutual fund or futures contract. Top-down approach -- The method in which an investor first looks at trends in the general economy, and next selects industries and then companies that the investor believes should benefit from those trends. Total return -- The change in value of an investment in a Fund over a specific time period expressed as a percentage. Total returns assume all distributions are reinvested in additional shares of a Fund. 50 Value investing -- A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets are not fully reflected in their stock prices. Value stocks will tend to have a lower price-to-earnings ratio than growth stocks. Volatility -- The general variability of a portfolio's value resulting from price fluctuations of its investments. In most cases, the more diversified a portfolio is, the less volatile it will be. Yield -- The rate at which a Fund earns income, expressed as a percentage. Mutual fund yield calculations are standardized, based upon a formula developed by the SEC. Yield-to-maturity -- The concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield (the interest rate on a debt security the issuer promises to pay to the holder until maturity, expressed as an annual percentage of face value) and the time between interest payments. 51 If you would like more information about the Funds, the following documents are available free upon request: Annual and Semiannual Reports -- Provide additional information about each Fund's investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. Statement of Additional Information (SAI) -- Provides more detailed information about the Funds and their investment limitations and policies, has been filed with the SEC and is incorporated into this Prospectus by reference. To order a free copy of the Funds' annual or semiannual report or their SAI, contact your financial representative, or the Funds at: CDC IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116 Telephone: 800-225-5478 Internet: www.cdcnvestfunds.com Important Notice Regarding Delivery of Shareholder Documents: In our continuing effort to reduce your fund's expenses and the amount of mail that you receive from us, we combine mailings of prospectuses, annual or semiannual reports and proxy statements to your household. If more than one family member in your household owns the same fund or funds described in a single prospectus, report or proxy statement, you will receive one mailing unless you request otherwise. Additional copies of our prospectuses, reports or proxy statements may be obtained at anytime by calling 800-225-5478. If you are currently receiving multiple mailings to your household and would like toreceive only one mailing or if you wish to receive separate mailings for each member of your household in the future, please call us at the telephone number listed above and we will resume separate mailings within 30 days of your request. Your financial representative or CDC Nvest Funds will also be happy to answer your questions or to provide any additional information that you may require. Information about the Funds, including their reports and SAI, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Funds' reports and SAI are available free from the SEC's Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. CDC IXIS Asset Management Distributors, L.P., and other firms selling shares of CDC 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 its Web site at www.NASDR.com. (Investment Company Act File No. 811-4323) (Investment Company Act File No. 811-242) (Investment Company Act File No. 811-7345) (Investment Company Act File No. 811-09945) CDC Nvest Funds(SM) CDC IXIS Asset Management Distributors CDC NVEST AEW REAL ESTATE FUND CDC NVEST BALANCED FUND CDC NVEST CAPITAL GROWTH FUND CDC NVEST GROWTH AND INCOME FUND CDC NVEST INTERNATIONAL EQUITY FUND CDC NVEST JURIKA & VOYLES RELATIVE VALUE FUND CDC NVEST JURIKA & VOYLES SMALL CAP GROWTH FUND CDC NVEST LARGE CAP GROWTH FUND CDC NVEST LARGE CAP VALUE FUND CDC NVEST SELECT FUND CDC NVEST TARGETED EQUITY FUND Statement of Additional Information - PART I May 1, 2003 This Statement of Additional Information (the "Statement") contains information which may be useful to investors but which is not included in the Prospectuses of the CDC Nvest Funds listed above (the "Funds" and each a "Fund"). This Statement is not a prospectus and is authorized for distribution only when accompanied or preceded by the Prospectus of the Funds dated May 1, 2003 (the "Prospectus" or "Prospectuses"). This Statement should be read together with the Prospectuses. Investors may obtain the Prospectuses without charge from CDC IXIS Asset Management Distributors, L.P. (the "Distributor"), Prospectus Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling CDC Nvest Funds at 800-225-5478 or by placing an order online at www.cdcnvestfunds.com. Part I of this Statement contains specific information about the Funds. Part II includes information about the Funds as well as other CDC Nvest Funds. CDC Nvest Balanced Fund, CDC Nvest Capital Growth Fund, CDC Nvest International Equity Fund, CDC Nvest Jurika & Voyles Relative Value Fund, CDC Nvest Large Cap Growth Fund and CDC Nvest Targeted Equity Fund are each a diversified fund and a series of CDC Nvest Funds Trust I, a registered open-end management investment company that offers a total of fifteen funds. CDC Nvest Growth and Income Fund is a diversified fund and a series of CDC Nvest Funds Trust II, a registered open-end management investment company that offers a total of five funds. CDC Nvest Jurika & Voyles Small Cap Growth Fund and CDC Nvest Large Cap Value Fund are each a diversified fund and a series of CDC Nvest Funds Trust III, a registered open-end management investment company that currently offers a total of three funds. CDC Nvest Select Fund is a non-diversified fund and a series of CDC Nvest Funds Trust III. CDC Nvest AEW Real Estate Fund is a diversified fund and a series of CDC Nvest Companies Trust I, a registered open-end management investment company that currently offers one fund. CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III and CDC Nvest Companies Trust I are collectively referred to in Part I of this Statement as the "Trusts" and are each referred to as a "Trust." The Funds' financial statements and accompanying notes that appear in the Funds' annual and semiannual reports are incorporated by reference into Part I of this Statement. Each Fund's annual and semiannual reports contain additional performance information and are available upon request and without charge by calling 800-225-5478. XS33 Table of Contents Part I Page ---- Investment Restrictions Fund Charges and Expenses Ownership of Fund Shares Investment Performance of the Funds Part II Miscellaneous Investment Practices Management of the Trusts Portfolio Transactions and Brokerage Description of the Trusts and Ownership of Shares Portfolio Turnover How to Buy Shares Net Asset Value and Public Offering Price Reduced Sales Charges Shareholder Services Redemptions Standard Performance Measures Income Dividends, Capital Gain Distributions and Tax Status Financial Statements Appendix A - Description of Bond Ratings Appendix B - Media That May Contain Fund Information Appendix C - Advertising and Promotional Literature INVESTMENT RESTRICTIONS The following is a description of restrictions on the investments to be made by the Funds. The restrictions marked with an asterisk (*) may not be changed without the vote of a majority of the outstanding voting securities of the relevant Fund (as defined in the Investment Company Act of 1940, as amended, the "1940 Act"). Except in the case of restrictions marked with a dagger (+), the percentages set forth below and the percentage limitations set forth in the Prospectuses apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. CDC Nvest AEW Real Estate Fund CDC Nvest AEW Real Estate Fund (the "AEW Real Estate Fund") may not: *(1) With respect to 75% of the Fund's total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities ("U.S. government securities")) if, as a result, (a) more than 5% of the Fund's total assets would be invested in the securities of that issuer, or (b) the Fund would hold more than 10% of the outstanding voting securities of that issuer; *(2) Purchase the securities of any issuer (other than U.S. government securities) if, as a result, 25% or more of the Fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry, except that the Fund will invest more than 25% of its total assets in securities of companies primarily engaged in the real estate industry; *(3) Issue senior securities, except as otherwise permitted by the 1940 Act; +*(4) Borrow money or pledge its assets; provided, however, that the Fund may borrow money as a temporary measure for extraordinary or emergency purposes or to meet redemptions, in amounts not exceeding 33 1/3% of its total assets and pledge its assets to secure such borrowings; and, provided, further, that the Fund will not purchase any additional portfolio securities at any time that its borrowings exceed 5% of its total assets; for the purpose of this restriction, collateral arrangements with respect to the writing of options, interest rate futures contracts, options on interest rate futures contracts, and collateral arrangements with respect to initial and variation margin are not deemed to be a pledge of assets and neither such arrangements nor the purchase or sale of futures or related options are deemed to be the issuance of a senior security; *(5) Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended (the "1933 Act"), in the disposition of restricted securities; *(6) Purchase and sell real estate unless acquired as a result of ownership of securities or other instruments; provided, however, that this limitation shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business; *(7) Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments; provided, however, that this limitation shall not prevent the Fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities; *(8) Lend any portfolio security or make any other loan, if, as a result, more than 33 1/3% of its total assets would be lent to other parties, it being understood that this limitation does not apply to purchases of debt securities or to repurchase agreements; (9) Purchase any security on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of transactions; for this purpose, the deposit or payment by the Fund of initial or variation margin in connection with interest rate futures contracts or related options transactions is not considered the purchase of a security on margin; (10) Make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at market value) is held as collateral for such sales at any one time; +(11) Invest more than 15% of the Fund's net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Fund's Board of Trustees); (12) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to U.S. government securities and with respect to interest rate futures contracts; (13) Invest in the securities of other investment companies, except by purchases in the open market involving only customary brokers' commissions, or in connection with a merger, consolidation or similar transaction; under the 1940 Act, the Fund may not (a) invest more than 10% of its total assets (taken at current value) in such securities, (b) own securities of any one investment company having a value in excess of 5% of the Fund's total assets taken at current value, or (c) own more than 3% of the outstanding voting stock of any one investment company; or (14) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in investments of real estate investment trusts and/or real estate related companies. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the Securities and Exchange Commission ("SEC"). The Fund may (but does not currently intend to), notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company managed by AEW Management and Advisors, L.P. ("AEW") or an affiliate or successor with substantially the same fundamental investment objective, policies and limitations as the Fund. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (11) above. Restrictions (3) and (10) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain Fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. In restriction (14) above, the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. CDC Nvest Balanced Fund CDC Nvest Balanced Fund (the "Balanced Fund") will not: * (1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided however, this limitation does not apply to government securities as defined in the 1940 Act; *(2) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry; *(3) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute senior securities under the 1940 Act; *(4) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost; *(5) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided however, that this restriction does not apply to repurchase agreements or loans of portfolio securities; *(6) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein; *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; *(8) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act; +(9) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust I's trustees.) (10) Purchase options or warrants if, as a result, more than 1% of its total assets (taken at current value) would be invested in such securities; or (11) Write options or warrants. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (9) above. Restrictions (3) and (8) shall be interpreted based upon no action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. CDC Nvest Capital Growth Fund CDC Nvest Capital Growth Fund (the "Capital Growth Fund") may not: (1) With respect to 75% of its total assets, purchase any security (other than U.S. government securities) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer; *(2) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries, and each foreign country's government (together with subdivisions thereof) will be considered to be a separate industry); (3) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin); (4) Acquire more than 10% of any class of securities of an issuer (other than U.S. government securities and taking all preferred stock issues of an issuer as a single class and all debt issues of an issuer as a single class) or with respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of an issuer; *(5) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower, and then only as a temporary measure for extraordinary or emergency purposes; (6) Pledge more than 15% of its total assets (taken at cost). (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on future contracts and with respect to initial and variation margin are not deemed to be a pledge of assets); *(7) Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities; *(8) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may buy and sell futures contracts and related options. (This restriction does not prevent the Fund from purchasing securities of companies investing in the foregoing); *(9) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; (10) Except to the extent permitted by rule or order of the SEC, participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with the Fund's adviser or subadviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction); (11) Write, purchase or sell options, except that the Fund may (a) write, purchase and sell put and call options on securities or securities indexes and (b) enter into currency forward contracts; +(12) Invest more than 15% of its net assets (taken at current value) in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust I's trustees); or *(13) Issue senior securities. (For the purpose of this restriction, none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restriction (6) above; any borrowing permitted by restriction (5) above; any collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of CDC Nvest Funds Trust I's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom.) The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (12) above. CDC Nvest Growth and Income Fund CDC Nvest Growth and Income Fund (the "Growth and Income Fund") will not: *(1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided however, this limitation does not apply to government securities as defined in the 1940 Act; *(2) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations; *(3) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act; *(4) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate interests therein; *(5) Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities; *(6) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; *(7) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided however, this restriction does not apply to repurchase agreements or loans of portfolio securities; *(8) Borrow money except for temporary or emergency purposes; provided however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost; *(9) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act; or +(10) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust II's trustees). The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (10) above. Restrictions (3) and (9) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain Fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. CDC Nvest International Equity Fund CDC Nvest International Equity Fund (the "International Equity Fund") may not: (1) With respect to 75% of its total assets, purchase any security (other than U.S. government securities) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer; *(2) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries, and each foreign country's government (together with subdivisions thereof) will be considered to be a separate industry); (3) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin); (4) Acquire more than 10% of any class of securities of an issuer (other than U.S. government securities and taking all preferred stock issues of an issuer as a single class and all debt issues of an issuer as a single class) or with respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of an issuer (such percentage limitations apply to closed-end management investment companies as well); *(5) Borrow money in excess of 10% of its total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower, and then only as a temporary measure for extraordinary or emergency purposes; (6) Pledge more than 15% of its total assets (taken at cost). (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge of assets); *(7) Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities; *(8) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may buy and sell futures contracts and related options. (This restriction does not prevent the Fund from purchasing securities of companies investing in the foregoing); *(9) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; (10) Except to the extent permitted by rule or order of the SEC, participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with the Fund's adviser or subadviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction); (11) Write, purchase or sell options, except that the Fund may (a) write, purchase and sell put and call options on securities, securities indexes, currencies, futures contracts, swap contracts and other similar instruments and (b) enter into currency forward contracts; +(12) Purchase any illiquid security if, as a result, more than 15% of its net assets (taken at current value) would be invested in such securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust I's trustees); *(13) Issue senior securities. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restriction (6) above; any borrowing permitted by restriction (5) above; any collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of CDC Nvest Funds Trust I's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom); or (14) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in equity investments. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (12) above. In restriction (14) above, the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. CDC Nvest Jurika & Voyles Relative Value Fund CDC Nvest Jurika & Voyles Relative Value Fund (the "Jurika & Voyles Relative Value Fund") will not: *(1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of the Fund's total assets (based on current value) would then be invested in securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided however, this limitation does not apply to government securities (as defined in the 1940 Act); *(2) Purchase any security (other than government securities) if, as a result, more than 25% of its total assets (taken at current value) would be invested in any one industry; *(3) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute senior securities under the 1940 Act; *(4) Borrow money, except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost; *(5) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided however, that this restriction does not apply to repurchase agreements or loans of portfolio securities; *(6) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein; *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws; *(8) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act; *(9) Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities; or +(10) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). The Staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (10) above. Restrictions (3) and (8) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain Fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. CDC Nvest Jurika & Voyles Small Cap Growth Fund CDC Nvest Jurika & Voyles Small Cap Growth Fund (the "Jurika & Voyles Small Cap Growth Fund") may not: *(1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided however, this limitation does not apply to government securities as defined in the 1940 Act; *(2) Invest more than 25% of the Fund's total assets in the securities of issuers engaged in any one industry (except securities issued by the U.S. government, its agencies or instrumentalities); (3) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where it owns or, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin); *(4) Borrow money in excess of 33 1/3% of its total assets; *(5) Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities; *(6) Buy or sell real estate or commodities or commodity contracts, except that the Fund may buy and sell financial futures contracts and options, swap contracts, currency forward contracts, structured notes and other similar instruments. (This restriction does not prevent the Fund from purchasing securities of issuers that invest in the foregoing); *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; +(8) Purchase any illiquid security if, as a result, more than 15% of its net assets (taken at current value) would be invested in such securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Fund Trust III's trustees); *(9) Issue senior securities, except as permitted by the 1940 Act or any relevant exemption thereunder. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets; any borrowing permitted by restriction (3) above; any collateral arrangements with respect to options or futures contracts, and with respect to initial and variation margin; and the purchase or sale of options, forward contracts, futures contracts, swap contracts and other similar instruments); or (10) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in investments in companies that have market capitalization within the capitalization range of the Russell 2000 Index. Prior to any change to such policy adopted by the Board of Trustees of the Fund the Fund will provide shareholders with notice as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. Although the Fund is permitted to borrow money to a limited extent, it does not currently intend to do so. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (8) above. In restriction (10) above, the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. CDC Nvest Large Cap Growth Fund CDC Nvest Large Cap Growth Fund (the "Large Cap Growth Fund") will not: *(1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of the Fund's total assets (based on current value) would then be invested in securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided however, this limitation does not apply to government securities (as defined in the 1940 Act); *(2) Purchase any security (other than government securities) if, as a result, more than 25% of its total assets (taken at current value) would be invested in any one industry; *(3) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute senior securities under the 1940 Act; *(4) Borrow money, except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost; *(5) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided however, that this restriction does not apply to repurchase agreements or loans of portfolio securities; *(6) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein; *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws; *(8) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act; *(9) Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities; +(10) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees); or (11) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in investments in companies that have market capitalization within the capitalization range of the Russell 1000 Growth Index. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (10) above. Restrictions (3) and (8) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain Fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. In restriction (11) above, the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. CDC Nvest Large Cap Value Fund CDC Nvest Large Cap Value Fund (the "Large Cap Value Fund") will not: *(1) Purchase any security (other than U.S. government securities) if, as a result, more that 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries, and each foreign country's government (together with subdivisions thereof) will be considered to be a separate industry); (2) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further considerations, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin); *(3) Borrow money in excess of 25% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes; (4) Pledge more than 25% of its total assets (taken at cost). (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts, options on futures contracts and swap contracts and with respect to initial and variation margin are not deemed to be a pledge of assets); *(5) Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities; *(6) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may buy and sell futures contracts, swap contracts and related options. (This restriction does not prevent the Fund from purchasing securities of companies investing in the foregoing); *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; (8) Participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with the Fund's adviser or subadviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction); (9) Write, purchase or sell options, except that the Fund may (a) write, purchase and sell put and call options on securities, securities indexes or futures contracts and (b) enter into currency forward contracts; +(10) Purchase any illiquid security if, as a result, more than 15% of its net assets (taken at current value) would be invested in such securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust III's trustees); *(11) Issue senior securities. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restrictions (2) or (4) above; any borrowing permitted by restriction (3) above; any collateral arrangements with respect to forward contracts, options, futures contracts, swap contracts and options on futures contracts or swap contracts and with respect to initial and variation margin, the purchase or sale of options, forward contracts, future contracts, swap contracts or options on futures contracts or swap contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of the CDC Nvest Funds Trust III's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom); (12) With respect to 75% of its total assets, purchase any security (other than U.S. government securities) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer; (13) Acquire more than 10% of any class of securities of an issuer (taking all preferred stock issues of an issuer as a single class and all debt issues of an issuer as a single class) or acquire more than 10% of the outstanding voting securities of an issuer; or (14) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in investments in companies that have market capitalizations within the capitalization range of the Russell 1000 Value Index. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (10) above. In restriction (14) above, the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. CDC Nvest Select Fund CDC Nvest Select Fund (the "Select Fund") may not: + (1) Acquire securities of any one issuer which (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; *(2) Invest more than 25% of its net assets in any one industry. This restriction does not apply to U.S. government securities. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations; *(3) Make short sales of securities or maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act; +*(4) Borrow money, except to the extent permitted under the 1940 Act; *(5) Make loans, except that the Fund may lend its portfolio securities to the extent permitted under the 1940 Act. (For the purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) purchasing debt obligations in which a Fund may invest consistent with its investment policies is considered the making of a loan); *(6) Act as an underwriter of securities of other issuers except that, in the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws; *(7) Purchase or sell real estate, although it may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities which represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein; *(8) Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities; or *(9) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. Restrictions (3) and (9) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain Fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. In addition, it is contrary to Select Fund's present policy, which may be changed without shareholder vote, to purchase any illiquid security, including any securities whose disposition is restricted under federal securities laws and securities that are not readily marketable, if, as a result, more than 15% of the Fund's total assets (based on current value) would then be invested in such securities. The staff of the SEC is presently of the view that repurchase agreements maturing in more than seven days are subject to this restriction. Until that position is revised, modified or rescinded, each Fund will conduct its operations in a manner consistent with this view. This limitation on investment in illiquid securities does not apply to certain restricted securities, including securities pursuant to Rule 144A under the Securities Act of 1933 and certain commercial paper, that the Adviser or Subadviser has determined to be liquid under procedures approved by the Board of Trustees. CDC Nvest Targeted Equity Fund CDC Nvest Targeted Equity Fund (the "Targeted Equity Fund") will not: *(1) With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided however, this limitation does not apply to government securities as defined in the 1940 Act; *(2) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act; *(3) Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations; *(4) Borrow money except for temporary or emergency purposes; provided however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost; *(5) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided however, this restriction does not apply to repurchase agreements or loans of portfolio securities; *(6) Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein; *(7) Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities; *(8) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; *(9) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act; (10) Purchase options or warrants if, as a result, more than 1% of its total assets (taken at current value) would be invested in such securities; (11) Write options or warrants; +(12) Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by CDC Nvest Funds Trust I's trustees); or (13) Invest less than 80% of its net assets (plus borrowings made for investment purposes) in equity investments. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (12) above. In investment restriction (13) above, the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. Restrictions (2) and (9) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC. Under current pronouncements, certain Fund positions are excluded from the definition of "senior security" so long as the Fund maintains adequate cover, segregation of assets or otherwise. FUND CHARGES AND EXPENSES ADVISORY FEES Pursuant to an advisory agreement dated October 30, 2000, AEW has agreed to manage the investment and reinvestment of the assets of the AEW Real Estate Fund, subject to the supervision of the Board of Trustees of CDC Nvest Companies Trust I. For the services described in the advisory agreement, the AEW Real Estate Fund has agreed to pay AEW an advisory fee at the annual rate set forth in the following table: Advisory fee payable by Fund to AEW Fund (as a % of average daily net assets of the Fund) - -------------------- ------------------------------------------------------- AEW Real Estate Fund 0.80% of the first $500 million 0.75% of amounts in excess of $500 million Pursuant to an advisory agreement dated October 30, 2000, Capital Growth Management Limited Partnership ("CGM") has agreed to manage the investment and reinvestment of the assets of the Targeted Equity Fund, subject to the supervision of the Board of Trustees of CDC Nvest Funds Trust I. For the services described in the advisory agreements, the Targeted Equity Fund has agreed to pay CGM an advisory fee at the annual rate set forth in the following table: Advisory fee payable by Fund to CGM Fund (as a % of average daily net assets of the Fund) - -------------------- ------------------------------------------------------- Targeted Equity Fund 0.75% of the first $200 million 0.70% of the next $300 million 0.65% of the next $1.5 billion 0.60% of amounts in excess of $2 billion Pursuant to separate advisory agreements, CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") has agreed, subject to the supervision of the Board of Trustees of the relevant Trust, to manage the investment and reinvestment of the assets of the Balanced, Capital Growth, Growth and Income, International Equity, Jurika & Voyles Relative Value, Jurika & Voyles Small Cap Growth, Large Cap Growth, Large Cap Value and Select Funds and to provide a range of administrative services to such Funds. For the services described in the advisory agreements (dated March 15, 2001 for Select Fund, November 19, 2001 for Large Cap Growth Fund, December 3, 2001 for Jurika & Voyles Relative Value Fund and October 30, 2000 for the remaining Funds), each such Fund has agreed to pay CDC IXIS Advisers an advisory fee at the annual rate set forth in the following table, reduced by the amount of any subadvisory fees payable by the Fund to the subadviser pursuant to any subadvisory agreements:
Advisory fee payable by Fund to CDC IXIS Advisers Fund (as a % of average daily net assets of the Fund) - ----------------------------------------------- -------------------------------------------------------- Balanced Fund and Capital Growth Fund 0.75% of the first $200 million 0.70% of the next $300 million 0.65% of amounts in excess of $500 million Growth and Income Fund and Large Cap Value 0.70% of the first $200 million Fund 0.65% of the next $300 million 0.60% of amounts in excess of $500 million International Equity Fund 0.90% of the first $200 million 0.85% of the next $300 million 0.80% of amounts in excess of $500 million Jurika & Voyles Relative Value Fund 0.85% of the first $500 million 0.80% of amounts in excess of $500 million Jurika & Voyles Small Cap Growth Fund 0.95% of the first $200 million 0.90% of the next $300 million 0.85% of amounts in excess of $500 million Large Cap Growth Fund 0.90% Select Fund 1.00% of the first $1 billion 0.95% of amounts in excess of $1 billion
SUBADVISORY FEES The advisory agreements for the Balanced, Capital Growth, Growth and Income, International Equity, Jurika & Voyles Relative Value, Jurika & Voyles Small Cap Growth, Large Cap Growth, Large Cap Value and Select Funds each provide that CDC IXIS Advisers may delegate its responsibilities thereunder to another party. Pursuant to separate subadvisory agreements, CDC IXIS Advisers has delegated the portfolio management responsibilities of each of these Funds' assets to a subadviser. The subadviser is Harris Associates L.P. ("Harris Associates") in the case of the Growth and Income Fund and the Select Fund, Jurika & Voyles, L.P. ("Jurika & Voyles") in the case of the Value Equity segment of the Balanced Fund, the Jurika & Voyles Relative Value Fund and the Jurika & Voyles Small Cap Growth Fund, Loomis, Sayles & Company, L.P. ("Loomis Sayles") in the case of the Fixed Income and Equity Growth segments of the Balanced Fund and the International Equity Fund, Vaughan, Nelson, Scarborough & McCullough, L.P. ("Vaughan Nelson") in the case of the Large Cap Growth Fund and Large Cap Value Fund and Westpeak Global Advisors, L.P. ("Westpeak"), in the case of the Capital Growth Fund. For the services described in the subadvisory agreements, the respective subadvisers receive a subadvisory fee at the annual rates set forth in the following table:
Date of Subadvisory Subadvisory fee payable to subadviser Fund Subadviser Agreements (as a % of average daily net assets of the Fund) - ------------------- -------------- ---------------- --------------------------------------------------- Balanced Fund Loomis 4/20/01 0.535% of the first $200 million Sayles and 0.350% of the next $300 million Jurika & 0.300% of amounts in excess of $500 million Voyles Capital Growth Westpeak 10/30/00 0.40% of the first $200 million Fund 0.35% of the next $300 million 0.30% of amounts in excess of $500 million Growth and Income Harris 10/29/02 0.45% of the first $250 million Fund Associates(1) 0.40% of the next $250 million 0.35% of amounts in excess of $500 million International Loomis Sayles 10/30/00 0.40% of the first $200 million Equity Fund 0.35% of amounts in excess of $200 million Jurika & Voyles Jurika & 12/03/01 0.450% of the first $500 million Relative Value Voyles 0.425% of amounts in excess of $500 million Fund Jurika & Voyles Jurika & 12/03/01 0.57% of the first $200 million Small Cap Growth Voyles 0.50% of the next $300 million Fund 0.43% of amounts in excess of $500 million Large Cap Growth Vaughan 11/19/01 0.50% Fund Nelson Large Cap Value Vaughan 10/30/00 0.400% of the first $200 million Fund Nelson 0.325% of the next $300 million 0.275% of amounts in excess of $500 million Select Fund Harris 3/15/01 0.60% of the first $1 billion Associates 0.55% of amounts in excess of $1 billion
(1) Prior to July 1, 2002, Westpeak served as subadviser to the Growth and Income Fund providing for a subadvisory fee payable to Westpeak at the annual rate of 0.50% of the first $25 million of the Fund's average daily net assets, 0.40% of the next $75 million of the Fund's average daily net assets, 0.35% of the next $100 million of the Fund's average daily net assets and 0.30% of amounts in excess of $200 million. CDC IXIS Advisers has given a binding undertaking (for the classes indicated for the relevant funds) to reduce its advisory fee, and if necessary, to bear certain expenses associated with the Fund, to the extent necessary to limit the Fund's expense to the annual rates indicated. The undertaking will be binding on CDC IXIS Advisers until the ending date shown, and will be reevaluated on an annual basis thereafter, subject to the obligation of each Fund to pay such deferred fees or expense reimbursement in later periods to the extent that each Fund's expenses fall below the expense limit; (provided however, that each Fund is not obligated to pay such deferred fees or expense reimbursement more than one year after the end of the fiscal year in which the fee was deferred). [To Be Updated] Ending Date Fund Expense Limit of Undertaking AEW Real Estate Fund Class A 1.50% Class B 2.25% Class C 2.25% Class Y 1.25% Balanced Fund December 31, 2003 Class Y 0.95% Jurika & Voyles Relative Value Fund December 31, 2004 Class A 1.50% Class B 2.25% Class C 2.25% Class Y 1.25% Jurika & Voyles Small Cap Growth Fund December 31, 2004 Class A 1.75% Class B 2.50% Class C 2.50% Class Y 1.50% Large Cap Growth Fund Class A 1.40% Class B 2.15% Class C 2.15% Class Y 1.15% Large Cap Value Fund Class A 1.50% Class B 2.25% Class C 2.25% Select Fund Class A 1.70% Class B 2.45% Class C 2.45% For the last three fiscal years (or the periods indicated) the following table shows the advisory fees (including subadvisory fees) paid by the Funds and of these amounts, the total paid to CDC IXIS Advisers and the total paid to a subadviser of a Fund: AEW REAL ESTATE FUND 9/1/00-1/31/01 2/1/01-1/31/02 2/1/02 - 1/31/03 -------------- -------------- ---------------- Total Advisory Fee $1,989 $52,572 AEW Fee Earned $1,989 $52,572 Fee Waived $1,989 $52,572* Total Paid --** --** BALANCED FUND 2000 2001 2002 ---- ---- ---- Total Advisory Fee $1,569,212 $1,080,327 CDC IXIS Advisers Fee Earned $474,070 $309,694 Fee Waived -- $12,476 Total Paid $474,070 $297,218 Loomis Sayles Total Paid $1,095,142 $576,150 Jurika & Voyles Total Paid -- $194,483 CAPITAL GROWTH FUND 2000 2001 2002 ---- ---- ---- Total Advisory Fee $1,933,858 $1,206,965 CDC IXIS Advisers Total Paid $916,955 $563,398 Westpeak Total Paid $1,016,903 $643,567 GROWTH AND INCOME FUND(1) 2000 2001 2002 ---- ---- ---- Total Advisory Fee $3,609,994 $2,760,399 CDC IXIS Advisers Total Paid $1,819,201 $1,357,522 Westpeak Total Paid $1,790,793 $1,402,877 -- Harris Associates Total Paid -- -- INTERNATIONAL EQUITY FUND(2) 2000 2001 2002 ---- ---- ---- Total Advisory Fee $1,076,376 $676,887 CDC IXIS Advisers Fee Earned $597,986 $376,048 Fee Waived -- -- Total Paid $597,986 $376,048 Loomis Sayles Fee Earned $478,390 $300,839 Fee Waived -- -- Total Paid $478,390 $300,839 JURIKA & VOYLES RELATIVE VALUE FUND(3) 7/1/00 - 6/30/01 7/1/01 - 12/31/01 2002 ---------------- ----------------- ---- Total Advisory Fee $259,587 $112,241 CDC IXIS Advisers Fee Earned -- $8,972 Fee Waived -- $8,972* Total Paid -- --** Jurika & Voyles Fee Earned $259,587 $103,269 Fee Waived $116,061 $ 86,177* Total Paid $143,526 $ 17,092 JURIKA & VOYLES SMALL CAP GROWTH FUND(4) 7/1/00 -6/30/01 7/1/01-12/31/01 2002 --------------- --------------- ---- Total Advisory Fee $326,712 $120,654 CDC IXIS Advisers Fee Earned -- $10,233 Fee Waived -- $ 4,716* Total Paid -- $ 5,517 Jurika & Voyles Fee Earned $326,712 $110,421 Fee Waived $148,749 $ 80,951* Total Paid $177,963 $ 29,470 LARGE CAP GROWTH FUND(5) 10/1/00-9/30/01 10/1/01-12/31/01 2002 --------------- ---------------- ---- Total Advisory Fee $976,870 $140,374 CDC IXIS Advisers Fee Earned -- $ 30,888 Fee Waived -- $ 30,888* Total Paid -- --** Vaughan Nelson Fee Earned $48,124 $109,486 Fee Waived $32,910 $ 96,638* Total Paid $15,214 $ 12,848 Kobrick Funds LLC Fee Earned $928,746 -- -- Fee Waived $514,839 -- -- Total Paid $413,907 -- -- LARGE CAP VALUE FUND(6) 2000 2001 2002 ---- ---- ---- Total Advisory Fee $120,587 $135,087 CDC IXIS Advisers Fee Earned $51,680 $ 57,895 Fee Waived $51,680 $ 57,895* Total Paid --** --** Vaughan Nelson Fee Earned $68,907 $ 77,192 Fee Waived $68,907 $ 77,192* Total Paid -- -- SELECT FUND 2000 2001 2002 ---- ---- ---- Total Advisory Fee -- $567,368 CDC IXIS Advisers Fee Earned -- $226,947 Fee Waived -- $214,528* Total Paid -- $12,419 Harris Associates Fee Earned -- $340,421 Fee Waived -- -- Total Paid -- $340,421 TARGETED EQUITY FUND 2000 2001 2002 ---- ---- ---- Total Advisory Fee $11,676,626 $8,138,041 Capital Growth Management Total Paid $11,676,626 $8,138,041 *Deferred. **CDC IXIS Advisers (or AEW as indicated) assumed additional expenses of the following Funds for the following time periods: Adviser Fund Time Period Expenses - ------- ---- ----------- -------- AEW AEW Real Estate 9/1/01 - 1/31/01 $87,814 AEW AEW Real Estate 2/1/01 - 1/31/02 $215,401 CDC IXIS Advisers Jurika & Voyles Relative 7/1/01 - 12/31/01 $177 Value CDC IXIS Advisers Large Cap Growth 10/1/01 - 12/31/01 $8,915 CDC IXIS Advisers Large Cap Value 1/1/00 - 12/31/00 $54,748 CDC IXIS Advisers Large Cap Value 1/1/01 - 12/31/01 $30,446 (1) Effective July 1, 2002, Harris Associates replaced Westpeak as subadviser to the Growth and Income Fund. (2) From May 1, 1998 to April 30, 2000, CDC IXIS Advisers gave a binding undertaking to the International Equity Fund to reduce its fees and, if necessary, to bear certain expenses related to operating the Fund in order to limit the Fund's expenses to an annual rate of 2.00% of the average daily net assets of the Fund's Class A shares, 2.75% of the average daily net assets of the Fund's Class B shares, 2.75% of the average daily net assets of the Fund's Class C shares and 1.75% of the average daily net assets of the Fund's Class Y shares. (3) On November 30, 2001, Jurika & Voyles Value+Growth Fund reorganized into the CDC Nvest Jurika & Voyles Relative Value Fund and, as a result, the CDC Nvest Jurika & Voyles Relative Value Fund assumed the financial and accounting information of Jurika & Voyles Value+Growth Fund. Jurika & Voyles served as adviser to Jurika & Voyles Value+Growth Fund through November 30, 2001 pursuant to an advisory agreement dated October 30, 2000. The advisory fee rate under this agreement was 0.85% of the Jurika & Voyles Value+Growth Fund's average daily net assets. From July 1, 1998 to November 30, 2001, Jurika & Voyles gave a binding undertaking to the Fund to reduce its fees and, if necessary, to bear certain expenses related to operating the Jurika & Voyles Value+Growth Fund in order to limit the Jurika & Voyles Value+Growth Fund's expenses to an annual rate of 1.25% of the average daily net assets of the Fund's shares. (4) On November 30, 2001, Jurika & Voyles Small-Cap Fund reorganized into the CDC Nvest Jurika & Voyles Small Cap Growth Fund (formerly, CDC Nvest Bullseye Fund) and, as a result, the CDC Nvest Jurika & Voyles Small Cap Growth Fund assumed the financial and accounting information of Jurika & Voyles Small-Cap Fund. Jurika & Voyles served as adviser to Jurika & Voyles Small-Cap Fund through November 30, 2001 pursuant to an advisory agreement dated October 30, 2000. The advisory fee rate under this agreement was 1.00% of the Jurika & Voyles Small-Cap Fund's average daily net assets. From July 1, 1998 to November 30, 2001, Jurika & Voyles gave a binding undertaking to the Jurika & Voyles Small-Cap Fund to reduce its fees and, if necessary, to bear certain expenses related to operating the Jurika & Voyles Small-Cap Fund in order to limit the Fund's expenses to an annual rate of 1.50% of the average daily net assets of the Jurika & Voyles Small-Cap Fund's shares. (5) On November 16, 2001, Kobrick Growth Fund reorganized into the Large Cap Growth Fund and, as a result, Large Cap Growth Fund assumed the financial and accounting information of Kobrick Growth Fund. Kobrick served as adviser to Kobrick Growth Fund until June 30, 2001 pursuant to an advisory agreement dated October 30, 2000 and continued to receive advisory fees until August 30, 2001 pursuant to the terms of the advisory agreement. Vaughan Nelson served as the interim adviser through November 16, 2001 pursuant to an interim advisory agreement dated July 1, 2001. The advisory fee rate under the advisory agreement with Kobrick as adviser and under the interim advisory agreement with Vaughan Nelson as interim adviser was 1.00% of the Fund's average daily net assets. (6) Since Large Cap Value Fund's inception and effective until _____________________, CDC IXIS Advisers has given a binding undertaking to the Fund to reduce its advisory fee and, if necessary, to bear certain expenses associated with operating the Fund to the extent necessary to limit the Fund's expenses to the annual rate of 1.50% of average daily net assets for Class A shares, 2.25% for Class B shares and 2.25% for Class C shares ("Expense Caps" and each an "Expense Cap"). Beginning July 1, 1999, Vaughan Nelson and CDC IXIS Advisers split any fee waivers required in proportion to the subadvisory and advisory fees collected. CDC IXIS Advisers also bears any additional expense reimbursement above the fee waivers required for the Fund to meet the relevant Expense Cap. This undertaking will be binding on CDC IXIS Advisers for the life of the Fund's current Prospectus, subject to the obligation of the Fund to pay such deferred fees or expense reimbursement in later periods to the extent that the Fund's expenses fall below the annual rate of 1.50% of average daily net assets for Class A shares, 2.25% for Class B shares and 2.25% for Class C shares; provided, however, that the Fund is not obligated to pay any such deferred fees or expense reimbursement more than one year after the end of the fiscal year in which the fee was deferred. For more information about the Funds' advisory and subadvisory agreements, see "Management of the Trusts" in Part II of this Statement. Brokerage Commissions Set forth below are the amounts each Fund paid in brokerage commissions during the last three fiscal years and the amounts each Fund paid in brokerage transactions and brokerage commissions to brokers providing research services for the fiscal year. For a description of how transactions in portfolio securities are effected and how the Funds' subadvisers select brokers, see the section entitled "Portfolio Transactions and Brokerage" in Part II of this Statement.
AEW REAL ESTATE FUND 2000* 2001** 2002 ----- ------ ---- Brokerage Transactions Allocated to brokers providing research services -- -- Brokerage Commissions Total Brokerage Commissions Paid $2,400 $20,173 Commissions paid to Brokers providing research services -- -- * For the period September 1, 2000 to January 31, 2001 -- -- **For the fiscal year ended January 31, 2002 BALANCED FUND 2000 2001 2002 ---- ---- ---- Brokerage Transactions Allocated to brokers providing research services -- $242,923,956 Brokerage Commissions Total Brokerage Commissions Paid $464,155 $256,251 Commissions paid to Brokers providing research services -- $180,716 CAPITAL GROWTH FUND 2000 2001 2002 ---- ---- ---- Brokerage Transactions Allocated to brokers providing research services -- $12,425,699 Brokerage Commissions Total Brokerage Commissions Paid $446,645 $305,499 Commissions paid to Brokers providing research services -- $15,335 GROWTH AND INCOME FUND 2000 2001 2002 ---- ---- ---- Brokerage Transactions Allocated to brokers providing research services -- $182,352,701 Brokerage Commissions Total Brokerage Commissions Paid $1,110,676 $1,215,373
Commissions paid to Brokers providing research services -- $236,414
INTERNATIONAL EQUITY FUND 2000 2001 2002 ---- ---- ---- Brokerage Transactions Allocated to brokers providing research services -- $406,052,611 Brokerage Commissions Total Brokerage Commissions Paid $767,454 $627,514 Commissions paid to Brokers providing research services -- $627,514 JURIKA & VOYLES RELATIVE VALUE FUND 2000* 2001** 2002 ----- ------ ---- Brokerage Transactions Allocated to brokers providing research services -- $11,259,386 Brokerage Commissions Total Brokerage Commissions Paid $37,506 $19,098 Commissions paid to Brokers providing research services -- $19,098 *For the fiscal year ended June 30, 2001 **For the period from July 1, 2001 to December 31, 2001 JURIKA & VOYLES SMALL CAP GROWTH FUND 2000* 2001** 2002 ----- ------ ---- Brokerage Transactions Allocated to brokers providing research services -- $53,811,991 Brokerage Commissions Total Brokerage Commissions Paid $80,508 $33,049 Commissions paid to Brokers providing research services -- $25,189 *For the fiscal year ended June 30, 2001 **For the period July 1, 2001 to December 31, 2001 LARGE CAP GROWTH FUND 2000* 2001** 2002 ----- ------ ---- Brokerage Transactions Allocated to brokers providing research services -- $26,660,590 Brokerage Commissions Total Brokerage Commissions Paid $1,048,313 $58,187 Commissions paid to Brokers providing research services -- $48,587 * For the fiscal year ended September 30, 2001 **For the period from October 1, 2001 to December 31, 2001
LARGE CAP VALUE FUND 2000 2001 2002 ---- ---- ---- Brokerage Transactions Allocated to brokers providing research services -- $9,077,109 Brokerage Commissions Total Brokerage Commissions Paid $24,468 $27,870 Commissions paid to Brokers providing research services -- $15,554 SELECT FUND 2000 2001* 2002 ---- ----- ---- Brokerage Transactions Allocated to brokers providing research services -- $7,622,346 Brokerage Commissions Total Brokerage Commissions Paid -- $257,384 Commissions paid to Brokers providing research services -- $15,759 Commisions paid to Affiliated Brokers Harris Associates -- $150,573 Securities, L.P. ("HASLP") *For the period March 31, 2001 to December 31, 2001 TARGETED EQUITY FUND 2000 2001 2002 ---- ---- ---- Brokerage Transactions Allocated to brokers providing research services -- $5,795,551,783 Brokerage Commissions Total Brokerage Commissions Paid $10,192,921 $6,316,878 Commissions paid to Brokers providing research services -- $725,835
SALES CHARGES AND 12B-1 FEES As explained in Part II of this Statement, the Classes A, B and C shares of each Fund pay the Distributor fees under plans adopted pursuant to Rule 12b-1 under the 1940 Act. The following table shows the amounts of Rule 12b-1 fees paid by each Fund during the last three fiscal years (except where indicated, the Fund's fiscal year is the calendar year).
Fund 2000 2001 2002 ------------------- ---------- ---------- ---------- AEW Real Estate Fund* (Class A) $ 203 $ 8,457 (Class B) $ 185 $ 21,218 (Class C) $ 90 $ 4,932 Balanced Fund (Class A) $ 310,460 $ 210,487 (Class B) $ 477,052 $ 330,386 (Class C) $ 26,362 $ 16,321 Capital Growth Fund (Class A) $ 466,657 $ 286,602 (Class B) $ 722,386 $ 443,820 (Class C) $ 30,728 $ 19,533 Growth and Income Fund (Class A) $ 813,590 $ 613,071 (Class B) $1,848,154 $1,384,899 (Class C) $ 221,749 $ 132,025 International Equity Fund (Class A) $ 170,958 $ 103,583 (Class B) $ 330,653 $ 219,721 (Class C) $ 37,710 $ 34,336 Jurika & Voyles Relative Value (Class A) -- $ 231 Fund** (Class B) -- -- (Class C) -- -- Jurika & Voyles Small Cap (Class A) -- $ 1,463 Growth Fund** (Class B) -- $ 6,231 (Class C) -- $ 607 Large Cap Growth Fund*** (Class A) $ 145,784 $ 18,169 (Class B) $ 320,506 $ 61,143 (Class C) $ 56,473 $ 8,413 Large Cap Value Fund (Class A) $ 21,525 $ 23,837 (Class B) $ 77,120 $ 88,890 (Class C) $ 9,048 $ 8,746 Select Fund+**** (Class A) -- $ 47,500 (Class B) -- $ 249,277 (Class C) -- $ 128,056 Targeted Equity Fund (Class A) $4,014,853 $2,749,081 (Class B) $1,172,243 $ 847,071 (Class C) $ 60,690 $ 44,628
* The AEW Real Estate Fund commenced operations on August 31, 2000, offering Class Y shares (and on December 29, 2000, offering Classes A, B and C shares). For the fiscal years ended January 31, 2001, 2002 and 2003. ** For the fiscal year ended June 30, 2001, the period from July 1, 2001 to December 31, 2001 and the fiscal year ended December 31, 2002. *** For the fiscal year ended September 30, 2001, the period from October 1, 2001 to December 31, 2001 and the fiscal year ended December 31, 2002. +****For the period March 15, 2001 to December 31, 2001 and the fiscal year ended December 31, 2002. During the fiscal year ended December 31, 2002 (January 31, 2003 for AEW Real Estate Fund), the Distributor's expenses relating to each Fund's 12b-1 plans were as follows (Class B compensation to investment dealers excludes advanced commissions sold to a third party): AEW Real Estate Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Balanced Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Capital Growth Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Growth and Income Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL International Equity Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Jurika & Voyles Relative Value Fund+ (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Jurika & Voyles Small Cap Growth Fund++ (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Large Cap Growth Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Large Cap Value Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Select Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL Targeted Equity Fund (Class A shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class B shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL (Class C shares) Compensation to Investment Dealers Compensation to Distributor's Sales Personnel and Other Related Costs TOTAL OWNERSHIP OF FUND SHARES As of _________________2003, to the Trusts' knowledge, the following persons owned of record or beneficially 5% or more of the outstanding shares of the indicated classes of the Funds set forth below. [TO BE UPDATED] INVESTMENT PERFORMANCE OF THE FUNDS Performance Results - Percent Change* and Comparative Averages For the Periods Ended 12/31/02 AEW REAL ESTATE FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 12/29/00** 1 Year Since 12/29/00** - ---------------------- ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- ------------------------------------------- As a % of 1 Year Since 12/29/00** 1 Year Since 12/29/00** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge 1 Year Since 12/31/00 ------ -------------- Morningstar Specialty Real Estate Funds Average+ Lipper Real Estate Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 12/29/00** 1 Year Since 12/29/00** - ---------------------- ---------------- ------ ---------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 12/29/00** 1 Year Since 12/29/00** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value CDSC and Redemption at End of Period 1 Year Since 12/31/00 ------ -------------- Morningstar Specialty Real Estate Funds
Average+ Lipper Real Estate Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 12/29/00** 1 Year Since 12/29/00** - ---------------------- ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 12/29/00** 1 Year Since 12/29/00** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year Since 12/31/00 ------ -------------- Morningstar Specialty Real Estate Funds Average+ Lipper Real Estate Funds Average+ Class Y shares Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 8/31/00** 1 Year Since 8/31/00** - ---------------------- ---------------- ------ ---------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 8/31/00** 1 Year Since 8/31/00** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value 1 Year Since 8/31/00** ------ ---------------- Morningstar Specialty Real Estate Funds Average+ Lipper Real Estate Funds Average+
BALANCED FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------ ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge 1 Year 5 Years 10 Years ------ ------- -------- Morningstar Domestic Hybrid Average+ Lipper Balanced Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/93 ------ ------- ------------- Morningstar Domestic Hybrid Average+ Lipper Balanced Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 12/30/94** 1 Year 5 Years Since 12/30/94** - ---------------------- ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ---------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 12/30/94** 1 Year 5 Years Since 12/30/94** - ---------------------- ------ ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 12/31/94 ------ ------- -------------- Morningstar Domestic Hybrid Average+ Lipper Balanced Funds Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- -------------------------------------------- As a % of 5 Years Since 3/8/94** 1 Year 5 Years Since 3/8/94** - ---------------------- ------- -------------- ------ ------- -------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- -------------------------------------------- As a % of 1 Year 5 Years Since 3/8/94** 1 Year 5 Years Since 3/8/94** - ---------------------- ------ ------- -------------- ------ ------- -------------- Net Asset Value 1 Year 5 Years Since 3/31/94 ------ ------- ------------- Morningstar Domestic Hybrid Average+ Lipper Balanced Funds Average+
CAPITAL GROWTH FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------ ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge 1 Year 5 Years 10 Years ------ ------- -------- Morningstar Large Growth Average+ Lipper Multi-Cap Core Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/93 ------ ------- ------------- Morningstar Large Growth Average+ Lipper Multi-Cap Core Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 12/31/94** 1 Year 5 Years Since 12/31/94** - ---------------------- ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 12/31/94** 1 Year 5 Years Since 12/31/94** - ---------------------- ------ ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 12/31/94** ------ ------- ---------------- Morningstar Large Growth Average+ Lipper Multi-Cap Core Funds Average+
GROWTH AND INCOME FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------ ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge 1 Year 5 Years 10 Years ------ ------- -------- Morningstar Large Blend Average+ Lipper Large Cap Core Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/93 ------ ------- ------------- Morningstar Large Blend Average+ Lipper Large Cap Core Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 5/1/95** 1 Year 5 Years Since 5/1/95** - ---------------------- ------- -------------- ------ ------- -------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 5/1/95** 1 Year 5 Years Since 5/1/95** - ---------------------- ------ ------- -------------- ------ ------- -------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 5/31/95 ------ ------- ------------- Morningstar Large Blend Average+ Lipper Large Cap Core Funds Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 11/18/98** 1 Year Since 11/18/98** - ---------------------- ---------------- ------ ---------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 11/18/98** 1 Year Since 11/18/98** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value 1 Year Since 11/30/98 ------ -------------- Morningstar Large Blend Average+ Lipper Large Cap Core Funds Average+
INTERNATIONAL EQUITY FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------ ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge 1 Year 5 Years 10 Years ------ ------- -------- Morningstar Foreign Stock Fund Average+ Lipper International Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/13/93** 1 Year 5 Years Since 9/13/93** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/93 ------ ------- ------------- Morningstar Foreign Stock Fund Average+ Lipper International Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 12/30/94** 1 Year 5 Years Since 12/30/94** - ---------------------- ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 12/30/94** 1 Year 5 Years Since 12/30/94** - ---------------------- ------ ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 12/31/94 ------ ------- -------------- Morningstar Foreign Stock Fund Average+ Lipper International Funds Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/9/93** 1 Year 5 Years Since 9/9/93** - ---------------------- ------- -------------- ------ ------- -------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/9/93** 1 Year 5 Years Since 9/9/93** - --------- ------ ------- -------------- ------ ------- -------------- Net Asset Value 1 Year 5 Years Since 9/30/93 ------ ------- ------------- Morningstar Foreign Stock Fund Average+ Lipper International Funds Average+
JURIKA & VOYLES RELATIVE VALUE FUND (1) Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+ Class C shares Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value Since 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
JURIKA & VOYLES SMALL CAP GROWTH FUND (1) Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- -------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Small Growth Fund Average+ Lipper Small Cap Growth Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- -------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Small Growth Fund Average+ Lipper Small Cap Growth Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- -------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Small Growth Fund Average+ Lipper Small Cap Growth Funds Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- -------------------------------------------- As a % of 1 Year 5 Years Since 9/30/94** 1 Year 5 Years Since 9/30/94** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value 1 Year 5 Years Since 9/30/94** ------ ------- --------------- Morningstar Small Growth Fund Average+ Lipper Small Cap Growth Funds Average+
LARGE CAP GROWTH FUND (2) Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/1/98** 1 Year 5 Years Since 9/1/98** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 9/1/98** 1 Year Since 9/1/98** - ---------------------- ------ -------------- ------ -------------- Net Asset Value Maximum Sales Charge 1 Year Since 9/30/98 ------ ------------- Morningstar Large Cap Growth Fund Average+ Lipper Large Cap Growth Fund's Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 10/29/99** 1 Year Since 10/29/99** - ---------------------- ---------------- ------ ---------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 10/29/99** 1 Year Since 10/29/99** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value CDSC and Redemption at End of Period 1 Year Since 10/31/99 ------ -------------- Morningstar Large Cap Growth Fund Average+ Lipper Large Cap Growth Fund's Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 10/29/99** 1 Year Since 10/29/99** - ---------------------- ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 10/29/99** 1 Year Since 10/29/99** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year Since 10/31/99 ------ -------------- Morningstar Large Cap Growth Fund Average+ Lipper Large Cap Growth Fund's Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 10/29/99** 1 Year Since 10/29/99** - ---------------------- ---------------- ------ ---------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 10/29/99** 1 Year Since 10/29/99** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value 1 Year Since 10/31/99 ------ -------------- Morningstar Large Cap Growth Fund Average+ Lipper Large Cap Growth Fund's Average+
LARGE CAP VALUE FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- ---------------------------------------------- As a % of 5 Years Since 11/28/95** 1 Year 5 Years Since 11/28/95** - ---------------------- ------- ---------------- ------ ------- ---------------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 11/28/95** 1 Year 5 Years Since 11/28/95** - ---------------------- ------ ------- ---------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge 1 Year 5 Years Since 11/30/95 ------ ------- -------------- Morningstar Large Value Fund Average+ Lipper Large Cap Value Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/15/97** 1 Year 5 Years Since 9/15/97** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/15/97** 1 Year 5 Years Since 9/15/97** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 9/30/97 ------ ------- ------------- Morningstar Large Value Fund Average+ Lipper Large Cap Value Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 9/15/97** 1 Year 5 Years Since 9/15/97** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 9/15/97** 1 Year 5 Years Since 9/15/97** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year 5 Years Since 9/30/97 ------ ------- ------------- Morningstar Large Value Fund Average+ Lipper Large Cap Value Funds Average+
SELECT FUND Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 3/15/01** 1 Year Since 3/15/01** - ---------------------- ---------------- ------ --------------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 3/15/01** 1 Year Since 3/15/01** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge 1 Year Since 3/31/01 ------ ------------- Morningstar Large Value Fund Average+ Lipper Multi Cap Value Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 3/15/01** 1 Year Since 3/15/01** - ---------------------- --------------- ------ --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 3/15/01** 1 Year Since 3/15/01** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value CDSC and Redemption at End of Period 1 Year Since 3/31/01 ------ ------------- Morningstar Large Value Fund Average+ Lipper Multi Cap Value Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 3/15/01** 1 Year Since 3/15/01** - ---------------------- ---------------- ------ --------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- -------------------------------------------- As a % of 1 Year Since 3/15/01** 1 Year Since 3/15/01** - ---------------------- ------ ---------------- ------ ---------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year Since 3/31/01 ------ ------------- Morningstar Large Value Fund Average+ Lipper Multi Cap Value Funds Average+
TARGETED EQUITY FUND (3) Class A shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years 10 Years 1 Year 5 Years 10 Years - ---------------------- ------ ------- -------- ------ ------- -------- Net Asset Value Maximum Sales Charge 1 Year 5 Years 10 Years ------ ------- -------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
Class B shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of 5 Years Since 2/28/97** 1 Year 5 Years Since 2/28/97** - ---------------------- ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 5 Years Since 2/28/97** 1 Year 5 Years Since 2/28/97** - ---------------------- ------ ------- --------------- ------ ------- --------------- Net Asset Value CDSC and Redemption at End of Period 1 Year 5 Years Since 2/28/97** ------ ------- --------------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
Class C shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 9/1/98** 1 Year Since 9/1/98** - ---------------------- -------------- ------ -------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year Since 9/1/98** 1 Year Since 9/1/98** - ---------------------- ------ -------------- ------ -------------- Net Asset Value Maximum Sales Charge and Redemption at End of Period*** 1 Year Since 9/30/98 ------ ------------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
Class Y shares
Aggregate Total Return Average Annual Total Return ----------------------------------------- --------------------------------------------- As a % of Since 6/30/99** 1 Year Since 6/30/99** - ---------------------- --------------- ------ --------------- Net Asset Value Average Annual Total Return - After Average Annual Total Return - After Taxes Taxes on Distributions on Distributions and Sales of Fund Shares ----------------------------------------- --------------------------------------------- As a % of 1 Year 10 Years 1 Year Since 6/30/99** - ---------------------- ------ -------- ------ --------------- Net Asset Value Since 1 Year 6/30/99** ------ --------- Morningstar Large Blend Average+ Lipper Multi Cap Value Funds Average+
+ An average of the total returns of mutual funds with a current investment style similar to the Fund as calculated by Morningstar, Inc. or Lipper, Inc. The returns of the average are adjusted for ongoing management and distribution and operating expenses applicable to mutual fund investments but not reflect any sales charges. The returns do not reflect the effect of taxes. * Federal regulations require these examples to be calculated using a $1,000 investment. The normal minimum initial investment in shares of the Funds is $2,500, however. ** Commencement of Fund operations or offering of specified class of shares. *** Class C share performance assumes a 1.00% front-end sales charge and, for the 1 year period, a 1.00% CDSC that applies to sales within one year of purchase. Class C shares for accounts established on or after December 1, 2000 are subject to the 1.00% front-end load. Class C shares for accounts established before December 1, 2000 are not subject to the 1.00% front-end load. (1) Until November 30, 2001, the Fund had only one class of shares and offered those shares without a sales charge. Therefore, performance results have been restated to account for fees and expenses under the Fund's multiple class structure. Classes A, B and C shares commenced operations on November 30, 2001. During all periods shown, the Fund's total annual operating expenses have been limited under a binding expense cap arrangement. Therefore, the restatement of the Fund's performance to reflect Classes A, B and C performance is based on the net expenses of these Classes after taking into effect the Fund's current cap/waiver arrangements. (2) Until October 29, 1999, the Fund had only one class of shares and offered those shares without a sales charge. Therefore, performance results of Class A have been restated to account for fees and expenses under the Fund's multiple class structure. (3) The numbers presented for Class A shares of the Targeted Equity Fund reflect the maximum front-end sales charge currently in effect. Prior to March 3, 1997, a higher maximum front-end sales charge was in effect, so that the total returns achieved by investors may have been lower than those shown above. The foregoing data represents past performance only and is not a prediction as to the future returns of any Fund. The investment return and principal value of an investment in any Fund will fluctuate so that the investor's shares, when redeemed, may be worth more or less than their original cost. CDC Nvest Funds(SM) CDC IXIS Asset Management Distributors Statement of Additional Information -- PART II May 1, 2003: CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST COMPANIES TRUST I The following information applies generally to the funds listed below (the "Funds" and each a "Fund"). The Funds constitute all of the series of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III and CDC Nvest Companies Trust I (the "Trusts" and each a "Trust"). In certain cases, the discussion applies to some but not all of the Funds. Certain data applicable to particular Funds is found in Part I of this Statement of Additional Information (the "Statement") as well as in the Prospectuses of the Funds dated May 1, 2003, as from time to time revised or supplemented (the "Prospectus" or "Prospectuses"). This Statement is not a prospectus. For information about how to obtain copies of the Funds' Prospectuses, please see this Statement's cover page. The following Funds are described in this Statement:
Series of CDC Nvest Funds Trust I Series of CDC Nvest Funds Trust I (continued) - --------------------------------- --------------------------------------------- CDC Nvest Balanced Fund (the "Balanced Fund") CDC Nvest Star Worldwide Fund CDC Nvest Bond Income Fund (the "Star Worldwide Fund") (the "Bond Income Fund") CDC Nvest Strategic Income Fund CDC Nvest Capital Growth Fund (the "Strategic Income Fund") (the "Capital Growth Fund") CDC Nvest Targeted Equity Fund CDC Nvest Government Securities Fund (the "Targeted Equity Fund") (the "Government Securities Fund") CDC Nvest International Equity Fund Series of CDC Nvest Funds Trust II (the "International Equity Fund") ---------------------------------- CDC Nvest Jurika & Voyles Relative Value Fund CDC Nvest Growth and Income Fund (the "Relative Value Fund") (the "Growth and Income Fund") CDC Nvest Large Cap Growth Fund CDC Nvest High Income Fund (the "High Income Fund") (the "Large Cap Growth Fund") CDC Nvest Limited Term U.S. Government Fund CDC Nvest Municipal Income Fund (the "Limited Term U.S. Government Fund") (the "Municipal Income Fund") CDC Nvest Massachusetts Tax Free Income Fund CDC Nvest Star Advisers Fund (the "Star Advisers Fund") (the "Massachusetts Fund") CDC Nvest Star Growth Fund CDC Nvest Short Term Bond Fund (the "Star Growth Fund") (the "Short Term Bond Fund") CDC Nvest Star Small Cap Fund (the "Star Small Cap Fund") Series of CDC Nvest Funds Trust III CDC Nvest Star Value Fund (the "Star Value Fund") ----------------------------------- CDC Nvest Jurika & Voyles Small Cap Growth Fund (the "Small Cap Growth Fund") CDC Nvest Large Cap Value Fund (the "Large Cap Value Fund") CDC Nvest Select Fund (the "Select Fund") Series of CDC Nvest Companies Trust I CDC Nvest AEW Real Estate Fund (the "AEW Real Estate Fund")
XI33-0503 1 T a b l e o f C o n t e n t s Part II Miscellaneous Investment Practices Management of the Trusts Portfolio Transactions and Brokerage Description of the Trusts and Ownership of Shares Portfolio Turnover How to Buy Shares Net Asset Value and Public Offering Price Reduced Sales Charges Shareholder Services Redemptions Standard Performance Measures Income Dividends, Capital Gain Distributions and Tax Status Financial Statements Appendix A - Description of Bond Ratings Appendix B - Media that May Contain Fund Information Appendix C - Advertising and Promotional Literature 2 MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS The following is a list of certain investment strategies, including particular types of securities or specific practices that may used by an adviser or sub-adviser of a Fund in managing the Fund and that are not principal strategies. A Fund's primary strategies are detailed in its Prospectuses. Due to the multi-manager approach of CDC Nvest Star Funds and the Balanced Fund, investing in a certain security or engaging in a certain practice may be a primary strategy for one segment of the Fund and a secondary strategy for another segment of such Fund. The list of securities under each category below is not intended to be an exclusive list of securities for investment. An adviser or subadviser may invest in a general category listed below and where applicable with particular emphasis on a certain type of security but investment is not limited to the securities specially enumerated under each category. A subadviser or adviser may invest in any security that falls under the specific category including securities that are not listed below.
Fund Securities Practices - ---- ---------- --------- AEW Real Estate Fund Debt Securities (Mortgage-related When-issued Securities Securities, Collateralized Mortgage Obligations, Zero-Coupon Securities, Convertible Securities) Equity Securities (REITS, Real Estate Securities) Foreign Securities (Depositary Receipts) Balanced Fund Debt Securities (Collateralized Mortgage Reverse Repurchase Agreements Obligations, Structured Notes, Stripped Illiquid Securities Securities, Step Coupon Securities, Lower Initial Public Offerings Quality Corporate Securities) Futures Contracts Equity Securities (Nonconvertible Options Preferred Stock, Investment Companies) Swap Contracts Foreign Securities (Emerging Markets) Short Sales Bond Income Fund Debt Securities (Asset-backed Securities, When-issued Securities Collateralized Mortgage Obligations, Illiquid Securities Structured Notes, Stripped Securities, Futures Contracts Zero-coupon Securities, Pay-in-kind Options Securities, Convertible Securities) Swap Contracts Foreign Securities (Depositary Receipts) Capital Growth Fund Debt Securities (Investment Grade Initial Public Offerings Corporate Securities, Zero-coupon Reverse Repurchase Agreements Securities, Convertible Securities, U.S. Illiquid Securities Government Securities) Futures Contracts Equity Securities (Investment Companies) Options Foreign Securities (Bonds, Depositary Swap Contracts Receipts, Supranational Entities, Short Sales Currency Hedging Transactions) Government Securities Fund When-issued Securities Futures Contracts Options
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Fund Securities Practices - ---- ---------- --------- Growth and Income Fund Debt Securities (Investment Grade Initial Public Offerings Corporate Securities, Zero-coupon Futures Contracts Securities, Convertible Securities, U.S. Options Government Securities) Swap Contracts Equity Securities (Investment Companies) Illiquid Securities Foreign Securities (Supranational Borrowing Entities, Depositary Receipts, Currency Hedging) High Income Fund Debt Securities (Mortgage-related When-issued Securities Securities, Asset-backed Securities, Illiquid Securities Collateralized Mortgage Obligations, Stripped Securities, Convertible Securities, Structured Notes, Step Coupon Securities, U.S. Government Securities) Foreign Securities (Currency Hedging) International Equity Fund Debt Securities (Zero-coupon Securities) When-issued Securities Equity Securities (Investment Companies) Foreign Initial Public Offerings Foreign Securities (Bonds, Lower-quality Futures Contracts Debt Securities, Corporate Securities, Options Convertible Securities, Government Swap Contracts Securities, Supranational Entities, Short Sales Warrants) Illiquid Securities Large Cap Growth Fund Debt Securities (Commercial Paper, Initial Public Offerings Convertible Securities, Investment Grade When-issued Securities Corporate Securities, Stripped Futures Contracts Securities, Mortgage-related Securities, Options Collateralized Mortgage Obligations, Swap Contracts Government Securities) Short Sales Equity Securities (All Capitalizations, Illiquid Securities Convertible Stock, Investment Companies) Foreign Securities (Currency Hedging, Debt Securities, Emerging Markets, Equity Securities, Government Securities) Large Cap Value Fund Debt Securities (Commercial Paper, Lower When-issued Securities Quality Corporate Securities, U.S. Futures Contracts Government Securities, Zero Coupon Options Securities) Swap Contracts Equity Securities (All Capitalizations, Short Sales Investment Companies) Illiquid Securities Foreign Securities (Debt Securities, Initial Public Offering Equity Securities, Emerging Markets, Currency Hedging) Limited Term U.S. Government Fund Debt Securities (Mortgage-related When-issued Securities Securities, Collateralized Mortgage Futures Contracts Obligations, Stripped Securities) Options Foreign Securities (Currency Hedging) Illiquid Securities
4
Fund Securities Practices - ---- ---------- --------- Massachusetts Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings Mortgage-related Securities, Stripped of Tax Free Income Funds Securities, Pay-in-kind Securities, U.S. When-issued Securities Government Securities) Futures Contracts Options Illiquid Securities Municipal Income Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings Stripped Securities, U.S. Government of Tax Free Income Funds Securities) When-issued Securities Futures Contracts Options Illiquid Securities Relative Value Fund Debt Securities (Convertible Securities, Initial Public Offerings Government Securities) When-issued Securities Equity Securities (Investment Companies) Futures Contracts Foreign Securities (Depositary Receipts, Options Supranational Entities, Currency Hedging, Swap Contracts Emerging Markets, Bonds, Government Illiquid Securities Securities) Short Sales Select Fund Debt Securities (Convertible Securities, Initial Public Offerings Investment Grade Corporate Securities, When-issued Securities Zero Coupon Securities, Pay-in-kind Futures Contracts Securities, Lower Quality Corporate Options Securities, U.S. Government Securities) Illiquid Securities Equity Securities (Investment Companies) Short Sales Foreign Securities (Supranational Entities, Depositary Receipts, Bonds, Currency Hedging) Short Term Bond Fund Debt Securities (Convertible Securities, When-issued Securities Stripped Securities, Zero-coupon Futures Contracts Securities, Structure Notes, Step Coupon Options Securities) Swap Contracts Equity Securities (Nonconvertible Illiquid Securities Preferred Stock) Small Cap Growth Fund Debt Securities (Convertible Securities, When-issued Securities U.S. Government Securities) Futures Contracts Equity Securities (Investment Companies) Options Foreign Securities (Supranational Swap Contracts Entities, Emerging Markets) Illiquid Securities Short Sales
5
Fund Securities Practices - ---- ---------- --------- Star Advisers Fund Debt Securities (Structure Notes, Zero Initial Public Offerings Coupon Securities, Pay-in-kind When-issued Securities Securities, Stripped Securities, Step Privatizations Coupon Securities, Mortgage-related Futures Contracts Securities, Asset-backed Securities, Options Collateralized Mortgage Obligations, U.S. Swap Contracts Government Securities) Illiquid Securities Equity Securities (Investment Companies) Short Sales Foreign Securities (Bonds, Currency Hedging, Supranational Entities, Emerging Markets, Depositary Receipts, Currency Speculation) Star Growth Fund Debt Securities (Commercial Paper, Zero Initial Public Offerings Coupon Securities, Pay-in-kind When-issued Securities Securities, Step Coupon Securities, Futures Contracts Stripped Securities, Lower Quality Options Corporate Securities, Mortgage-backed Swap Contracts Securities, Asset-backed Securities, Short Sales Collateralized Mortgage Obligations, Illiquid Securities Convertible Securities, Structured Notes, Privatizations Government Securities) Equity Securities (All Capitalizations, Convertible Stock, Investment Companies) Foreign Securities (Debt Securities, Equity Securities, Supranational Entities, Emerging Markets, Depositary Receipts, Currency Hedging, Currency Speculation, Government Securities) Star Small Cap Fund Debt Securities (Structured Notes, Initial Public Offerings Mortgage-related Securities, Asset-backed When-issued Securities Securities, Collateralized Mortgage Privatizations Obligations, Step Coupon Securities, Futures Contracts Pay-in-kind Securities, Zero Coupon Options Securities, Stripped Securities, Swap Contracts Convertible Securities, U.S. Government Illiquid Securities Securities) Short Sales Equity Securities (Investment Companies) Foreign Securities (Bonds, Currency Hedging, Currency Speculation, Emerging Markets, Depositary Receipts, Supranational Entities) Star Value Fund Debt Securities (Commercial Paper, Initial Public Offerings Collateralized Mortgage Obligations, When-issued Securities Investment Grade Corporate Securities, Futures Contracts Zero Coupon Securities, Convertible Options Securities, Lower Quality Securities, Swap Contracts U.S. Government Securities) Illiquid Securities Equity Securities (All Capitalizations, Short Sales Convertible Stock, Investment Companies) Foreign Securities (Debt Securities, Currency Hedging, Depositary Receipts, Equity Securities)
6
Fund Securities Practices - ---- ---------- --------- Star Worldwide Fund Debt Securities (Structured Notes, Zero Initial Public Offerings Coupon Securities, Stripped Securities, When-issued Securities Mortgage-related Securities, Asset-backed Privatizations Securities, Step Coupon Securities, Futures Contracts Pay-in-kind Securities, Collateralized Options Mortgage Obligations, U.S. Government Swap Contracts Securities) Illiquid Securities Equity Securities (Investment Companies, Short Sales Convertible Preferred Stocks) Foreign Securities (Bonds, Currency Hedging, Currency Speculation, Supranational Entities, Emerging Markets, Depositary Receipts) Strategic Income Fund Debt Securities (Asset-backed securities, Initial Public Offerings Collateralized Mortgage Obligations, Step When-issued Securities Coupon Securities) Futures Contracts Equity Securities (Investment Companies) Options Foreign Securities (Currency Hedging) Swap Contracts Illiquid Securities Short Sales Targeted Equity Fund Debt Securities (Investment Grade Initial Public Offerings Corporate Securities, Zero Coupon Futures Contracts Securities, Convertible Securities, U.S. Options Government Securities) Swap Contracts Illiquid Securities Short Sales
TYPES OF SECURITIES DEBT SECURITIES Certain Funds may invest in debt securities. Debt securities are used by issuers to borrow money. The issuer usually pays a fixed, variable or floating rate of interest and must repay the amount borrowed at the maturity of the security. Some debt securities, such as zero coupon securities, do not pay interest but are sold at deep discount from their face values. Debt securities include corporate bonds, government securities and mortgage and other asset-backed securities. Debt securities include a broad array of short, medium and long term obligations issued by the U.S. or foreign governments, government or international agencies and instrumentalities, and corporate issuers of various types. Some debt securities represent uncollateralized obligations of their issuers; in other cases, the securities may be backed by specific assets (such as mortgages or other receivables) that have been set aside as collateral for the issuer's obligation. Debt securities generally involve an obligation of the issuer to pay interest or dividends on either a current basis or at the maturity of the securities, as well as the obligation to repay the principal amount of the security at maturity. Risk. Debt securities are subject to market and credit risk. Credit risk relates to the ability of the issuer to make payments of principal and interest and includes the risk of default. In the case of municipal bonds, the issuer may make these payments from money raised through a variety of sources, including (i) the issuer's general taxing power, (ii) a specific type of tax such as a property tax, or iii) a particular facility or project such as a highway. The ability of an issuer of municipal bonds to make these payments could be affected by litigation, legislation or other political events, or the bankruptcy of the issuer. U.S. government securities do not involve the credit risks associated with other types of fixed-income securities; as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate debt securities. Market risk is the risk that the value of the security will fall because of changes in market rates of interest. (Generally, the value of debt securities falls when market rates of interest are rising.) Some debt securities also involve prepayment or call risk. This is the risk that the issuer will repay a Fund the principal on the security before it is due, thus depriving the Fund of a favorable stream of future interest payments. 7 Because interest rates vary, it is impossible to predict the income of a Fund that invests in debt securities for any particular period. Fluctuations in the value of a Fund's investments in debt securities will cause the Fund's net asset value to increase or decrease. Adjustable Rate Mortgage security ("ARM"), like a traditional mortgage security, is an interest in a pool of mortgage loans that provides investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. ARMs have interest rates that are reset at periodic intervals, usually by reference to some interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, these securities are still subject to changes in value based on changes in market interest rates or changes in the issuer's creditworthiness. Because the interest rates are reset only periodically, changes in the interest rate on ARMs may lag changes in prevailing market interest rates. Also, some ARMs (or the underlying mortgages) are subject to caps or floors that limit the maximum change in interest rate during a specified period or over the life of the security. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods. Because of the resetting of interest rates, ARMs are less likely than non-adjustable rate securities of comparable quality and maturity to increase significantly in value when market interest rates fall. Asset-backed Securities Certain Funds may invest in asset-backed securities. The securitization techniques used to develop mortgage securities are also being applied to a broad range of other assets. Through the use of trusts and special purpose vehicles, assets such as automobile and credit card receivables, are being securitized in pass-through structures similar to mortgage pass-through structures or in a pay-through structure similar to a Collateralized Mortgage Obligation structure. Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are pre-paid, the Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, the Fund's ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. Collateralized Mortgage Obligations ("CMOs") Certain Funds may invest in CMOs, which are securities backed by a portfolio of mortgages or mortgage securities held under indentures. The underlying mortgages or mortgage securities are issued or guaranteed by the U.S. government or an agency or instrumentality thereof. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMO first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMO held by the Fund would have the same effect as the prepayment of mortgages underlying a mortgage pass-through security. CMOs may be considered derivative securities. Convertible Securities Certain Funds may invest in convertible securities, including corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. Convertible securities usually provide a lower yield than comparable fixed-income securities. Investment-Grade Debt Securities Investment grade debt securities include all types of debt instruments that are of medium and high-quality. Some possess speculative characteristics and may be more sensitive to economic changes and to changes in the financial conditions of issuers. A debt security is considered to be investment-grade if it is rate investment-grade by Standard & Poor's Rating Group ("Standard & Poor's" or "S&P") or Moody's Investor's Service, Inc. ("Moody's") is unrated but considered to be of equivalent quality by an investment adviser or subadviser. For more 8 information, including a detailed description of the ratings assigned by S&P and Moody's, please refer to the Statement's "Appendix A -- Description of Securities Ratings." Lower Quality Debt Securities Certain Funds may invest in lower quality fixed-income securities. Fixed-income securities rated BB or lower by Standard & Poor's or Ba or lower by Moody's (and comparable unrated securities) are of below "investment grade" quality. Lower quality fixed-income securities generally provide higher yields, but are subject to greater credit and market risk than higher quality fixed-income securities, including U.S. government and many foreign government securities. Lower quality fixed-income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a Fund investing in lower quality fixed-income securities may be more dependent on the Fund's adviser's or subadviser's own credit analysis than for a Fund investing in higher quality bonds. The market for lower quality fixed-income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed-income securities. This lack of liquidity at certain times may affect the valuation of these securities and may make the valuation and sale of these securities more difficult. Securities of below investment grade quality are considered high yield, high risk securities and are commonly known as "junk bonds." For more information, including a detailed description of the ratings assigned by S&P and Moody's, please refer to the Statement's "Appendix A -- Description of Securities Ratings." Mortgage-related Securities Certain Funds may invest in mortgage-related securities, such as Government National Mortgage Association ("GNMA") or Federal National Mortgage Association ("FNMA") certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a faster-than-expected prepayment rate will reduce yield to maturity, and a slower-than-expected prepayment rate will have the opposite effect of increasing yield to maturity. If a Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will increase, and slower-than-expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. In addition, an increase in interest rates would also increase the inherent volatility of the Fund by increasing the average life of the Fund's portfolio securities. Pay-in-kind Securities Certain Funds may invest in pay-in-kind securities. Pay-in-kind securities pay dividends or interest in the form of additional securities of the issuer, rather than in cash. These securities are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of pay-in-kind securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. Step Coupon Securities Certain Funds may invest in step coupon securities. Step coupon securities trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. Market values of these types of securities generally fluctuate in response to changes in interest rates to a greater degree than do conventional interest-paying securities of comparable term and quality. Under many market conditions, investments in such securities may be illiquid, making it difficult for the Fund to dispose of them or determine their current value. "Stripped" Securities Certain Funds may invest in stripped securities, which are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. government or foreign government securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). Stripped securities commonly have greater market volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated payments of principal, a 9 Fund may fail to recoup fully its investments in IOs. The staff of the Securities and Exchange Commission (the "SEC") has indicated that it views stripped mortgage securities as illiquid unless the securities are issued by the U.S. government or its agencies and are backed by fixed-rate mortgages. The Funds intend to abide by the staff's position. Stripped securities may be considered derivative securities. Structured Notes Certain Funds may invest in a broad category of instruments known as "structured notes." These instruments are debt obligations issued by industrial corporations, financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal or interest that are determined by reference to changes in some external factor or factors. For example, the issuer's obligations could be determined by reference to changes in the value of a commodity (such as gold or oil), a foreign currency, an index of securities (such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases, the issuer's obligations are determined by reference to changes over time in the difference (or "spread") between two or more external factors (such as the U.S. prime lending rate and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuer's obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate goes up, the issuer's interest payment obligations are reduced). In some cases, the issuer's obligations may be determined by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill rate). In some cases, the issuer's obligations remain fixed (as with a traditional debt instrument) so long as an external factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some specified maximum), but if the external factor or factors change by more than the specified amount, the issuer's obligations may be sharply reduced. Structured notes can serve many different purposes in the management of a mutual fund. For example, they can be used to increase the Fund's exposure to changes in the value of assets that the Fund would not ordinarily purchase directly (such as stocks traded in a market that is not open to U.S. investors). They can also be used to hedge the risks associated with other investments the Fund holds. For example, if a structured note has an interest rate that fluctuates inversely with general changes in a country's stock market index, the value of the structured note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect of stock market movements on the value of the Fund's portfolio as a whole. Risks. Structured notes involve special risks. As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its payment obligations. This risk is in addition to the risk that the issuer's obligations (and thus the value of the Fund's investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of traditional debt instruments. Volatility will be especially high if the issuer's obligations are determined by reference to some multiple of the change in the external factor or factors. Many structured notes have limited or no liquidity, so that the Fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured notes depends in significant part on the accuracy of the relevant adviser's or subadviser's analysis of the issuer's creditworthiness and financial prospects, and of the adviser's or subadviser's forecast as to changes in relevant economic and financial market conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with investments in foreign securities (described below) apply. Tax Exempt Securities The Municipal Income Fund and the Massachusetts Fund (the "Tax Free Income Funds") may invest in "Tax Exempt Securities," which term refers to debt securities the interest from which is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund's portfolio manager to be reliable), exempt from federal income tax and, in the case of the Massachusetts Fund, exempt from Massachusetts state personal income taxes (other than the possible incidence of any alternative minimum taxes). Tax Exempt Securities include debt obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions (for example, counties, cities, towns, villages and school districts) and authorities to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which certain Tax Exempt Securities may be issued include the refunding of outstanding obligations, obtaining funds for federal operating expenses, or obtaining funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. In addition, certain types of private activity bonds have been or may be issued by public authorities or on behalf of state or local governmental units to finance privately 10 operated housing facilities, sports facilities, convention or trade facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Such obligations are included within the term "Tax Exempt Securities" if the interest paid thereon, is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund's portfolio manager to be reliable), exempt from federal income tax and, in the case of the Massachusetts Fund, exempt from Massachusetts state personal income taxes. The Massachusetts Fund may invest more than 25% of the value of its total assets in private activity bonds, the interest from which is exempt from both federal and state personal income taxes, but not more than 25% in bonds backed by non-governmental users in any one industry (see "Investment Restrictions" in Part I of this Statement). However, the income from certain private activity bonds is an item of tax preference for purposes of the federal alternative minimum tax, and it is a non-fundamental policy of the Massachusetts Fund that distributions from interest income on such private activity bonds, together with distributions of interest income on investments other than Tax Exempt Securities, will normally not exceed 10% of the total amount of the Fund's income distributions. The ability of the Tax Free Income Funds to invest in securities other than tax-exempt securities is limited by a requirement of the Internal Revenue Code of 1986, as amended (the "Code"), that, in order to be qualified to pay exempt-interest dividends, at least 50% of the value of such Fund's total assets be invested in obligations the interest on which is exempt from federal income tax at the end of each calendar quarter. Funds that invest in certain tax-exempt bonds or certain private activity bonds may not be a desirable investment for "substantial users" of facilities financed by such obligations or bonds or for "related persons" of substantial users. You should contact your financial adviser or attorney for more information if you think you may be a "substantial user" or a "related person" of a substantial user. There are variations in the quality of Tax Exempt Securities, both within a particular classification and between classifications, depending on numerous factors (see Appendix A). The two principal classifications of tax-exempt bonds are general obligations bonds and limited obligation (or revenue) bonds. General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues and not from any particular fund or source. The characteristics and method of enforcement of general obligation bonds vary according to the law applicable to the particular issuer, and payment may be dependent upon an appropriation by the issuer's legislative body. Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities, or in some cases from the proceeds of a special excise or other specific revenue source such as the user of the facility. Tax-exempt private activity bonds are in most cases revenue bonds and generally are not payable from the unrestricted revenues of the issuer. The credit and quality of such bonds are usually directly related to the credit standing of the corporate user of the facilities. Principal and interest on such bonds are the responsibilities of the corporate user (and any guarantor). The yields on Tax Exempt Securities are dependent on a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the Tax Exempt Securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue. Further, information about the financial condition of an issuer of tax-exempt bonds may not be as extensive as that made available by corporations whose securities are publicly traded. The ratings of Moody's and S&P represent their opinions as to the quality of the Tax Exempt Securities, which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax Exempt Securities with the same maturity, interest rate and rating may have different yields while Tax Exempt Securities of the same maturity and interest rates with different ratings may have the same yield. Subsequent to its purchase by the Fund, an issue of Tax Exempt Securities or other investments may cease to be rated or the rating may be reduced below the minimum rating required for purchase by the Fund. Neither event will require the elimination of an investment from the Fund's portfolio, but the Fund's subadviser will consider such an event as part of its normal, ongoing review of all the Fund's portfolio securities. Although the yield of a Tax Free Income Fund generally will be lower than that of another Fund, the net after-tax return to investors may be greater. The tables below illustrate what tax-free investing can mean for you. They show what you must earn from a taxable investment to equal a tax-free yield ranging from 4% to 8% under current federal tax rates, in the case of the Municipal Income Fund, and under combined federal and state tax rates, in the case of the Massachusetts Fund. For example, while a married couple with a taxable income of $40,000 filing a joint return would have to earn a taxable yield of 7.06% to equal a tax-free yield of 6.0% in the Municipal Income Fund, a single person 11 with a taxable income of $40,000 would have to earn a taxable yield of 8.22% to equal a tax-free yield of 6.0%. This example and these tables do not take into account the effects of state income tax, in the case of the Municipal Income Fund, local income taxes, if any, or federal income taxes on social security benefits that may arise as a result of receiving tax-exempt income, or any federal alternative minimum tax that may be payable to the extent that Fund dividends are derived from interest on "private activity bonds." Also, a portion of a Tax Free Income Fund's distributions may consist of ordinary income, short-term capital gain or long-term capital gain and will be taxable to you as such. Yields shown do not represent actual yields achieved by the Fund and are not intended as a prediction of future yields. [TO BE UPDATED] Taxable Equivalent Yields - Municipal Income Fund
Taxable Income* 2002 If Tax Exempt Yield Is --------------- Fed. Marg. 4% 5% 6% 7% 8% Single Return ($) Joint Return ($) Tax Rate Then The Equivalent Taxable Yield Would Be: ----------------- ---------------- -------- ------------------------------------------- 0 - 6,000 0 - 12,000 10.00% 4.44% 5.56% 6.67% 7.78% 8.89% 6,001 - 27,950 12,001 - 46,700 15.00% 4.71% 5.88% 7.06% 8.24% 9.41% 27,951 - 67,700 46,701 - 112,850 27.00% 5.48% 6.85% 8.22% 9.59% 10.96% 67,701 - 141,250 112,851 - 171,950 30.00% 5.71% 7.14% 8.57% 10.00% 11.43% 141,251 - 307,050 171,951 - 307,050 35.00% 6.15% 7.69% 9.23% 10.77% 12.31% 307,051 and over 307,051 and over 38.60% 6.51% 8.14% 9.77% 11.40% 13.03%
* This amount represents taxable income as defined in the Code. Tax Free Investing-Massachusetts Fund
2002 Taxable Income* Combined If Tax Exempt Yield Is --------------- MA and Fed. 4% 5% 6% 7% 8% Single Return ($) Joint Return ($) Tax Rate** Then The Equivalent Taxable Yield Would Be: ----------------- ---------------- ----------- ------------------------------------------- 0 - 6,000 0 - 12,000 14.77% 4.69% 5.87% 7.04% 8.21% 9.39% 6,001 - 27,950 12,001 - 46,700 19.51% 4.97% 6.21% 7.45% 8.70% 9.94% 27,951 - 67,700 46,701 - 112,850 30.87% 5.79% 7.23% 8.68% 10.13% 11.57% 67,701 - 141,250 112,851 - 171,950 33.71% 6.03% 7.54% 9.05% 10.56% 12.07% 141,251 - 307,050 171,951 - 307,050 38.45% 6.50% 8.12% 9.75% 11.37% 13.00% 307,051 and over 307,051 and over 41.85% 6.88% 8.60% 10.32% 12.04% 13.76%
* This amount represents taxable income as defined in the Code and the Massachusetts tax law. Note that Massachusetts taxable income and federal taxable income may differ due to differences in exemptions, itemized deductions and other items. ** These combined rates reflect the 2002 federal and Massachusetts applicable marginal rates. These rates include the effect of deducting state taxes on a federal return. The Tax Free Income Funds do not currently intend to invest in so-called "moral obligation" bonds, in which repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation," meets the investment criteria established for investments by such Fund. Securities in which a Tax Free Income Fund may invest, including Tax Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of issuers to meet their obligations for the payment of interest and principal on their Tax Exempt Securities may be materially affected or that their obligations may be found to be invalid and unenforceable. Such litigation or conditions may from time to time have 12 the effect of introducing uncertainties in the market for tax-exempt bonds or certain segments thereof, or materially affecting the credit risk with respect to particular bonds. Adverse economic, legal or political developments might affect all or a substantial portion of the Fund's Tax Exempt Securities in the same manner. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on debt obligations issued by states and their political subdivisions and similar proposals may well be introduced in the future. If such a proposal were enacted, the availability of Tax-Exempt Securities for investment by the Tax Free Income Funds and the value of such Funds' portfolios could be materially affected, in which event such Funds would reevaluate their investment objectives and policies and consider changes in their structure or dissolution. All debt securities, including tax-exempt bonds, are subject to credit and market risk. Generally, for any given change in the level of interest rates, prices for longer maturity issues tend to fluctuate more than prices for shorter maturity issues. The Commonwealth of Massachusetts and certain of its cities and towns and public bodies have from time to time encountered financial difficulties that have adversely affected their respective credit standings and borrowing abilities. Such difficulties could, of course, affect outstanding obligations of such entities, including obligations held by the Massachusetts Fund. U.S. Government Securities Certain Funds may invest in some or all of the following U.S. government securities: o U.S. Treasury Bills - Direct obligations of the U.S. Treasury that are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the U.S. government. o U.S. Treasury Notes and Bonds - Direct obligations of the U.S. Treasury issued in maturities that vary between one and 40 years, with interest normally payable every six months. These obligations are backed by the full faith and credit of the U.S. government. 0 Treasury Inflation-Protected Securities ("TIPS") - Fixed income securities whose principal value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. Although repayment of the original bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will fluctuate. Risk The values of TIPS generally fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of TIPS. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of TIPS. If inflation is lower than expected during the period a Fund holds TIPS, the Portfolio may earn less on the TIPS than on a conventional bond. If interest rates due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in TIPS may not be protected to the extent that the increase is not reflected in the bonds' inflation measure. There can be no assurance that inflation index for TIPS will accurately measure the real rate of inflation in the prices of goods and services. o "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee which represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Farmer's Home Administration or guaranteed by the Veterans Administration. The Government National Mortgage Association ("GNMA") guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. An assistant attorney general of the United States has rendered an opinion that the guarantee by GNMA is a general obligation of the United States backed by its full faith and credit. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as a Fund) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed 13 through to the registered holder (such as the Fund, which reinvests any prepayments) of Ginnie Maes along with regular monthly payments of principal and interest. o "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers. Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. government. o "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the U.S. government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but Freddie Macs are not backed by the full faith and credit of the U.S. government. Risk U.S. government securities generally do not involve the credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate fixed-income securities. Like other debt securities, however, the values of U.S. government securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Fund's net asset value. Since the magnitude of these fluctuations will generally be greater at times when the Fund's average maturity is longer, under certain market conditions the Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. Zero-coupon Securities Certain Funds may invest in zero-coupon securities. Zero-coupon securities are debt obligations that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligations. These securities are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero-coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. In order to satisfy a requirement for qualification as a "regulated investment company" under the Code, a Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero-coupon securities. Because the Fund will not on a current basis receive cash payments from the issuer of a zero-coupon security in respect of accrued original issue discount, in some years the Fund may have to distribute cash obtained from other sources in order to satisfy the 90% distribution requirement under the Code. Such cash might be obtained from selling other portfolio holdings of the Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment considerations might otherwise make it undesirable for the Fund to sell such securities at such time. EQUITY SECURITIES Equity securities are securities that represent an ownership interest (or the right to acquire such an interest) in a company and include common and preferred stocks and securities exercisable for, or convertible into, common or preferred stocks (such as warrants, convertible debt securities and convertible preferred stock). Common stocks represent an equity or ownership interest in an issuer. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds and preferred stock take precedence over the claims of those who own common stock. Preferred stocks represent an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred or common stock. While offering greater potential for long-term growth, equity securities are more volatile and more risky than some other forms of investment. Therefore, the value of your investment in a Fund may sometimes decrease instead of increase. A Fund may invest in equity securities of companies with relatively small market capitalization. Securities of such companies may be more volatile than the securities of larger, more established companies and the broad equity market indices. See "Small Capitalization Companies" below. A Fund's investments may include securities traded "over-the-counter" as well as those traded on a securities exchange. Some securities, particularly over the counter securities may be more difficult to sell under some market conditions. 14 o Market Capitalizations - Certain Funds may invest in companies with small, medium or large market capitalizations. The market capitalization ranges allowable for investments of each Fund are defined in reference to the benchmark of the specific Fund. Large capitalization companies are generally large companies that have been in existence for a number of years and are well established in their market. Mid capitalization companies are generally medium size companies that are not as established as large capitalization companies and may be more volatile. * SmallCapitalization Companies - Certain Funds may invest in companies with relatively small market capitalizations. Such investments may involve greater risk than is usually associated with more established companies. These companies often have sales and earnings growth rates that exceed those of companies with larger market capitalization. Such growth rates may in turn be reflected in more rapid share price appreciation. However, companies with smaller market capitalization often have limited product lines, markets or financial resources and may be dependent upon a relatively small management group. These securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger market capitalization or market averages in general. The net asset value of Funds that invest in companies with relatively small market capitalizations therefore may fluctuate more widely than market averages. o Warrants - Certain Funds may invest in warrants. A warrant is an instrument that gives the holder a right to purchase a given number of shares of a particular security at a specified price until a stated expiration date. Buying a warrant generally can provide a greater potential for profit or loss than an investment of equivalent amounts in the underlying common stock. The market value of a warrant does not necessarily move with the value of the underlying securities. If a holder does not sell the warrant, it risks the loss of its entire investment if the market price of the underlying security does not, before the expiration date, exceed the exercise price of the warrant plus the cost thereof. Investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying securities) with respect to the assets of the issuer. o Real estate investment trusts (REITs) - Certain Funds may invest in REITs. REITs are pooled investment vehicles that invest primarily in either real estate or real estate related loans. The value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon cash flow from their investments to repay financing costs and the ability of the REITs' managers. REITs are also subject to risks generally associated with real estate securities. A Fund will indirectly bear its proportionate share of expenses, including advisory fees, paid by each REIT in which it invests. o Real Estate Securities - The AEW Real Estate Fund invests primarily in securities of companies in the real estate industry, including REITs, and is, therefore, subject to the special risks associated with the real estate market and the real estate industry in general. Companies in the real estate industry are considered to be those that (i) have principal activity involving the development, ownership, construction management or sale of real estate; (ii) have significant real estate holdings, such as hospitality companies, supermarkets and mining, lumber and paper companies; and/or (iii) provide products or services related to the real estate industry, such as financial institutions that make and/or service mortgage loans and manufacturers or distributors of building supplies. Securities of companies in the real estate industry are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use, and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws. Investment Companies Certain Funds may invest in other investment companies. Investment companies, including companies such as "iShares", "SPDRs" and "WEBS," are essentially pools of securities. Investing in other investment companies involves substantially the same risks as investing directly in the underlying securities, but may involve additional expenses at the investment company level, such as investment advisory fees and operating expenses. In some cases, investing in an investment company may involve the payment of a premium over the value of the assets held in that investment company's portfolio. As an investor in another investment company, the Fund will bear its ratable share of the investment company's expenses, including advisory fees, and the Fund's shareholders will bear such expenses indirectly, in addition to similar fees and expenses of the Fund. Despite the possibility of greater fees and expenses, investment in other investment companies may be attractive nonetheless for several reasons, especially in connection with foreign investments. Because of restrictions on direct investment by U.S. entities in certain countries, investing indirectly in such countries (by purchasing shares of another fund that is permitted to invest in such countries) may be the most practical and efficient way for a Fund to invest in 15 such countries. In other cases, when a Fund's adviser or subadviser desires to make only a relatively small investment in a particular country, investing through another fund that holds a diversified portfolio in that country may be more effective than investing directly in issuers in that country. FOREIGN SECURITIES Certain Funds may invest in foreign securities. Such investments present risks not typically associated with investments in comparable securities of U.S. issuers. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Because a Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after a Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of such dividend, the Fund could be required to liquidate portfolio securities to pay such dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than those in the United States, and judgments against foreign entities may be more difficult to obtain and enforce. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. Emerging Markets Investments in foreign securities may include investments in emerging or developing countries, whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. In determining whether to invest in securities of foreign issuers, the adviser or subadviser of the Fund may consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax laws may reduce the Fund's net income available for distribution to shareholders. Depository Receipts Certain Funds may invest in foreign equity securities by purchasing "depository receipts." Depository receipts are instruments issued by a bank that represent an interest in equity securities held by arrangement with the bank. Depository receipts can be either "sponsored" or "unsponsored." Sponsored depository receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depository receipts are arranged without involvement by the issuer of the underlying equity securities and therefore less information about the issuer of the underlying equity securities may be available and price may be more volatile than sponsored depositary receipts. American Depository Receipts ("ADRs") are depository receipts that are bought and sold in the United States and are typically issued by a U.S. bank or trust company which evidence ownership of underlying securities by a foreign corporation. European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") are depository receipts that are typically issued by foreign banks or trust companies which evidence ownership of underlying securities issued by either a foreign or United State corporation. All depositary receipts, including those denominated in U.S. dollars, will be subject to foreign currency exchange risk. 16 Supranational Entities Certain Funds may invest in obligations of supranational entities. A supranational entity is an entity designated or supported by national governments to promote economic reconstruction, development or trade amongst nations. Examples of supranational entities include the International Bank for Reconstruction and Development (the "World Bank") and the European Investment Bank. Obligations of supranational entities are subject to the risk that the governments on whose support the entity depends for its financial backing or repayment may be unable or unwilling to provide that support. Obligations of a supranational entity that are denominated in foreign currencies will also be subject to the risks associated with investments in foreign currencies, as described above under "Foreign Securities." Foreign Currency Most foreign securities in the Funds' portfolios will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Similarly, any income on such securities is generally paid to the Fund in foreign currencies. The value of these foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of the Fund's portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of the Fund's income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of the Fund's assets and on the net investment income available for distribution may be favorable or unfavorable. A Fund may incur costs in connection with conversions between various currencies. In addition, a Fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars. Foreign Currency Hedging Transactions To protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate. If conditions warrant, a Fund may also enter into contracts with banks or broker-dealers to purchase or sell foreign currencies at a future date ("forward contracts"). A Fund will maintain cash or other liquid assets eligible for purchase by the Fund in a segregated account with the custodian in an amount at least equal to the lesser of (i) the difference between the current value of the Fund's liquid holdings that settle in the relevant currency and the Fund's outstanding obligations under currency forward contracts, or (ii) the current amount, if any, that would be required to be paid to enter into an offsetting forward currency contract which would have the effect of closing out the original forward contract. The Fund's use of currency hedging transactions may be limited by tax considerations. The Fund may also purchase or sell foreign currency futures contracts traded on futures exchanges. Foreign currency futures contract transactions involve risks similar to those of other futures transactions. See "Futures", "Options" and "Swap Contracts" below. MONEY MARKET INSTRUMENTS (All Funds) A Fund may seek to minimize risk by investing in money market instruments, which are high-quality, short-term securities. Although changes in interest rates can change the market value of a security, a Fund expects those changes to be minimal and that the Fund will be able to maintain the net asset value of its shares at $1.00, although this value cannot be guaranteed. Money market obligations of foreign banks or of foreign branches or subsidiaries of U.S. banks may be subject to different risks than obligations of domestic banks, such as foreign economic, political and legal developments and the fact that different regulatory requirements apply. TYPES OF PRACTICES Repurchase Agreements (All Funds) The Funds may enter into repurchase agreements, by which a Fund purchases a security and obtains a simultaneous commitment from the seller to repurchase the security at an agreed-upon price and date. The resale price is in excess of the purchase price and reflects an agreed-upon market interest rate unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash at relatively low market risk. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the U.S. government, the obligation of the seller is not guaranteed by the U.S. government and there is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, 17 including possible disposition in the market. However, the Fund may be subject to various delays and risks of loss, including (i) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (ii) possible reduced levels of income and lack of access to income during this period and (iii) inability to enforce rights and the expenses involved in the attempted enforcement. Reverse Repurchase Agreements Certain Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker or dealer, in return for cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed-upon rate. The ability to use reverse repurchase agreements may enable, but does not ensure the ability of, a Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous. When effecting reverse repurchase agreements, assets of the applicable Fund in a dollar amount sufficient to make payment of the obligations to be purchased are segregated on the applicable Fund's records at the trade date and maintained until the transaction is settled. o Dollar Rolls. Dollar rolls are a special type of reverse repurchase agreement in which the portfolio instrument transferred by the Fund is a mortgage related security. The Fund gives up the cash flows during the transaction period but has use of the cash proceeds. When-issued Securities Certain Funds may purchase "when-issued" equity securities, which are traded on a price basis prior to actual issuance. Such purchases will only be made to achieve a Fund's investment objective and not for leverage. The when-issued trading period generally lasts from a few days to months, or a year or more; during this period dividends on equity securities are not payable. No dividend income accrues to the Fund prior to the time it takes delivery. A frequent form of when-issued trading occurs when corporate securities to be created by a merger of companies are traded prior to the actual consummation of the merger. Such transactions may involve a risk of loss if the value of the securities falls below the price committed to prior to actual issuance. Each Trust's custodian will establish a segregated account for each Fund when it purchases securities on a when-issued basis consisting of cash or liquid securities equal to the amount of the when-issued commitments. Securities transactions involving delayed deliveries or forward commitments are frequently characterized as when-issued transactions and are similarly treated by each Fund. Illiquid Securities Illiquid securities are those that are not readily resaleable which may include securities whose disposition is restricted by federal securities laws. Investment in restricted or other illiquid securities involves the risk that a Fund may be unable to sell such a security at the desired time. Also, a Fund may incur expenses, losses or delays in the process of registering restricted securities prior to resale. Certain Funds may purchase Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. Certain Funds may also purchase commercial paper issued under Section 4(2) of the Securities Act of 1933. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of a Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless an adviser or subadviser has determined, under guidelines established by each Trust's Board of Trustees, that the particular issue of Rule 144A securities is liquid. Initial Public Offerings Certain funds may purchase securities of companies that are offered pursuant to an initial public offering ("IPO"). An IPO is a company's first offering of stock to the public in the primary market, typically to raise additional capital. The Funds may purchase a "hot" IPO (also known as a "hot issue"), which is an IPO that is oversubscribed and, as a result, is an investment opportunity of limited availability. As a consequence, the price at which these IPO shares open in the secondary market may be significantly higher than the original IPO price. IPO securities tend to involve greater risk due, in part, to public perception and the lack of publicly available information and trading history. There is the possibility of losses resulting from the difference between the issue price and potential diminished value of the stock once traded in the secondary market. Although the Funds will make diligent efforts to research a company prior to purchasing IPO securities, including reviewing the company's prospectus, there is no guarantee against significant losses. The Funds' investment in IPO securities may have a significant impact on a Fund's performance and may result in significant capital gains. 18 Privatizations In a number of countries around the world, governments have undertaken to sell to investors interests in enterprises that the government has historically owned or controlled. These transactions are known as "privatizations" and may in some cases represent opportunities for significant capital appreciation. In some cases, the ability of U.S. investors, such as the Funds, to participate in privatizations may be limited by local law, and the terms of participation for U.S. investors may be less advantageous than those for local investors. Also, there is no assurance that privatized enterprises will be successful, or that an investment in such an enterprise will retain its value or appreciate in value. Futures Contracts A futures contract is an agreement between two parties to buy and sell a particular commodity (e.g., an interest-bearing security) for a specified price on a specified future date. In the case of futures on an index, the seller and buyer agree to settle in cash, at a future date, based on the difference in value of the contract between the date it is opened and the settlement date. The value of each contract is equal to the value of the index from time to time multiplied by a specified dollar amount. For example, long-term municipal bond index futures trade in contracts equal to $1000 multiplied by the Bond Buyer Municipal Bond Index, and S&P 500 Index futures trade in contracts equal to $500 multiplied by the S&P 500 Index. When a trader, such as a Fund, enters into a futures contract, it is required to deposit with (or for the benefit of) its broker as "initial margin" an amount of cash or short-term high-quality securities (such as U.S. Treasury bills or high-quality tax exempt bonds acceptable to the broker) equal to approximately 2% to 5% of the delivery or settlement price of the contract (depending on applicable exchange rules). Initial margin is held to secure the performance of the holder of the futures contract. As the value of the contract changes, the value of futures contract positions increases or declines. At the end of each trading day, the amount of such increase and decline is received and paid respectively by and to the holders of these positions. The amount received or paid is known as "variation margin." If the Fund has a long position in a futures contract it will establish a segregated account with the Fund's custodian containing cash or liquid securities eligible for purchase by the Fund equal to the purchase price of the contract (less any margin on deposit). For short positions in futures contracts, the Fund will establish a segregated account with the custodian with cash or liquid securities eligible for purchase by the Fund that, when added to the amounts deposited as margin, equal the market value of the instruments or currency underlying the futures contracts. Although futures contracts by their terms require actual delivery and acceptance of securities (or cash in the case of index futures), in most cases the contracts are closed out before settlement. A futures sale is closed by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity and with the same delivery date. Similarly, the closing out of a futures purchase is closed by the purchaser selling an offsetting futures contract. Gain or loss on a futures position is equal to the net variation margin received or paid over the time the position is held, plus or minus the amount received or paid when the position is closed, minus brokerage commissions. Options An option on a futures contract obligates the writer, in return for the premium received, to assume a position in a futures contract (a short position if the option is a call and a long position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option generally will be accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying contract, the remaining term of the option, supply and demand and interest rates. Options on futures contracts traded in the United States may only be traded on a U.S. board of trade licensed by the Commodity Futures Trading Commission (the "CFTC"). An option on a security entitles the holder to receive (in the case of a call option) or to sell (in the case of a put option) a particular security at a specified exercise price. An "American style" option allows exercise of the option at any time during the term of the option. A "European style" option allows an option to be exercised only at the end of its term. Options on securities may be traded on or off a national securities exchange. A call option on a futures contract written by a Fund is considered by the Fund to be covered if the Fund owns the security subject to the underlying futures contract or other securities whose values are expected to move in tandem 19 with the values of the securities subject to such futures contract, based on historical price movement volatility relationships. A call option on a security written by a Fund is considered to be covered if the Fund owns a security deliverable under the option. A written call option is also covered if the Fund holds a call on the same futures contract or security as the call written where the exercise price of the call held is (a) equal to or less than the exercise price of the call written or (b) greater than the exercise price of the call written if the difference is maintained by the Fund in cash or liquid securities eligible for purchase by the Fund in a segregated account with its custodian. A put option on a futures contract written by a Fund, or a put option on a security written by the Fund, is covered if the Fund maintains cash or liquid securities eligible for purchase by the Fund with a value equal to the exercise price in a segregated account with the Fund's custodian, or else holds a put on the same futures contract (or security, as the case may be) as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer of an option wishes to terminate its position, it may effect a closing purchase transaction by buying an option identical to the option previously written. The effect of the purchase is that the writer's position will be canceled. Likewise, the holder of an option may liquidate its position by selling an option identical to the option previously purchased. Closing a written call option will permit a Fund to write another call option on the portfolio securities used to cover the closed call option. Closing a written put option will permit the Fund to write another put option secured by the segregated assets used to secure the closed put option. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any futures contract or securities subject to the option to be used for other Fund investments. If the Fund desires to sell particular securities covering a written call option position, it will close out its position or will designate from its portfolio comparable securities to cover the option prior to or concurrent with the sale of the covering securities. A Fund will realize a profit from closing out an option if the price of the offsetting position is less than the premium received from writing the option or is more than the premium paid to purchase the option; and the Fund will realize a loss from closing out an option transaction if the price of the offsetting option position is more than the premium received from writing the option or is less than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the covering securities, any loss resulting from the closing of a written call option position is expected to be offset in whole or in part by appreciation of such covering securities. Since premiums on options having an exercise price close to the value of the underlying securities or futures contracts usually have a time value component (i.e., a value that diminishes as the time within which the option can be exercised grows shorter) an option writer may profit from the lapse of time even though the value of the futures contract (or security in some cases) underlying the option (and of the security deliverable under the futures contract) has not changed. Consequently, profit from option writing may or may not be offset by a decline in the value of securities covering the option. If the profit is not entirely offset, the Fund will have a net gain from the options transaction, and the Fund's total return will be enhanced. Likewise, the profit or loss from writing put options may or may not be offset in whole or in part by changes in the market value of securities acquired by the Fund when the put options are closed. As an alternative to purchasing call and put options on index futures, a Fund may purchase or sell call or put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. Certain Funds may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments 20 from the issuer at a time when, in the case of a call warrant, the exercise price is less than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. Certain Funds may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, the Fund may buy put options on the foreign currency. If the value of the currency declines, the Fund will have the right to sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio. Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may buy call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent desired, the Fund could sustain losses on transactions in foreign currency options that would require the Fund to forego a portion or all of the benefits of advantageous changes in those rates. Certain Funds may also write options on foreign currencies. For example, to hedge against a potential decline in the U.S. dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, the Fund could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised and the diminution in value of portfolio securities be offset at least in part by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against a potential increase in the U.S. dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency which, if rates move in the manner projected, will expire unexercised and allow the Fund to hedge the increased cost up to the amount of the premium. If exchange rates do not move in the expected direction, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss, which may not be fully offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may lose all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates. All call options written by a Fund on foreign currencies will be covered. A call option written on a foreign currency by the Fund is covered if the Fund owns the foreign currency underlying the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currencies held in its portfolio. A call option is also covered if the Fund has a call on the same foreign currency in the same principal amount as the call written if the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, if the difference is maintained by the Fund in cash or liquid securities eligible to be purchased by the Fund in a segregated account with the Fund's custodian. For this purpose, a call option is also considered covered if the Fund owns securities denominated in (or which trade principally in markets where settlement occurs in) the same currency, which securities are readily marketable, and the Fund maintains in a segregated account with its custodian cash or liquid securities eligible to be purchased by the Fund in an amount that at 21 all times at least equals the excess of (x) the amount of the Fund's obligation under the call option over (y) the value of such securities. Futures and Options on Tax-Exempt Bonds and Bond Indices Tax Free Income Funds may also purchase and sell interest rate futures contracts and tax-exempt bond index futures contracts and may write and purchase related options. Transactions involving futures and options on futures may help to reduce the volatility of the Tax Free Income Funds' net asset value, and the writing of options on futures may yield additional income for the Fund, but these results cannot be assured. Income from options and futures transactions is not tax-exempt. Swap Contracts Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. An index swap is an agreement to make or receive payments based on the different returns that would be achieved if a notional amount were invested in a specified basket of securities (such as the S&P 500 Index) or in some other investment (such as U.S. Treasury securities). The Fund will maintain at all times in a segregated account with its custodian cash or liquid securities eligible to be purchased by the Fund in amounts sufficient to satisfy its obligations under swap contracts. Risks. The use of futures contracts, options and swap contracts involves risks. One risk arises because of the imperfect correlation between movements in the price of futures contracts and movements in the price of the securities that are the subject of the hedge. A Fund's hedging strategies will not be fully effective unless the Fund can compensate for such imperfect correlation. There is no assurance that the Fund will be able to effect such compensation. Options, futures and swap contracts fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options, futures or swaps for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. The correlation between the price movement of the futures contract and the hedged security may be distorted due to differences in the nature of the relevant markets. For example, to the extent that the Municipal Income Fund enters into futures contracts on securities other than tax exempt bonds, the value of such futures may not vary in direct proportion to the value of tax exempt bonds that the Fund owns or intends to acquire, because of an imperfect correlation between the movement of taxable securities and tax exempt bonds. If the price of the futures contract moves more than the price of the hedged security, the relevant Fund would experience either a loss or a gain on the future that is not completely offset by movements in the price of the hedged securities. In an attempt to compensate for imperfect price movement correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the price movement volatility of the hedged securities is historically greater than the volatility of the futures contract. Conversely, the Fund may purchase or sell fewer contracts if the volatility of the price of hedged securities is historically less than that of the futures contracts. The price of index futures may not correlate perfectly with movement in the relevant index due to certain market distortions. One such distortion stems from the fact that all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the index and futures markets. Another market distortion results from the deposit requirements in the futures market being less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. A third distortion is caused by the fact that trading hours for foreign stock index futures may not correspond perfectly to hours of trading on the foreign exchange to which a particular foreign stock index future relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged. Price movement correlation also may be distorted by the illiquidity of the futures and options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in futures contracts or options because they do not want to assume the risk that they may not be able to close 22 out their positions within a reasonable amount of time. In such instances, futures and options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, speculators trading spreads between futures markets may create temporary price distortions unrelated to the market in the underlying securities. Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. An exchange-traded option may be closed out only on a national securities or commodities exchange, which generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option with the result that the Fund would have to exercise the option in order to realize any profit. If a Fund is unable to effect a closing purchase transaction in a secondary market, it will be not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. Because the specific procedures for trading foreign stock index futures on futures exchanges are still under development, additional or different margin requirements as well as settlement procedures may be applicable to foreign stock index futures at the time the relevant Funds purchase foreign stock index futures. The successful use of transactions in futures and options depends in part on the ability of a Fund's adviser or subadviser(s) to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent interest rates move in a direction opposite to that anticipated, a Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. In addition, whether or not interest rates move during the period that the Fund holds futures or options positions, the Fund will pay the cost of taking those positions (i.e., brokerage costs). As a result of these factors, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction. Options trading involves price movement correlation risks similar to those inherent in futures trading. Additionally, price movements in options on futures may not correlate with price movements in the futures underlying the options. Like futures, options positions may become less liquid because of adverse economic circumstances. The securities covering written option positions are expected to offset adverse price movements if those options positions cannot be closed out in a timely manner, but there is no assurance that such offset will occur. Also, an option writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Over-the-counter Options The Government Securities Fund may enter into over-the-counter options with respect to U.S. Government securities. An over-the-counter option (an option not traded on a national securities exchange) may 23 be closed out only with the other party to the original option transaction. While the Fund will seek to enter into over-the-counter options only with dealers who agree to or are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an over-the-counter option at a favorable price at any time prior to its expiration. Accordingly, the Fund might have to exercise an over-the-counter option it holds in order to realize any profit thereon and thereby would incur transactions costs on the purchase or sale of the underlying assets. If the Fund cannot close out a covered call option written by it, it will not be able to sell the underlying security until the option expires or is exercised. Furthermore, over-the-counter options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organizations. The staff of the SEC has taken the position that over-the-counter options on U.S. government securities and the assets used as cover for written over-the-counter options on U.S. government securities should generally be treated as illiquid securities for purposes of the Funds' investment restrictions relating to illiquid securities. However, if a dealer recognized by the Federal Reserve Bank of New York as a "primary dealer" in U.S. government securities is the other party to an option contract written by the Fund, and the Fund has the absolute right to repurchase the option from the dealer at a formula price established in a contract with the dealer, the SEC staff has agreed that the Fund only needs to treat as illiquid that amount of the "cover" assets equal to the amount at which the formula price exceeds any amount by which the market value of the securities subject to the options exceeds the exercise price of the option (the amount by which the option is "in-the-money"). Loomis Sayles has established standards for the creditworthiness of the primary dealers with which the Government Securities Fund may enter into over-the-counter option contracts having the formula-price feature referred to above. Those standards, as modified from time to time, are implemented and monitored by Loomis Sayles. Such contracts will provide that the Fund has the absolute right to repurchase an option it writes at any time at a repurchase price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula contained in the contract. Although the specific details of the formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by the Fund for writing the option, plus the amount, if any, by which the option is "in-the-money." The formula will also include a factor to account for the difference between the price of the securities and the exercise price of the option if the option is written out-of-the-money. Although each agreement will provide that the Fund's repurchase price shall be determined in good faith (and that it shall not exceed the maximum determined pursuant to the formula), the formula price will not necessarily reflect the market value of the option written, and therefore the Fund might pay more to repurchase the option contract than the Fund would pay to close out a similar exchange-traded option. Economic Effects and Limitations. Income earned by a Fund from its hedging activities will be treated as capital gain and, if not offset by net recognized capital losses incurred by the Fund, will be distributed to shareholders in taxable distributions. Although gain from futures and options transactions may hedge against a decline in the value of the Fund's portfolio securities, that gain, to the extent not offset by losses, will be distributed in light of certain tax considerations and will constitute a distribution of that portion of the value preserved against decline. If the Municipal Income Fund is required to use taxable fixed-income securities as margin, the portion of the Fund's dividends that is taxable to shareholders will be larger than if that Fund is permitted to use tax-exempt bonds for that purpose. The Funds intend to comply with guidelines of eligibility for exclusion from the definition of the term "commodity pool operator" adopted by the CFTC and the National Futures Association, which regulate trading in the futures markets. The Funds will use futures contracts and related options primarily for bona fide hedging purposes within the meaning of CFTC regulations. To the extent that a Fund holds positions in futures contracts and related options that do not fall within the definition of bona fide hedging transactions, the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the Fund's net assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into. Future Developments. The above discussion relates to a Fund's proposed use of futures contracts, options and options on futures contracts currently available. The relevant markets and related regulations are constantly changing. In the event of future regulatory or market developments, Funds may also use additional types of futures contracts or options and other investment techniques for the purposes set forth above. 24 Short Sales Certain Funds may sell securities short "against the box," that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. In addition, the Select Fund only may make short sales if immediately after such short sale the aggregate value of all securities that the Fund is short (excluding the value of securities sold short against the box) does not exceed 5% of the value of the Select Fund's net assets, and the Fund covers such short sales as described in the following paragraph. In a short sale against the box, a Fund does not deliver from its portfolio securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. With respect to securities that are not sold short against the box, the Select Fund may cover its short positions by maintaining in a separate account with the Fund's custodian cash, U.S. government securities or other liquid securities having a value equal to the excess of (a) the market value of the securities sold short over (b) the value of any cash, U.S. government securities or other liquid securities deposited as collateral with the broker in connection with the short sale. Short sales may protect a Fund against risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend on the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Risks. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss, and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. Star Advisers Fund, Star Small Cap Fund and Star Worldwide Fund currently expect that no more than 20%, 25% and 20% of their total assets, respectively, would be involved in short sales against the box. Insurance on Portfolio Holdings of Tax Free Income Funds Tax Free Income Funds may obtain insurance on any of their portfolio holdings from a nationally recognized private insurer, which may include one or more of the following: Financial Guaranty Insurance Company, which is owned by FGIC Corporation, which in turn is owned by General Electric Credit Corporation; AMBAC Indemnity Corporation; Financial Security Assurance, Inc.; and Municipal Bond Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated, the principal shareholders of which are: The Aetna Life & Casualty Company, Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and affiliates of the Continental Insurance Company. Insurance on individual securities, whether obtained by the issuer or a Tax Free Income Fund, is generally non-cancelable and runs for the life of the security. To the extent that a Tax Free Income Fund obtains insurance on any of its securities, the insurance must provide for the unconditional payment of scheduled principal and interest when due. In the event of a default by the issuer in the payment of principal or interest, the insurer will, within 30 days of notice of such default, provide to its agent or the trustee funds needed to make any such payments. Such agent or trustee will bear the responsibility of 25 seeing that such funds are used to make such payments to the appropriate parties. Such insurance will not guarantee the market value of a security. Insurance on the Tax Free Income Funds' portfolio of securities will in some cases continue in the event the securities are sold by such Funds, while in other cases it may not. The Tax Free Income Funds have the option to procure individual secondary market insurance, which would continue to cover any such security after its sale by such Funds. Such guaranteed renewable insurance continues so long as the premiums for such insurance are paid and, in the judgment of such Funds' subadviser, coverage should be continued. In the case of securities that are insured by a nationally recognized private insurer, default by the issuer is not expected to affect the market value of the security relative to other insured securities of the same maturity value and coupon and covered by the same insurer. Premiums for insurance may be payable in advance or may be paid periodically over the term of the security by the party then owning the security, and the costs will be reflected in the price of the security. The cost of insurance for longer-term securities, expressed in terms of income on the security, is likely to reduce such income by 10 to 60 basis points. Thus, a security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact of the cost of the Tax Free Income Funds' portfolio insurance on such Funds' net yield is somewhat less. The cost of insurance for shorter-term securities, which are generally lower yielding, is expected to be less. It should be noted that insurance raises the rating of a municipal security. Lower rated securities generally pay a higher rate of interest than higher rated securities. Thus, while there is no assurance that this will always be the case, the Tax Free Income Funds may purchase lower rated securities, which, when insured, will bear a higher rating, and may pay a higher net rate of interest than other equivalently rated securities that are not insured. Nationally recognized private insurers have certain eligibility standards as to the municipal securities they will insure. Such standards may be more or less strict than standards that would be applied for purchase of a security for the Funds. To the extent nationally recognized private insurers apply stricter standards, the Tax Free Income Funds will be restricted by such standards in the purchase and retention of municipal securities. The Internal Revenue Service (the "IRS") has issued revenue rulings indicating that (i) the fact that municipal obligations are insured will not affect their tax-exempt status and (ii) insurance proceeds representing maturing interest on defaulted municipal obligations paid to certain municipal bond funds will be excludable from federal gross income under Section 103(a) of the Code. While operation of the Tax Free Income Funds and the terms of the insurance policies on such Funds' portfolio of securities may differ somewhat from those addressed by the revenue rulings, the Funds do not anticipate that any differences will be material or change the result with respect to the Funds. Insurers of the Tax Free Income Funds' municipal securities are subject to regulation by the department of insurance in each state in which they are qualified to do business. Such regulation, however, is no guarantee that an insurer will be willing or able to perform on its contract of insurance in the event a claim should be made thereunder at some time in the future. The Tax Free Income Funds' subadviser reviews the financial condition of each insurer of their securities at least annually, and in the event of any material development, with respect to its continuing ability to meet its commitments to any contract of bond insurance. Securities Lending (All Funds) The Funds may lend from their total assets in the form of their portfolio securities to broker-dealers under contracts calling for collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Funds will continue to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral, which may include shares of money market funds subject to any investment restrictions listed in Part I of this Statement. Under some securities lending arrangements the Funds may receive a set fee for keeping its securities available for lending. Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodian and placement fees approved by the Board of Trustees of the Trusts or persons acting pursuant to the direction of the Boards. These transactions must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower or the party (if any) guaranteeing the loan should default on its obligation and the Fund is delayed in or prevented from recovering the collateral. 26 Short-term Trading (All Funds) The Funds may, consistent with their investment objectives, engage in portfolio trading in anticipation of, or in response to, changing economic or market conditions and trends. These policies may result in higher turnover rates in the Fund's portfolio, which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit any adviser's or subadviser's investment discretion in managing a Fund's assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. Temporary Strategies (All Funds) A Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the adviser and subadviser(s) of a Fund may employ a temporary defensive strategy if they determine such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. The use of defensive strategies may prevent a Fund from achieving its goal. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, a Fund may temporarily hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market instruments. MANAGEMENT OF THE TRUSTS The Funds are governed by a Board of Trustees, which is responsible for generally overseeing the conduct of Fund business and for protecting the interests of shareholders. The trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with companies that provide services to the Funds and review the Funds' performance. The table below provides certain information regarding the trustees and officers of the Trusts. For purposes of this table and for purposes of this Statement, the term "Independent Trustee" means those trustees who are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the relevant Trust and, when applicable, who have no direct or indirect financial interest in the approval of a matter being voted on by the relevant Board of Trustees. For purposes of this Statement, the term "Interested Trustee" means those trustees who are "interested persons" of the relevant Trust and, when applicable, who have a direct or indirect financial interest in the approval of a matter being voted on by the relevant Board of Trustees.
Term of Number of Office and Portfolios Position(s) Length of in Fund Held with Time Principal Occupation(s) Complex Name, Age and Address Funds Served During Past 5 Years Overseen Other Directorships Held --------------------- ----- ------ ------------------- -------- ------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ Graham T. Allison, Jr. (63) Trustee Until Douglas Dillon Professor 27 Director, Taubman Centers, 399 Boylston Street retirement* and Director for the Inc. Boston, MA 02116 Contract Belfer Center of Science Review and 19 years and International Affairs, Board Member, USEC Inc. Governance John F. Kennedy School of Committee Government, Harvard Member University - ------------------------------------------------------------------------------------------------------------------------------------ Daniel M. Cain (58) Trustee Until President and CEO, Cain 27 Trustee, Universal Health 452 Fifth Avenue retirement* Brothers & Company, Realty Income Trust New York, NY 10018 Chairman of Incorporated (investment the Audit 7 years banking) Director, eBenX, Inc. Committee Director, PASC - ------------------------------------------------------------------------------------------------------------------------------------
27
Term of Number of Office and Portfolios Position(s) Length of in Fund Held with Time Principal Occupation(s) Complex Name, Age and Address Funds Served During Past 5 Years Overseen Other Directorships Held --------------------- ----- ------ ------------------- -------- ------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Kenneth J. Cowan (71) Trustee Until Retired 27 None 399 Boylston Street retirement* Boston, MA 02116 Chairman of the Contract 28 Years Review and Governance Committee - ------------------------------------------------------------------------------------------------------------------------------------ Richard Darman (59) Trustee Until Partner, The Carlyle Group 27 Director and Vice Chairman, 399 Boylston Street retirement* (investments); Professor, AES Corporation Boston, MA 02116 Contract John F. Kennedy School of Review and 7 years Government, Harvard Governance University Committee Member - ------------------------------------------------------------------------------------------------------------------------------------ Sandra O. Moose (61) Trustee Until Senior Vice President 27 Director, Verizon One Exchange Place retirement* and Director, The Boston Communications Boston, MA 02109 Audit Consulting Group, Inc. Committee 21 years (management Director, Rohm and Haas Member consulting) Company - ------------------------------------------------------------------------------------------------------------------------------------ John A. Shane (70) Trustee Until President, Palmer Service 27 Director, Eastern Bank 200 Unicorn Park Drive retirement* Corporation (venture Corporation; Director, Woburn, MA 01801 Audit capital organization) Gensym Corporation; Committee 21 years Director, Overland Storage, Member Inc.; Director, ABT Associates Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Pendleton P. White (72) Trustee Until Retired 27 None 6 Breckenridge Lane retirement* Savannah, GA 31411 Contract Review and 22 years Governance Committee Member - ------------------------------------------------------------------------------------------------------------------------------------
28
Term of Number of Office and Portfolios Position(s) Length of in Fund Held with Time Principal Occupation(s) Complex Name, Age and Address Funds Served During Past 5 Years Overseen Other Directorships Held --------------------- ----- ------ ------------------- -------- ------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ John T. Hailer** (42) President Not President and Chief 27 None 399 Boylston Street and Chief Applicable Executive Officer, CDC Boston, MA 02116 Executive IXIS Asset Management Officer 3 years Distributors, L.P.; formerly, Senior Vice Trustee President, Fidelity Investments - ------------------------------------------------------------------------------------------------------------------------------------ Peter S. Voss*** (56) Chairman of Not Director, President and 27 Trustee, Harris Associates 399 Boylston Street the Applicable Chief Executive Officer, Investment Trust**** Boston, MA 02116 Board CDC IXIS Asset Management 11 years North America, L.P. Trustee - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ Nicholas H. Palmerino (xx) Treasurer Not N/A N/A 399 Boylston Street Applicable Boston, MA 02116 - ------------------------------------------------------------------------------------------------------------------------------------ John E. Pelletier (38) Secretary Not Senior Vice President, N/A N/A 399 Boylston Street and Clerk Applicable General Counsel, Secretary Boston, MA 02116 and Clerk, CDC IXIS Distribution Corporation; Senior Vice President, General Counsel, Secretary and Clerk, CDC IXIS Asset Management Distributors, L.P.; Senior Vice President, General Counsel, Secretary and Clerk, CDC IXIS Asset Management Advisers, L.P.; Executive Vice President, General Counsel, Secretary, Clerk, and Director, CDC IXIS Asset Management Services, Inc. - ------------------------------------------------------------------------------------------------------------------------------------
29 * All Trustees serve until retirement, resignation or removal from the Board. The current retirement age is 72. ** Mr. Hailer is an "interested person" of the CDC Nvest Funds because he holds the following positions with affiliated persons of the Trusts: Director and Executive Vice President of CDC IXIS Asset Management Distribution Corporation ("CDC IXIS Distribution Corporation"); and President and Chief Executive Officer of CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers"). *** Mr. Voss is an "interested person" of the CDC Nvest Funds because he holds the following positions with affiliated persons of the Trusts: Director of CDC IXIS Asset Management Services, Inc. ("CIS"); Director of CDC IXIS Distribution Corporation; Director and Chairman of CDC IXIS Asset Management Associates Inc. ; Director of AEW Capital Management, Inc; Director of Harris Associates, Inc; Director of Jurika & Voyles, Inc.; Director of Loomis, Sayles & Company, Inc.; Director of Reich & Tang Asset Management Inc.; Director of Westpeak Investment Advisors, Inc.; and Director of Vaughan, Nelson, Scarborough & McCullough, Inc. **** As of January 30, 2003, Harris Associates Investment Trust had seven series that were overseen by its Board of Trustees. Each person listed above holds the same position(s) with all four Trusts. Previous positions during the past five years with CDC IXIS Asset Management Distributors, L.P. or CDC IXIS Advisers are omitted, if not materially different from a trustee's or officer's current position with such entity. As indicated below under "Trustee Fees," each of the Trusts' trustees is also a trustee of certain other investment companies for which the Distributor acts as principal underwriter. Standing Board Committees The Contract Review and Governance Committee of the CDC Nvest Funds is comprised solely of Independent Trustees and considers matters relating to advisory, subadvisory and distribution arrangements, potential conflicts of interest between the adviser or subadviser and the Funds, and governance matters relating to the Funds. During the fiscal year ended December 31, 2002 (January 31, 2003 for CDC Nvest Companies Trust I), this Committee held five (5) meetings. The Audit Committee of the CDC Nvest Funds is comprised solely of Independent Trustees and considers matters relating to the scope and results of the Funds' audits and serves as a forum in which the independent accountants can raise any issues or problems identified in the audit with the Board of Trustees. This Committee also reviews and monitors compliance with stated investment objectives and policies, SEC and Treasury regulations as well as operational issues relating to the transfer agent and custodian. During the fiscal year ended December 31, 2002 (January 31, 2003 for CDC Nvest Companies Trust I) this Committee held four (4) meetings. Trustee Fees The Trusts pay no compensation to their officers or to their trustees who are interested persons thereof. Each Independent Trustee receives, in the aggregate, a retainer fee at the annual rate of $45,000 and meeting attendance fees of $4,500 for each meeting of the Board of Trustees that he or she attends. Each committee member receives an additional retainer fee at the annual rate of $7,000. Furthermore, each committee chairman receives an additional retainer fee (beyond the $7,000 fee) at the annual rate of $5,000. The retainer fees assume four Committee meetings per year; each Trustee is compensated $1,750 per Committee meeting that he or she attends in excess of four per year. These fees are allocated among the mutual fund portfolios in the CDC Nvest Funds Trusts based on a formula that takes into account, among other factors, the relative net assets of each Fund. During the fiscal year ended December 31, 2002 for CDC Nvest Funds Trust I, II and III, the trustees of the Trusts received the amounts set forth in the following table for serving as a trustee of the Trusts and for also serving as trustees of the CDC Nvest Cash Management Trust-Money Market Series and CDC Nvest Tax Exempt Money Market Trust. 30
Pension or Aggregate Aggregate Retirement Estimated Total Aggregate Compensation from Compensation from Benefits Annual Compensation Compensation CDC CDC Accrued as Benefits from the from CDC Nvest Nvest Funds Nvest Funds Trust Part of Fund Upon CDC Nvest Funds Name of Trustee Funds Trust I* Trust II* III* Expenses Retirement Trusts*+ - --------------- -------------- --------- ---- -------- ---------- -------- INDEPENDENT TRUSTEES Graham T. Allison, Jr. $0 $0 Daniel M. Cain $0 $0 Kenneth J. Cowan $0 $0 Richard Darman $0 $0 Sandra O. Moose $0 $0 John A. Shane $0 $0 Pendleton P. White $0 $0 INTERESTED TRUSTEES Peter S. Voss $0 $0 $0 $0 $0 $0 John T. Hailer $0 $0 $0 $0 $0 $0
* Amounts include payments deferred by trustees for 2002. The total amount of deferred compensation for all periods through December 31, 2002 accrued for the trustees follows: Allison ($); Cain ($); Cowan ($) and Darman ($). + Total Compensation represents amounts paid during 2002 to a trustee for serving on the board of trustees of six (6) trusts with a total of twenty-six (26) funds as of December 31, 2002. During the fiscal year ended January 31, 2003 for CDC Nvest Companies Trust I, the trustees of the Trust received the amounts set forth in the following table for serving as trustee of the Trust: Aggregate Compensation from CDC Name of Trustee Nvest Companies Trust I* --------------- ------------------------ INDEPENDENT TRUSTEES Graham T. Allison, Jr. Daniel M. Cain Kenneth J. Cowan Richard Darman Sandra O. Moose John A. Shane Pendleton P. White INTERESTED TRUSTEES Peter S. Voss $0 John T. Hailer $0 * Amounts include payments deferred by trustees for January 2003. The total amount of deferred compensation for January 2003 accrued for the trustees follows: Allison ($); Cain ($); Cowan ($) and Darman ($). The Funds provide no pension or retirement benefits to trustees, but have adopted a deferred payment arrangement under which each trustee may elect not to receive fees from the Funds on a current basis but to receive in a subsequent period an amount equal to the value that such fees would have been if they had been invested in a Fund or Funds selected by the trustee on the normal payment date for such fees. Each Fund will make an investment in the selected Fund(s) in an amount equal to its pro rata share of the deferred fees. As a result of this arrangement, each 31 Fund, upon making the deferred payments, will be in substantially the same financial position as if the deferred fees had been paid on the normal payment dates. At April --, 2003, the officers and trustees of the Trusts as a group owned less than 1% of the outstanding shares of each Fund. As of December 31, 2002, the trustees had the following ownership in the Funds: NOTE: TO BE UPDATED Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Dollar Range of Equity Investment Name of Trustee Securities in the Fund(s)* Companies* - --------------- -------------------------- ---------- INDEPENDENT TRUSTEES Graham T. Allison Jr. Daniel M. Cain Kenneth J. Cowan Richard Darman Sandra O. Moose John A. Shane Pendleton P. White 32
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Investment Name of Trustee Dollar Range of Equity Securities in the Fund(s)* Companies* - --------------- ------------------------------------------------- ---------- INTERESTED TRUSTEES John T. Hailer Peter Voss
* A. None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000 Advisory and Subadvisory Agreements Each Fund's advisory agreement with CDC IXIS Advisers, (with AEW Management and Advisors, L.P. ("AEW"), in the case of the AEW Real Estate Fund, and with Capital Growth Management Limited Partnership ("CGM"), in the case of Targeted Equity Fund) provides that the adviser (CDC IXIS Advisers, AEW or CGM) will furnish or pay the expenses of the applicable Fund for office space, facilities and equipment, services of executive and other personnel of the Trust and certain administrative services. The adviser is responsible for obtaining and evaluating such economic, statistical and financial data and information and performing such additional research as is necessary to manage each Fund's assets in accordance with its investment objectives and policies. Each Fund pays all expenses not borne by its adviser or subadviser(s) including, but not limited to, the charges and expenses of the Fund's custodian and transfer agent, independent auditors and legal counsel for the Fund and the Trusts' Independent Trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under federal and state securities laws, all expenses of shareholders' and trustees' meetings and of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of the Fund's adviser, subadviser(s) or their affiliates, other than affiliated registered investment companies. In the case of Funds with Class Y shares, certain expenses may be allocated differently among the Fund's Classes A, B and C shares, on the one hand, and Class Y shares on the other hand. (See "Description of the Trust and Ownership of Shares.") Each Fund's advisory agreement and (except in the case of AEW Real Estate Fund and Targeted Equity Fund) each Fund's subadvisory agreement(s) provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the Board of Trustees of the relevant Trust or by vote of a majority of the outstanding voting securities of the relevant Fund and (ii) by vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval. Each Trust has received an exemptive order from the SEC that permits CDC IXIS Advisers to amend existing subadvisory agreements when approved by the Fund's Board of Trustees, without shareholder approval. The exemption also permits CDC IXIS Advisers to enter into new subadvisory agreements with subadvisers that are not affiliated with CDC IXIS Advisers without obtaining shareholder approval, if approved by the Fund's Board of Trustees. Shareholders will be notified of any subadviser changes. Each advisory and subadvisory agreement may be terminated without penalty by vote of the Board of Trustees of the relevant Trust or by vote of a majority of the outstanding voting securities of the relevant Fund, upon 60 days' written notice, or by the Fund's adviser upon 90 days' written notice, and each terminates automatically in the event of its assignment (as defined in 33 the 1940 Act). Each subadvisory agreement also may be terminated by the subadviser upon 90 days' notice and automatically terminates upon termination of the related advisory agreement. Each advisory and subadvisory agreement provides that the adviser or subadviser shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. CDC IXIS Advisers oversees the portfolio management services provided to the Funds by each of the subadvisers. Subject to the review of the Board of Trustees, CDC IXIS Advisers monitors each subadviser to assure that the subadviser is managing a Fund's assets consistently with the Fund's investment objective and restrictions and applicable laws and guidelines, including, but not limited to, compliance with the diversification requirements set forth in the 1940 Act and Subchapter M of the Code. In addition, CDC IXIS Advisers and CIS also provide each Fund with administrative services which include, among other things, day-to-day administration of matters related to the Fund's existence, maintenance of its records, preparation of reports and assistance in the preparation of the Fund's registration statement under federal and state laws. CDC IXIS Advisers does not, however, determine what investments will be purchased or sold for any Fund. Because each subadviser manages its portfolio independently from the others, the same security may be held in two or more different Funds (or segments of a Star Fund) or may be acquired for one Fund (or segment of a Star Fund) at a time when the subadviser of another Fund (or segment) deems it appropriate to dispose of the security from that other Fund (or segment). Similarly, under some market conditions, one or more of the subadvisers may believe that temporary, defensive investments in short-term instruments or cash are appropriate when another subadviser or subadvisers believe continued exposure to the broader securities is appropriate. Because each subadviser directs the trading for its segment or segments of a Star Fund, and does not aggregate its transactions with those of the other subadvisers, a Star Fund may incur higher brokerage costs than would be the case if a single adviser or subadviser were managing the entire Star Fund. CDC IXIS Advisers may terminate any subadvisory agreement without shareholder approval. In such case, CDC IXIS Advisers will either enter into an agreement with another subadviser to manage the Fund or Star Fund segment or allocate the segment's assets among the other segments of the Star Fund. Board Approval of the Existing Advisory and Subadvisory Agreements The Board of Trustees, including the Independent Trustees, considers matters bearing on each Fund's advisory and subadvisory agreements at most of its meetings throughout the year. While the full Board of Trustees or the Independent Trustees, as appropriate, act on all major matters, a significant portion of the activities of the Board of Trustees is conducted through committees. The Independent Trustees meet frequently in executive session and are advised by independent legal counsel selected by the Independent Trustees. After their initial two-year period, the advisory and subadvisory agreements of the Funds are reviewed each year by the Board of Trustees to determine whether the agreements should be renewed for an additional one-year period. Renewal of the agreements requires the majority vote of the Board of Trustees, including a majority of the Independent Trustees. The Board of Trustees consists of a majority of Independent Trustees. In connection with their meetings, the trustees receive materials specifically relating to the existing advisory and subadvisory agreements. These materials generally include, among other items (i) information on the investment performance of the Funds, a peer group of funds and an appropriate index or combination of indices, (ii) sales and redemption data in respect of the Funds, and (iii) the economic outlook and the general investment outlook in the markets in which the Funds invest. The Board of Trustees, including the Independent Trustees, also considers periodically other material facts such as (1) the adviser's and/or subadviser's results and financial condition, (2) each Fund's investment objective and strategies and the size, education and experience of the advisers' and subadvisers' investment staff and their use of technology, external research and trading cost measurement tools, (3) arrangements in respect of the distribution of the Funds' shares, (4) the procedures employed to determine the value of the Funds' assets, (5) the allocation of the Funds' brokerage, if any, including allocations to brokers affiliated with the adviser or subadviser and the use of "soft" commission dollars to pay Fund expenses and to pay for research and other similar services, (6) the resources devoted to, and the record of compliance with, the Funds' investment policies and restrictions and policies on personal securities transactions, and (7) when applicable, the contractual fee waivers and expense reimbursements agreed to by the advisers and/or subadvisers. 34 The Board of Trustees most recently approved the renewal of the advisory and subadvisory agreements at their meeting held on May 10, 2002. In considering the advisory and subadvisory agreements, the Board of Trustees, including the Independent Trustees, did not identify any single factor as determinative. Matters considered by the Board of Trustees, including the Independent Trustees, in connection with its approval of the advisory and subadvisory agreements included the following: o the benefits to shareholders of investing in a fund that is part of a family of funds offering a variety of investment disciplines and providing for a variety of fund and shareholder services. o whether each Fund has operated in accordance with its investment objective and its record of compliance with its investment restrictions. They also reviewed each Fund's investment performance as well as each Fund's performance relative to a peer group of mutual funds and to the performance of an appropriate index or combination of indices. o the nature, quality, cost and extent of administrative and shareholder services performed by the advisers, subadvisers and affiliated companies, under the existing advisory and subadvisory agreements and under separate agreements covering transfer agency functions and administrative services. o each Fund's expense ratio and expense ratios of a peer group of funds. They also considered the contractual expense limitations and the financial impact on the advisers and subadvisers relating to such limitations and the amount and nature of fees paid by shareholders. The information on advisory and subadvisory fees and expense ratios, as well as performance data, included both information compiled by the adviser and information compiled by an independent data service. For these purposes, the Trustees took into account not only the fees paid by the Fund, but also so-called "fallout benefits" to the adviser or subadviser, such as the engagement of affiliates of the adviser or subadviser to provide distribution, brokerage and transfer agency services to the Fund, and the benefits of research made available to the adviser or subadviser by reason of brokerage commissions generated by the Fund's securities transactions. In evaluating each Fund's advisory and subadvisory fees, the Trustees also took into account the demands, complexity and quality of the investment management of such Fund. o the level of the advisers' and subadvisers' profits in respect of the management of the Funds. They considered the profits realized by the advisers and subadvisers in connection with the operation of each Fund. o whether there have been economies of scale in respect of the management of the Funds, whether the Funds have appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Trustees, including the Independent Trustees, concluded that the existing advisory fee structures are fair and reasonable, and that the existing advisory and subadvisory agreements should be continued until June 1, 2003. Information About the Organization and Ownership of the Advisers and Subadvisers of the Funds CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers"), formed in 1995, is a limited partnership whose sole general partner, CDC IXIS Asset Management Distribution Corporation ("CDC IXIS Distribution Corporation"), is a wholly-owned subsidiary of CDC IXIS Asset Management Holdings, LLC ("CDC IXIS Holdings"), which in turn is a wholly-owned subsidiary of CDC IXIS Asset Management North America, L.P. ("CDC IXIS North America"). CDC IXIS Distribution Corporation is also the sole general partner of the Distributor and the sole shareholder of CIS, the transfer and dividend disbursing agent of the Funds. CDC IXIS North America owns the entire limited partnership interest in each of CDC IXIS Advisers and the Distributor. CIS has subcontracted certain of its obligations as the transfer and dividend disbursing agent of the Funds to third parties. 35 CDC IXIS North America is a wholly-owned subsidiary of CDC IXIS Asset Management, a French entity. CDC IXIS Asset Management is the investment management arm of France's Caisse des Depots et Consignations ("CDC"), a major diversified financial institution. The fourteen principal subsidiary or affiliated asset management firms of CDC IXIS North America, collectively, had more than $____ billion of assets under management or administration as of December 31, 2002. AEW Management and Advisors, L.P. ("AEW") is a registered investment adviser whose origins date back to 1981. AEW is a limited partnership that is a controlled affiliate of AEW Capital Management, L.P., which in turn is a wholly-owned subsidiary of CDC IXIS Holdings. CDC IXIS North America owns the entire limited partnership interest in AEW. AEW is the adviser of the AEW Real Estate Fund. Capital Growth Management, L.P. ("CGM") is a limited partnership whose sole general partner, Kenbob, Inc., is a corporation owned in equal shares by Robert L. Kemp and G. Kenneth Heebner. CDC IXIS North America owns a majority limited partnership interest in CGM. In addition to advising CDC Nvest Funds, CGM acts as investment adviser of CGM Capital Development Fund and CGM Trust and also provides investment advice to other mutual funds and other institutional and individual clients. Fund Asset Management, L.P., doing business as Mercury Advisors ("Mercury Advisors"), was established in 1976 in order to provide investment management services for institutional and subadvisory relationships. Mercury Advisors is affiliated with Merrill Lynch Investment Managers ("MLIM"). Mercury Advisors is a limited partnership and is an indirect, wholly-owned subsidiary of Merrill, Lynch & Co., Inc. Hansberger Global Investors, Inc. ("Hansberger") was formed in 1994 and is a wholly-owned subsidiary of Hansberger Group, Inc. Hansberger specializes in global investing, managing separate portfolios and institutional mutual funds. Harris Associates L.P. ("Harris Associates") was organized in 1995 to succeed to the business of a predecessor limited partnership also named Harris Associates L.P., which together with its predecessor had advised and managed mutual funds since 1970. Harris Associates is a limited partnership whose sole general partner is Harris Associates Inc., a wholly-owned subsidiary of CDC IXIS Holdings. CDC IXIS North America owns the entire limited partnership interest in Harris Associates. Harris Associates also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages numerous private partnerships. Jurika & Voyles, L.P. ("Jurika & Voyles"), founded in 1983, has discretionary management authority with respect to assets for various clients including corporations, pension plans, 401(k) plans, profit sharing plans, trusts and estates, foundations and charities, mutual funds and individuals. Jurika & Voyles is a limited partnership whose sole general partner is Jurika & Voyles, Inc., a wholly-owned subsidiary of CDC IXIS Holdings. Jurika & Voyles is engaged in the business of investment management. CDC IXIS North America owns the entire limited partnership interest in Jurika & Voyles. Loomis, Sayles & Company, L.P. ("Loomis Sayles") was organized in 1926 and is one of the oldest investment management firms in the country. An important feature of the Loomis Sayles investment approach is its emphasis on investment research. Recommendations and reports of the Loomis Sayles research department are circulated throughout the Loomis Sayles organization and are available to the individuals in the Loomis Sayles organization who are responsible for making investment decisions for the Funds' portfolios as well as numerous other institutional and individual clients to which Loomis Sayles provides investment advice. Loomis Sayles is a limited partnership whose sole general partner, Loomis, Sayles & Company, Inc., is a wholly-owned subsidiary of CDC IXIS Holdings. CDC IXIS North America owns the entire limited partnership interest in Loomis Sayles. Morgan Stanley Investment Management Inc. ("MSIM Inc.") is a Delaware corporation incorporated on September 19, 1990, and a wholly-owned subsidiary of Morgan Stanley. MSIM Inc. does business in certain instances (including in its role as subadviser to a segment of the Star Growth Fund) under the name "Miller 36 Anderson." Miller Anderson conducts a worldwide portfolio management business and provides a broad range of portfolio management services to customers in the U.S. and abroad. RS Investment Management, L.P. ("RS Investments ") was formed in 1993 and provides investment advisory services to both private and public investment funds. On February 26, 1999, Robertson Stephens Investment Management Co. LLC purchased Robertson Stephens Investment Management Co. and its subsidiary, RS Investments, from BankAmerica Corporation. Salomon Brothers Asset Management Inc ("Salomon Brothers") was founded in 1987 and provides an array of investment services and products to a broad spectrum of clients around the world, including individual and institutional investors. Salomon Brothers has offices in 22 countries, research centers in six cities worldwide and employs approximately 200 investment professionals. Salomon Brothers is also one of the affiliated investment advisory entities of Citigroup Asset Management ("Citigroup"). Vaughan, Nelson, Scarborough & McCullough, L.P. ("Vaughan Nelson") was formed in 1970 and provides investment advisory services to foundations, university endowments, corporate retirement plans and individuals. Vaughan Nelson is a limited partnership whose sole general partner, Vaughan, Nelson, Scarborough & McCullough, Inc., is a wholly-owned subsidiary of CDC IXIS Holdings. CDC IXIS North America owns the entire limited partnership interest in Vaughan Nelson. Westpeak Global Advisors, L.P. ("Westpeak"), organized in 1991, provides investment management services to institutional clients. Westpeak is a limited partnership whose sole general partner, Westpeak Investment Advisors, Inc., is a wholly-owned subsidiary of CDC IXIS Holdings. CDC IXIS North America owns the entire limited partnership interest in Westpeak. Allocation of Investment Opportunity Among Funds and Other Investors Managed by Advisers and Subadvisers; Cross Relationships of Officers and Trustees AEW Certain officers of AEW have responsibility for the management of other client portfolios. The other clients served by AEW sometimes invest in securities in which its CDC Nvest Funds also invest. If the Fund and such other clients advised by AEW desire to buy or sell the same portfolio securities at about the same time, purchases and sales will be allocated, to the extent practicable, on a pro rata basis in proportion to the amounts desired to be purchased or sold for each. It is recognized that in some cases the practices described in this paragraph could have a detrimental effect on the price or amount of the securities, which the Fund purchases or sells. In other cases, however, it is believed that these practices may benefit the Fund. It is the opinion of the Board of Trustees that the desirability of retaining AEW as adviser outweighs the disadvantages, if any, which might result from these practices. CGM The other investment companies and clients served by CGM sometimes invest in securities in which its CDC Nvest Funds also invest. If the Fund and such other investment companies or clients advised by CGM desire to buy or sell the same portfolio securities at the same time, purchases and sales will be allocated to the extent practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold for each. It is recognized that in some cases the practices described in this paragraph could have a detrimental effect on the price or amount of the securities that the Fund purchases or sells. In other cases, however, it is believed that these practices may benefit the Fund. It is the opinion of the Board of Trustees that the desirability of retaining CGM as adviser for the Fund outweighs the disadvantages, if any, which might result from these practices. Hansberger Hansberger places portfolio transactions for other advisory accounts, including other mutual funds managed by Hansberger. Research services furnished by firms through which its CDC Nvest Funds effect their securities transactions may be used by Hansberger in servicing all of its accounts; not all of such services may be used by Hansberger in connection with its CDC Nvest Funds. In the opinion of Hansberger, it is not possible to measure separately the benefits from research services to each of the accounts (including its CDC Nvest Funds) managed by Hansberger. Because the volume and nature of the trading activities of the accounts are not uniform, the amount of commissions in excess of those charged by another broker paid by each account for brokerage and research services will vary. However, in the opinion of Hansberger, such costs to its CDC Nvest Funds will not be disproportionate to the benefits received by it on a continuing basis. If purchase or sale of securities consistent with the investment policies of the CDC Nvest Funds and one or more of these other clients served by Hansberger is considered at or about the same 37 time, transactions in such securities will be allocated among its CDC Nvest Funds and such other clients pursuant to guidelines deemed fair and reasonable by Hansberger. Generally, under those guidelines, its CDC Nvest Funds and other participating clients will be allocated securities on a prorated basis. It is the opinion of the Board of Trustees that the desirability of retaining Hansberger as the subadviser to the CDC Nvest Funds outweighs the disadvantages, if any, that may result from these practices. Harris Associates Certain officers and employees of Harris Associates have responsibility for portfolio management of other advisory accounts and clients (including other registered investment companies and accounts of affiliates of Harris Associates) that may invest in securities in which its CDC Nvest Funds may invest. Where Harris Associates determines that an investment purchase or sale opportunity is appropriate and desirable for more than one advisory account, purchase and sale orders may be executed separately or may be combined and, to the extent practicable, allocated by Harris Associates to the participating accounts. In situations in which advisory accounts have competing interests in a limited investment opportunity, Harris Associates will allocate investment opportunities based on numerous considerations, including the time the competing accounts have had funds available for investment, the amounts of available funds, an account's cash requirements and the time the competing accounts have had investments available for sale. It is Harris Associates' policy to allocate, to the extent practicable, investment opportunities to each client over a period of time on a fair and equitable basis relative to its other clients. It is believed that the ability of the CDC Nvest Funds to participate in larger volume transactions in this manner will in some cases produce better executions for these Funds. However, in some cases, this procedure could have a detrimental effect on the price and amount of a security available to these Funds or the price at which a security may be sold. The Board of Trustees are of the view that the benefits of retaining Harris Associates as a subadviser to the CDC Nvest Funds outweigh the disadvantages, if any, that might result from participating in such transactions. Jurika & Voyles Certain officers and employees of Jurika & Voyles have responsibility for portfolio management of other advisory accounts and clients (including accounts of affiliates of Jurika & Voyles) that may invest in securities in which its CDC Nvest Funds may invest. When Jurika & Voyles determines that an investment purchase or sale opportunity is appropriate and desirable for more than one advisory account, purchase and sale orders may be executed separately or may be combined and, to the extent practicable, allocated by Jurika & Voyles to the participating accounts. Where advisory accounts have competing interests in a limited investment opportunity, Jurika & Voyles will allocate investment opportunities based on numerous considerations, including the time the competing accounts have had funds available for investment, and the relative amounts of available funds, an account's cash requirements and the time the competing accounts have had investments available for sale. It is Jurika & Voyles' policy to allocate, to the extent practicable, investment opportunities to each client over a period of time on a fair and equitable basis relative to its other clients. It is believed that the ability of the Fund to participate in larger volume transactions in this manner will in some cases produce better executions for the Fund. However, in some cases, this procedure could have a detrimental effect on the price and amount of a security available to the Fund or the price at which a security may be sold. The Board of Trustees are of the view that the benefits of retaining Jurika & Voyles as investment manager outweigh the disadvantages, if any, that might result from participating in such transactions. Loomis Sayles Loomis Sayles has organized its business into three investment groups: The Fixed Income Group, The Equity Group and The Investment Counseling Group. The Fixed Income Group and the Equity Group make investment decisions for the CDC Nvest Funds managed by Loomis Sayles. The groups make investment decisions independently of one another. These groups also have responsibility for the management of other client portfolios. The other investment companies and clients served by Loomis Sayles' investment platforms sometimes invest in securities in which the Funds subadvised by Loomis Sayles also invest. If one of these Funds and such other clients advised or subadvised by the same investment group of Loomis Sayles desire to buy or sell the same portfolio securities at or about the same time, the respective group allocates purchases and sales, to the extent practicable, on a pro rata basis in proportion to the amount desired to be purchased or sold for each Fund or client advised or subadvised by that investment group. It is recognized that in some cases the practices described in this paragraph could have a detrimental effect on the price or amount of the securities which each of the Funds purchases or sells. In other cases, however, it is believed that these practices may benefit the relevant Fund. It is the opinion of the Board of Trustees that the desirability of retaining Loomis Sayles as subadviser for these Funds outweighs the disadvantages, if any, which might result from these practices. Mercury Advisors Because of different objectives or other factors, a particular security may be bought for one or more clients of Mercury Advisors or an affiliate (including Merrill Lynch) when one or more clients of Mercury 38 Advisors or an affiliate are selling the same security. If purchases or sales of securities arise for consideration at or about the same time that would involve its CDC Nvest Fund or other clients or funds for which Mercury Advisors or an affiliate acts as manager, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of Mercury Advisors or an affiliate during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. It is the opinion of the Board of Trustees that the advantages of retaining Mercury Advisors as a subadviser to the CDC Nvest Funds outweighs the disadvantages, if any, that may result from these practices. Miller Anderson Some securities considered for investment for its CDC Nvest Funds may also be appropriate for other clients serviced by Miller Anderson. Miller Anderson may place a combined order for two or more accounts or Portfolios for the purchase or sale of the same security. Transactions involving combined orders are allocated in a manner deemed to be equitable. If purchases or sales of securities consistent with the investment policies of the Fund and one or more of these other clients serviced by Miller Anderson is considered at or about the same time, transactions in such securities will be allocated among the Funds and clients in a manner deemed fair and reasonable by Miller Anderson. It is the opinion of the Board of Trustees that the advantages of retaining Miller Anderson as the subadviser to the CDC Nvest Funds outweigh the disadvantages, if any, of these practices. RS Investments RS Investments manages some of the CDC Nvest Funds and serves as an investment adviser or sub-adviser to other mutual funds and separate accounts. Investment decisions for the CDC Nvest Funds and for other investment advisory clients of RS Investments and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could be bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more clients are selling the same security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in RS Investments' opinion is equitable to each and in accordance with the amount being purchased or sold by each client. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. RS Investments employs staffs of portfolio managers who draw upon a variety of resources for research information. It is the opinion of the Board of Trustees that the desirability of retaining RS Investments as a subadviser to the CDC Nvest Funds outweighs the disadvantages, if any, which could result from these procedures. Salomon Brothers In addition to buying and selling securities for its CDC Nvest Funds, Salomon Brothers buys and sells securities for other clients, and may buy or sell securities for one or more clients, including its CDC Nvest Funds, simultaneously. In accordance with applicable law, Salomon Brothers may, but is not obliged to, combine or "bunch" orders for the same security. In order to ensure that no client account is disadvantaged in a bunched transaction, each client participates at the average share price for all of the Salomon Brothers' transactions in that security on that day for such bunched order. Securities purchased or sold in a bunched transaction generally are allocated pro-rata to participating client accounts, but may be allocated according to a different method, provided that such allocation is deemed by Salomon Brothers to be fair and equitable and consistent with Salomon Brothers' fiduciary responsibilities to its clients. Allocation decisions may vary from transaction to transaction and depend upon factors, including but not limited to the type of investment, the number of shares purchased or sold, the size of the account, and the size of an existing security position in a client account. In the event that a pro-rata allocation would cause one or more participating accounts to receive a small number of securities so as not, in Salomon Brothers' determination, to be meaningfully beneficial to such accounts(s), Salomon Brothers may allocate the securities to client accounts in a manner determined in good faith to be fair and equitable. Vaughan Nelson In addition to managing its CDC Nvest Funds, Vaughan Nelson serves as investment adviser to foundations, university endowments and corporate retirement and family/individual core funds. Portfolio transactions for each client account are generally completed independently, except when decisions are made to purchase or sell the same securities for a number of client accounts simultaneously. In this event, the transactions are averaged as to the price and allocated as to amount in accordance with the daily purchase or sale orders actually placed 39 for each client account. Such orders are combined when possible to facilitate best execution, as well as for the purpose of negotiating more favorable brokerage commissions. It is the opinion of the Board of Trustees that the desirability of retaining Vaughan Nelson as a subadviser to the CDC Nvest Funds outweighs the disadvantages, if any, which might result from these procedures. Westpeak Certain officers of Westpeak have responsibility for portfolio management for other clients (including affiliates of Westpeak), some of which may invest in securities in which its CDC Nvest Funds also may invest. When these Funds and other clients desire to purchase or sell the same security at or about the same time, the purchase and sale orders are ordinarily placed and confirmed separately but may be combined to the extent practicable and allocated as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold for each (or if filled over the course of more than one day, allocated randomly using algorithms generated by its trade order management system). It is believed that the ability of those clients to participate in larger volume transactions will in some cases produce better executions for these Funds. However, in some cases this procedure could have a detrimental effect on the price and amount of a security available to the Funds or the price at which a security may be sold. It is the opinion of the Board of Trustees that the desirability of retaining Westpeak as subadviser for these Funds outweighs the disadvantages, if any, which might result from these practices. Description of the Multi-adviser Approach of the Star Funds and Balanced Fund CDC IXIS Advisers believes that the multi-adviser approach to equity investing of the Star Funds and Balanced Fund - one that combines the varied styles of the subadvisers in selecting securities for the Funds' portfolios - offers a different investment opportunity than funds managed by a single adviser using a single style. CDC IXIS Advisers believes that assigning portfolio management responsibility for a Fund to several subadvisers, whose varying management styles have resulted in records of success, may increase the likelihood that the Fund may produce superior results for its shareholders, with less variability of return and less risk of persistent under-performance than a fund managed by a single adviser. Of course, there is no assurance that a Fund will in fact achieve superior results over any period of time. On a daily basis, capital activity will be allocated equally by CDC IXIS Advisers among the segments of each Star Fund. However, CDC IXIS Advisers may, subject to review of the applicable Trust's Board of Trustees, allocate net investment capital differently among any of the subadvisers. This action may be necessary if, for example, a subadviser determines that it desires no additional investment capital. Similarly, because each segment of each Fund will perform differently from the other segments of the Fund depending upon the investments it holds and changing market conditions, one segment may be larger or smaller at various times than other segments. The Board of Trustees of the Trusts has adopted asset allocation guidelines for the Star Funds to ensure that no segment of any Star Fund becomes too large or too small relative to the other segments of that Star Fund due to performance, market conditions or other factors. CDC IXIS Advisers will generally monitor the asset allocation of the various Star Funds' segments on a monthly basis and when any one segment rises above or falls below the measures stated in the guidelines, action will generally be taken to reallocate cash flow away or towards a specific segment. CDC IXIS Advisers may, subject to the review of the Board of Trustees of the Trusts, allocate net investment capital differently among any of the subadvisers. Distribution Agreements and Rule 12b-1 Plans Under a separate agreement with each Fund, the Distributor serves as the principal distributor of each class of shares of the Funds. The Distributor's principal business address is 399 Boylston Street, Boston, Massachusetts 02116. Under these agreements (the "Distribution Agreements"), the Distributor conducts a continuous offering and is not obligated to sell a specific number of shares. The Distributor bears the cost of making information about the Funds available through advertising and other means and the cost of printing and mailing Prospectuses to persons other than shareholders. Each Fund pays the cost of registering and qualifying its shares under state and federal securities laws and distributing Prospectuses to existing shareholders. The Distributor is compensated under each agreement through receipt of the sales charges on Class A and Class C shares described below under "Net Asset Value and Public Offering Price" and is paid by the Funds the service and distribution fees described in the applicable Prospectus. The Distributor may, at its discretion, reallow the entire sales charge imposed on the sale of Class A and Class C shares of each Fund to investment dealers from time to 40 time. The SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of a Fund's shares. Each Fund has adopted Rule 12b-1 plans (the "Plans") for its Classes A, B and C shares which, among other things, permit it to pay the Distributor monthly fees out of its net assets. These fees consist of a service fee and a distribution fee. Any such fees that are paid by a distributor to securities dealers are known as "trail commissions." Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved by the shareholders of each Fund, and (together with the related Distribution Agreement) by the Board of Trustees, including a majority of the Independent Trustees of the relevant Trust. (Note that certain Funds do not offer Class C shares.) Under the Plans, each Fund pays the Distributor a monthly service fee at an annual rate not to exceed 0.25% of the Fund's average daily net assets attributable to the Classes A, B and C shares. In the case of the Class B shares, the Distributor pays investment dealers the first year's service fee at the time of sale, in the amount of up to 0.25% of the amount invested. In the case of Class C shares, the Distributor retains the first year's service fee of 0.25% assessed against such shares. For Class A and, after the first year, for Class B and Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Fund's shares, on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer, for providing personal services to investors in shares of the Fund and/or the maintenance of shareholder accounts. This service fee will accrue to securities dealers of record immediately with respect to reinvested income dividends and capital gain distributions of the Fund's Class A and Class B shares. The service fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors, including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. To the extent that the Distributor's reimbursable expenses in prior years exceeded the maximum amount payable under the relevant Plan for that year, such expenses could be carried forward for reimbursement in future years in which the Plan remains in effect. The amounts of unreimbursed Class A expenses carried over into 2002 from previous plan years were as follows: NOTE: NUMBERS MAY CHANGE Fund Amount Carried Forward Amendment Date* ---- ---------------------- --------------- Star Value $1,651,994 9/13/93 Targeted Equity $2,030,882 6/01/93 Bond Income $1,919,349 9/13/93 Balanced $2,041,399 9/13/93 Capital Growth $563,284 9/13/93 Government Securities $1,583,658 9/24/93 Municipal Income $1,700,600 9/13/93 Limited Term U.S. Government $2,272,723 9/24/93 International Equity $514,256 9/13/93 Short Term Bond $1,929,283 9/13/93 * The Amendment Date is the date that the plans were amended to stop allowing new sums to be added to the amount being carried forward. Class A shares of Limited Term U.S. Government Fund and Massachusetts Fund pay a monthly distribution fee at an annual rate not to exceed 0.10% of each Fund's average daily net assets. This fee is payable only to reimburse the Distributor for expenses incurred in connection with the distribution of each Fund's shares, but unreimbursed expenses can be carried forward into future years. Each Fund's Class B and Class C shares also pay the Distributor a monthly distribution fee at an annual rate not to exceed 0.75% of the average net assets of the respective Fund's Class B and Class C shares. The Distributor retains the 0.75% distribution fee assessed against both Class B and Class C shares during the first year of investment. 41 After the first year for Class B shares, the Distributor retains the annual distribution fee as compensation for its services as distributor of such shares. After the first year for Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Fund's shares, as distribution fees in connection with the sale of the Fund's shares on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer. As noted in the prospectus, Class B shares automatically convert into Class A shares after 8 years. This conversion from Class B to Class A shares occurs once per month for all Class B shares that reach their eighth year over the course of that particular month. Each Plan may be terminated by vote of a majority of the relevant Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the relevant Fund. Each Plan may be amended by vote of the relevant trustees, including a majority of the relevant Independent Trustees, cast in person at a meeting called for that purpose. Any change in any Plan that would materially increase the fees payable thereunder by the relevant class of shares of the relevant Fund requires approval by vote of the holders of a majority of such shares outstanding. The Trusts' trustees review quarterly a written report of such costs and the purposes for which such costs have been incurred. For so long as a Plan is in effect, selection and nomination of those trustees who are Independent Trustees of the relevant Trust shall be committed to the discretion of such Trustees. Fees paid by Class A, Class B or Class C shares of any Fund may indirectly support sales and servicing efforts relating to shares of the other CDC Nvest Funds. In reporting its expenses to the trustees, the Distributor itemizes expenses that relate to the distribution and/or servicing of a single Fund's shares, and allocates other expenses among the CDC Nvest Funds based on their relative net assets. Expenses allocated to each CDC Nvest Fund are further allocated among its classes of shares annually based on the relative sales of each class, except for any expenses that relate only to the sale or servicing of a single class. The Distributor has entered into selling agreements with investment dealers, including affiliates of the Distributor, for the sale of the Funds' shares. The Distributor may, at its expense, pay an amount not to exceed 0.50% of the amount invested to dealers who have selling agreements with the Distributor. Class Y shares of the Funds may be offered by registered representatives of certain affiliates who are also employees of CDC IXIS North America and may receive compensation from each Fund's adviser or subadviser with respect to sales of Class Y shares. (Note that certain Funds do not currently offer Class Y shares.) The Distribution Agreement for any Fund may be terminated at any time on 60 days' written notice without payment of any penalty by the Distributor or by vote of a majority of the outstanding voting securities of the relevant Fund or by vote of a majority of the Independent Trustees. The Distribution Agreements and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees and (ii) by the vote of a majority of the entire Board of Trustees cast in person at a meeting called for that purpose or by a vote of a majority of the outstanding securities of a Fund (or the relevant class, in the case of the Plans). With the exception of the Distributor, its direct and indirect parent companies and those Trustees that are not Independent Trustees, no interested person of the Trusts or any trustee of the Trusts had any direct or indirect financial interest in the operation of the Plans or any related agreement. Benefits to the Funds and their shareholders resulting from the Plans are believed to include (1) enhanced shareholder service, (2) asset retention, (3) enhanced bargaining position with third party service providers and economies of scale arising from having higher asset levels and (4) portfolio management opportunities arising from having an enhanced positive cash flow. The Distributor controls the words "CDC Nvest" in the names of the Trusts and the Funds and if it should cease to be the principal distributor of the Funds' shares, the Trusts or the affected Fund may be required to change their names and delete these words or letters. The Distributor also acts as principal distributor for CDC Nvest Cash Management Trust and CDC Nvest Tax Exempt Money Market Trust. The address of the Distributor is 399 Boylston Street, Boston, Massachusetts, 02116. 42 The portion of the various fees and expenses for Classes A, B and, with respect to certain Funds, C shares that are paid (reallowed) to securities dealers are shown below. Income Funds For Class A shares of the Income Funds, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. To the extent that the Distributor's reimbursable expenses in any year exceed the maximum amount payable for that year under the relevant service plan, these expenses may be carried forward for reimbursement in future years as long as the Plan remains in effect. The portion of the various fees and expenses for Class A shares of the Income Funds that are paid to securities dealers are shown below: All Income Funds Except Short Term Bond Fund and Limited Term U.S. Government Funds
Maximum Maximum Maximum Sales Charge Maximum Reallowance First Year First Year Paid by Investors or Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) Less than $100,000 4.50% 4.00% 0.25% 4.25% $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million none 1.00%(1) 0.25% 1.25% Excess over $3 million none 0.50%(1) 0.25% 0.75% Investments with no Sales none 0.00% 0.25% 0.25% Charge (2)
Short Term Bond and Limited Term U.S. Government Funds
Maximum Maximum Maximum Sales Charge Maximum Reallowance First Year First Year Paid by Investors or Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) Less than $100,000 3.00% 2.70% 0.25% 2.95% $100,000 - $249,999 2.50% 2.15% 0.25% 2.40% $250,000 - $499,999 2.00% 1.70% 0.25% 1.95% $500,000 - $999,999 1.25% 1.00% 0.25% 1.25% Investments of $1 million or more First $3 million none 1.00%(1) 0.25% 1.25% Excess over $3 million none 0.50%(1) 0.25% 0.75% Investments with no none 0.00% 0.25% 0.25% Sales Charge (2)
For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of those Funds offering Class Y shares, which are described in a separate prospectus. (1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Income Funds under the section entitled "Ways to Reduce or Eliminate Sales Charges." Also refers to any Class C share accounts established prior to December 1, 2000. 43 The Class B and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B and Class C shares of the Income Funds that are paid to securities dealers are shown below: Short Term Bond and Limited Term U.S. Government Funds Investment
Maximum Front-End Maximum Sales Charge Paid by Maximum Reallowance First Year Maximum Investors or Commission Service Fee First Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) All amounts for Class B none 2.75% 0.25% 3.00% Class C amounts purchased at NAV (1) none 1.00% 0.00% 1.00% All other amounts for Class C 1.00% 2.00% 0.00% 2.00%
(1) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Class A, B and C shares under the section entitled "Ways to Reduce or Eliminate Sales Charges." Also refers to any Class C share accounts established prior to December 1, 2000. High Income, Strategic Income, Bond Income and Government Securities Funds (Class B only for Government Securities Funds)
Maximum Front-End Sales Maximum Reallowance or Maximum First Year Maximum First Year Charge Paid by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) All amounts for Class B none 3.75% 0.25% 4.00% Class C amounts purchased at NAV (1) none 1.00% 0.00% 1.00% All other amounts for Class C 1.00% 2.00% 0.00% 2.00%
Municipal Income Fund For Class A shares of the Municipal Income Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. To the extent that the Distributor's reimbursable expenses in any year exceed the maximum amount payable for that year under the relevant service plan, these expenses may be carried forward for reimbursement in future years as long as the Plan remains in effect. The portion of the various fees and expenses for Class A shares of the Municipal Income Fund that are paid to securities dealers are shown below: 44 Municipal Income Fund
Maximum Maximum Maximum Sales Charge Maximum Reallowance First Year First Year Paid by Investors or Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) Less than $100,000 4.50% 4.00% 0.25% 4.25% $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million none 1.00%(1) 0.25% 1.25% Excess over $3 million none 0.50%(1) 0.25% 0.75% Investments with no Sales none 0.00% 0.25% 0.25% Charge (2)
For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of those Funds offering Class Y shares, which are described in a separate prospectus. (1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Class A, B and C shares of the Income Funds under the section entitled "Ways to Reduce or Eliminate Sales Charges." The Class B shares service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B shares of the Municipal Income Fund that are paid to securities dealers are shown below: Municipal Income Fund
Maximum Front-End Sales Maximum Reallowance or Maximum First Year Maximum First Year Charge Paid by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) All amounts for Class B None 3.75% 0.25% 4.00%
Massachusetts Fund For Class A shares of the Massachusetts Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. To the extent that the Distributor's reimbursable expenses in any year exceed the maximum amount payable for that year under the relevant service plan, these expenses may be carried forward for reimbursement in future years as long as the Plan remains in effect. The portion of the various fees and expenses for Class A shares of the Massachusetts Fund that are paid to securities dealers are shown below: 45
Maximum Maximum Maximum Sales Charge Maximum Reallowance First Year First Year Paid by Investors or Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) Less than $50,000 4.25% 3.75% 0.25% 4.00% $50,000 - $99,999 4.00% 3.50% 0.25% 3.75% $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million none 1.00%(1) 0.25% 1.25% Excess over $3 million none 0.50%(1) 0.25% 0.75% Investments with no Sales none 0.00% 0.25% 0.25% Charge (2)
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for the Massachusetts Fund under the section entitled "Ways to Reduce or Eliminate Sales Charges." The Class B shares service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B shares of the Massachusetts Fund that are paid to securities dealers are shown below:
Maximum Maximum Maximum Reallowance or First Year First Year Commission Service Fee Compensation Investment (% of offering price) (% of net investment) (% of offering price) All amounts for Class B 3.75% 0.25% 4.00%
Equity Funds and Star Funds For Class A shares of the Equity Funds and the Star Funds, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. To the extent that the Distributor's reimbursable expenses in any year exceed the maximum amount payable for that year under the relevant service plan, these expenses may be carried forward for reimbursement in future years as long as the Plan remains in effect. The portion of the various fees and expenses for Class A shares of the Equity and Star Funds that are paid to securities dealers are shown below:
Maximum Maximum Maximum Maximum Sales Charge Reallowance or First Year First Year Paid by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) Less than $50,000* 5.75% 5.00% 0.25% 5.25% $50,000 - $99,999 4.50% 4.00% 0.25% 4.25% $100,000 - $249,999 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 Million none 1.00%(1) 0.25% 1.25% Excess over $3 Million none 0.50%(1) 0.25% 0.75% Investments with no Sales none 0.00% 0.25% 0.25% Charge(2)
* (Targeted Equity Fund only) For accounts established prior to February 28, 1997 having a total investment value of between (and including) $25,000 and $49,000, a reduced sales charge of 5.50% of the offering price (or 5.82% of the net amount invested), with a dealer's concession of 4.25% as a percentage of offering price, will be charged on the sale of 46 additional Class A shares of Targeted Equity Fund if the total investment value of Targeted Equity Fund account after such sale is between (and including) $25,000 and $49,000. For investments by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Code with investments of $1 million or more that have 100 or more eligible employees), the Distributor may pay a 0.50% commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10 million are eligible to purchase Class Y shares of the funds, which are described in a separate prospectus. (1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2) Refers to any investments made by investors not subject to a sales charge as described in the Prospectuses for Classes A, B and C shares of the Equity Funds and the Star Funds under the section entitled "Ways to Reduce or Eliminate Sales Charges." The Class B and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B and Class C shares of the Equity and Star Funds that are paid to securities dealers are shown below:
Maximum Front-End Maximum Sales Charge Paid by Maximum Reallowance First Year Maximum Investors or Commission Service Fee First Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) All amounts for Class B None 3.75% 0.25% 4.00% Class C amounts purchased at NAV (1) None 1.00% 0.00% 1.00% All other amounts for Class C 1.00% 2.00% 0.00% 2.00%
(1) Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Equity Funds and Star Funds under the section entitled "Ways to Reduce or Eliminate Sales Charges." Also refers to any Class C share accounts established prior to December 1, 2000. All Funds Each transaction receives the net asset value next determined after an order is received on sales of each class of shares. The sales charge is allocated between the investment dealer and the Distributor. The Distributor receives the Contingent Deferred Sales Charge (the "CDSC"). Proceeds from the CDSC on Class A and C shares are paid to the Distributor and are used by the Distributor to defray the expenses for services the Distributor provides the Trusts. Proceeds from the CDSC on Class B shares are paid to the Distributor and are remitted to FEP Capital, L.P. to compensate FEP Capital, L.P. for financing the sale of Class B shares pursuant to certain Class B financing and servicing agreements between the Distributor and FEP Capital, L.P. The Distributor may, at its discretion, pay (reallow) the entire sales charge imposed on the sale of Class A or Class C shares to investment dealers from time to time. For new amounts invested at net asset value by an eligible governmental authority, the Distributor may, at its expense, pay investment dealers a commission of 0.025% of the average daily net assets of an account at the end of each calendar quarter for up to one year. These commissions are not payable if the purchase represents the reinvestment of redemption proceeds from any other CDC Nvest Fund or if the account is registered in street name. The Distributor may at its expense provide additional concessions to dealers who sell shares of the Funds, including: (i) full reallowance of the sales charge of Class A or Class C shares, (ii) additional compensation with respect to the sale of Class A, B and C shares and (iii) financial assistance programs to firms who sell or arrange for the sale of Fund shares including, but not limited to, remuneration for: the firm's internal sales contests and incentive programs, marketing and sales fees, expenses related to advertising or promotional activity and events, and shareholder record keeping or miscellaneous administrative services. Payment for travel, lodging and related expenses may be provided for attendance at CDC Nvest Funds' seminars and conferences, e.g., due diligence meetings held for training and educational purposes. The 47 payment of these concessions and any other compensation offered will conform with state and federal laws and the rules of any self-regulatory organization, such as the National Association of Securities Dealers, Inc ("NASD"). The participation of such firms in financial assistance programs is at the discretion of the firm. The commissions and sales charges for the last three fiscal years were allocated as follows: CDC NVEST TRUST I
12/31/00 12/31/01 12/31/02 -------- -------- -------- Total commissions on sales of Class A shares $7,347,997 $3,227,553 Amount reallowed to other securities dealers $6,408,805 $2,813,759 Amount retained by Distributor $939,192 $413,794 Total CDSCs on redemptions of Classes A, B and C shares $3,045,740 $2,711,885 Amount paid to FEP Capital, L.P. $2,809,976 $2,638,993 Amount retained by Distributor* $235,764 $72,892
* See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers and subadvisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust I. CDC NVEST TRUST II
12/31/00 12/31/01 12/31/02 -------- -------- -------- Total commissions on sales of Class A shares $991,221 $498,712 Amount reallowed to other securities dealers $865,094 $434,971 Amount retained by Distributor $126,127 $63,741 Total CDSCs on redemptions of Classes A, B and C shares $925,772 $610,331 Amount paid to FEP Capital, L.P. $900,489 $584,849 Amount retained by Distributor* $25,283 $25,482
* See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers and subadvisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust II. CDC NVEST TRUST III
12/31/00 12/31/01 12/31/02 -------- -------- -------- Total commissions on sales of Class A shares $67,184 $968,230 Amount reallowed to other securities dealers $58,409 $867,217 Amount retained by Distributor $8,775 $101,013 Total CDSCs on redemptions of Classes A, B and C shares $63,607 $122,392 Amount paid to FEP Capital, L.P. $63,187 $115,155 Amount retained by Distributor* $420 $7,237
* See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers and subadvisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust I. 48 CDC NVEST COMPANIES TRUST I
1/31/01 1/31/02 1/31/03 ------- ------- ------- Total commissions on sales of Class A shares $17,176 $93,187 Amount reallowed to other securities dealers $15,047 $81,047 Amount retained by Distributor $2,129 $12,140 Total CDSCs on redemptions of Classes A, B and C shares $0 $2,388 Amount paid to FEP Capital, L.P. $0 $1,908 Amount retained by Distributor* $0
* See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers and subadvisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Companies Trust I. Custodial Arrangements. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, Massachusetts 02116, serves as the Trusts' custodian. As such, IBT holds in safekeeping certificated securities and cash belonging to each Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to each Fund. Upon instruction, IBT receives and delivers cash and securities of each Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. IBT also maintains certain accounts and records of the Trusts and calculates the total net asset value, total net income and net asset value per share of each Fund on a daily basis. Independent Accountants. The Trusts' independent accountants are PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110. The independent accountants conduct an annual audit of each Fund's financial statements, assist in the preparation of federal and state income tax returns and consult with the Trusts as to matters of accounting and federal and state income taxation. The information concerning financial highlights in the Prospectuses, and financial statements contained in the Funds' annual reports for the year ended December 31, 2002, January 31, 2003 for the AEW Real Estate Fund, and incorporated by reference into this Statement, have been so included in reliance on the reports of each Trusts' independent accountants, given on the authority of said firm as experts in auditing and accounting. Other Arrangements Pursuant to a contract between the Trusts and CIS, CIS, whose principal business address is 399 Boylston Street, Boston, Massachusetts, 02116, acts as shareholder servicing and transfer agent for the Funds and is responsible for services in connection with the establishment, maintenance and recording of shareholder accounts, including all related tax and other reporting requirements and the implementation of investment and redemption arrangements offered in connection with the sale of the Funds' shares. For these services CIS received the following fees from the Funds for the fiscal year ended December 31, 2002: Fund Fiscal Year Ended December 31, 2002 ---- ----------------------------------- AEW* Balanced Bond Income Capital Growth Government Securities Growth and Income High Income International Equity Jurika & Voyles Relative Value Jurika & Voyles Small Cap Growth Large Cap Growth Large Cap Value Limited Term U.S. Government 49 Fund Fiscal Year Ended December 31, 2002 ---- ----------------------------------- Massachusetts Municipal Income Select Short Term Bond Star Advisers Star Growth Star Small Cap Star Value Star Worldwide Strategic Income Targeted Equity * For the fiscal year ended January 31, 2003. CIS has subcontracted with State Street Bank and Trust Company ("State Street Bank") for it to provide, through its subsidiary, Boston Financial Data Services, Inc. ("BFDS"), transaction processing, mail and other services. For these services, CIS pays BFDS a monthly per account fee. In addition, pursuant to other service agreements, Classes A, B and C shareholders may pay service fees to other firms that provide similar services for their own shareholder accounts. In addition, during the fiscal year ended December 31, 2002, CIS performed certain accounting and administrative services for the Funds, pursuant to an Administrative Services Agreement (the "Administrative Agreement"). Under the Administrative Agreement, CIS provides the following services to the Funds: (i) it provides personnel that perform bookkeeping, accounting, internal auditing and financial reporting functions and clerical functions relating to the Funds, (ii) it provides services required in connection with the preparation of registration statements and prospectuses, registration of shares in various states, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Funds or regulatory authorities and reports and questionnaires for SEC compliance, and (iii) it handles the various registrations and filings required by various regulatory authorities. For these services CIS received the following fees from the Funds for the fiscal years ended December 31, 2000, 2001 and 2002 (as noted, certain Funds had different fiscal year ends): Fiscal Year Ended December 31, Fund 2000 2001 2002 - ---- ---- ---- ---- Balanced $ 72,761 $ 63,803 Bond Income $107,368 $150,335 Capital Growth $ 93,578 $ 74,676 Government Securities $ 29,718 $ 41,391 Growth and Income $200,274 $190,310 High Income $ 46,176 $ 42,424 International Equity $ 42,639 $ 34,862 Jurika & Voyles Relative Value* -- $ 5,945 Jurika & Voyles Small Cap Growth* -- $ 1,337 Large Cap Growth** $ 76,480 $ 17,644 Large Cap Value $ 2,303 $ 9,089 Limited Term U.S. Government $ 53,070 $ 64,921 Massachusetts $ 34,415 $ 47,060 50 Fiscal Year Ended December 31, Fund 2000 2001 2002 - ---- ---- ---- ---- Municipal Income $ 55,603 $ 74,157 Select** -- $ 55,808 Short Term Bond $ 21,965 $ 28,944 Star Advisers $582,494 $527,505 Star Growth* $ 96,610 $ 15,781 Star Small Cap $ 90,439 $ 85,996 Star Value $ 78,585 $ 94,408 Star Worldwide $ 98,789 $ 91,945 Strategic Income $104,135 $118,473 Targeted Equity $636,976 $557,169 * For the fiscal year ended June 30, 2001, the period from July 1, 2001 to December 31, 2001 and the fiscal year ended December 31, 2002. ** For the fiscal year ended September 30, 2001, the period from October 1, 2001 to December 31, 2001 and the fiscal year ended December 31, 2002. For these services CIS received the following fees from the AEW Real Estate Fund for the fiscal years ended January 31, 2001, 2002 and 2003: Fiscal Year Ended January 31, Fund 2001 2002 2003 ---- ---- ---- ---- AEW Real Estate Fund $18,482 $3,109 PORTFOLIO TRANSACTIONS AND BROKERAGE All Income Funds. In placing orders for the purchase and sale of portfolio securities for each Income Fund, Loomis Sayles always seeks the best price and execution. Some of each Income Fund's portfolio transactions are placed with brokers and dealers that provide Loomis Sayles with supplementary investment and statistical information or furnish market quotations to that Fund, the other Funds or other investment companies advised by Loomis Sayles. The business would not be so placed if the Funds would not thereby obtain the best price and execution. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce the expenses of Loomis Sayles. The services may also be used by Loomis Sayles in connection with their other advisory accounts and in some cases may not be used with respect to the Funds. All Equity Funds. In placing orders for the purchase and sale of equity securities, each Equity Fund's adviser or subadviser selects only brokers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates that, when combined with the quality of the foregoing services, will produce the best price and execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Each Fund's adviser or subadviser will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. 51 Subject to the overriding objective of obtaining the best possible execution of orders, each Fund's adviser and subadviser may allocate brokerage transactions to affiliated brokers. Any such transactions will comply with Rule 17e-1 under the 1940 Act. In order for the affiliated broker to effect portfolio transactions for the Fund, the commissions, fees or other remuneration received by the affiliated broker must be reasonable and fair compared to the commissions, fees and other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period. Furthermore, each Trust's Board of Trustees, including a majority of the Independent Trustees, have adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker are consistent with the foregoing standard. Funds or Segments Advised by CGM. In placing orders for the purchase and sale of portfolio securities for the Fund, CGM always seeks the best price and execution. Transactions in unlisted securities will be carried out through broker-dealers that make the primary market for such securities unless, in the judgment of CGM, a more favorable price can be obtained by carrying out such transactions through other brokers. Receipt of research services from brokers may sometimes be a factor in selecting a broker that CGM believes will provide the best price and execution for a transaction. These research services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce CGM's expenses. Such services may be used by CGM in servicing other client accounts and in some cases may not be used with respect to the Fund. Receipt of services or products other than research from brokers is not a factor in the selection of brokers. Funds or Segments Sub-Advised by Harris Associates. In placing orders for the purchase and sale of portfolio securities for the CDC Nvest Funds, Harris Associates always seeks best execution, subject to the considerations set forth below. Transactions in unlisted securities are carried out through broker-dealers that make the market for such securities unless, in the judgment of Harris Associates, a more favorable execution can be obtained by carrying out such transactions through other brokers or dealers. Subject to the above standard, portfolio transactions for each Fund may be executed through Harris Associates Securities L.P., a registered broker-dealer and an affiliate of Harris Associates. Harris Associates selects only brokers or dealers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates which, when combined with the quality of the foregoing services, will produce best execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Harris Associates will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Receipt of brokerage or research services from brokers may sometimes be a factor in selecting a broker that Harris Associates believes will provide best execution for a transaction. These services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Harris Associates' expenses. Such services may be used by Harris Associates in servicing other client accounts and in some cases may not be used with respect to the Funds. Consistent with the Rules of the NASD, and subject to seeking best execution, Harris Associates may, however, consider purchases of shares of the CDC Nvest Funds by customers of broker-dealers as a factor in the selection of broker-dealers to execute Fund portfolio transactions. 52 Harris Associates may cause the CDC Nvest Funds to pay a broker-dealer that provides brokerage and research services to Harris Associates an amount of commission for effecting a securities transaction for the Fund in excess of the amount another broker-dealer would have charged for effecting that transaction. Harris Associates must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Harris Associates' overall responsibilities to the Funds and its other clients. Harris Associates' authority to cause the Funds to pay such greater commissions is also subject to such policies as the trustees of the Trusts may adopt from time to time. Funds or Segments Sub-Advised by Hansberger. Subject to policies established by the Board of Trustees, Hansberger is responsible for decisions to buy and sell securities for its Fund and for the placement of the Fund's investment business and the negotiation of the commissions to be paid on such transactions. It is the policy of Hansberger to seek the best execution at the best security price available with respect to each transaction, in light of the overall quality of brokerage and research services provided to Hansberger or the Fund. In over-the-counter transactions, orders are placed directly with a principal market maker unless it is believed that better price and execution can be obtained using a broker. In determining the abilities of a broker or dealer to obtain best execution, Hansberger considers relevant factors including, but not limited to: the ability and willingness of the broker or dealer to facilitate its segment of the Fund's portfolio transactions by participating therein for its own account; speed, efficiency and confidentiality; familiarity with the market for a particular security; and the reputation and perceived soundness of the broker. The best price to the Fund means the best net price without regard to the mix between purchase or sale price and commissions, if any. In selecting broker-dealers and in negotiating commissions, Hansberger considers a variety of factors, including best price and execution, the full range of brokerage services provided by the broker, as well as its capital strength and stability, and the quality of research and research services provided by the broker. Consistent with the foregoing primary considerations, the Conduct Rules of the NASD and such other policies as the Trustees may determine, Hansberger may, upon directions of the Trustees or the Fund, consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. Subject to best execution, Hansberger may cause the Fund to pay a broker greater commissions than another broker might charge for providing the same brokerage and research services. Hansberger believes it is important to its investment decision-making process to have access to independent research. Higher commissions will not be paid by the Fund unless Hansberger determines in good faith that such payment is reasonable in relation to the value of the brokerage or research services provided by such broker or dealer, viewed in terms of that particular transaction or Hansberger's overall responsibilities with respect to the accounts over which it exercises investment discretion. Generally, research services provided by brokers may include information on the economy, industries, groups of securities, individual companies, statistical information, accounting and tax law interpretations, political developments, legal developments affecting portfolio securities, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance analysis, and analysis of corporate responsibility issues. Such research services are primarily in the form of written reports, telephone contacts, and personal meetings with security analysts. In addition, such research services may be provided in the form of access to various computer-generated data, computer hardware and software, and meetings arranged with corporate and industry spokespersons, economists, academicians, and government representatives. In some cases, research services are generated by third parties but are provided to Hansberger by or through brokers. Such brokers may pay for all or a portion of computer hardware and software costs relating to the pricing of securities. Where Hansberger itself receives both administrative benefits and research and brokerage services from the services provided by brokers, it makes a good faith allocation between the administrative benefits and the research and brokerage services, and will pay for any administrative benefits with cash. In making good faith allocations of costs between administrative benefits and research and brokerage services, a conflict of interest may exist by reason of Hansberger's allocation of the costs of such benefits and services between those that primarily benefit Hansberger and those that primarily benefit the Fund and other advisory clients. Twice a year, Hansberger, through a committee of its securities analysts and trading personnel, will consider the amount and nature of research and research services provided by brokers, as well as the extent to which such services are relied upon, and attempt to allocate a portion of the brokerage business of the Fund and other advisory clients on the basis of that consideration. In addition, brokers may suggest a level of business they would like to receive 53 in order to continue to provide such services. The actual brokerage business received by a broker may be more or less than the suggested allocations, depending upon Hansberger's evaluation of all applicable considerations, including but not limited to Hansberger's best execution undertaking. Hansberger may direct the purchase of securities on behalf of the Fund and other advisory clients in secondary market transactions, in public offerings directly from an underwriter, or in privately negotiated transactions with an issuer. When Hansberger believes the circumstances so warrant, securities purchased in public offerings may be resold shortly after acquisition in the immediate aftermarket for the security in order to take advantage of price appreciation from the public offering price or for other reasons. Short-term trading of securities acquired in public offerings, or otherwise, may result in higher portfolio turnover and associated brokerage expenses. Hansberger is responsible for selecting brokers in connection with non-U.S. securities transactions. Commissions paid in connection with certain non-U.S. stock transactions may be higher than negotiated commissions on U.S. stock transactions. Non-U.S. stock exchanges and brokers may be subject to less government supervision and regulation than U.S. exchanges and brokers. In addition, non-U.S. security settlements may in some instances be subject to delays and related administrative uncertainties. Funds or Segments Sub-Advised by Jurika & Voyles. In placing orders for the purchase and sale of portfolio securities for the Funds, Jurika & Voyles always seeks best execution, subject to the considerations set forth below. Transactions in unlisted securities are carried out through broker-dealers who make the market for such securities unless, in the judgment of Jurika & Voyles, a more favorable execution can be obtained by carrying out such transactions through other brokers or dealers. Jurika & Voyles selects only brokers or dealers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates which, when combined with the quality of the foregoing services, will produce best execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Jurika & Voyles will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Receipt of brokerage or research services from brokers may sometimes be a factor in selecting a broker that Jurika & Voyles believes will provide best execution for a transaction. These services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Jurika & Voyles' expenses. Such services may be used by Jurika & Voyles in servicing other client accounts and in some cases may not be used with respect to the Funds. Consistent with the Conduct Rules of the NASD, and subject to seeking best execution, Jurika & Voyles may, however, consider purchases of shares of the Funds by customers of broker-dealers as a factor in the selection of broker-dealers to execute the Funds' securities transactions. Jurika & Voyles may cause the Funds to pay a broker-dealer that provides brokerage and research services to Jurika & Voyles an amount of commission for effecting a securities transaction for the Funds in excess of the amount another broker-dealer would have charged for effecting that transaction. Jurika & Voyles must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Jurika & Voyles' overall responsibilities to the Funds and its other clients. Jurika & Voyles' authority to cause the Funds to pay such greater commissions is also subject to such policies as the trustees of the Trust may adopt from time to time. Funds or Segments Sub-Advised by Loomis Sayles. In placing orders for the purchase and sale of securities for the CDC Nvest Funds advised by Loomis Sayles, Loomis Sayles follows the same policies as for the other Funds for which it acts as subadviser, except that Loomis Sayles may cause these Funds to pay a broker-dealer that provides brokerage and research services to Loomis Sayles an amount of commission for effecting a securities transaction for the Fund in 54 excess of the amount another broker-dealer would have charged for effecting that transaction. Loomis Sayles must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Loomis Sayles' overall responsibilities to the Fund and its other clients. Loomis Sayles' authority to cause these Funds to pay such greater commissions is also subject to such policies as the trustees of the Trusts may adopt from time to time. Receipt of research services from brokers may sometimes be a factor in selecting a broker that Loomis Sayles believes will provide best execution for a transaction. These research services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation, and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Loomis Sayles' expenses. Such services may be used by Loomis Sayles in servicing other client accounts and in some cases may not be used with respect to these Funds. Funds or Segments Sub-Advised by Mercury Advisors. Subject to policies established by the Board of Trustees, Mercury Advisors is primarily responsible for the execution of its Fund's portfolio transactions and the allocation of brokerage. Subject to policies established by the Trustees, Mercury Advisors may have an obligation to deal with a particular dealer or group of dealers in the execution of transactions in portfolio securities of the Fund but otherwise does not use any particular broker or dealer. In executing transactions with brokers and dealers, Mercury Advisors seeks to obtain the best results for its Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operations facilities of the firm and the firm's risk in positioning a block of securities. While Mercury Advisors generally seeks reasonably competitive commission rates, its Fund will not necessarily be paying the lowest spread or commission available. Transactions with respect to the securities of small and emerging growth companies in which its Fund may invest may involve specialized services on the part of the broker or dealer and thereby entail higher commissions or spreads than would be the case with transactions involving more widely traded securities. Subject to obtaining the best net results, brokers who provide supplemental investment research services to Mercury Advisors may receive orders for transactions by its Fund. Such supplemental research services ordinarily consist of assessments and analyses of the business or prospects of a company, industry or economic sector. Information so received will be in addition to and not in lieu of the services required to be performed by Mercury Advisors under its Subadvisory Agreement, and the expense of Mercury Advisors will not necessarily be reduced as a result of the receipt of such supplemental information. If, in the judgment of Mercury Advisors, its Fund will benefit from supplemental research services, Mercury Advisors is authorized to pay brokerage commissions to a broker furnishing such services that are in excess of commissions that another broker may have charged for effecting the same transaction. Certain supplemental research services may primarily benefit one or more other investment companies or other accounts for which Mercury Advisors exercises investment discretion. Conversely, its Fund may be the primary beneficiary of the supplemental research services received as a result of portfolio transactions effected for such other accounts or investment companies. Mercury Advisors anticipates that its brokerage transactions for its Fund involving securities of issuers domiciled in countries other than the United States generally will be conducted primarily on the principal stock exchanges of such countries. Brokerage commissions and other transactions costs on foreign stock exchange transactions generally are higher than in the United States, although Mercury Advisors will endeavor to achieve the best net results in effecting portfolio transactions for its Fund. There generally is less government supervision and regulation of foreign stock exchanges and brokers than in the United States. The ability and decisions to purchase and sell portfolio securities may be affected by foreign laws and regulations relating to the convertibility and repatriation of assets. When trading in securities markets with dealers on a principal basis, including in the OTC market, Mercury Advisors will not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions. However, an affiliated person of Mercury Advisors may serve as its broker in securities transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. In addition, Mercury Advisors may not purchase securities for its Fund during the existence of any underwriting syndicate for such securities of which Merrill Lynch is a member or in a private placement in which Merrill Lynch serves as placement agent except pursuant to procedures approved by the Board of Trustees of the Fund 55 that either comply with rules adopted by the SEC or with interpretations of the SEC staff, or in accordance with the terms of any applicable SEC exemptive relief. Funds or Segments Sub-Advised by Miller Anderson. In seeking best execution on portfolio transactions, Miller Anderson will consider all matters it deems relevant, which may include the following: Miller Anderson's knowledge of negotiated commission rates and spreads currently available; the nature of the security or instrument being traded; the size and type of the transaction; the nature and character of the markets for the security or instrument to be purchased or sold; the desired timing of the transaction; the activity existing and expected in the market for the particular security or instrument; confidentiality; the execution, clearance, and settlement capabilities of the broker or dealer selected and other brokers or dealers considered; the reputation and perceived soundness of the broker or dealer selected and other brokers or dealers considered; Miller Anderson's knowledge of any actual or apparent operational problems of a broker or dealer; and the reasonableness of the commission or its equivalent for the specific transaction. Although Miller Anderson generally seeks competitive commission rates and dealer spreads, the Fund advised by Miller Anderson will not necessarily pay the lowest available commission on brokerage transactions or markups on principal transactions. In addition, the Fund may pay higher commission rates or markups than the lowest available when Miller Anderson believes it is reasonable to do so in light of the value of the research, statistical, pricing, and execution services provided by the broker or dealer effecting the transaction. Miller Anderson uses research services obtained in this manner for the benefit of all of its clients, though each particular research service may not be used to service each client. When trading in securities markets with dealers on a principal basis, including in the OTC market, Miller Anderson will not deal with affiliated persons, including Morgan Stanley and Co. Incorporated ("Morgan Stanley") and its affiliates, in connection with such transactions. However, an affiliated person of Miller Anderson may serve as its broker in securities transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. In addition, Miller Anderson may not purchase securities for its Fund during the existence of any underwriting syndicate for such securities of which Morgan Stanley is a member or in a private placement in which Morgan Stanley or an affiliate serve as placement agent except pursuant to procedures approved by the Board of Trustees of the Fund that either comply with rules adopted by the SEC or with interpretations of the SEC staff, or in accordance with the terms of any applicable SEC exemptive relief. Funds or Segments Sub-Advised by RS Investments. It is the policy of RS Investments, in effecting transactions in portfolio securities, to seek the best execution of orders. The determination of what may constitute best execution in a securities transaction involves a number of judgmental considerations, including, without limitation, the overall direct net economic result to the Fund (involving both price paid or received and any commissions and other costs), the efficiency with which the transaction is effected, the ability to effect the transaction at all when a large block is involved, the availability of the broker to stand ready to execute possibly difficult transactions for this Fund in the future, and the financial strength and stability of the broker. Subject to the policy of seeking best execution of orders at the most favorable prices, RS Investments may execute transactions with brokerage firms which provide research services and products to RS Investments. The phrase "research services and products" includes advice as to the value of securities, the advisability of investing in, purchasing or selling securities, the availability of securities or purchasers or sellers of securities, the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts, and the obtainment of products such as third-party publications, computer and electronic access equipment, software programs, and other information and accessories that may assist RS Investments in furtherance of its investment advisory responsibilities to its advisory clients. Such services and products permit RS Investments to supplement its own research and analysis activities, and provide it with information from individuals and research staffs of many securities firms. Generally, it is not possible to place a dollar value on the benefits derived from specific research services and products. RS Investments may receive a benefit from these research services and products that is not passed on, in the form of a direct monetary benefit, to this Fund. If RS Investments determines that any research product or service has a mixed use, such that it also serves functions that do not assist in the investment decision-making process, RS Investments may allocate the cost of such service or product accordingly. The portion of the product or service that RS Investments determines will assist it in the investment decision-making process may be 56 paid for in brokerage commission dollars. Any such allocation may create a conflict of interest for RS Investments. Subject to the standards outlined in this and the preceding paragraph, RS Investments may arrange to execute a specified dollar amount of transactions through a broker that has provided research products or services. Such arrangements do not constitute commitments by RS Investments to allocate portfolio brokerage upon any prescribed basis, other than upon the basis of seeking best execution of orders. Research services and products may be useful to RS Investments in providing investment advice to any of the funds or clients it advises. Likewise, information made available to RS Investments from brokers effecting securities transactions for such other funds and clients may be utilized on behalf of another fund. Thus, there may be no correlation between the amount of brokerage commissions generated by a particular fund or client and the indirect benefits received by that fund or client. Subject to the policy of seeking the best execution of orders, sales of shares of the Funds may also be considered as a factor in the selection of brokerage firms to execute portfolio transactions for this Fund. Because selection of executing brokers is not based solely on net commissions, the Funds advised by RS Investments may pay an executing broker a commission higher than that which might have been charged by another broker for that transaction. RS Investments will not knowingly pay higher mark-ups on principal transactions to brokerage firms as consideration for receipt of research services or products. While it is not practicable for RS Investments to solicit competitive bids for commissions on each portfolio transaction, consideration is regularly given to available information concerning the level of commissions charged in comparable transactions by various brokers. Transactions in over-the-counter securities are normally placed with principal market makers, except in circumstances where, in the opinion of RS Investments, better prices and execution are available elsewhere. Funds or Segments Sub-Advised by Salomon Brothers. Salomon Brothers buys and sells securities for its CDC Nvest Funds, subject to overall review by the Board of Trustees. Although investment decisions of the Fund are made independently from those of other accounts managed by Salomon Brothers, investments of the type that the Fund make also may be made by those other accounts. When the Fund and one or more other accounts managed by Salomon Brothers are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by Salomon Brothers to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the segment or the size of the position obtained or disposed of by the Fund. Allocation of transactions on behalf of the Fund, including their frequency, to various dealers is determined by Salomon Brothers in its best judgment and in a manner deemed fair and reasonable to the Fund's shareholders. The primary considerations of Salomon Brothers in allocating transactions are availability of the desired security and prompt execution of orders in an effective manner at the most favorable prices. Subject to these considerations, dealers that provide supplemental investment research and statistical or other services to Salomon Brothers may receive orders for portfolio transactions by the Fund. Such information is received in addition to, not in lieu of, services required to be performed by Salomon Brothers, and the fees of Salomon Brothers are not reduced as a consequence of their receipt of the supplemental information. The information may be useful to Salomon Brothers in serving both the Fund and other clients, and conversely, supplemental information obtained by the placement of business of other clients may be useful to Salomon Brothers in carrying out its obligations to the Fund. The Fund will not purchase securities during the existence of any underwriting or selling group relating to the securities, of which Salomon Brothers is a member, except to the extent permitted by the SEC. Under certain circumstances, the Fund may be at a disadvantage because of this limitation in comparison with other funds that have similar investment objectives but are not subject to a similar limitation. In selecting brokers or dealers to execute portfolio transactions on behalf of the Fund, Salomon Brothers seeks the best overall terms available. In assessing the best overall terms available for any transaction, Salomon Brothers will consider the factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and the execution capability of the broker or dealer and the reasonableness of any commission, for both the specific transaction and on a continuing basis. In addition, Salomon Brothers, in selecting brokers or dealers to execute a particular transaction and in evaluating the best overall terms available, may consider the brokerage and research services provided to the segment by prospective brokers or dealers, the other funds and/or other accounts over which Salomon Brothers or its affiliates exercise investment discretion. 57 Funds or Segments Sub-Advised by Vaughan Nelson. In placing orders for the purchase and sale of securities for its Funds, Vaughan Nelson selects only brokers or dealers that it believes are financially responsible and will provide efficient and effective services in executing, clearing and settling an order. Vaughan Nelson will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Transactions in unlisted securities are carried out through broker-dealers who make the primary market for such securities unless, in the judgment of Vaughan Nelson, a more favorable price can be obtained by carrying out such transactions through other brokers or dealers. Receipt of research services from brokers may sometimes be a factor in selecting a broker that Vaughan Nelson believes will provide best execution for a transaction. These research services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Vaughan Nelson's expenses. Such services may be used by Vaughan Nelson in servicing other client accounts and in some cases may not be used with respect to the Fund. Receipt of services or products other than research from brokers is not a factor in the selection of brokers. Consistent with the Conduct Rules of the NASD, Vaughan Nelson may, however, consider purchases of shares of the Fund and other funds managed by Vaughan Nelson by customers of broker-dealers as a factor in the selection of broker-dealers to execute the Fund's securities transactions. In placing orders for the purchase and sale of securities for the Fund, Vaughan Nelson may cause the Fund to pay a broker-dealer that provides the brokerage and research services to Vaughan Nelson an amount of commission for effecting a securities transaction for the Fund in excess of the amount another broker-dealer would have charged for effecting that transaction. Vaughan Nelson must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Vaughan Nelson's overall responsibilities to the Trust and its other clients. Vaughan Nelson's authority to cause the Fund to pay such greater commissions is also subject to such policies as the trustees of the Trust may adopt from time to time. Funds or Segments Sub-Advised by Westpeak. In placing orders for the purchase and sale of securities, Westpeak always seeks best execution. Westpeak selects only brokers or dealers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates that, when combined with the quality of the foregoing services, will produce best price and execution. This does not necessarily mean that the lowest available brokerage commission will be paid. Westpeak will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Westpeak may cause the Fund to pay a broker-dealer that provides brokerage and research services to Westpeak an amount of commission for effecting a securities transaction for the Fund in excess of the amount another broker-dealer would have charged effecting that transaction. Westpeak must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Westpeak's overall responsibilities to the Fund and its other clients. Westpeak's authority to cause the Fund it manages to pay such greater commissions is also subject to such policies as the trustees of the Trusts may adopt from time to time. General Subject to procedures adopted by the Board of Trustees of each Trust, the Funds' brokerage transactions may be executed by brokers that are affiliated with CDC IXIS North America or the Funds' advisers or subadvisers. Any 58 such transactions will comply with Rule 17e-1 under the 1940 Act, except to the extent permitted by the SEC pursuant to exemptive relief or otherwise. Under the 1940 Act, persons affiliated with each Trust are prohibited from dealing with each Trust's Funds as a principal in the purchase and sale of securities. Since transactions in the over-the-counter market usually involve transactions with dealers acting as principals for their own accounts, affiliated persons of the Trusts may not serve as the Funds' dealer in connection with such transactions. However, the Trusts have obtained exemptive relief from the SEC permitting segments of the Star Funds to enter into principal transactions with affiliates of the subadvisers to other segments of the same Star Fund (but not affiliates of the subadviser to such segment or of CDC IXIS Advisers and its affiliates). To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, an adviser or subadviser may allocate brokerage transactions in a manner that takes into account the sale of shares of one or more Funds distributed by the Distributor. In addition, the adviser or subadviser may allocate brokerage transactions to broker-dealers (including affiliates of the Distributor) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a Fund toward the reduction of that Fund's expenses, subject to the requirement that an adviser or subadviser will seek best execution. It is expected that the portfolio transactions in fixed-income securities will generally be with issuers or dealers on a net basis without a stated commission. Securities firms may receive brokerage commissions on transactions involving options, futures and options on futures and the purchase and sale of underlying securities upon exercise of options. The brokerage commissions associated with buying and selling options may be proportionately higher than those associated with general securities transactions. DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES CDC Nvest Funds Trust I is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (a "Declaration of Trust") dated June 7, 1985, as amended, and is a "series" company as described in Section 18(f)(2) of the 1940 Act. The name of the Trust has changed several times since its organization - from the date of its organization to September 1986, the name of the Trust was "The New England Life Government Securities Trust"; from September 1986 to March 1994, its name was "The New England Funds"; from April 1994 to January 2000, its name was "New England Funds Trust I"; from January 2000 until April 2001 the name of the Trust was "Nvest Funds Trust I"; and since May 2001 the name of the Trust has been "CDC Nvest Funds Trust I." Prior to January 5, 1996, the name of the Municipal Income Fund was "New England Tax Exempt Income Fund." The initial Fund of the Trust (now the Government Securities Fund) commenced operations on September 16, 1985. International Equity Fund commenced operations on May 22, 1992. Capital Growth Fund was organized in 1992 and commenced operations on August 3, 1992. Star Advisers Fund was organized in 1994 and commenced operations on July 7, 1994. Strategic Income Fund was organized in 1995 and commenced operations on May 1, 1995. Star Worldwide Fund was organized in 1995 and commenced operations on December 29, 1995. Star Small Cap Fund was organized in 1996 and commenced operations on December 31, 1996. Large Cap Growth Fund, Star Growth Fund and Relative Value Fund were organized in 2001 and commenced operations on November 16, 2001, November 30, 2001, and November 30, 2001, respectively. The remaining Funds in the Trust are successors to the following corporations which commenced operations in the years indicated: Corporation Date of Commencement of Operations ----------- ---------------------------------- NEL Growth Fund, Inc.* 1968 NEL Retirement Equity Fund, Inc.** 1970 NEL Equity Fund, Inc.*** 1968 NEL Income Fund, Inc.**** 1973 NEL Tax Exempt Bond Fund, Inc.***** 1977 * Predecessor of the Targeted Equity Fund (prior to November 12, 2001, the name of the Fund was "CDC Nvest Growth Fund") ** Predecessor of the Star Value Fund (prior to February 28, 2000, the name of the Fund was "Nvest Value Fund") *** Predecessor of the Balanced Fund 59 **** Predecessor of the Bond Income Fund ***** Predecessor of the Municipal Income Fund CDC Nvest Funds Trust II is organized as a Massachusetts business trust under the laws of Massachusetts pursuant to a Declaration of Trust dated May 6, 1931, as amended, and consisted of a single Fund (now the Growth and Income Fund) until January 1989, when the Trust was reorganized as a "series" company as described in Section 18(f)(2) of the 1940 Act. The Trust has five separate portfolios. The name of the Trust has changed several times since its organization - from its date of organization until December 1988, its name was "Investment Trust of Boston"; from December 1988 until April 1992, its name was "Investment Trust of Boston Funds"; from April 1992 until March 1994, its name was "TNE Funds Trust"; from April 1994 to January 2000, its name was "New England Funds Trust II"; from January 2000 to April 2001 the name of the Trust was "Nvest Funds Trust II"; and since May 2001 the name of the Trust has been "CDC Nvest Funds Trust II." High Income Fund and Massachusetts Fund are successors to separate investment companies that were organized in 1983 and 1984, respectively, and reorganized as series of the Trust in January 1989. Limited Term U.S. Government Fund was organized in 1988 and commenced operations in January 1989. Short Term Bond Fund was organized in 1991 and commenced operations on October 18th of that year. Prior to May 1, 2002, the name of Short Term Bond Fund was "Short Term Corporate Income Fund" and prior to December 1, 1998, the name of Short Term Bond Fund was "Adjustable Rate U.S. Government Fund." Prior to May 1, 1999, the name of Growth and Income Fund, which was organized in 1931 and commenced operations on May 6th of that year, was "Growth Opportunities Fund." CDC Nvest Funds Trust III is organized as a Massachusetts business trust under the laws of Massachusetts pursuant to a Declaration of Trust dated August 22, 1995, as amended. The name of the Trust was "New England Funds Trust III" from the date of its organization until January 2000; from January 2000 until April 2001 the name of the Trust was "Nvest Funds Trust III," and since May 2001 the name of the Trust has been "CDC Nvest Funds Trust III." The Trust has three separate funds (CDC Nvest Jurika & Voyles Small Cap Growth Fund, CDC Nvest Large Cap Value Fund and CDC Nvest Select Fund . CDC Nvest Jurika & Voyles Small Cap Growth Fund was organized in 1998 and commenced operations on March 31, 1998. Prior to November 12, 2001, Small Cap Growth Fund was called "Bullseye Fund". CDC Nvest Large Cap Value Fund was organized in 1995 and commenced operations on November 28, 1995. Prior to January 2001, Large Cap Value Fund was called "Equity Income Fund." CDC Nvest Select Fund was organized in 2001 and commenced operations March 15, 2001. CDC Nvest Companies Trust I is organized as a Massachusetts business trust under the laws of Massachusetts by a Declaration of Trust dated March 17, 2000, as amended, and is a "series" company as described in Section 18(f)(2) of the 1940 Act. The name of the Trust was "Nvest Companies Trust I" from the date of its organization until May 2001 when the name was changed to "CDC Nvest Companies Trust I." The AEW Real Estate Fund commenced operations on September 1, 2000. The Declarations of Trust of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III and CDC Nvest Companies Trust I permit each Trust's trustees to issue an unlimited number of full and fractional shares of each series. Each Fund is represented by a particular series of shares. The Declarations of Trust further permit each Trust's Board of Trustees to divide the shares of each series into any number of separate classes, each having such rights and preferences relative to other classes of the same series as each Trust's Board of Trustees may determine. When you invest in a Fund, you acquire freely transferable shares of beneficial interest that entitle you to receive dividends as determined by the respective Trust's Board of Trustees and to cast a vote for each share you own at shareholder meetings. The shares of each Fund do not have any preemptive rights. Upon termination of any Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of each class of the Fund are entitled to share pro rata in the net assets attributable to that class of shares of the Fund available for distribution to shareholders. The Declarations of Trust also permit the Board of Trustees to charge shareholders directly for custodial, transfer agency and servicing expenses. The shares of all the Funds (except as noted in each of the Fund's Prospectuses) are divided into four classes: Class A, Class B, Class C and Class Y. Each Fund offers such classes of shares as set forth in such Fund's Prospectuses. As disclosed in the prospectus, not every Fund offers each class of shares. Class Y shares are available for purchase only by certain eligible investors and have higher minimum purchase requirements than Classes A, B and C. All expenses of each Fund (including advisory and subadvisory fees but excluding transfer agency fees and 60 expenses of printing and mailing Prospectuses to shareholders ("Other Expenses")) are borne by its Classes A, B, C and Y shares on a pro rata basis, except for 12b-1 fees, which are borne only by Classes A, B and C and may be charged at a separate rate to each such class. Other Expenses of Classes A, B and C are borne by such classes on a pro rata basis, but Other Expenses relating to the Class Y shares may be allocated separately to the Class Y shares. The multiple class structure could be terminated should certain IRS rulings or SEC regulatory positions be rescinded or modified. The assets received by each class of a Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of the creditors, are allocated to, and constitute the underlying assets of, that class of a Fund. The underlying assets of each class of a Fund are segregated and are charged with the expenses with respect to that class of a Fund and with a share of the general expenses of the relevant trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular class of a Fund are allocated by or under the direction of the trustees in such manner as the trustees determine to be fair and equitable. While the expenses of each Trust are allocated to the separate books of account of each Fund, certain expenses may be legally chargeable against the assets of all of the Funds in a Trust. The Declarations of Trust also permit each Trust's Board of Trustees, without shareholder approval, to subdivide any Fund or series or class of shares into various sub-series or sub-classes with such dividend preferences and other rights as the trustees may designate. While each Trust's Board of Trustees has no current intention to exercise this power, it is intended to allow them to provide for an equitable allocation of the impact of any future regulatory requirements that might affect various classes of shareholders differently. Each Trust's Board of Trustees may also, without shareholder approval, establish one or more additional series or classes or merge two or more existing series or classes. The Declarations of Trust provide for the perpetual existence of the Trusts. Any Trust or any Fund, however, may be terminated at any time by vote of at least two-thirds of the outstanding shares of each Fund affected. Similarly, any class within a Fund may be terminated by vote of at least two-thirds of the outstanding shares of such class. Each Declaration of Trust further provides that the Board of Trustees may also terminate the relevant Trust upon written notice to its shareholders. Voting Rights Shareholders of all Funds other than the AEW Real Estate Fund are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided therein) in the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. Shareholders of the AEW Real Estate Fund are entitled to one full vote for each dollar of net asset value (number of shares owned multiplied by net asset value per share) of the Fund, and each fractional dollar amount shall be entitled to a proportionate fractional vote. The Declarations of Trust provide that on any matter submitted to a vote of all shareholders of a Trust, all Trust shares entitled to vote shall be voted together irrespective of series or class unless the rights of a particular series or class would be adversely affected by the vote, in which case a separate vote of that series or class shall also be required to decide the question. Also, a separate vote shall be held whenever required by the 1940 Act or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a series or class shall be deemed to be affected by a matter unless it is clear that the interests of each series or class in the matter are substantially identical or that the matter does not affect any interest of such series or class. On matters affecting an individual series or class, only shareholders of that series or class are entitled to vote. Consistent with the current position of the SEC, shareholders of all series and classes vote together, irrespective of series or class, on the election of trustees and the selection of the Trust's independent accountants, but shareholders of each series vote separately on most other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory and subadvisory agreement relating to that series, and shareholders of each class within a series vote separately as to the Rule 12b-1 plan (if any) relating to that class. There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) a Trust will hold a shareholders' meeting for the election of trustees at such time as less than a majority of the trustees holding office have been elected by shareholders, and (ii) if there is a vacancy on 61 the Board of Trustees, such vacancy may be filled only by a vote of the shareholders unless, after filing such vacancy by other means, at least two-thirds of the trustees holding office shall have been elected by the shareholders. In addition, trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares and filed with a Trust's custodian or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for that purpose, which meeting shall be held upon the written request of the holders of not less than 10% of the outstanding shares. Upon written request by the holders of shares having a net asset value of at least $25,000 or at least 1% of the outstanding shares stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a trustee, the Trusts have undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders). Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Shareholder voting rights are not cumulative. No amendment may be made to a Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the relevant Trust except (i) to change the Trust's or a Fund's name or to cure technical problems in the Declaration of Trust, (ii) to establish and designate new series or classes of Trust shares and (iii) to establish, designate or modify new and existing series or classes of Trust shares or other provisions relating to Trust shares in response to applicable laws or regulations. If one or more new series of a Trust is established and designated by the trustees, the shareholders having beneficial interests in the Funds described in this Statement shall not be entitled to vote on matters exclusively affecting such new series, such matters including, without limitation, the adoption of or any change in the investment objectives, policies or restrictions of the new series and the approval of the investment advisory contracts of the new series. Similarly, the shareholders of the new series shall not be entitled to vote on any such matters as they affect the Funds. Shareholder and Trustee Liability Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of a Trust. However, the Declarations of Trust disclaim shareholder liability for acts or obligations of a Trust and require that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by a Trust or the trustees. The Declarations of Trust provide for indemnification out of each Fund's property for all loss and expense of any shareholder held personally liable for the obligations of the Fund by reason of owning shares of such Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and a Fund itself would be unable to meet its obligations. The Declarations of Trust further provide that the relevant Board of Trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declarations of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The By-Laws of each Trust provide for indemnification by the Trust of trustees and officers of the relevant Trust, except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that his or her action was in or not opposed to the best interests of the Trust. Such persons may not be indemnified against any liability to the Trust or the Trust's shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Each Trust offers only its own Funds' shares for sale, but it is possible that a Trust might become liable for any misstatements in a Prospectus that relate to another Trust. The trustees of each Trust have considered this possible liability and approved the use of the combined Prospectus for Funds of all four Trusts. Code of Ethics The Funds, their advisers and subadvisers, and the Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Codes of Ethics permits employees to invest in securities for their own accounts, under certain circumstances, including securities that may be purchased or held by the Funds. The Codes of Ethics are on public file with, and are available from, the SEC. 62 PORTFOLIO TURNOVER A Fund's portfolio turnover rate for a fiscal year is calculated by dividing the lesser of purchases or sales of portfolio securities, excluding securities having maturity dates at acquisition of one year or less, for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds, thereby decreasing the Funds' total return. [WILL UPDATE:The portfolio turnover rate for the fiscal period ended December 31, 2002 was significantly lower for the Large Cap Growth Fund, the Star Growth Fund and the Small Cap Growth Fund compared to the prior fiscal period due to among other things, the merger transactions in these Funds. The Funds expect that their portfolio turnover rates would ordinarily be somewhat lower than the portfolio turnover rates for December 31, 2002, due to, among other things, the extreme volatility in the financial markets during the last several years, although it is impossible to predict with certainty whether future portfolio turnover rates will be higher or lower than those experienced during past periods.] Generally, each Fund intends to invest for long-term purposes. However, the rate of portfolio turnover will depend upon market and other conditions, and it will not be a limiting factor when an adviser or subadviser believes that portfolio changes are appropriate. HOW TO BUY SHARES The procedures for purchasing shares of the Funds are summarized in the Prospectuses. All purchases made by check should be in U.S. dollars and made payable to CDC Nvest Funds, or, in the case of a retirement account, the custodian or trustee. For purchase of Fund shares by mail, the settlement date is the first business day after receipt of the check by the transfer agent so long as it is received by the close of regular trading of the New York Stock Exchange (the "Exchange") on a day when the Exchange is open; otherwise the settlement date is the following business day. For telephone orders, the settlement date is the third business day after the order is made. Shares may also be purchased either in writing, by phone (except for Class Y shares), by electronic funds transfer using Automated Clearing House ("ACH"), or by exchange as described in the Prospectuses through firms that are members of the NASD and that have selling agreements with the Distributor. You may also use CDC Nvest Funds Personal Access Line(R) (800-225-5478, press 1) or CDC Nvest Funds Web site (www.cdcnvestfunds.com) to purchase Fund shares (except for Class Y shares). For more information, see the section entitled "Shareholder Services" in this Statement. A shareholder may purchase additional shares electronically through the ACH system so long as the shareholder's bank or credit union is a member of the ACH system and the shareholder has a completed, approved ACH application on file. Banks may charge a fee for transmitting funds by wire. With respect to shares purchased by federal funds, shareholders should bear in mind that wire transfers may take two or more hours to complete. The Distributor may at its discretion accept a telephone order for the purchase of $5,000 or more of a Fund's Class A, B and C shares. Payment must be received by the Distributor within three business days following the transaction date or the order will be subject to cancellation. Telephone orders must be placed through the Distributor or your investment dealer. 63 If you wish transactions in your account to be effected by another person under a power of attorney from you, special rules as summarized in the Prospectus may apply. NET ASSET VALUE AND PUBLIC OFFERING PRICE The method for determining the public offering price and net asset value per share is summarized in the Prospectus. The total net asset value of each class of shares of a Fund (the excess of the assets of such Fund attributable to such class over the liabilities attributable to such class) is determined at the close of regular trading (normally 4:00 p.m. Eastern time) on each day that the Exchange is open for trading. In addition, in CDC IXIS Advisers' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if CDC IXIS Advisers in its discretion determines that it is advisable to do so based primarily upon factors such as whether (i) there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares and (ii) whether in CDC IXIS Advisers' view sufficient information (e.g., prices reported by pricing services) is available for the Fund's shares to be priced. For example, the Income Funds may price their shares on days on which the Exchange is closed but the fixed income markets are open for trading. The Funds do not expect to price their shares on the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities listed on a national securities exchange or on the NASDAQ National Market System are valued at their last sale price, or, if there is no reported sale during the day, the last reported bid price estimated by a broker. Unlisted securities traded in the over-the-counter market are valued at the last reported bid price in the over-the-counter market or on the basis of yield equivalents as obtained from one or more dealers that make a market in the securities. U.S. government securities are traded in the over-the-counter market. Options, interest rate futures and options thereon that are traded on exchanges are valued at their last sale price as of the close of such exchanges. Securities for which current market quotations are not readily available and all other assets are taken at fair value as determined in good faith by the Board of Trustees, although the actual calculations may be made by persons acting pursuant to the direction of the Board. Generally, trading in foreign government securities and other fixed-income securities, as well as trading in equity securities in markets outside the United States, is substantially completed each day at various times prior to the close of the Exchange. Securities traded on a foreign exchange will be valued at their last sale price (or the last reported bid price, if there is no reported sale during the day), on the exchange on which they principally trade, as of the close of regular trading on such exchange except for securities traded on the London Stock Exchange ("British Equities"). British Equities will be valued at the mean between the last bid and last asked prices on the London Stock Exchange. The value of other securities principally traded outside the United States will be computed as of the completion of substantial trading for the day on the markets on which such securities principally trade. Securities principally traded outside the United States will generally be valued several hours before the close of regular trading on the Exchange, generally 4:00 p.m. Eastern time, when the Funds compute the net asset value of their shares. Occasionally, events affecting the value of securities principally traded outside the United States may occur between the completion of substantial trading of such securities for the day and the close of the Exchange, which events will not be reflected in the computation of a Fund's net asset value. If, in the determination of the Board of Trustees or persons acting at their direction, events materially affecting the value of a Fund's securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or in accordance with procedures approved by the Trusts' trustees. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Board of Trustees believes accurately reflects fair value. Trading in some of the portfolio securities of some of the Funds takes place in various markets outside the United States on days and at times other than when the Exchange is open for trading. Therefore, the calculation of these Funds' net asset value does not take place at the same time as the prices of many of its portfolio securities are determined, and the value of the Fund's portfolio may change on days when the Fund is not open for business and its shares may not be purchased or redeemed. 64 The per share net asset value of a class of a Fund's shares is computed by dividing the number of shares outstanding into the total net asset value attributable to such class. The public offering price of a Class A share or a Class C share of a Fund is the net asset value per share next-determined after a properly completed purchase order is accepted by CIS or State Street Bank, plus a sales charge as set forth in the Fund's Prospectus. The public offering price of a Class B or Y share of a Fund is the next-determined net asset value. REDUCED SALES CHARGES The following special purchase plans are summarized in the Prospectuses and are described in greater detail below. Cumulative Purchase Discount. A Fund shareholder may make an initial or an additional purchase of Class A shares and be entitled to a discount on the sales charge payable on that purchase. This discount will be available if the shareholder's "total investment" in the Fund reaches the breakpoint for a reduced sales charge in the table under "How Sales Charges Are Calculated - Class A shares" in the Prospectus. The total investment is determined by adding the amount of the additional purchase, including sales charge, to the current public offering price of all series and classes of shares of the CDC Nvest Funds held by the shareholder in one or more accounts. If the total investment exceeds the breakpoint, the lower sales charge applies to the entire additional investment even though some portion of that additional investment is below the breakpoint to which a reduced sales charge applies. For example, if a shareholder who already owns shares of one or more Funds or other of the CDC Nvest Funds with a value at the current public offering price of $30,000 makes an additional purchase of $20,000 of Class A shares of another Fund or CDC Nvest Fund, the reduced sales charge of 4.5% of the public offering price will apply to the entire amount of the additional investment. Letter of Intent. A Letter of Intent (a "Letter"), which can be effected at any time, is a privilege available to investors that reduces the sales charge on investments in Class A shares. Ordinarily, reduced sales charges are available for single purchases of Class A shares only when they reach certain breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a shareholder indicates an intention to invest enough money in Class A shares within 13 months to reach a breakpoint. If the shareholder's intended aggregate purchases of all series and classes of the Trusts over a defined 13-month period will be large enough to qualify for a reduced sales charge, the shareholder may invest the smaller individual amounts at the public offering price calculated using the sales load applicable to the 13-month aggregate investment. A Letter is a non-binding commitment, the amount of which may be increased, decreased or canceled at any time. The effective date of a Letter is the date it is received in good order by the Distributor, or, if communicated by a telephone exchange or order, at the date of telephoning provided a signed Letter, in good order, reaches the Distributor within five business days. A reduced sales charge is available for aggregate purchases of all series and classes of shares of the Trusts pursuant to a written Letter effected within 90 days after any purchase. In the event the account was established prior to 90 days before the effective date of the Letter, the account will be credited with the Rights of Accumulation ("ROA") towards the breakpoint level that will be reached upon the completion of the 13 months' purchases. The ROA credit is the value of all shares held as of the effective dates of the Letter based on the "public offering price computed on such date." The cumulative purchase discount, described above, permits the aggregate value at the current public offering price of Class A shares of any accounts with the Trusts held by a shareholder to be added to the dollar amount of the intended investment under a Letter, provided the shareholder lists them on the account application. State Street Bank will hold in escrow shares with a value at the current public offering price of 5% of the aggregate amount of the intended investment. The amount in escrow will be released when the commitment stated in the Letter is completed. If the shareholder does not purchase shares in the amount indicated in the Letter, the shareholder agrees to remit to State Street Bank the difference between the sales charge actually paid and that which would have been paid had the Letter not been in effect, and authorizes State Street Bank to redeem escrowed shares in the amount necessary to make up the difference in sales charges. Reinvested dividends and distributions are not included in determining whether the Letter has been completed. 65 Combining Accounts. Purchases of all series and classes of the CDC Nvest Funds (excluding the CDC Nvest Cash Management Trust - Money Market Series and CDC Nvest Tax Exempt Money Market Trust (the "Money Market Funds") unless the shares were purchased through an exchange with another CDC Nvest Fund) by or for an investor, the investor's spouse, parents, children, siblings, in-laws, grandparents or grandchildren and any other account of the investor, including sole proprietorships, in any Trust may be treated as purchases by a single individual for purposes of determining the availability of a reduced sales charge. Purchases for a single trust estate or a single fiduciary account may also be treated as purchases by a single individual for this purpose, as may purchases on behalf of a participant in a tax-qualified retirement plan and other employee benefit plans, provided that the investor is the sole participant in the plan. Any other group of individuals acceptable to the Distributor may also combine accounts for such purpose. The values of all accounts are combined to determine the sales charge. Combining with Other Series and Classes of the CDC Nvest Funds. A shareholder's total investment for purposes of the cumulative purchase discount includes the value at the current public offering price of any shares of series and classes of the Trusts that the shareholder owns (which excludes shares of the Money Market Funds unless such shares were purchased by exchanging shares of any other CDC Nvest Fund). Shares owned by persons described in the preceding paragraph may also be included. Clients of Advisers or Subadvisers. No front-end sales charge or CDSC applies to investments of $25,000 or more in Class A shares and no front-end sales charge applies to investments of $25,000 or more in Class C shares of the Funds by (1) clients of an adviser or subadviser to any series of the Trusts; any director, officer or partner of a client of an adviser or subadviser to any series of the Trusts; or the spouse, parents, children, siblings, in-laws, grandparents or grandchildren of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype of an adviser or subadviser to any series of the Trusts if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of an adviser or subadviser to any series of the Trusts. Any investor eligible for this arrangement should so indicate in writing at the time of the purchase. Eligible Governmental Authorities. There is no sales charge or CDSC related to investments in Class A shares and there is no front-end sales charge related to investments in Class C shares of any Fund by any state, county or city or any instrumentality, department, authority or agency thereof that has determined that a Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company. Investment Advisory Accounts. Class A or Class C shares of any Fund may be purchased at net asset value by investment advisers, financial planners or other intermediaries who place trades for their own accounts or the accounts of their clients and who charge a management, consulting or other fee for their services; clients of such investment advisers, financial planners or other intermediaries who place trades for their own accounts if the accounts are linked to the master account of such investment adviser, financial planner or other intermediary on the books and records of the broker or agent; and retirement and deferred compensation plans and trusts used to fund those plans, including, but not limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the Code and "rabbi trusts." Investors may be charged a fee if they effect transactions through a broker or agent. Certain Broker-Dealers and Financial Services Organizations. Class A or Class C shares of any Fund also may be purchased at net asset value through certain broker-dealers and/or financial services organizations without any transaction fee. Such organizations may also receive compensation based upon the average value of the Fund shares held by their customers. This compensation may be paid by CDC IXIS Advisers, or its affiliates out of their own assets, and/or be paid indirectly by the Fund in the form of servicing, distribution or transfer agent fees. Class C shares may be purchased at net asset value by an investor who buys through a Merrill Lynch omnibus account. However, a CDSC will apply if shares are sold within 12 months of purchase. Certain Retirement Plans. Class A and Class C shares of the Funds are available at net asset value for investments by participant-directed 401(a) and 401(k) plans that have 100 or more eligible employees or by retirement plans whose third party administrator or dealer has entered into a service agreement with the Distributor and which may be subject to certain operational and minimum size requirements specified from time to time by the Distributor. The Distributor may pay compensation to such third party administrators or dealers. This compensation may be paid indirectly by the Fund in the form of service and/or distribution fees. 66 Bank Trust Departments or Trust Companies. Class A and Class C shares of the Funds are available at net asset value for investments by non-discretionary and non-retirement accounts of bank trust departments or trust companies, but are unavailable if the trust department or institution is part of an organization not principally engaged in banking or trust activities. Certain Accounts of Targeted Equity Fund. For accounts established prior to February 28, 1997, having a total investment value of between (and including) $25,000 and $49,000, a reduced sales charge of 5.50% of the offering price (or 5.82% of the net amount invested), with a dealer's concession of 4.25% as a percentage of offering price, will be charged on the sale of additional Class A shares of Targeted Equity Fund if the total investment value of the Targeted Equity Fund account after such sale is between (and including) $25,000 and $49,000. The reduction or elimination of the sales charges in connection with special purchase plans described above reflect the absence or reduction of expenses associated with such sales. SHAREHOLDER SERVICES Open Accounts A shareholder's investment is automatically credited to an open account maintained for the shareholder by State Street Bank. Following each transaction in the account, a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each calendar year, State Street Bank will send each shareholder a statement providing account information which may include federal tax information on dividends and distributions paid to the shareholder during the year. This statement should be retained as a permanent record. CIS may charge a fee for providing duplicate information. The open account system provides for full and fractional shares expressed to three decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. Certificates will not be issued for Class B, Class C or Class Y shares. The costs of maintaining the open account system are paid by the Funds and no direct charges are made to shareholders. Although the Funds have no present intention of making such direct charges to shareholders, they each reserve the right to do so. Shareholders will receive prior notice before any such charges are made. Automatic Investment Plans (Classes A, B and C Shares) Subject to each Fund's investor eligibility requirements, investors may automatically invest in additional shares of a Fund on a monthly basis by authorizing the Distributor to draw checks on an investor's bank account. The checks are drawn under the Investment Builder Program, a program designed to facilitate such periodic payments, or through payroll deduction, and are forwarded to CIS for investment in the Fund. A plan may be opened with an initial investment of $25 or more and thereafter regular monthly checks of $25 or more will be drawn on the investor's account. The reduced minimum initial investment pursuant to an automatic investment plan is referred to in the Prospectus. An Investment Builder application or payroll deduction authorization form must be completed to open an automatic investment plan and may be obtained by calling the Distributor at 800-225-5478 or your investment dealer or by visiting our Website at www.cdcnvestfunds.com. This program is voluntary and may be terminated at any time by CIS upon notice to existing plan participants. The Investment Builder Program plan may be discontinued at any time by the investor by written notice to CIS, which must be received at least five business days prior to any payment date. The plan may be discontinued by State Street Bank at any time without prior notice if any check is not paid upon presentation; or by written notice to the shareholder at least thirty days prior to any payment date. State Street Bank is under no obligation to notify shareholders as to the nonpayment of any check. 67 Retirement Plans and Other Plans Offering Tax Benefits (Classes A, B and C Shares) The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of the Funds or with certain other investments. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRAs), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, i.e., 403(b) plans. The reduced minimum initial investment available to retirement plans and other plans offering tax benefits is referred to in the Prospectus. For these plans, initial investments in a Fund must be at least $250 for each participant in corporate pension and profit sharing plans and Keogh plans, at least $500 for IRAs and Coverdell Education Savings Accounts and at least $100 for any subsequent investments. There is a special initial and subsequent investment minimum of $25 for payroll deduction investment programs for SARSEP, SEP, SIMPLE Plans, 403(b) and certain other plans. Income dividends and capital gain distributions must be reinvested (unless the investor is over age 59 1/2 or disabled). These types of accounts may be subject to fees. Plan documents and further information can be obtained from the Distributor. An investor should consult a competent tax or other adviser as to the suitability of a Fund's shares as a vehicle for funding a plan, in whole or in part, under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and as to the eligibility requirements for a specific plan and its state as well as federal tax aspects. Certain retirement plans may also be eligible to purchase Class Y shares. See the Prospectus relating to Class Y shares. Systematic Withdrawal Plans (Classes A, B and C Shares) An investor owning a Fund's shares having a value of $10,000 or more at the current public offering price may establish a Systematic Withdrawal Plan ("Plan") providing for periodic payments of a fixed or variable amount. An investor may terminate the plan at any time. A form for use in establishing such a plan is available from the servicing agent or your investment dealer. Withdrawals may be paid to a person other than the shareholder if a signature guarantee is provided. Please consult your investment dealer or the Distributor. A shareholder under a Plan may elect to receive payments monthly, quarterly, semiannually or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the account's market value or (3) a specified number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more. In the case of shares subject to a CDSC, the amount or percentage you specify may not, on an annualized basis, exceed 10% of the value, as of the time you make the election, of your account with the Fund with respect to which you are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in your account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in your account. No CDSC applies to redemptions pursuant to the Plan. All shares under the Plan must be held in an open (uncertificated) account. Income dividends and capital gain distributions will be reinvested (without a sales charge in the case of Class A and Class C shares) at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in net asset value. Accordingly, a shareholder should consider whether a Plan and the specified amounts to be withdrawn are appropriate in the circumstances. The Funds and the Distributor make no recommendations or representations in this regard. It may be 68 appropriate for a shareholder to consult a tax adviser before establishing such a plan. See "Redemptions" and "Tax Status" below for certain information as to federal income taxes. It may be disadvantageous for a shareholder to purchase on a regular basis additional Fund shares with a sales charge while redeeming shares under a Plan. Accordingly, the Funds and the Distributor do not recommend additional investments in Class A and Class C shares by a shareholder who has a withdrawal plan in effect and who would be subject to a sales load on such additional investments. CDC Nvest Funds may modify or terminate this program at any time. Because of statutory restrictions this Plan is not available to pension or profit-sharing plans, IRAs or 403(b) plans that have State Street Bank as trustee. Dividend Diversification Program You may also establish a Dividend Diversification Program, which allows you to have all dividends and any other distributions automatically invested in shares of the same class of another CDC Nvest Fund, subject to the investor eligibility requirements of that other Fund and to state securities law requirements. Shares will be purchased at the selected Fund's net asset value (without a sales charge or CDSC) on the dividend record date. A dividend diversification account must be in the same registration (shareholder name) as the distributing Fund account and, if a new account in the purchased Fund is being established, the purchased Fund's minimum investment requirements must be met. Before establishing a Dividend Diversification Program into any other CDC Nvest Fund, you must obtain and carefully read a copy of that Fund's Prospectus. Exchange Privilege A shareholder may exchange the shares of any Fund for shares of the same class of an other CDC Nvest Fund (subject to the investor eligibility requirements, if any, of the CDC Nvest Fund into which the exchange is being made and any other limits on the sales of or exchanges into that Fund) on the basis of relative net asset values at the time of the exchange without any sales charge. An exchange of shares in one Fund for shares of another Fund is a taxable event on which gain or loss may be recognized. Exchanges of Class A shares of Short Term Bond Fund (formerly Short Term Corporate Income Fund which was formerly Adjustable Rate U.S. Government Fund) purchased before December 1, 1998 will also pay the difference between any sales charge already paid on their shares and the higher sales charge of the Fund into which they are exchanging. In certain limited circumstances, the Distributor may waive the requirement that shareholders pay the difference between any sales charge already paid on their shares and the higher sales charge of the Fund into which they are exchanging at the time of the exchange. When an exchange is made from the Class A, Class B or Class C shares of one Fund to the same class of shares of another Fund, the shares received by the shareholder in the exchange will have the same age characteristics as the shares exchanged. The age of the shares determines the expiration of the CDSC and, for the Class B shares, the conversion date. If you own Class A, Class B or Class C shares, you may also elect to exchange your shares of any Fund for shares of the same class of the Money Market Funds. On all exchanges of Class A or C shares subject to a CDSC and Class B shares into the Money Market Funds, the exchange stops the aging period relating to the CDSC, and, for Class B shares only, relating to conversion to Class A shares. The aging period resumes only when an exchange is made back into Classes A, B and C shares of a Fund. Shareholders may also exchange their shares in the Money Market Funds for shares of the same class of any other CDC Nvest Fund listed below, subject to those funds' eligibility requirements and sales charges. Class C shares in accounts of CDC Nvest Cash Management Trust - Money Market Series established on or after December 1, 2000 may exchange into Class C shares of a CDC Nvest Fund subject to its sales charge and CDSC schedule. Class C shares in accounts of CDC Nvest Cash Management Trust - Money Market Series established prior to December 1, 2000 or that have been previously subject to a front-end sales charge may exchange into Class C shares of a CDC Nvest Fund without paying a front-end sales charge. If you own Class Y shares, you may exchange those shares for Class Y shares of other Funds or for Class A shares of the Money Market Funds. These options are summarized in the Prospectus. An exchange may be effected, provided that neither the registered name nor address of the accounts is different and provided that a certificate representing the shares being exchanged has not been issued to the shareholder, by (1) a telephone request to the Fund or CIS at 800-225-5478 or (2) a written exchange request to the Fund or CDC IXIS Asset Management Services, P.O. Box 8551, Boston, MA 02266-8551. You must acknowledge receipt of a current Prospectus for a Fund before an exchange for that Fund can be effected. The minimum amount for an exchange is the minimum amount to open an account or the total net asset value of your account, whichever is less. 69 Agents, general agents, directors and senior officers of New England Financial and its insurance company subsidiaries may, at the discretion of New England Financial, elect to exchange Class A shares of any series of the Trusts acquired in connection with deferred compensation plans offered by New England Financial for Class Y shares of any series of the Trusts which offers Class Y shares. To obtain a Prospectus and more information about Class Y shares, please call the Distributor toll free at 800-225-5478. Before requesting an exchange into any other CDC Nvest Fund or any Money Market Fund, please read its prospectus carefully. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Except as otherwise permitted by SEC rule, shareholders will receive at least 60 days' advance notice of any material change to the exchange privilege. The investment objectives of the CDC Nvest Funds and the Money Market Funds as set forth in their prospectuses are as follows: Equity Funds: CDC Nvest AEW Real Estate Fund seeks to provide investors with above-average income and long-term growth of capital. CDC Nvest Select Fund seeks long-term capital appreciation. CDC Nvest Targeted Equity Fund seeks long-term growth of capital through investments in equity securities of companies whose earnings are expected to grow at a faster rate than that of the overall United States economy. CDC Nvest Capital Growth Fund seeks long-term growth of capital. CDC Nvest Balanced Fund seeks a reasonable long-term investment return from a combination of long-term capital appreciation and moderate current income. CDC Nvest Growth and Income Fund seeks opportunities for long-term capital growth and income. CDC Nvest International Equity Fund seeks total return from long-term capital growth and dividend income. CDC Nvest Large Cap Value Fund seeks total return from capital growth and dividend income. CDC Nvest Jurika & Voyles Small Cap Growth Fund seeks long-term growth of capital. CDC Nvest Large Cap Growth Fund seeks long-term growth of capital by investing in equity securities of companies with large market capitalizations that the subadviser believes have better than average long-term growth potential. CDC Nvest Jurika & Voyles Relative Value Fund seeks long-term growth of capital. Star Funds: CDC Nvest Star Advisers Fund seeks long-term growth of capital. CDC Nvest Star Worldwide Fund seeks long-term growth of capital. CDC Nvest Star Small Cap Fund seeks capital appreciation. 70 CDC Nvest Star Value Fund seeks a reasonable, long-term investment return from a combination of market appreciation and dividend income from equity securities. CDC Nvest Star Growth Fund seeks long-term growth of capital. Income Funds: CDC Nvest Government Securities Fund seeks a high level of current income consistent with safety of principal by investing in U.S. government securities. CDC Nvest Limited Term U.S. Government Fund seeks a high current return consistent with preservation of capital. CDC Nvest Short Term Bond Fund seeks a high level of current income consistent with preservation of capital. CDC Nvest Strategic Income Fund seeks high current income with a secondary objective of capital growth. CDC Nvest Bond Income Fund seeks a high level of current income consistent with what the Fund considers reasonable risk. It invests primarily in corporate and U.S. government bonds. CDC Nvest High Income Fund seeks high current income plus the opportunity for capital appreciation to produce a high total return. Tax Free Income Funds: CDC Nvest Municipal Income Fund seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital. The Fund invests primarily in debt securities of municipal issuers, which pay interest that is exempt from regular federal income tax but may be subject to the federal alternative minimum tax. CDC Nvest Massachusetts Tax Free Income Fund seeks as high a level of current income exempt from federal and Massachusetts personal income taxes. Money Market Funds: CDC Nvest Cash Management Trust - Money Market Series seeks maximum current income consistent with preservation of capital and liquidity. CDC Nvest Tax Exempt Money Market Trust seeks current income exempt from federal income taxes consistent with preservation of capital and liquidity. As of December 31, 2002, the net assets of the CDC Nvest Funds and the Money Market Funds totaled approximately $__ billion. Automatic Exchange Plan (Classes A, B and C Shares) As described in the Prospectus following the caption "Additional Investor Services," a shareholder may establish an Automatic Exchange Plan under which shares of a Fund are automatically exchanged each month for shares of the same class of one or more of the other Funds. Registration on all accounts must be identical. The two dates each month on which exchanges may be made are the 15th and 28th (or the first business day thereafter if either the 15th or the 28th is not a business day) until the account is exhausted or until CIS is notified in writing to terminate the plan. Exchanges may be made in amounts of $100 or more. The Service Options Form is available from CIS or your financial representative to establish an Automatic Exchange Plan. 71 Broker Trading Privileges The Distributor may, from time to time, enter into agreements with one or more brokers or other intermediaries to accept purchase and redemption orders for Fund shares until the close of regular trading on the Exchange (normally, 4:00 p.m. Eastern time on each day that the Exchange is open for trading); such purchase and redemption orders will be deemed to have been received by the Fund when the authorized broker or intermediary accepts such orders; and such orders will be priced using that Fund's net asset value next computed after the orders are placed with and accepted by such brokers or intermediaries. Any purchase and redemption orders received by a broker or intermediary under these agreements will be transmitted daily to the Distributor no later than the time specified in such agreement; but, in any event, no later than 9:30 a.m. following the day that such purchase or redemption orders are received by the broker or intermediary. Self-Servicing Your Account with CDC Nvest Funds Personal Access Line(R) and Web Site CDC Nvest Funds shareholders may access account information, including share balances and recent account activity online, by visiting our Web site at www.cdcnvestfunds.com. Transactions may also be processed online for certain accounts (restrictions may apply). Such transactions include purchases, redemptions and exchanges, and shareholders are automatically eligible for these features. CDC Nvest Funds has taken measures to ensure the security of shareholder accounts, including the encryption of data and the use of personal identification (PIN) numbers. In addition, you may restrict these privileges from your account by calling CDC Nvest Funds at 800-225-5478, or writing to us at P.O. Box 8551, Boston, MA 02116. More information regarding these features may be found on our Web site at www.cdcnvestfunds.com. Investor activities through these mediums are subject to the terms and conditions outlined in the following CDC Nvest Funds Online and Telephonic Customer Agreement. This agreement is also posted on our Web site. The initiation of any activity through the CDC Nvest Funds Personal Access Line(R) or Web site at www.cdcnvestfunds.com by an investor shall indicate agreement with the following terms and conditions: CDC Nvest Funds Online and Telephonic Customer Agreement NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS AND CONDITIONS. The accuracy, completeness and timeliness of all mutual fund information provided is the sole responsibility of the mutual fund company that provides the information. No party that provides a connection between this Web site and a mutual fund or its transfer agency system can verify or ensure the receipt of any information transmitted to or from a mutual fund or its transfer agent, or the acceptance by, or completion of any transaction with, a mutual fund. The online acknowledgments or other messages that appear on your screen for transactions entered do not mean that the transactions have been received, accepted or rejected by the mutual fund. These acknowledgments are only an indication that the transactional information entered by you has either been transmitted to the mutual fund, or that it cannot be transmitted. It is the responsibility of the mutual fund to confirm to you that it has received the information and accepted or rejected a transaction. It is the responsibility of the mutual fund to deliver to you a current prospectus, confirmation statement and any other documents or information required by applicable law. NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION FROM THE FUND COMPANY. You are responsible for reviewing all mutual fund account statements received by you in the mail in order to verify the accuracy of all mutual fund account information provided in the statement and transactions entered through this site. You are also responsible for promptly notifying the mutual fund of any errors or inaccuracies relating to information contained in, or omitted from, your mutual fund account statements, including errors or inaccuracies arising from the transactions conducted through this site. TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH IN THE PROSPECTUS OF THE SELECTED FUND. 72 THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH THE CDC NVEST FUNDS PERSONAL ACCESS LINE(R) You are responsible for the confidentiality and use of your personal identification numbers, account numbers, social security numbers and any other personal information required to access the site or transmit telephonically. Any individual that possesses the information required to pass through all security measures will be presumed to be you. All transactions submitted by an individual presumed to be you will be solely your responsibility. You agree that CDC Nvest Funds does not have the responsibility to inquire as to the legitimacy or propriety of any instructions received from you or any person believed to be you, and is not responsible or liable for any losses that may occur from acting on such instructions. CDC Nvest Funds is not responsible for incorrect data received via the Internet or telephonically from you or any person believed to be you. Transactions submitted over the Internet and telephonically are solely your responsibility and CDC Nvest Funds makes no warranty as to the correctness, completeness, or the accuracy of any transmission. Similarly CDC Nvest Funds bears no responsibility for the performance of any computer hardware, software, or the performance of any ancillary equipment and services such as telephone lines, modems, or Internet service providers. The processing of transactions over this site or telephonically will involve the transmission of personal data including social security numbers, account numbers and personal identification numbers. While CDC Nvest Funds has taken reasonable security precautions including data encryption designed to protect the integrity of data transmitted to and from the areas of our Web site that relate to the processing of transactions, we disclaim any liability for the interception of such data. You agree to immediately notify CDC Nvest Funds if any of the following occurs: 1. You do not receive confirmation of a transaction submitted via the Internet or telephonically within five (5) business days. 2. You receive confirmation of a transaction of which you have no knowledge and was not initiated or authorized by you. 3. You transmit a transaction for which you do not receive a confirmation number. 4. You have reason to believe that others may have gained access to your personal identification number (PIN) or other personal data. 5. You notice an unexplained discrepancy in account balances or other changes to your account, including address changes, and banking instructions on any confirmations or statements. Any costs incurred in connection with the use of the CDC Nvest Funds Personal Access Line(R) or the CDC Nvest Funds Internet site including telephone line costs and Internet service provider costs are solely your responsibility. Similarly CDC Nvest Funds makes no warranties concerning the availability of Internet services or network availability. CDC Nvest Funds reserves the right to suspend, terminate or modify the Internet capabilities offered to shareholders without notice. YOU HAVE THE ABILITY TO RESTRICT INTERNET AND TELEPHONIC ACCESS TO YOUR ACCOUNTS BY NOTIFYING CDC NVEST FUNDS OF YOUR DESIRE TO DO SO. Written notifications to CDC Nvest Funds should be sent to: CDC Nvest Funds P. O. Box 8551 Boston, MA 02266-8551 73 Notification may also be made by calling 800-225-5478 during normal business hours. REDEMPTIONS The procedures for redemption of shares of a Fund are summarized in the Prospectus. As described in the Prospectus, a CDSC may be imposed on certain purchases of Classes A, B and C shares. For purposes of the CDSC, an exchange of shares from one Fund to another Fund is not considered a redemption or a purchase. For federal tax purposes, however, such an exchange is considered a sale and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or loss. In determining whether a CDSC is applicable to a redemption of Class A, Class B or Class C shares, the calculation will be determined in the manner that results in the lowest rate being charged. Therefore, for Class B shares it will be assumed that the redemption is first of any Class A shares in the shareholder's Fund account, second of shares held for over six years, third of shares issued in connection with dividend reinvestment and fourth of shares held longest during the six-year period. For Class C shares and Class A shares subject to CDSC, it will be assumed that the redemption is first of any shares that have been in the shareholder's Fund account for over a year, and second of any shares that have been in the shareholder's Fund account for under a year. The charge will not be applied to dollar amounts representing an increase in the net asset value of shares since the time of purchase or reinvested distributions associated with such shares. Unless you request otherwise at the time of redemption, the CDSC is deducted from the redemption, not the amount remaining in the account. To illustrate, assume an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares under dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the CDSC is applied only to the original cost of $10 per share and not to the increase in the net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4% (the applicable rate in the second year after purchase). Class B shares purchased prior to May 1, 1997 are not subject to a CDSC on redemption. Signatures on redemption requests must be guaranteed by an "Eligible Guarantor Institution," as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. However, a signature guarantee will not be required if the proceeds of the redemption do not exceed $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address, or if the proceeds are going to a bank on file. If you select the telephone redemption service in the manner described in the next paragraph, shares of a Fund may be redeemed by calling toll free 800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds. Telephone redemption requests must be received by the close of regular trading on the Exchange. Requests made after that time or on a day when the Exchange is not open for business will receive the next business day's closing price. The proceeds of a telephone withdrawal will normally be sent on the first business day following receipt of a proper redemption request, which complies with the redemption procedures established by the Funds from time to time. In order to redeem shares by telephone, a shareholder must either select this service when completing the Fund application or must do so subsequently on the Service Options Form, which may require available from CIS or your investment dealer. When selecting the service, a shareholder may have their withdrawal proceeds sent to his or her bank, in which case the shareholder must designate a bank account on his or her application or Service Options Form to which the redemption proceeds should be sent as well as provide a check marked "VOID" and/or a deposit slip that includes the routing number of his or her bank. Any change in the bank account so designated may be made by furnishing to CIS or your investment dealer a completed Service Options Form, which may require a signature guarantee. Whenever the Service Options Form is used, the shareholder's signature must be guaranteed as described above. Telephone redemptions may only be made if the designated bank is a member of the Federal Reserve System 74 or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The Funds, the Distributor and State Street Bank are not responsible for the authenticity of withdrawal instructions received by telephone, subject to established verification procedures. CIS, as agreed to with the Funds, will employ reasonable procedures to confirm that your telephone instructions are genuine, and if it does not, if may be liable for any losses due to unauthorized or fraudulent instructions. Such verification procedures include, but are not limited to, requiring a form of personal identification prior to acting on an investor's telephone instructions and recording an investor's instructions. Check writing is available on Class A shares of Limited Term U.S. Government Fund, Massachusetts Fund and Short Term Bond Fund. To elect check writing for your account, select the check writing option on your application and complete the attached signature card. To add check writing to an existing account, please call 800-225-5478 for our Service Options Form. The Funds will send you checks drawn on State Street Bank. You will continue to earn dividends on shares redeemed by check until the check clears. Each check must be written for $500 or more. The check writing privilege does not apply to shares for which you have requested share certificates to be issued. Check writing is not available for investor accounts containing Class A shares subject to a CDSC. If you use withdrawal checks, you will be subject to State Street Bank's rules governing checking accounts. Limited Term U.S. Government Fund, Massachusetts Fund, Short Term Bond Fund and the Distributor are in no way responsible for any check writing account established with State Street Bank. You may not close your account by withdrawal check because the exact balance of your account will not be known until after the check is received by State Street Bank. The redemption price will be the net asset value per share (less any applicable CDSC) next determined after the redemption request and any necessary special documentation are received by State Street Bank or your investment dealer in proper form. Payment normally will be made by State Street Bank on behalf of the Fund within seven days thereafter. However, in the event of a request to redeem shares for which the Fund has not yet received good payment, the Funds reserve the right to withhold payments of redemption proceeds if the purchase of shares was made by a check which was deposited within ten calendar days prior to the redemption request (unless the Fund is aware that the check has cleared). The CDSC may be waived on redemptions made from IRA accounts due to attainment of age 59 1/2 for IRA shareholders who established accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from IRA accounts due to death, disability, return of excess contribution, required minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of the account, and redemptions made from the account to pay custodial fees. The CDSC may be waived on redemptions made from 403(b)(7) custodial accounts due to attainment of age 59 1/2 for shareholders who established custodial accounts prior to January 3, 1995. The CDSC may also be waived on redemptions necessary to pay plan participants or beneficiaries from qualified retirement plans under Section 401 of the Code, including profit sharing plans, money purchase plans, 401(k) and custodial accounts under Section 403(b)(7) of the Code. Distributions necessary to pay plan participants and beneficiaries include payment made due to death, disability, separation from service, normal or early retirement as defined in the plan document, loans from the plan and hardship withdrawals, return of excess contributions, required minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of your account, and redemptions made from qualified retirement accounts or Section 403(b)(7) custodial accounts necessary to pay custodial fees. A CDSC will apply in the event of plan level transfers, including transfers due to changes in investment where assets are transferred outside of CDC Nvest Funds, including IRA and 403(b)(7) participant-directed transfers of assets to other custodians (except for the reasons given above) or qualified transfers of assets due to trustee-directed movement of plan assets due to merger, acquisition or addition of additional funds to the plan. In order to redeem shares electronically through the ACH system, a shareholder's bank or credit union must be a member of the ACH system and the shareholder must have a completed, approved ACH application on file. In addition, the telephone request must be received no later than 4:00 p.m. (Eastern time). Upon receipt of the required 75 information, the appropriate number shares will be redeemed and the monies forwarded to the bank designated on the shareholder's application through the ACH system. The redemption will be processed the day the telephone call is made and the monies generally will arrive at the shareholder's bank within three business days. The availability of these monies will depend on the individual bank's rules. The Funds will normally redeem shares for cash; however, the Funds reserve the right to pay the redemption price wholly or partly in kind if the relevant Trust's Board of Trustees determines it to be advisable and in the interest of the remaining shareholders of a Fund. The redemptions in kind will be selected by the Fund's subadviser in light of the Fund's objective and will not generally represent a pro rata distribution of each security held in the Fund's portfolio. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Funds have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Funds are obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total net asset value of the relevant Fund at the beginning of such period. The Funds do not currently intend to impose any redemption charge (other than the CDSC imposed by the Funds' distributor), although it reserves the right to charge a fee not exceeding 1% of the redemption price. A redemption constitutes a sale of shares for federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See also "Income Dividends, Capital Gain Distributions and Tax Status," below. The Funds may also close your account and send you the proceeds or may charge you a fee if the balance in your account falls below a minimum amount set by each Trust's Board of Trustees (currently $2,000 for all accounts except Keogh, pension and profit sharing plans, automatic investment plans, IRA accounts and accounts that have fallen below the minimum solely because of fluctuations in the net asset value per share). Shareholders who are affected by this policy will be notified of the Fund's intention to close the account or be charged a fee and will have 30 days immediately following the notice to bring the account up to the minimum. Reinstatement Privilege (Class A and Class C shares only) The Prospectus describes redeeming shareholders' reinstatement privileges for Class A and Class C shares. Written notice and the investment check from persons wishing to exercise this reinstatement privilege must be received by your investment dealer within 120 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and the investment check and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. Even though an account is reinstated, the redemption will constitute a sale for federal income tax purposes. Investors who reinstate their accounts by purchasing shares of the Funds should consult with their tax advisers with respect to the effect of the "wash sale" rule if a loss is realized at the time of the redemption. STANDARD PERFORMANCE MEASURES Calculations of Yield Each Fund may advertise the yield of each class of its shares. Yield for each class will be computed pursuant to a formula prescribed by the SEC by annualizing net investment income per share earned for a recent 30-day period and dividing that amount by the maximum offering price per share of the relevant class (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last trading day of that period. Net investment income will reflect amortization of any market value premium or discount of fixed-income securities (except for obligations backed by mortgages or other assets) and may include recognition of a pro rata portion of the stated dividend rate of dividend paying portfolio securities. Each Fund's yield will vary from time to time depending upon market conditions, the composition of its portfolio and operating expenses of the relevant Trust allocated to each Fund. These factors, possible differences in the methods used in calculating yield and the tax exempt status of distributions should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund's shares and to the relative risks 76 associated with the investment objectives and policies of the Fund. Yields do not take into account any applicable sales charges or CDSC. Yield may be stated with or without giving effect to any expense limitations in effect for a Fund. For those funds that present yields reflecting an expense limitation or waiver, its yield would have been lower if no limitation or waiver were in effect. Each Fund may also present one or more distribution rates for each class in its sales literature. These rates will be determined by annualizing the class's distributions from net investment income and net short-term capital gain over a recent 12-month, 3-month or 30-day period and dividing that amount by the maximum offering price or the net asset value. If the net asset value, rather than the maximum offering price, is used to calculate the distribution rate, the rate will be higher. Each of the Tax Free Funds may also advertise a taxable equivalent yield, calculated as described above except that, for any given tax bracket, net investment income will be calculated using as gross investment income an amount equal to the sum of (i) any taxable income of the Fund plus (ii) the tax-exempt income of the Fund divided by the difference between 1 and the effective federal (or combined federal and state) income tax rate for taxpayers in that tax bracket. To see the taxable equivalent yield calculation charts for these Funds, see the section entitled "Miscellaneous Investment Practices." At any time in the future, yields and total return may be higher or lower than past yields and there can be no assurance that any historical results will continue. Investors in the Funds are specifically advised that share prices, expressed as the net asset values per share, will vary just as yield will vary. An investor's focus on the yield of a Fund to the exclusion of the consideration of the share price of that Fund may result in the investor's misunderstanding the total return he or she may derive from the Fund. Calculation of Total Return and Average Annual Total Return. Total return (including average annual total return) is a measure of the change in value of an investment in a Fund over the period covered, which assumes that any dividends or capital gains distributions are automatically reinvested in shares of the same class of that Fund rather than paid to the investor in cash. Each Fund may show total return, average annual total return, average annual total return (after taxes on distributions) and average annual total return (after taxes on distributions and redemptions) of each class for the one-year, five-year and ten-year periods (or for the period since inception, if shorter) through the end of the most recent calendar quarter. The formula for total return used by the Funds is prescribed by the SEC and includes three steps: (1) adding to the total number of shares of the particular class that would be purchased by a hypothetical $1,000 investment in the Fund (with or without giving effect to the deduction of sales charge or CDSC, if applicable) at the beginning of the period all additional shares that would have been purchased if all dividends and distributions paid or distributed during the period had been automatically reinvested; (2) calculating the value of the hypothetical initial investment as of the end of the period by multiplying the total number of shares owned at the end of the period by the net asset value per share of the relevant class on the last trading day of the period; (3) dividing this account value for the hypothetical investor by the amount of the initial investment, and annualizing the result where appropriate. Total return may be stated with or without giving effect to any expense limitations in effect for a Fund. For those funds that present returns reflecting an expense limitation or waiver, its total return would have been lower if no limitation or waiver were in effect. Performance Comparisons Yield and Total Return. Yields and total returns will generally be higher for Class A shares than for Class B and Class C shares of the same Fund, because of the higher levels of expenses borne by the Class B and Class C shares. Because of its lower operating expenses, Class Y shares of each Fund can be expected to achieve a higher yield and total return than the same Fund's Classes A, B and C shares. The Funds may from time to time include their yield and total return in advertisements or in information furnished to present or prospective shareholders. The Funds may from time to time include in advertisements its total return and the ranking of those performance figures relative to such figures for groups of mutual funds categorized by Morningstar, Inc. ("Morningstar") or Lipper, Inc. ("Lipper") as having similar investment objectives or styles. 77 The Funds may cite their ratings, recognition or other mention by Morningstar or any other entity. Morningstar's rating system is based on risk-adjusted total return performance and is expressed in a star-rating format. The risk-adjusted number is computed by subtracting a fund's risk score (which is a function of the fund's monthly returns less the 3-month Treasury Bill return) from the fund's load adjusted total return score. This numerical score is then translated into rating categories with the top 10% labeled five star, the next 22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled two star and the bottom 10% one star. A high rating reflects either above-average returns or below-average risk or both. Each Fund may also compare its performance or ranking against all funds tracked by Morningstar or another independent service, including Lipper. Lipper Indices and Averages are calculated and published by Lipper, an independent service that monitors the performance of more than 1,000 funds. The Funds may also use comparative performance as computed in a ranking by Lipper or category averages and rankings provided by another independent service. Should Lipper or another service reclassify a Fund to a different category or develop (and place a Fund into) a new category, the Fund may compare its performance or ranking against other funds in the newly assigned category, as published by the service. Total return may also be used to compare the performance of the Fund against certain widely acknowledged standards or indices for stock and bond market performance or against the U.S. Bureau of Labor Statistics' Consumer Price Index. The Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is a statistical measure of changes, over time, in the prices of goods and services in major expenditure groups. The Dow Jones Industrial Average is a price-weighted and unmanaged index of 30 large industrial stocks traded on the Exchange. The Lehman Brothers (1-3) Year Government/Credit Bond Index is an unmanaged index of U.S. government and Treasury securities and investment-grade corporate debt issuesU.S. and foreign corporate debt securities with maturities of one to three years. This Index is represented by a 65% weighting in the S & P 500 Index and a 35% weighting in the Lehman Government/Credit Index. The Lehman Brothers Aggregate Bond Index is an unmanaged index of investment-grade bonds with one-to ten-year maturities issued by the U.S. Government and U.S. corporations. The Lehman Brothers Credit Index is an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, investment grade corporate debt. The Lehman Brothers Government Bond Index is an unmanaged index of public debt of the U.S. Treasury. It includes treasuries (i.e., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (i.e., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Lehman Brothers Government Bond Index (the "Lehman Government Index") is a measure of the market value of all public obligations of the U.S. Treasury which must have at least one year to final maturity; all publicly issued debt of all agencies of the U.S. government and all quasi-federal corporations; and all corporate debt guaranteed by the U.S. government.an unmanaged index of public debt of the U.S. Treasury, government agencies and their obligations. The Lehman Brothers High Yield Composite Index is a market-weighted and unmanaged index of fixed-rate, non-investment grade debt. The Lehman Brothers Intermediate Government Bond Index (the "Lehman Int. Government Index") is an market capitalization-weighted and unmanaged index of bonds issued by the U.S. government and its agencies having with maturities between one and ten years. The Lehman Brothers Municipal Bond Index is a composite measure of the total return performance of the municipal bond market. This index is computed from prices on approximately 42,000 bonds. 78 The Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index is an unmanaged index composed of publicly issued, fixed-rate, nonconvertible investment grade domestic corporate debt with maturities of 1 to 5 years. The Lehman Brothers Universal Bond Index is an unmanaged index representing 85% of the returna blend of the Lehman Brothers Aggregate Bond Index, 5% of the Lehman Brothers High Yield Corporate Bond Index, 4% of and the Lehman Brothers Emerging Market Index, 5% of Eurodollar instruments and 1% of Rule 144A Commercial Paper. The Morgan Stanley Capital International Europe, Australasia and Far East Index (the "MSCI EAFE Index") is a market capitalization-weighted and unmanaged index of common stocks traded in Europe, Australia, New Zealand and the Far Eastoutside the U.S. The stocks in the index are selected with reference to national and industry representation and weighted in the EAFE Index according to their relative market values (market price per share times the number of shares outstanding). The Morgan Stanley Capital International Europe, Australasia and Far East (Gross Domestic Product) Index (the "EAFE (GDP) Index") is a market capitalization-weighted and unmanaged index of common stocks traded outside the United States. The stocks in the index are selected with reference to national and industry representation and weighted in the EAFE (GDP) Index according to their relative market values. The relative market value of each country is further weighted with reference to the country's relative gross domestic product. The Morgan Stanley Capital International World ND Index (the "MSCI World Index") is a market capitalization-weighted and unmanaged index that includes common stock from all 23 MSCI developed market countries. The "ND" indicates that the index is listed in U.S. dollars, with net dividends reinvested. The Morgan Stanley REIT Index is a market capitalization-weighted, unmanaged, total-return index of REITs that meet certain liquidity requirements. The index was designed to track the total-return performance of a broad group of REIT stocks assuming dividend reinvestment in the index on the ex-dividend date. The index is composed only of publicly traded equity REITs and does not include REITs that invest primarily in healthcare facilities, real estate mortgages, or debt securities. The NAREIT Equity Index is a market capitalization-weighted, unmanaged index of equity REITs, which are defined as REITs with 75% or greater of their gross invested book assets invested directly or indirectly in the equity ownership of real estate. The Russell 3000 Index is a market capitalization-weighted index that comprises 3,000 of the largest capitalized U.S. companies whose common stock is traded in the United States on the Exchange, the American Stock Exchange and NASDAQ. The Russell 2000 Index represents the smallest 2,000 companies within the Russell 3000 Index as measured by market capitalization. The Russell 1000 Index represents the largest 1,000 companies within the Russell 3000 Index. The Russell 1000 Growth Index is an unmanaged subset of stocks from the larger Russell 1000 Index, selected for their greater growth orientation. The Russell 1000 Value Index is an unmanaged subset of stocks from the larger Russell 1000 Index, selected for their greater value orientation. The S&P 400 Index is a market capitalization-weighted and unmanaged index that includes approximately 10% of the capitalization of U.S. equity securities. This index is comprised of stocks in the middle capitalization range. Any midcap stocks already included in the S&P 500 Index are excluded from this index. 79 The S&P 500 Index is a market capitalization-weighted and unmanaged index showing the changes in the aggregate market value of 500 stocks relative to the base period 1941-43. The S&P 500 Index is composed almost entirely of common stocks of companies listed on the Exchange, although the common stocks of a few companies listed on the American Stock Exchange or traded over-the-counter are included. The Wilshire 4500 Index is an unmanaged index of U.S. mid-and small-sized company stocks. The Wilshire Real Estate Securities Index is a market capitalization-weighted and unmanaged index of equity securities whose primary business is equity ownership of commercial real estate, equity (non-health) REITs, and storage properties. The Wilshire REIT Index is a market capitalization-weighted and unmanaged index of U.S. publicly traded REITs. This index is a subset of the Wilshire Real Estate Securities Index. Advertising and promotional materials may refer to the maturity and duration of the Income Funds. Maturity refers to the period of time before a bond or other debt instrument becomes due. Duration is a commonly used measure of the price responsiveness of a fixed-income security to an interest rate change (i.e., the change in price one can expect from a given change in yield). Articles and releases, developed by the Funds and other parties, about the Funds regarding performance, rankings, statistics and analyses of the individual Funds' and the fund group's asset levels and sales volumes, numbers of shareholders by Fund or in the aggregate for CDC Nvest Funds, statistics and analyses of industry sales volumes and asset levels, and other characteristics may appear in advertising, promotional literature, publications, including, but not limited to, those publications listed in Appendix B to this Statement, and on various computer networks, for example, the Internet. In particular, some or all of these publications may publish their own rankings or performance reviews of mutual funds, including, but not limited to, Lipper and Morningstar. References to these rankings or reviews or reprints of such articles may be used in the Funds' advertising and promotional literature. Such advertising and promotional material may refer to CDC IXIS North America, its structure, goals and objectives and the advisory subsidiaries of CDC IXIS North America, including their portfolio management responsibilities, portfolio managers and their categories and background; their tenure, styles and strategies and their shared commitment to fundamental investment principles and may identify specific clients, as well as discuss the types of institutional investors who have selected the advisers to manage their investment portfolios and the reasons for that selection. The references may discuss the independent, entrepreneurial nature of each advisory organization and allude to or include excerpts from articles appearing in the media regarding CDC IXIS North America, its advisory subsidiaries and their personnel. For additional information about the Funds' advertising and promotional literature, see Appendix C. The Funds may use the accumulation charts below in their advertisements to demonstrate the benefits of monthly savings at an 8% and 10% rate of return, respectively. Investments At 8% Rate of Return
5 yrs. 10 15 20 25 30 ------------ ------------ ------------ ------------ ----------- ----------- $50 3,698 9,208 17,417 29,647 47,868 75,015 75 5,548 13,812 26,126 44,471 71,802 112,522 100 7,396 18,417 34,835 59,295 95,737 150,029 150 11,095 27,625 52,252 88,942 143,605 225,044 200 14,793 36,833 69,669 118,589 191,473 300,059 500 36,983 92,083 174,173 296,474 478,683 750,148
80 Investments At 10% Rate of Return
5 yrs. 10 15 20 25 30 --------- ------------ ------------ ------------ ------------ ------------ $50 3,904 10,328 20,896 38,285 66,895 113,966 75 5,856 15,491 31,344 57,427 100,342 170,949 100 7,808 20,655 41,792 76,570 133,789 227,933 150 11,712 30,983 62,689 114,855 200,684 341,899 200 15,616 41,310 83,585 153,139 267,578 455,865 500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Funds' advertising and sales literature may refer to historical, current and prospective political, social, economic and financial trends and developments that affect domestic and international investment as it relates to any of the CDC Nvest Funds. The Funds' advertising and sales literature may include historical and current performance and total returns of investment alternatives to the CDC Nvest Funds. For example, the advertising and sales literature of any of the CDC Nvest Funds, but particularly that of Star Worldwide Fund and International Equity Fund, may discuss all of the above international developments, including, but not limited to, international developments involving Europe, North and South America, Asia, the Middle East and Africa, as well as events and issues affecting specific countries that directly or indirectly may have had consequences for the CDC Nvest Funds or may have influenced past performance or may influence current or prospective performance of the CDC Nvest Funds. Articles, releases, advertising and literature may discuss the range of services offered by the Trusts, the Distributor and the transfer agent of the Funds, with respect to investing in shares of the Funds and customer service. Such materials may discuss the multiple classes of shares available through the Trusts and their features and benefits, including the details of the pricing structure. The Distributor may make reference in its advertising and sales literature to awards, citations and honors bestowed on it by industry organizations and other observers and raters including, but not limited to, Dalbar's Quality Tested Service Seal and Key Honors Award. Such reference may explain the criteria for the award, indicate the nature and significance of the honor and provide statistical and other information about the award and the Distributor's selection including, but not limited to, the scores and categories in which the Distributor excelled, the names of funds and fund companies that have previously won the award and comparative information and data about those against whom the Distributor competed for the award, honor or citation. The Distributor may publish, allude to or incorporate in its advertising and sales literature testimonials from shareholders, clients, brokers who sell or own shares, broker-dealers, industry organizations and officials and other members of the public, including, but not limited to, Fund performance, features and attributes, or service and assistance provided by departments within the organization, employees or associates of the Distributor. Advertising and sales literature may also refer to the beta coefficient of the CDC Nvest Funds. A beta coefficient is a measure of systematic or undiversifiable risk of a stock. A beta coefficient of more than 1 means that the company's stock has shown more volatility than the market index (e.g., the S&P 500 Index) to which it is being related. If the beta is less than 1, it is less volatile than the market average to which it is being compared. If it equals 1, its risk is the same as the market index. High variability in stock price may indicate greater business risk, instability in operations and low quality of earnings. The beta coefficients of the CDC Nvest Funds may be compared to the beta coefficients of other funds. The Funds may enter into arrangements with banks exempted from broker-dealer registration under the Securities Exchange Act of 1934. Advertising and sales literature developed to publicize such arrangements will explain the relationship of the bank to the CDC Nvest Funds and the Distributor as well as the services provided by the bank relative to the Funds. The material may identify the bank by name and discuss the history of the bank including, but not limited to, the type of bank, its asset size, the nature of its business and services and its status and standing in the industry. In addition, sales literature may be published concerning topics of general investor interest for the benefit of registered representatives and the Funds' prospective shareholders. These materials may include, but are not limited to, discussions of college planning, retirement planning and reasons for investing and historical examples of the investment performance of various classes of securities, securities markets and indices. 81 INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS As described in the Prospectus, it is the policy of each Fund to pay its shareholders, as dividends, substantially all net investment income and to distribute annually all net realized long-term capital gains, if any, after offsetting any capital loss carryovers. Ordinary income dividends and capital gain distributions are payable in full and fractional shares of the relevant class of the particular Fund based upon the net asset value determined as of the close of the Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their ordinary income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to CDC Nvest Funds. In order for a change to be in effect for any dividend or distribution, it must be received by CDC Nvest Funds on or before the record date for such dividend or distribution. If you elect to receive your dividends in cash and the dividend checks sent to you are returned "undeliverable" to the Fund or remain uncashed for six months, your cash election will automatically be changed and your future dividends will be reinvested. No interest will accrue on amounts represented by uncashed dividend or redemption checks. As required by federal law, detailed federal tax information will be furnished to each shareholder for each calendar year on or before January 31st of the succeeding year. Each Fund intends to qualify each year as a regulated investment company under Subchapter M of the Code. In order to qualify, each Fund must, among other things, (i) derive at least 90% of its gross income in each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (ii) distribute at least 90% of the sum of its taxable net investment income, net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and (iii) diversify its holdings so that at the end of each fiscal quarter, (a) at least 50% of the value of its total assets consists of cash, U.S. government securities, securities of other regulated investment companies, and other securities limited generally, with respect to any one issuer, to no more than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades or businesses. So long as it qualifies for treatment as a regulated investment company, a Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gains distributions. If a Fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. An excise tax at the rate of 4% will be imposed on the excess, if any, of each Fund's "required distribution" over its actual distributions in any calendar year. Generally, the "required distribution" is 98% of the Fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31st (or December 31st, if the Fund is so permitted to elect and so elects) plus undistributed amounts from prior years. Each Fund intends to make distributions sufficient to avoid imposition of the excise tax. Fund distributions paid to you either in cash or reinvested in additional shares (other than "exempt-interest dividends" paid by the Municipal Income and Massachusetts Funds, as described in the relevant Prospectuses) are taxable to you either as ordinary income or as capital gains. Distributions derived from short-term capital gains (i.e., gains from capital assets that the Fund held for not more than one year) or investment income are generally taxable at 82 ordinary income rates. If you are a corporation investing in a Fund, a portion of these dividends may qualify for the dividends-received deduction provided that you meet certain holding period requirements. However, any distributions received by a Fund from REITs will not qualify for the corporate dividends-received deduction. Distributions of net long-term capital gains (i.e., the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) that are designated by a Fund as capital gain dividends will generally be taxable to a shareholder receiving such distributions as long-term capital gain (generally taxed at a maximum 20% tax rate for non-corporate shareholders) regardless of how long the shareholder has held Fund shares. Distributions declared and payable by a Fund during October, November or December to shareholders of record on a date in any such month and paid by the Fund during the following January will be treated for federal tax purposes as paid by the Fund and received by shareholders on December 31st of the year in which declared. If a Fund makes a distribution in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of a shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces the tax basis in a shareholder's shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses. Fund distributions will be treated as described above whether you receive them in cash or reinvest them in additional shares. Under the Code, the interest on certain "private activity bonds" is an item of tax preference, which, depending on the shareholder's particular tax situation, might subject the shareholder to an alternative minimum tax with a maximum rate of 28%. The interest on tax exempt bonds issued after certain dates in 1986 is retroactively taxable from the date of issuance if the issuer does not comply with certain requirements concerning the use of bond proceeds and the application of earnings on bond proceeds. Investors may not deduct part or all of the interest on indebtedness, if any, incurred or continued to purchase or carry shares of an investment company paying exempt-interest dividends, such as the Massachusetts and Municipal Income Funds. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholders that are exempt-interest dividends. Under rules used by the IRS, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. Certain of each Fund's hedging activities (including its transactions, if any, in foreign currencies and foreign currency denominated instruments) are likely to result in a difference between the Fund's book income and taxable income. This difference may cause a portion of the Fund's income distributions to constitute a return of capital or capital gain for tax purposes or require the Fund to make distributions exceeding book income to avoid excise tax liability and to qualify as a regulated investment company. Funds investing in foreign securities may own shares in certain foreign investment entities, referred to as "passive foreign investment companies." In order to avoid U.S. federal income tax, and an additional charge on a portion of any "excess distribution" from such companies or gain from the disposition of such shares, each Fund has elected to "mark to market" annually its investments in such entities and to distribute any resulting net gain to shareholders. Each Fund may also elect to treat the passive foreign investment company as a "qualified electing fund." As a result, each Fund may be required to sell securities it would have otherwise continued to hold in order to make distributions to shareholders to avoid any Fund-level tax. Funds investing in foreign securities may be liable to foreign governments for taxes relating primarily to investment income or capital gains on foreign securities in the Fund's portfolio. Each Fund may in some circumstances be eligible to, and in its discretion may, make an election under the Code that would allow Fund shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax credit or deduction (but not both) on 83 their U.S. income tax return for their pro rata portion of qualified taxes paid by that Fund to foreign countries in respect of foreign securities held at least a minimum period specified in the Code. If a Fund makes the election, the amount of each shareholder's distribution reported on the information returns filed by such Fund with the IRS must be increased by the amount of the shareholder's portion of the Fund's foreign tax paid. A shareholder's ability to claim all or a part of a foreign tax credit or deduction in respect of foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code. A Fund's investments in options, futures contracts, hedging transactions, forward contracts, swaps and certain other transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale, short sale and other rules), the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments in the holding periods of Fund securities, convert capital gain into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character distributions to Fund shareholders. Transactions in foreign currencies, foreign-currency denominated debt securities and certain foreign currency options, future contracts, and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. Sales, redemptions and exchanges of each Fund's shares are taxable events and, accordingly, shareholders may realize gains and losses on these transactions. Currently, if shares have been held for more than one year, gain or loss realized will be taxed at long-term federal tax rates (generally taxed at a maximum 20% rate for non-corporate shareholders). For taxable years beginning after December 31, 2000, the maximum capital gain tax rates for capital assets (including Fund shares) held by a non-corporate Shareholder for more than 5 years will be 8 percent and 18 percent (rather than 10 percent and 20 percent). The 18 percent rate applies only to assets the holding period for which begins after December 31, 2000 (including by way of an election to mark the asset to market, and to pay the tax on any gain thereon, as of January 2, 2001). The mark-to-market election may be disadvantageous from a federal tax perspective, and shareholders should consult their tax advisors before making such an election. A loss on the sale of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received with respect to such shares and thereafter treated as a long-term capital loss to the extent of any long-term capital gain dividend paid to the shareholder with respect to such shares. Furthermore, no loss will be allowed on the sale of Fund shares to the extent the shareholder acquired other shares of the same Fund within a period beginning 30 days prior to the sale of the loss shares and ending 30 days after such sale. A Fund's investments in REIT equity securities may require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make required distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold (including when it is not advantageous to do so). The Fund's investments in REIT equity securities may at other times result in the Fund's receipt of cash in excess of the REIT's earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund shareholders for federal income tax purposes. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state, local and, where applicable, foreign taxes. Each Fund (possibly excepting Municipal Income Fund and Massachusetts Fund) is required to withhold and remit to the U.S. Treasury a percentage of all income dividends and capital gains distributions paid to and proceeds of share sales, exchanges or redemptions made by you if you do not provide a correct, certified taxpayer identification number, if a Fund is notified that you have underreported income in the past or if you fail to certify to a Fund that you are not subject to such withholding. Pursuant to tax legislation enacted in 2001, the backup withholding tax rate will be (i) 30% for amounts paid during 2002 and 2003, (ii) 29% for amounts paid during 2004 and 2005, and (iii) 28% for amounts paid from 2006 through 2010. The legislation will expire and the backup withholding rate will be 31% for amounts paid after December 31, 2010, unless Congress enacts tax legislation providing otherwise. The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the certification and 84 filing requirements imposed on foreign investors in order to qualify for exemption from the back-up withholding tax rates described above (or a reduced rate of withholding provided by treaty). The foregoing is a general and abbreviated summary of the applicable provisions of the Code and related regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative actions. 85 FINANCIAL STATEMENTS The financial statements of the Funds and the related reports of independent accountants included in the Funds' annual reports for the year ended December 31, 2002 (January 31, 2003 for the AEW Real Estate Fund) are incorporated herein by reference. Each Fund's annual and semiannual reports are available upon request and without charge. Each Fund will send a single copy of its annual and semiannual reports to an address at which more than one shareholder of record with the same last name has indicated that mail is to be delivered. Shareholders may request additional copies of any annual or semiannual report by telephone at (800) 225-5478 or by writing to the Distributor at: CDC IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, Massachusetts 02116. 86 APPENDIX A DESCRIPTION OF SECURITIES RATINGS Certain of the Funds make use of average portfolio credit quality standards to assist institutional investors whose own investment guidelines limit their investments accordingly. In determining a Fund's overall dollar-weighted average quality, unrated securities are treated as if rated, based on the adviser's or subadviser's view of their comparability to rated securities. A Fund's use of average quality criteria is intended to be a guide for those investors whose investment guidelines require that assets be invested according to comparable criteria. Reference to an overall average quality rating for a Fund does not mean that all securities held by the Fund will be rated in that category or higher. A Fund's investments may range in quality from securities rated in the lowest category in which the Fund is permitted to invest to securities rated in the highest category (as rated by Moody's or S&P or, if unrated, determined by the adviser or a subadviser to be of comparable quality). The percentage of a Fund's assets invested in securities in a particular rating category will vary. Following is a description of Moody's and S&P's ratings applicable to fixed income securities. Moody's Investors Service, Inc. Corporate and Municipal Bond Ratings Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than with Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C: Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's bond ratings, where specified, are applicable to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one year. Obligations relying upon support mechanisms such as letter-of-credit and bonds of indemnity are excluded unless 87 explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's Sovereign Rating for Bank Deposits. Such branch obligations are rated at the lower of the bank's rating or Moody's Sovereign Rating for the Bank Deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer branch is located are not incorporated into Moody's ratings. Moody's makes no representation that rated bank obligations or insurance company obligations are exempt from registration under the Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moody's represent any specific bank or insurance company obligation is legally enforceable or a valid senior obligation of a rated issuer. Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classified from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Corporate Short-Term Debt Ratings Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories. Standard & Poor's Ratings Services Issue Credit Rating Definitions A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account 88 the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days, including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings. Issue credit ratings are based, in varying degrees, on the following considerations: likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; nature of and provisions of the obligation; protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition. Corporate and Municipal Bond Ratings Investment Grade AAA: An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA: An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A: An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB: An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Speculative Grade Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB: An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. 89 B: An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment. C: A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. CI: The rating CI is reserved for income bonds on which no interest is being paid. D: An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Provisional ratings: The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk. r: This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk - such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. The absence of an "r" symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return. N.R.: This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy. Debt obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties. Commercial Paper Rating Definitions A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from A for the highest quality obligations to D for the lowest. These categories are as follows: A-1: A short-term obligation rated 'A-1' is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are 90 designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2: A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3: A short-term obligation rated 'A-3' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. B: A short-term obligation rated 'B' is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. C: A short-term obligation rated 'C' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D: A short-term obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. A commercial paper rating is not a recommendation to purchase, sell or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to Standard & Poor's by the issuer or obtained from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information. 91 APPENDIX B MEDIA THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Fort Worth Star-Telegram Pension World Adam Smith's Money World Fortune Pensions and Investments America OnLine Fox Network and affiliates Personal Investor Anchorage Daily News Fund Action Philadelphia Inquirer Arizona Republic Fund Decoder Porter, Sylvia (syndicated column) Atlanta Constitution Global Finance Portland Oregonian Atlanta Journal (the) Guarantor Prodigy Austin American Statesman Hartford Courant Public Broadcasting Service Baltimore Sun Houston Chronicle Quinn, Jane Bryant (syndicated column) Bank Investment Marketing INC Registered Representative Barron's Indianapolis Star Research Magazine Bergen County Record (NJ) Individual Investor Resource Bloomberg Business News Institutional Investor Reuters B'nai B'rith Jewish Monthly International Herald Tribune Rocky Mountain News Bond Buyer Internet Rukeyser's Business (syndicated column) Boston Business Journal Investment Advisor Sacramento Bee Boston Globe Investment Company Institute San Diego Tribune Boston Herald Investment Dealers Digest San Francisco Chronicle Broker World Investment Profiles San Francisco Examiner Business Radio Network Investment Vision San Jose Mercury Business Week Investor's Business Daily Seattle Post-Intelligencer CBS and affiliates IRA Reporter Seattle Times CFO Journal of Commerce Securities Industry Management Changing Times Kansas City Star Smart Money Chicago Sun Times KCMO (Kansas City) St. Louis Post Dispatch Chicago Tribune KOA-AM (Denver) St. Petersburg Times Christian Science Monitor Los Angeles Times Standard & Poor's Outlook Christian Science Monitor News Service Leckey, Andrew (syndicated column) Standard & Poor's Stock Guide Cincinnati Enquirer Lear's Stanger's Investment Advisor Cincinnati Post Life Association News Stockbroker's Register CNBC Lifetime Channel Strategic Insight CNN Miami Herald Tampa Tribune Columbus Dispatch Milwaukee Sentinel Time CompuServe Money Tobias, Andrew (syndicated column) Dallas Morning News Money Maker Toledo Blade Dallas Times-Herald Money Management Letter UPI Denver Post Morningstar US News and World Report Des Moines Register Mutual Fund Market News USA Today Detroit Free Press Mutual Funds Magazine USA TV Network Donoghue's Money Fund Report National Public Radio Value Line Dorfman, Dan (syndicated column) National Underwriter Wall St. Journal Dow Jones News Service NBC and affiliates Wall Street Letter Economist New England Business Wall Street Week FACS of the Week New England Cable News Washington Post Fee Adviser New Orleans Times-Picayune WBZ and WBZ-TV Financial News Network New York Daily News WCVB-TV Financial Planning New York Times WEEI Financial Planning on Wall Street Newark Star Ledger WHDH Financial Research Corp. Newsday Worcester Telegram Financial Services Week Newsweek World Wide Web Financial Times Nightly Business Report Worth Magazine Financial World Orange County Register WRKO Fitch Insights Orlando Sentinel Forbes Palm Beach Post
92 APPENDIX C ADVERTISING AND PROMOTIONAL LITERATURE References may be included in CDC Nvest Funds' advertising and promotional literature to CDC IXIS North America and its affiliates that perform advisory and subadvisory functions for CDC Nvest Funds including, but not limited to: Harris Associates, Loomis Sayles, CGM, Westpeak, Jurika & Voyles, Vaughan Nelson, AEW and Reich & Tang Asset Management, LLC. Reference also may be made to the Funds of their respective fund groups, namely, the Loomis Sayles Funds and the Oakmark Family of Funds advised by Harris Associates. References to subadvisers unaffiliated with CDC IXIS North America that perform subadvisory functions on behalf of CDC Nvest Funds and their respective fund groups may be contained in CDC Nvest Funds' advertising and promotional literature including, but not limited to, Hansberger, Miller Anderson, RS Investments, Salomon Brothers and Mercury Advisors. CDC Nvest Funds' advertising and promotional material will include, but is not limited to, discussions of the following information about both affiliated and unaffiliated entities: o Specific and general assessments and forecasts regarding U.S. and world economies, and the economies of specific nations and their impact on the CDC Nvest Funds; o Specific and general investment emphasis, specialties, fields of expertise, competencies, operations and functions; o Specific and general investment philosophies, strategies, processes, techniques and types of analysis; o Specific and general sources of information, economic models, forecasts and data services utilized, consulted or considered in the course of providing advisory or other services; o The corporate histories, founding dates and names of founders of the entities; o Awards, honors and recognition given to the entities; o The names of those with ownership interest and the percentage of ownership interest; o The industries and sectors from which clients are drawn and specific client names and background information on current individual, corporate and institutional clients, including pension and profit sharing plans; o Current capitalizations, levels of profitability and other financial and statistical information; o Identification of portfolio managers, researchers, economists, principals and other staff members and employees; o The specific credentials of the above individuals, including, but not limited to, previous employment, current and past positions, titles and duties performed, industry experience, educational background and degrees, awards and honors; o Specific and general reference to past and present notable and renowned individuals including reference to their field of expertise and/or specific accomplishments; 93 o Current and historical statistics regarding: -total dollar amount of assets managed -CDC Nvest Funds' assets managed in total and by fund -the growth of assets -asset types managed -numbers of principal parties and employees, and the length of their tenure, including officers, portfolio managers, researchers, economists, technicians and support staff -the above individuals' total and average number of years of industry experience and the total and average length of their service to the adviser or sub-adviser; o The general and specific strategies applied by the advisers in the management of CDC Nvest Funds portfolios including, but not limited to: -the pursuit of growth, value, income oriented, risk management or other strategies -the manner and degree to which the strategy is pursued -whether the strategy is conservative, moderate or extreme and an explanation of other features and attributes -the types and characteristics of investments sought and specific portfolio holdings -the actual or potential impact and result from strategy implementation -through its own areas of expertise and operations, the value added by sub-advisers to the management process -the disciplines it employs, e.g., a subadviser's buy and sell guidelines, and goals and benchmarks that it establishes in management, e.g., a subadviser's goal to pursue growth at a certain percentage above a specified index -the systems utilized in management, the features and characteristics of those systems and the intended results from such computer analysis, e.g., Westpeak's efforts to identify overvalued and undervalued issues; and o Specific and general references to portfolio managers and funds that they serve as portfolio manager of, other than CDC Nvest Funds, and those families of funds, other than CDC Nvest Funds. Any such references will indicate that CDC Nvest Funds and the other funds of the managers differ as to performance, objectives, investment restrictions and limitations, portfolio composition, asset size and other characteristics, including fees and expenses. References may also be made to industry rankings and ratings of the Funds and other funds managed by the Funds' advisers and sub-advisers, including, but not limited to, those provided by Morningstar, Lipper, Forbes and Worth. In addition, communications and materials developed by CDC Nvest Funds will make reference to the following information about CDC IXIS North America and its affiliates: CDC IXIS North America is a subsidiary of CDC Asset Management. CDC Asset Management is part of the investment management arm of France's Caisse des Depots et Consignations, a major diversified financial institution. As of December 31, 2002, CDC IXIS North America had more than $____ billion in assets under management. In addition, promotional materials may include: o Specific and general references to CDC Nvest Funds multi-manager approach through CDC IXIS North America' affiliates and outside firms including, but not limited to, the following: -that each adviser/manager operates independently on a day-to-day basis and maintains an image and identity separate from CDC IXIS North America and the other investment managers -other fund companies are limited to a "one size fits all" approach but CDC Nvest Funds draws upon the talents of multiple managers whose expertise best matches the fund objective 94 -in this and other contexts reference may be made to CDC Nvest Funds' slogan "Where The Best Minds Meet"(R) and that CDC Nvest Funds' ability to match the talent to the task is one more reason it is becoming known as "Where The Best Minds Meet." -CDC IXIS Advisers may distribute sales and advertising materials that illustrate the Star Concept by using historical category comparisons of a general nature. Categories from mutual fund ranking services, such as Morningstar, Inc., are selected for each of the Fund segments based on current investment styles and are subject to change with market conditions. There will be differences between the performance of the categories and the CDC Nvest Star Fund being illustrated. The illustrations are used for hypothetical purposes only as a general demonstration of how the Star Concept works. [TO BE UPDATED:CDC IXIS Intermediary Services, a division of CDC IXIS North America, may be referenced in Fund advertising and promotional literature concerning the marketing services it provides to CDC IXIS North America affiliated fund groups including: CDC Nvest Funds, Loomis Sayles Funds, Oakmark Funds and Delafield Fund. CDC IXIS Intermediary Services will provide marketing support to CDC IXIS North America affiliated fund groups targeting financial advisers, financial intermediaries and institutional clients who may transact purchases and other fund-related business directly with these fund groups. Communications will contain information including, but not limited to: descriptions of clients and the marketplaces to which it directs its efforts; the mission and goals of CDC IXIS Intermediary Services and the types of services it provides which may include: seminars; its 1-800 number, Web site, Internet or other electronic facilities; qualitative information about the funds' investment methodologies; information about specific strategies and management techniques; performance data and features of the funds; institutional oriented research and portfolio manager insight and commentary. Additional information contained in advertising and promotional literature may include: rankings and ratings of the funds including, but not limited to, those of Morningstar and Lipper; statistics about the advisers', fund groups' or a specific fund's assets under management; the histories of the advisers and biographical references to portfolio managers and other staff including, but not limited to, background, credentials, honors, awards and recognition received by the advisers and their personnel; and commentary about the advisers, their funds and their personnel from third-party sources including newspapers, magazines, periodicals, radio, television or other electronic media.] References may be included in CDC Nvest Funds' advertising and promotional literature about its 401(k) and retirement plans. The information may include, but is not limited to: o Specific and general references to industry statistics regarding 401(k) and retirement plans including historical information, industry trends and forecasts regarding the growth of assets, numbers of plans, funding vehicles, participants, sponsors and other demographic data relating to plans, participants and sponsors, third party and other administrators, benefits consultants and other organizations involved in 401(k) and retirement programs with whom CDC Nvest Funds may or may not have a relationship. o Specific and general references to comparative ratings, rankings and other forms of evaluation as well as statistics regarding the CDC Nvest Funds as a 401(k) or retirement plan funding vehicle produced by, including, but not limited to, Investment Company Institute and other industry authorities, research organizations and publications. o Specific and general discussion of economic, legislative, and other environmental factors affecting 401(k) and retirement plans, including, but not limited to, statistics, detailed explanations or broad summaries of: -past, present and prospective tax regulation, IRS requirements and rules, including, but not limited to, reporting standards, minimum distribution notices, Form 5500, Form 1099R and other relevant forms and documents, Department of Labor rules and standards and other regulations. This includes 95 past, current and future initiatives, interpretive releases and positions of regulatory authorities about the past, current or future eligibility, availability, operations, administration, structure, features, provisions or benefits of 401(k) and retirement plans; -information about the history, status and future trends of Social Security and similar government benefit programs including, but not limited to, eligibility and participation, availability, operations and administration, structure and design, features, provisions, benefits and costs; and -current and prospective ERISA regulation and requirements. o Specific and general discussion of the benefits of 401(k) investment and retirement plans, and, in particular, the CDC Nvest Funds 401(k) and retirement plans, to the participant and plan sponsor, including explanations, statistics and other data, about: -increased employee retention -reinforcement or creation of morale -deductibility of contributions for participants -deductibility of expenses for employers -tax deferred growth, including illustrations and charts -loan features and exchanges among accounts -educational services materials and efforts, including, but not limited to, videos, slides, presentation materials, brochures, an investment calculator, payroll stuffers, quarterly publications, releases and information on a periodic basis and the availability of wholesalers and other personnel. o Specific and general reference to the benefits of investing in mutual funds for 401(k) and retirement plans, and CDC Nvest Funds as a 401(k) or retirement plan funding vehicle. o Specific and general reference to the role of the investment dealer and the benefits and features of working with a financial professional including: -access to expertise on investments -assistance in interpreting past, present and future market trends and economic events -providing information to clients including participants during enrollment and on an ongoing basis after participation -promoting and understanding the benefits of investing, including mutual fund diversification and professional management. 96 Registration Nos. 2-11101 811-242 CDC NVEST FUNDS TRUST II PART C OTHER INFORMATION Item 23. Exhibits (a) Articles of Incorporation. (1) The Registrant's Third Amended and Restated Agreement and Declaration of Trust dated April 25, 2002 (the "Agreement and Declaration") is incorporated by reference to exhibit (a)(1) to post-effective amendment ("PEA") No. 117 to the initial registration statement (the "Registration Statement") filed on April 29, 2002. (b) By-Laws. (1) The Registrant's Amended and Restated By-Laws (the "By-Laws") are incorporated by reference to exhibit 2(a) to PEA No. 105 to the Registration Statement filed on August 15, 1996. (2) Amendment dated January 27, 1995 to Registrant's By-Laws is incorporated by reference to exhibit 2(b) to PEA No. 105 to the Registration Statement filed on August 15, 1996. (3) Amendment dated August 23, 2002 to Registrant's By-Laws is filed herewith. (c) Instruments Defining Rights of Security Holders. Rights of shareholders are described in Article III, Section 6 of the Registrant's Agreement and Declaration is incorporated by reference to exhibit a(1) to PEA No. 117 to the Registration Statement filed on April 29, 2002. (d) Investment Advisory Contracts. (1)(i) Advisory Agreement dated October 30, 2000 between the Registrant on behalf of CDC Nvest Growth and Income Fund and CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") is incorporated by reference to exhibit d(1)(i) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (ii) Advisory Agreement dated October 1, 2001 between the Registrant on behalf of CDC Nvest Limited Term U.S. Government Fund and CDC IXIS Advisers is incorporated by reference to exhibit d(1)(ii) to PEA No. 116 to the Registration Statement filed on February 27, 2002. (iii)Advisory Agreement dated October 30, 2000 between the Registrant on behalf of CDC Nvest Short Term Bond Fund (formerly CDC Nvest Short Term Corporate Income Fund) and CDC IXIS Advisers is incorporated by reference to exhibit d(1)(iii) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (iv) Advisory Agreement dated October 30, 2000 between the Registrant on behalf of CDC Nvest Massachusetts Tax Free Income Fund and CDC IXIS Advisers is incorporated by reference to exhibit d(1)(iv) to PEA No. 114 to the Registration Statement filed on February 27, 2001. 1 (v) Advisory Agreement dated October 30, 2000 between the Registrant on behalf of CDC Nvest High Income Fund and CDC IXIS Advisers is incorporated by reference to exhibit d(1)(vi) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (2)(i) Sub-advisory Agreement dated October 29, 2002 among Registrant on behalf of CDC Nvest Growth and Income Fund, CDC IXIS Advisers and Harris Associates L.P. ("Harris Associates") is filed herewith. (ii) Sub-advisory Agreement dated October 1, 2001 among Registrant on behalf of CDC Nvest Limited Term U.S. Government Fund, CDC IXIS Advisers and Loomis, Sayles & Company, L.P. ("Loomis Sayles") is incorporated by reference to exhibit d(2)(ii) to PEA No. 116 to the Registration Statement filed on February 27, 2002. (iii)Sub-advisory Agreement dated October 1, 2001 among Registrant on behalf of CDC Nvest Short Term Bond Fund, CDC IXIS Advisers and Loomis Sayles is incorporated by reference to exhibit d(2)(iii) to PEA No. 116 to the Registration Statement filed on February 27, 2002. (iv) Sub-advisory Agreement dated October 1, 2001 among Registrant on behalf of CDC Nvest Massachusetts Tax Free Income Fund, CDC IXIS Advisers and Loomis Sayles is incorporated by reference to exhibit d(2)(iv) to PEA No. 116 to the Registration Statement filed on February 27, 2002. (v) Sub-advisory Agreement dated October 30, 2000 among Registrant on behalf of CDC Nvest High Income Fund, CDC IXIS Advisers and Loomis Sayles is incorporated by reference to exhibit d(2)(vi) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (e) Underwriting Contracts. (1) Distribution Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Growth and Income Fund and CDC IXIS Asset Management Distributors, L.P. ("CDC IXIS Distributors") is incorporated by reference to exhibit e(1) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (2) Distribution Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Limited Term U.S. Government Fund and CDC IXIS Distributors is incorporated by reference to exhibit e(2) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (3) Distribution Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Short Term Bond Fund and CDC IXIS Distributors is incorporated by reference to exhibit e(3) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (4) Distribution Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Massachusetts Tax Free Income Fund and CDC IXIS Distributors is incorporated by reference to exhibit e(4) to PEA No. 114 to the Registration Statement filed on February 27, 2001. 2 (5) Distribution Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest High Income Fund and CDC IXIS Distributors is incorporated by reference to exhibit e(6) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (6) Form of Dealer Agreement used by CDC IXIS Distributors is filed herewith. (f) Bonus or Profit Sharing Contracts. Not applicable. (g) Custodian Agreements. (1) Custodian Agreement dated May 1, 2002 between Registrant, on behalf of CDC Nvest Growth and Income Fund, CDC Nvest Limited Term U.S. Government Fund, CDC Nvest Massachusetts Tax Free Income Fund, CDC Nvest Short Term Bond Fund and CDC Nvest High Income Fund, and Investors Bank & Trust Company ("IBT") is filed herewith. (2) Delegation Agreement dated May 1, 2002 between Registrant, on behalf of CDC Nvest Growth and Income Fund, CDC Nvest Limited Term U.S. Government Fund, CDC Nvest Massachusetts Tax Free Income Fund, CDC Nvest Short Term Bond Fund and CDC Nvest High Income Fund, and IBT is filed herewith. (h) Other Material Contracts. (1) Transfer Agency and Service Agreement dated November 1, 1999 between the Registrant on behalf of CDC Nvest Growth and Income Fund, CDC Nvest Limited Term U.S. Government Fund, CDC Nvest Short Term Bond Fund, CDC Nvest Massachusetts Tax Free Income Fund and CDC Nvest High Income Fund and CDC IXIS Asset Management Services, Inc. ("CIS") is incorporated by reference to exhibit h(1) to PEA No. 113 to the Registration Statement filed on April 27, 2000. 3 (2)(i) Administrative Services Agreement dated October 30, 2000 between Registrant on behalf of CDC Nvest Growth and Income Fund, CDC Nvest Limited Term U.S. Government Fund, CDC Nvest Short Term Bond Fund, CDC Nvest Massachusetts Tax Free Income Fund and CDC Nvest High Income Fund and CIS is incorporated by reference to exhibit (h)(2)(i) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (ii) Amendment dated January 2, 2001 to Administrative Services Agreement dated October 30, 2000 is incorporated by reference to exhibit (h)(2)(iii) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (3) Securities Lending Agency Agreement dated May 1, 2002 between the Registrant on behalf of CDC Nvest Growth and Income Fund, CDC Nvest Limited Term U.S. Government Fund, CDC Nvest Massachusetts Tax Free Income Fund, CDC Nvest Short Term Bond Fund and CDC Nvest High Income Fund and IBT is filed herewith. (4) CDC IXIS Advisers Fee Waiver/Reimbursement Undertakings dated April 30, 2002 between CDC IXIS Advisers and the Registrant on behalf of its series enumerated in such undertaking is incorporated by reference to exhibit (h)(4) to PEA No. 117 to the Registration Statement filed on April 29, 2002. (i) Legal Opinion. (1) Opinion and consent of counsel dated January 3, 1989 with respect to the Registrant's CDC Nvest Growth and Income Fund, CDC Nvest High Income Fund, CDC Nvest Limited Term U.S. Government Fund and CDC Nvest Massachusetts Tax Free Income Fund is incorporated by reference to exhibit 10(a) to PEA No. 106 to the Registration Statement filed on April 18, 1997. (2) Opinion and consent of counsel dated September 10, 1993 with respect to offering multiple classes of shares for all series of the Registrant is incorporated by reference to exhibit 10(d) to PEA No. 106 to this Registration Statement filed on April 18, 1997. (j) Other Opinions. Consent of PricewaterhouseCoopers LLP will be filed by amendment. (k) Omitted Financial Statements. Not applicable. (l) Initial Capital Agreements. Not applicable. 4 (m) Rule 12b-1 Plan. (1)(a) Rule 12b-1 Plan for class A shares of CDC Nvest Growth and Income Fund is incorporated by reference to exhibit (m)(1)(a) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Growth and Income Fund is incorporated by reference to exhibit (m)(1)(b) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (c) Rule 12b-1 Plan for class C shares of CDC Nvest Growth and Income Fund is incorporated by reference to exhibit (m)(1)(c) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (2)(a) Rule 12b-1 Plan for class A shares of CDC Nvest Limited Term U.S. Government Fund is incorporated by reference to exhibit (m)(2)(a) to PEA No. 117 to the Registration Statement filed on April 29, 2002. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Limited Term U.S. Government Fund is incorporated by reference to exhibit (m)(2)(b) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (c) Rule 12b-1 Plan for class C shares of CDC Nvest Limited Term U.S. Government Fund is incorporated by reference to exhibit (m)(2)(c) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (3)(a) Rule 12b-1 Plan for class A shares of CDC Nvest Short Term Bond Fund is incorporated by reference to exhibit (m)(3)(a) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Short Term Bond Fund is incorporated by reference to exhibit (m)(3)(b) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (c) Rule 12b-1 Plan for class C shares of CDC Nvest Short Term Bond Fund is incorporated by reference to exhibit (m)(3)(c) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (4)(a) Rule 12b-1 Plan for class A shares of CDC Nvest Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (m)(4)(a) to PEA No. 117 to the Registration Statement filed on April 29, 2002. (b) Rule 12b-1 Plan for class B shares of CDC Nvest Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (m)(4)(b) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (5)(a) Rule 12b-1 Plan for class A shares of CDC Nvest High Income Fund is incorporated by reference to exhibit (m)(6)(a) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for class B shares of CDC Nvest High Income Fund is incorporated by reference to exhibit (m)(6)(b) to PEA No. 115 to the Registration Statement filed on April 30, 2001. 5 (c) Rule 12b-1 Plan for class C shares of CDC Nvest High Income Fund is incorporated by reference to exhibit (m)(6)(c) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (n) Rule 18f-3 Plan. Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended, dated December 13, 2001 is incorporated by reference to exhibit (n) to PEA No. 116 to the Registration Statement filed on February 27, 2002. (p) Code of Ethics. (1) Code of Ethics dated August 25, 2000 for Registrant is incorporated by reference to exhibit (p)(1) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (2) Code of Ethics dated April 1, 2002 for CDC IXIS Advisers and CDC IXIS Distributors is filed herewith. (3) Code of Ethics dated January 31, 2002 for Harris Associates is filed herewith. (4) Code of Ethics dated January 14, 2000 as amended January 1, 2001 for Loomis Sayles is incorporated by reference to exhibit (p)(5)(ii) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (q) Powers of Attorney. (1) Powers of Attorney for Peter S. Voss, Graham T. Allison, Jr., Daniel M. Cain, Kenneth J. Cowan, Richard Darman, John T. Hailer, Sandra O. Moose, John A. Shane and Pendleton P. White dated November 22, 2002 designating John M. Loder, John E. Pelletier and Mark E. Bradley as attorneys to sign for each Trustee is filed herewith. (2) Powers of Attorney for Peter S. Voss, Graham T. Allison, Jr., Daniel M. Cain, Kenneth J. Cowan, Richard Darman, John T. Hailer, Sandra O. Moose, John A. Shane and Pendleton P. White dated February 28, 2003 designating John M. Loder, John E. Pelletier and Nicholas H. Palmerino as attorneys to sign for each Trustee is filed herewith. Item 24. Persons Controlled by or under Common Control with the Fund. None. Item 25. Indemnification. Under Article 4 of the Registrant's By-laws, any past or present Trustee or officer of the Registrant (hereinafter referred to as a "Covered Person") shall be indemnified to the fullest extent permitted by law against all liability and all expenses reasonably incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party or otherwise involved by reason of his or her being or having been a Covered Person. That provision does not authorize indemnification when it is determined that such Covered Person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. This description is modified in its entirety by the provision of Article 4 of the Registrant's By-laws contained in the PEA No. 105 to the Registration Statement filed on August 15, 1996 as exhibit 2(a) and is incorporated herein by reference. 6 The Distribution Agreements, the Custodian Agreement, the Transfer Agency and Service Agreement and the Administrative Services Agreement (the "Agreements") contained herein and in various post-effective amendments and incorporated herein by reference, provide for indemnification. The general effect of these provisions is to indemnify entities contracting with the Registrant against liability and expenses in certain circumstances. This description is modified in its entirety by the provisions of the Agreements as contained in this Registration Statement and incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any claim, action, suit or proceeding) is asserted against the Registrant by such Trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Registrant and its Trustees, officers and employees are insured, under a policy of insurance maintained by the Registrant in conjunction with CDC IXIS Asset Management North America, L.P. ("CDC IXIS North America") and its affiliates, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such Trustees or officers. The policy expressly excludes coverage for any Trustee or officer for any claim arising out of any fraudulent act or omission, any dishonest act or omission or any criminal act or omission of the Trustee or officer. Item 26. Business and Other Connections of Investment Adviser. (a) CDC IXIS Advisers, a wholly-owned subsidiary of CDC IXIS North America serves as investment adviser to each of the series of the Registrant. CDC IXIS Advisers was organized in 1995. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of CDC IXIS Advisers during the past two years is incorporated by reference to schedules A, C and D of Form ADV filed by CDC IXIS Advisers pursuant to the Investment Advisers Act of 1940, as amended, (the "Advisers Act") (SEC file No. 801-48408; IARD/CRD No. 106800). (b) Harris Associates serves as a subadviser to the Registrant's CDC Nvest Growth and Income Fund. Harris Associates serves as investment adviser to mutual funds, individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships, and is a registered commodity trading adviser and commodity pool operator. The list required by this Item 26 regarding any other business, profession or employment of a substantial nature engaged in by officers and partners of Harris Associates during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Harris Associates pursuant to the Advisers Act (SEC File No. 801-50333; IARD/CRD No. 106960). 7 (c) Loomis Sayles, the subadviser of the Registrant's CDC Nvest Massachusetts Tax Free Income Fund, CDC Nvest Limited Term U.S. Government Fund, CDC Nvest Short Term Bond Fund and CDC Nvest High Income Fund provides investment advice to a number of other registered investment companies and to other organizations and individuals. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Loomis Sayles during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by CDC IXIS Advisers pursuant to the Advisers Act (SEC file No. 801-170; IARD/CRD No. 105377). Item 27. Principal Underwriters. (a) CDC IXIS Asset Management Distributors, L.P., the Registrant's principal underwriter, also serves as principal underwriter for: CDC Nvest Funds Trust I CDC Nvest Funds Trust III CDC Nvest Cash Management Trust CDC Nvest Tax Exempt Money Market Trust CDC Nvest Companies Trust I (b) The general partner and officers of the Registrant's principal underwriter, CDC IXIS Asset Management Distributors, L.P., and their address are as follows:
Positions and Offices Positions and Offices Name with Principal Underwriter with Registrant - ------------------------------ -------------------------------------------- ----------------------------------- CDC IXIS Asset Management General Partner None Distribution Corp. John T. Hailer President and Chief Executive Officer President, Chief Executive Officer and Trustee John E. Pelletier Senior Vice President, General Counsel, Secretary and Clerk Secretary and Clerk Scott E. Wennerholm Senior Vice President, Treasurer, Chief None Financial Officer, and Chief Operating Officer Coleen D. Dinneen Vice President, Deputy General Counsel, Assistant Secretary Assistant Secretary and Assistant Clerk Beatriz Pina Smith Vice President and Assistant Treasurer, None Controller Anthony Loureiro Vice President and Chief Compliance Officer None Joanne Kane Anti-Money Laundering Compliance Officer None 8 Peter Hebert Senior Vice President None Doug Keith Senior Vice President None Robert Krantz Senior Vice President None Curt Overway Senior Vice President None George Pilibosian Senior Vice President None Matt Witkos Senior Vice President None Sharon Wratchford Senior Vice President None Frank S. Maselli Senior Vice President None Kirk Williamson Senior Vice President None John Yannone Senior Vice President None
The principal business address of all the above persons or entities is 399 Boylston Street, Boston, MA 02116. (c) Not applicable. Item 28. Location of Accounts and Records The following companies maintain possession of the documents required by the specified rules: (a) For all series of Registrant: (i) CDC Nvest Funds Trust II 399 Boylston Street Boston, Massachusetts 02116 (ii) CDC IXIS Asset Management Services, Inc. 399 Boylston Street Boston, MA 02116 (ii) State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 (iii) CDC IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 (iv) CDC IXIS Asset Management Advisers, L.P. 399 Boylston Street Boston, Massachusetts 02116 (v) Investors Bank & Trust Company 200 Clarendon Street Boston, MA 02116 (b) (i) For the series managed by Harris Associates L.P. 9 Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602 (iii) For the series managed by Loomis, Sayles & Company, L.P.: Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02110 Item 29. Management Services. None. Item 30. Undertakings. The Registrant undertakes to provide the annual report of any of its series to any person who receives a prospectus for such series and who requests the annual report. 10 CDC NVEST FUNDS TRUST II SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Post Effective Amendment No. 118 to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 28th day of February, 2003. CDC NVEST FUNDS TRUST II By: JOHN T. HAILER* ------------------------------ John T. Hailer Chief Executive Officer *By: /s/ John E. Pelletier -------------------------- John E. Pelletier** Attorney-In-Fact Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date PETER S. VOSS* - --------------------------- Peter S. Voss Chairman of the Board; Trustee February 28, 2003 /s/ Nicholas H. Palmerino - --------------------------- Nicholas H. Palmerino Treasurer February 28, 2003 GRAHAM T. ALLISON, JR.* - --------------------------- Graham T. Allison, Jr. Trustee February 28, 2003 DANIEL M. CAIN* - --------------------------- Daniel M. Cain Trustee February 28, 2003 KENNETH J. COWAN* - --------------------------- Kenneth J. Cowan Trustee February 28, 2003 RICHARD DARMAN* - --------------------------- Richard Darman Trustee February 28, 2003 JOHN T. HAILER* - --------------------------- - --------------------------- John T. Hailer Chief Executive Officer; Trustee February 28, 2003 SANDRA O. MOOSE* - --------------------------- Sandra O. Moose Trustee February 28, 2003 JOHN A. SHANE* - --------------------------- John A. Shane Trustee February 28, 2003 PENDLETON P. WHITE* - --------------------------- Pendleton P. White Trustee February 28, 2003 *By: /s/ John E. Pelletier John E. Pelletier Attorney-In-Fact** February 28, 2003 ** Powers of Attorney are incorporated by reference to exhibit (q)(1) and (q)(2) filed herewith. CDC Nvest Funds Trust II Exhibit Index Exhibits for Item 23 of Form N-1A Exhibit Exhibit Description - ------- ------------------- (b)(3) Amendment to By-Laws (d)(2)(i) Growth and Income Fund Sub-Advisory Agreement (e)(6) Form of Dealer Agreement (g)(1) Custody Agreement (g)(2) Delegation Agreement (h)(3) Securities Lending Agency Agreement (p)(2) Code of Ethics for CDC IXIS Advisers and CDC IXIS Distributors (p)(3) Code of Ethics for Harris Associates (q)(1) Powers of Attorney (q)(2) Powers of Attorney EX-99.B 3 exhb3.txt EXHIBIT B3 Exhibit (b)(3) CDC NVEST FUNDS TRUST I Amendment to the By-Laws (adopted August 23, 2002) The following Article 9.5 is hereby removed from the By-Laws: ARTICLE 9.5 9.5 Limitations on Investment by the Trust in Securities of Any One Issuer. The Trust may not purchase for its portfolio or for the portfolio of any class or series of the Trust's shares the securities of any issuer if immediately after such purchase the Trust or that class or series would thereupon hold securities representing more than 10% of the voting securities of such issuer as disclosed in the last available financial statements of such issuer. This limitation shall not apply to obligations issued or guaranteed by the government of the United States of America or to obligations of any corporation organized under a general Act of Congress if such corporation is an instrumentality of the United States. For purposes of this limitation, each state and each political subdivision, agency, authority or instrumentality thereof and each multistate agency and authority shall be considered a separate issuer. -1- EX-99.D 4 exhd2i.txt EXHIBIT D2I Exhibit (d)(2)(i) CDC NVEST GROWTH AND INCOME FUND SUB-ADVISORY AGREEMENT (HARRIS ASSOCIATES L.P.) Sub-Advisory Agreement (this "Agreement") entered into as of 29th day of October, 2002, by and among CDC Nvest Funds Trust II, a Massachusetts business trust (the "Trust"), with respect to its CDC Nvest Growth and Income Fund series (the "Series"), CDC IXIS Asset Management Advisers, L.P., a Delaware limited partnership (the "Manager"), and Harris Associates L.P., a Delaware limited partnership (the "Sub-Adviser"). WHEREAS, the Manager has entered into an Advisory Agreement dated October 30, 2000 (the "Advisory Agreement") with the Trust, relating to the provision of portfolio management and administrative services to the Series; WHEREAS, the Advisory Agreement provides that the Manager may delegate any or all of its portfolio management responsibilities under the Advisory Agreement to one or more sub-advisers; WHEREAS, the Manager and the Trustees of the Trust desire to retain the Sub-Adviser to render portfolio management services in the manner and on the terms set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as follows: 1. SUB-ADVISORY SERVICES. a. The Sub-Adviser shall, subject to the supervision of the Manager and of any administrator appointed by the Manager (the "Administrator"), manage the investment and reinvestment of the assets of the Series, and have the authority on behalf of the Series to vote and shall vote all proxies and exercise all other rights of the Series as a security holder of companies in which the Series from time to time invests. The Sub-Adviser shall manage the Series in conformity with (1) the investment objective, policies and restrictions of the Series set forth in the Trust's prospectus and statement of additional information relating to the Series, (2) any additional policies or guidelines established by the Manager or by the Trust's trustees that have been furnished in writing to the Sub-Adviser and (3) the provisions of the Internal Revenue Code as amended (the "Code") applicable to "regulated investment companies" (as defined in Section 851 of the Code), all as from time to time in effect (collectively, the "Policies"), and with all applicable provisions of law, including without limitation all applicable provisions of the Investment Company Act of 1940 as amended (the "1940 Act") and the rules and regulations thereunder. Subject to the foregoing, the Sub-Adviser is authorized, in its discretion and without prior consultation with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Series, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations; and the majority or the whole of the Series may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash, as the Sub-Adviser shall determine. b. The Sub-Adviser shall furnish the Manager and the Administrator quarterly and annual reports concerning portfolio transactions and performance of the Series in such form as may be mutually agreed upon, and agrees to review the Series and discuss the management of it. The Sub-Adviser shall permit all books and records with respect to the Series to be inspected and audited by the Manager and the Administrator at all reasonable times during normal business hours, upon reasonable notice. The Sub-Adviser shall also provide the Manager with such other information and reports as may reasonably be requested by the Manager from time to time, including without limitation all material requested by or required to be delivered to the Trustees of the Trust. c. The Sub-Adviser shall provide to the Manager a copy of the Sub-Adviser's Form ADV as filed with the Securities and Exchange Commission and a list of the persons whom the Sub-Adviser wishes to have authorized to give written and/or oral instructions to custodians of assets of the Series. 2. OBLIGATIONS OF THE MANAGER. a. The Manager shall provide (or cause the Series' Custodian (as defined in Section 3 hereof) to provide) timely information to the Sub-Adviser regarding such matters as the composition of assets of the Series, cash requirements and cash available for investment in the Series, and all other information as may be reasonably necessary for the Sub-Adviser to perform its responsibilities hereunder. b. The Manager has furnished the Sub-Adviser a copy of the prospectus and statement of additional information of the Series and agrees during the continuance of this Agreement to furnish the Sub-Adviser copies of any revisions or supplements thereto at, or, if practicable, before the time the revisions or supplements become effective. The Manager agrees to furnish the Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to the Series to the extent they may affect the duties of the Sub-Adviser, and with copies of any financial statements or reports made by the Series to its shareholders, and any further materials or information which the Sub-Adviser may reasonably request to enable it to perform its functions under this Agreement. 2 3. CUSTODIAN. The Manager shall provide the Sub-Adviser with a copy of the Series' agreement with the custodian designated to hold the assets of the Series (the "Custodian") and any modifications thereto (the "Custody Agreement"), copies of such modifications to be provided to the Sub-Adviser a reasonable time in advance of the effectiveness of such modifications. The assets of the Series shall be maintained in the custody of the Custodian identified in, and in accordance with the terms and conditions of, the Custody Agreement (or any sub-custodian properly appointed as provided in the Custody Agreement). The Sub-Adviser shall have no liability for the acts or omissions of the Custodian, unless such act or omission is taken solely in reliance upon instruction given to the Custodian by a representative of the Sub-Adviser properly authorized to give such instruction under the Custody Agreement. Any assets added to the Series shall be delivered directly to the Custodian. 4. PROPRIETARY RIGHTS. The Manager agrees and acknowledges that the Sub-Adviser is the sole owner of the name "Harris Associates L.P./Oakmark Funds" and that all use of any designation consisting in whole or part of "Harris Associates L.P./Oakmark Funds" under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own behalf and on behalf of the Series agrees not to use any such designation in any advertisement or sales literature or other materials promoting the Series, except with the prior written consent of the Sub-Adviser. Without the prior written consent of the Sub-Adviser, the Manager shall not, and the Manager shall use its best efforts to cause the Series not to, make representations regarding the Sub-Adviser in any disclosure document, advertisement or sales literature or other materials relating to the Series. Upon termination of this Agreement for any reason, the Manager shall cease, and the Manager shall use its best efforts to cause the Series to cease, all use of any such designation as soon as reasonably practicable. 5. EXPENSES. Except for expenses specifically assumed or agreed to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any organizational, operational or business expenses of the Manager or the Trust including, without limitation, (a) interest and taxes, (b) brokerage commissions and other costs in connection with the purchase or sale of securities or other investment instruments with respect to the Series, and (c) custodian fees and expenses. Any reimbursement of advisory fees required by any expense limitation provision of any law shall be the sole responsibility of the Manager. The Manager and the Sub-Adviser shall not be considered as partners or participants in a joint venture. The Sub-Adviser will pay its own expenses incurred in furnishing the services to be provided by it pursuant to this Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be entitled to any compensation from the Manager or the Trust with respect to service by any affiliated person of the Sub-Adviser as an officer or trustee of the Trust (other than the compensation to the Sub-Adviser payable by the Manager pursuant to Section 7 hereof). 6. PURCHASE AND SALE OF ASSETS. The Sub-Adviser shall place all orders for the purchase and sale of securities for the Series with brokers or dealers selected by the Sub-Adviser, which may include brokers or dealers affiliated with the Sub-Adviser, provided such orders comply with Rule 3 17e-1 under the 1940 Act in all respects. To the extent consistent with applicable law, purchase or sell orders for the Series may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain execution of transactions for the Series at prices which are advantageous to the Series and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Adviser may select brokers or dealers on the basis that they provide brokerage, research or other services or products to the Series and/or other accounts serviced by the Sub-Adviser. To the extent consistent with applicable law, the Sub-Adviser may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research services or products, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Adviser and its affiliates have with respect to the Series or to accounts over which they exercise investment discretion. Not all such services or products need be used by the Sub-Adviser in managing the Series. To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, the Sub-Adviser may allocate brokerage transactions in a manner that takes into account the sale of shares of one or more funds distributed by CDC IXIS Asset Management Distributors, L.P. ("CDC IXIS Distributors"). In addition, the Sub-Adviser may allocate brokerage transactions to broker-dealers (including affiliates of CDC IXIS Distributors) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a fund toward the reduction of that fund's expenses, subject to the policy of best execution. 7. COMPENSATION OF THE SUB-ADVISER. As full compensation for all services rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder, the Sub-Adviser shall be paid at the annual rate of 0.45% of the first $250 million of the average daily net assets of the Series; 0.40% of the next $250 million of the average daily net assets of the Series; and 0.35% of such assets in excess of $500 million (or such lesser amount as the Sub-Adviser may from time to time agree to receive). Such compensation shall be paid by the Trust (except to the extent that the Trust, the Sub-Adviser and the Manager otherwise agree in writing from time to time). Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Manager is paid by the Series pursuant to the Advisory Agreement. 8. NON-EXCLUSIVITY. The Manager and the Trust on behalf of the Series agree that the services of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its affiliates are free to act as investment manager and provide other services to various investment companies and other managed accounts. This Agreement shall not in any way limit or restrict the Sub-Adviser or any of its directors, officers, employees or 4 agents from buying, selling or trading any securities or other investment instruments for its or their own account or for the account of others for whom it or they may be acting, provided that such activities do not adversely affect or otherwise impair the performance by the Sub-Adviser of its duties and obligations under this Agreement. The Manager and the Trust recognize and agree that the Sub-Adviser may provide advice to or take action with respect to other clients, which advice or action, including the timing and nature of such action, may differ from or be identical to advice given or action taken with respect to the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an independent contractor and shall, unless otherwise provided or authorized, have no authority to act for or represent the Trust or the Manager in any way or otherwise be deemed an agent of the Series or the Manager. 9. LIABILITY. Except as may otherwise be provided by the 1940 Act or other federal securities laws, neither the Sub-Adviser nor any of its officers, directors, partners, employees or agents (the "Indemnified Parties") shall be subject to any liability to the Manager, the Trust, the Series or any shareholder of the Series for any error of judgment, any mistake of law or any loss arising out of any investment or other act or omission in the course of, connected with, or arising out of any service to be rendered under this Agreement, except by reason of willful misfeasance, bad faith or gross negligence in the performance of the Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its obligations and duties hereunder. The Manager shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost, damage or expense (including reasonable attorneys fees and costs) arising from any claim or demand by any past or present shareholder of the Series that is not based upon the obligations of the Sub-Adviser under this Agreement. The Manager acknowledges and agrees that the Sub-Adviser makes no representation or warranty, expressed or implied, that any level of performance or investment results will be achieved by the Series or that the Series will perform comparably with any standard or index, including other clients of the Sub-Adviser, whether public or private. 10. EFFECTIVE DATE AND TERMINATION. This Agreement shall become effective as of the date of its execution, and a. unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval; b. this Agreement may at any time be terminated on sixty days' written notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series; 5 c. this Agreement shall automatically terminate in the event of its assignment or upon the termination of the Advisory Agreement; and d. this Agreement may be terminated by the Sub-Adviser on ninety days' written notice to the Manager and the Trust, or by the Manager on ninety days' written notice to the Sub-Adviser. Termination of this Agreement pursuant to this Section 10 shall be without the payment of any penalty. 11. AMENDMENT. This Agreement may be amended at any time by mutual consent of the Manager and the Sub-Adviser, provided that, if required by law, such amendment shall also have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval. 12. CERTAIN DEFINITIONS. For the purpose of this Agreement, the terms "vote of a majority of the outstanding voting securities," "interested person," "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. 13. GENERAL. a. The Sub-Adviser may perform its services through any employee, officer or agent of the Sub-Adviser, and the Manager shall not be entitled to the advice, recommendation or judgment of any specific person; provided, however, that the persons identified in the prospectus of the Series shall perform the day-to-day portfolio management duties described therein until the Sub-Adviser notifies the Manager that one or more other employees, officers or agents of the Sub-Adviser, identified in such notice, shall assume such duties as of a specific date. b. If any term or provision of this Agreement or the application thereof to any person or circumstances is held to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the fullest extent permitted by law. c. In accordance with Regulation S-P, if non-public personal information regarding either party's customers or consumers is disclosed to the other party in connection with this Agreement, 6 the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement. d. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts. CDC IXIS Asset Management Advisers, L.P. By CDC IXIS Asset Management Distribution Corporation, its general partner By:______________________________ Name: John T. Hailer Title: President Harris Associates L.P. By Harris Associates Inc., its general partner By:______________________________ Name: Title: CDC NVEST FUNDS TRUST II, on behalf of its CDC Nvest Growth and Income Fund series By:______________________________ Name: John T. Hailer Title: President 7 NOTICE A copy of the Agreement and Declaration of Trust establishing CDC Nvest Funds Trust II (the "Fund") is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Fund's CDC Nvest Growth and Income Fund series (the "Series") on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series. 8 EX-99.E 5 e6.txt EXHIBIT E6 07-02 Exhibit (e)(6) CDC IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 Dealer Agreement As dealer for our own account, we offer to sell to you shares of each of the mutual funds distributed by us (the "Funds" and each a "Fund"), for each of which Funds we are a principal underwriter as defined in the Investment Company Act of 1940, as amended (the "Act"), and from which we have the right to purchase shares. With respect to each of the Funds (except for paragraph 4, which applies only with respect to each Fund having in effect from time to time a service plan, service and distribution plan or other plan adopted pursuant to Rule 12b-1 under the Act): 1. In all sales of shares of the Funds you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent, broker or employee for any of the Funds or for us. You agree not to purchase any Fund shares for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the then current Prospectus of the applicable Fund. You hereby represent that you understand your obligation to deliver a Prospectus to customers who purchase Fund shares pursuant to federal securities laws and you have taken all necessary steps to comply with such Prospectus delivery requirements. 2. Orders received from you will be accepted by us only at the public offering price applicable to each order, except for transactions to which a reduced offering price applies as provided in the then current Prospectus (which term as hereinafter used shall include the Statement of Additional Information) of the Fund(s). The minimum dollar purchase of shares of each Fund by any investor shall be the applicable minimum amount described in the then current Prospectus of the Fund and no order for less than such amount will be accepted hereunder. The public offering price shall be the net asset value per share plus the sales charge, if any, applicable to the transaction, expressed as a percentage of the public offering price, as determined and effective as of the time specified in the then current Prospectus of the Fund(s). The procedures relating to the handling of orders shall be subject to any instructions that we shall forward from time to time to you. All orders are subject to acceptance or rejection by us in our sole discretion. You hereby agree to comply with the attached Policies and Procedures with Respect to the Sales of Shares of Funds Offering Multiple Classes of Shares. 3. The sales charge applicable to any sale of Fund shares by you and the dealer concession or commission applicable to any order from you for the purchase of Fund shares accepted by us shall be set forth in the then current Prospectus of the Fund. You may be deemed to be an underwriter in connection with sales by you of shares of the Fund where you receive all or substantially all of the sales charge as set forth in the Fund's Prospectus, and therefore you may be subject to applicable provisions of the Securities Act of 1933. We are entitled to a contingent deferred sales charge ("CDSC") on redemptions of applicable Classes of shares of the Funds, as described in the then current Prospectus. You agree that you will sell shares subject to a CDSC and that are to be held in omnibus accounts only if you are a NETWORKING participant with the National Securities Clearing Corporation and if such accounts are established pursuant to a NETWORKING Agreement. Reduced sales charges or no sales charge may apply to certain transactions under letter of intent, combined purchases or investments, reinvestment of dividends and distributions, repurchase privilege, unit investment trust distribution reinvestment or other programs, as described in the then current Prospectus of the Fund(s). To obtain any such reductions, you must notify us when the sale that would qualify for such reduction takes place. 4. Rule 12b-1 Plans. The substantive provisions of this Paragraph 4 have been adopted pursuant to Rule 12b-1 under the Act by certain Funds, under plans pursuant to such Rule (each a "Plan"). (a) You agree to provide (i) for the Funds with a Service Plan, personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts, and (ii) for those Funds with a Service and Distribution Plan, both personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts and also distribution and marketing services in the promotion of Fund shares. As compensation for these services, we shall pay you, upon receipt by us from the Fund(s), a quarterly service fee or service fee and distribution fee based on the average daily net asset value of Fund shares at the rate set forth with respect to the relevant Class(es) of shares of the Fund(s) in the then current Prospectus. This fee will be based on the average daily net asset value of Fund shares which are owned of record by your firm as nominee for your customers or which are owned by those shareholders whose records, as maintained by the Fund or its agent, designate your firm as the shareholder's dealer of record. No such fee will be paid to you with respect to shares purchased by you or your customers and redeemed or repurchased by the Fund or by us as agent within seven (7) business days after the date of our confirmation of such purchase. No such fee will be paid to you with respect to any of your customers if the amount of such fee based upon the value of such customer's Fund shares would be less than $5.00. Normally, payment of such fee to you shall be made within forty-five (45) days after the close of each quarter for which such fee is payable provided, however, that any other provision of this Agreement or the Prospectuses to the contrary notwithstanding, we shall not have any obligation whatsoever to pay any amount of distribution and/or service fee with respect to shares of any Fund except to the extent, and only to the extent, that we have actually received payment of at least such amount of distribution and/or service fee from the Funds with respect to such shares pursuant to a Plan in consideration of you furnishing distribution and client services hereunder with respect to your customers that own such class of shares of such Fund 1 (b) You shall furnish us and the Fund with such information as shall reasonably be requested by the Trustees of the Fund with respect to the fees paid to you pursuant to this paragraph 4. (c) The provisions of this Paragraph 4 may be terminated by the vote of a majority of the Trustees of the Funds who are not interested persons of the Funds and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, or by a vote of a majority of the Fund's outstanding shares, on sixty (60) days' written notice, without payment of any penalty. Such provisions will be terminated also by any act that terminates either the Fund's Distribution Contract or Underwriting Agreement with us or this Dealer Agreement and shall terminate automatically in the event of the assignment (as that term is defined in the Act) of this Dealer Agreement. (d) The provisions of the Distribution Contract or Underwriting Agreement between the Fund and us, insofar as they relate to the Plan, are incorporated herein by reference. The provisions of this paragraph 4 shall continue in full force and effect only so long as the continuance of the Plan, the Distributor's Contract or Underwriting Agreement and these provisions are approved at least annually by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting thereon. 5. You agree to purchase Fund shares only from us or from your customers. If you purchase Fund shares from us, you agree that all such purchases shall be made only: (a) to cover orders already received by you from your customers; (b) for shares being acquired by your customers pursuant to either the exchange privilege or the reinvestment privilege, as described in the then current Prospectus of the Fund; (c) for your own bona fide investment; or (d) for investments by any IRS qualified pension, profit sharing or other trust established for the benefit of your employees or for investments in Individual Retirement Accounts established by your employees, and if you so advise us in writing prior to any sale of Fund shares pursuant to this subparagraph (d), you agree to waive all your dealer concessions with respect to all sales of Fund shares pursuant to this subparagraph (d). If you purchase shares from your customers, you agree to pay such customers not less than the applicable redemption price next quoted by the Fund pursuant to the procedures set forth in the then current Prospectus of the Fund. 6. You shall sell shares only: (a) to customers at the applicable public offering price, except for shares being acquired by your customers at net asset value pursuant to either the exchange privilege or the repurchase privilege as described in the then current Prospectus of the Fund, and (b) to us as agent for the Fund at the redemption price. In such a sale to us, you may act as either as principal for your own account or as agent for your customer. If you act as principal for your own account in purchasing shares for resale to us, you agree to pay your customer not less than the price that you receive from us. If you act as agent for your customer in selling shares to us, you agree not to charge your customer more than a fair commission or fee for handling the transaction, except that you agree to receive no compensation of any kind based on the reinvestment of redemption or repurchase proceeds pursuant to the repurchase privilege, as described in the current Prospectus of the Fund. 7. You hereby certify that all of your customers' taxpayer identification numbers ("TIN") or social security numbers ("SSN") furnished to us by you are correct and that you will not open an account without providing us with the customer's TIN or SSN. 8. You shall not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding; e.g., by a change in the net asset value from that used in determining the public offering price to your customers. 2 9. We will not accept from you any conditional orders for shares. 10. If any Fund shares sold to you or your customers under the terms of this Agreement are redeemed by the Fund or repurchased by us as agent for the Fund within seven (7) business days after the date of our confirmation of the original purchase by you or your customers, it is agreed that you shall forfeit your right to the dealer concession or commission received by you on such Fund shares. We will notify you of any such repurchase or redemption within ten (10) business days after the date thereof and you shall forthwith refund to us the entire concession or commission allowed or paid to you on such sale. We agree, in the event of any such repurchase or redemption, to refund to the Fund the portion of the sales charge, if any, retained by us and, upon receipt from you of the concession allowed to you on any Fund shares, to pay such refund forthwith to the Fund. 11. Payment for Fund shares sold to you shall be made on or before the settlement date specified in our confirmation, at the office of our clearing agent, and by check payable to the order of the Fund, which reserves the right to delay issuance, redemption or transfer of shares until such check has cleared. If such payment is not received by us, we reserve the right, without notice, forthwith either to cancel the sale, or at our option, or to sell the shares ordered back to the Fund, in which case you shall bear any loss resulting from your failure to make payment as aforesaid. 12. You will also act as principal in all purchases by a shareholder for whom you are the dealer of record of Fund shares with respect to payments sent directly by such shareholder to the Shareholder Services and Transfer agent (the "Agent") specified in the then current Prospectus of the Fund, and you authorize and appoint the Agent to execute and confirm such purchases to such shareholders on your behalf. The Agent will remit not less frequently than monthly to you the amount of any concessions due with respect to such purchases, except that no concessions will be paid to you on any transaction for which your net sales concession is less than $5.00 in any one month. You also represent that with respect to all such direct purchases by such shareholder, you may lawfully sell shares of such Fund in the state designated as such shareholder's record address. 13. Stock certificates for shares sold to you shall be issued only if specifically requested and upon terms specified from time to time by the Trustees of the Fund. If no open account registration or transfer instructions are received by the Agent within 20 days after payment by you for shares sold to you, an open account for such shares will be established in your name. You agree to hold harmless and indemnify us, the Agent and the Fund, for any loss or expenses resulting from such open account registration of such shares. 14. No person is authorized to make any representations concerning shares of the Funds except those contained in the then current Prospectuses of the Funds and in sales literature issued by us supplemental to such Prospectuses or approved in writing by us. In purchasing shares from us, you shall rely solely on the representations contained in such Prospectuses and such sales literature. We will furnish you with additional copies of such Prospectuses and such sales literature and other releases and information issued by us in reasonable quantities upon request. If, with prior approval from us, you use any advertisement or sales literature which has not been supplied by us, you are responsible for ensuring that the material complies with all applicable regulations and has been filed with the appropriate authorities. Also, you will send us copies of all such materials within (10) days after first use. You shall indemnify and hold us (and our directors, officers, employees, controlling persons and agents) and the Fund and its Trustees and officers harmless from and against any and all losses, claims, liabilities and expenses (including reasonable attorneys' fees) ("Losses") incurred by us or any of them arising out of (i) your dissemination of information regarding any Fund that is alleged to contain an untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and that was not published or provided to you by or on behalf of us, or accurately derived from information published or provided by or on behalf of us or any of our Affiliates, (ii) any breach by you of any representation, warranty or agreement contained in this Agreement, or (iii) any willful misconduct or negligence on your part in the performance of, or failure to perform, your obligations under this Agreement, except to the extent such losses are caused by our breach of this Agreement or our willful misconduct or negligence in the performance, or failure to perform, our obligations under this Agreement. This Section (14) shall survive termination of this Agreement. 15. The Fund reserves the right in its discretion and we reserve the right in our discretion, without notice, to refuse any order for the purchase of Fund shares for any reason whatsoever, and to suspend sales or withdraw the offering of Fund shares (or shares of any class(es)) entirely. We reserve the right, by written notice to you, to amend, modify, cancel or assign this Dealer Agreement. Notice for all purposes shall be deemed to be given when mailed or electronically transmitted to you. 3 16. This Dealer Agreement shall replace any prior agreement between you and us or any of our predecessor entities (including but not limited to Nvest Funds Distributor, L.P., New England Funds, L.P., TNE Investment Services Corporation, and Investment Trust of Boston Distributors, Inc.) and is conditioned upon your representation and warranty that you are (i) registered as a broker/dealer under the Securities Exchange Act of 1934, as amended, and are a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"), (ii) a Registered Investment Adviser under state and/or federal law, (iii) ineligible for NASD membership because you are a foreign dealer, or (iv) bank chartered by the appropriate state or federal agency and authorized to enter into and perform the transactions contemplated by this agreement. Regardless of whether you qualify, under (i), (ii) (iii) or (iv), you and we agree to abide by the Rules and Regulations of the NASD, including without limitation Conduct Rules 2310, 2420, 3110, and 2830, and all applicable state and federal laws, rules and regulations. You will not offer Fund shares for sale in any state (a) where they are not qualified for sale under the blue sky laws and regulations of such state or (b) where you are not qualified to act as a dealer or adviser. In the event that you offer Fund shares outside the United States, you agree to comply with the applicable laws, rules and regulations of the foreign government having jurisdiction over such sales, including any regulations of United States military authorities applicable to solicitations to military personnel. 17. If non-public personal information regarding either party's customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement and in accordance with Regulation S-P. 18. Each party to this agreement hereby agrees to abide by and comply with all relevant anti-money laundering laws and regulations, including without limitation the Bank Secrecy Act, as amended, and the USA Patriot Act of 2001. Each party represents that it has established an Anti-Money Laundering Program that complies with all material aspects of the USA Patriot Act of 2001 and other applicable anti-money laundering laws and regulations. Each party also hereby agrees to comply with any new or additional anti-money laundering laws or regulations. 19. All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or faxed to you at the address specified by you below. This Agreement shall be effective when accepted by you below and shall be governed by and construed under the laws of the Commonwealth of Massachusetts. Accepted: CDC IXIS Asset Management Distributors, L.P. _______________________________ By:________________________________________ Dealer's Name Address - ------------------------------- By:____________________________ Authorized Signature of Dealer - ------------------------------- (Please print name) Date:__________________________ 4 POLICIES AND PROCEDURES WITH RESPECT TO SALES OF FUNDS OFFERING MULTIPLE CLASSES OF SHARES In connection with the offering of certain Funds (the Funds") with multiple classes of shares, one subject to a front-end sales load and a service fee or service and distribution fee ("Class A shares"), one subject to a service fee, a distribution fee, no front-end sales load and a contingent deferred sales charge ("CDSC") on redemptions within a time period specified in the then current Prospectus (which for purposes of these policies and procedures shall include the Funds' then current statement of additional information) of the Fund ("Class B shares"), one subject to a front-end sales load, service fee, distribution fee and a CDSC on redemptions within a period specified in the then current Prospectus of the Fund ("Class C shares") and one intended only for certain institutional investors and subject to no front-end sales load ("Class Y shares"), an investor must choose the method of purchasing shares which best suits his/her particular circumstances. To assist investors in these decisions, the Distributor has instituted the following policies with respect to orders for Fund shares. These policies apply to every entity distributing Fund shares. 1. No purchase order may be placed for Class B shares if the amount of the orders equals or exceeds $1,000,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares, as provided in the Prospectus. 2. No purchase order may be placed for Class C shares if the amount of the order equals or exceeds $1,000,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares unless the investor indicates on the relevant section of the application that the investor has been advised of the relative advantages and disadvantages of Classes A and C shares. 3. Any purchase order for less than $1,000,000 may be for either Class A, B or C shares in light of the relevant facts and circumstances, including: a) the specific purchase order dollar amount; b) the length of time the investor expects to hold his/her shares; and c) any other relevant circumstances such as the availability of purchase under a Letter of Intent, Breakpoints (a volume discount), or Rights of Accumulation, as described in the Prospectus. 4. Investors may purchase Class Y shares only if they meet the identity, suitability, minimum investment and other standards set forth in the Funds' then current Class Y Prospectuses: a) tax-qualified retirement plans ($2,000,000 minimum initial investment); b) endowments, foundations and other tax-qualified organizations ($1,000,000 minimum initial investment); c) separate accounts of certain insurance companies (no minimum); d) omnibus accounts of retirement plans with at least 500 eligible plan participants and $1,000,000 of plan assets. Investors otherwise eligible to purchase Class Y shares but who will not make the initial minimum investment amount are eligible to invest in Class A, B or C shares. They should be advised, however, of the lower fees and expenses applicable to Class Y shares and should consider whether a larger investment, to meet the Class Y requirements, would be appropriate and desirable for their circumstances. There are instances when purchasing one class of shares may be more appropriate than the others. For example, investors who would qualify for a significant discount from the maximum sales load on Class A shares may determine that payment of such a reduced front-end sales load and service fee is preferable to payment of a higher ongoing distribution fee. Investors whose orders would not qualify for such a discount and who anticipate holding their investment for more than eight years might consider Class B shares because 100% of the purchase price is invested immediately. Investors making smaller investments who anticipate redeeming their shares within eight years might consider Class C shares for the same reason. Appropriate supervisory personnel within your organization must ensure that all employees and representatives receiving investor inquiries about the purchase of shares of a Fund advise the investor of then available pricing structures offered by the Funds, and the impact of choosing one class of shares over another. In some instances it may be appropriate for a supervisory person to discuss a purchase with the investor. This policy is effective with respect to any order for the purchase of shares of a Fund offering multiple classes of shares. Questions relating to this policy should be directed to John T. Hailer, President and Chief Executive Officer, CDC IXIS Asset Management Distributors, L.P. at (617) 449-2500. 5 EX-99.G 6 exhg1.txt EXHIBIT G1 Exhibit (g)(1) CUSTODIAN AGREEMENT AGREEMENT made as of this 1st day of May, 2002, between CDC Nvest Funds Trust I, a Massachusetts business trust (the "Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank"). The Fund, an open-end management investment company on behalf of its series listed on Appendix A hereto (as such Appendix A may be amended from time ---------- ---------- to time by mutual agreement of the parties) (each a "Portfolio" and, collectively, the "Portfolios"), desires to place and maintain all of its portfolio securities and cash in the custody of the Bank. The Bank has at least the minimum qualifications required by Section 17(f)(1) of the Investment Company Act of 1940, as amended (the "1940 Act"), to act as custodian of the portfolio securities and cash of the Fund, and has indicated its willingness to so act, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows: 1. Bank Appointed Custodian. The Fund hereby appoints the Bank as ------------------------ custodian of its portfolio securities and cash delivered to the Bank as hereinafter described and the Bank agrees to act as such upon the terms and conditions hereinafter set forth. For the services rendered pursuant to this Agreement the Fund, on behalf of the Portfolios, agrees to pay to the Bank fees as may be agreed to from time to time in writing between the parties. 2. Definitions. Whenever used herein, the terms listed below will have ----------- the following meaning: 2.1 Authorized Person. Authorized Person will mean the President, any ----------------- Vice President, the Treasurer, the Secretary and any Assistant Secretary of the Fund and any of the persons duly authorized to give Proper Instructions or otherwise act on behalf of the Fund by appropriate resolution of its Board, and set forth in a certificate as required by Section 4 hereof. 2.2 Board. Board will mean the Board of Trustees of the Fund. ----- 2.3 Security. The term security as used herein will have the same -------- meaning assigned to such term in the 1940 Act, as amended, including, without limitation, any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the foregoing. -1- 2.4 Portfolio Security. Portfolio Security will mean any security ------------------ owned by the Fund. 2.5 Officers' Certificate. Officers' Certificate will mean, unless --------------------- otherwise indicated, any request, direction, instruction, or certification in writing signed by any two Authorized Persons of the Fund. 2.6 Book-Entry System. Book-Entry System shall mean the Federal ----------------- Reserve-Treasury Department Book Entry System for United States government, instrumentality and agency securities operated by the Federal Reserve Bank, its successor or successors and its nominee or nominees, as described in Section (b)(2) of Rule 17f-4 under the 1940 Act. 2.7 Depository. Depository shall mean The Depository Trust Company ---------- ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as amended ("Exchange Act"), its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any other person authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Board. 2.8 Proper Instructions. Proper Instructions shall mean (i) ------------------- instructions regarding the purchase or sale of Portfolio Securities, and payments and deliveries in connection therewith, given by an Authorized Person, such instructions to be given in such form and manner as the Bank and the Fund shall agree upon from time to time, and (ii) instructions (which may be continuing instructions) regarding other matters signed or initialed by an Authorized Person. Except as otherwise set forth herein, oral instructions will be considered Proper Instructions if the Bank reasonably believes them to have been given by an Authorized Person. The Fund shall cause all oral instructions to be promptly confirmed in writing. The Bank shall act upon and comply with any subsequent Proper Instruction which modifies a prior instruction and the sole obligation of the Bank with respect to any follow-up or confirming instruction shall be to make reasonable efforts to detect any discrepancy between the original instruction and such confirmation and to report such discrepancy to the Fund. The Fund shall be responsible, at the Fund's expense, for taking any action, including any reprocessing, necessary to correct any such discrepancy or error, and to the extent such action requires the Bank to act, the Fund shall give the Bank specific Proper Instructions as to the action required. Upon receipt by the Bank of an Officers' Certificate as to the authorization by the Board accompanied by a detailed description of procedures approved by the Fund, Proper Instructions may include communication effected directly between electro-mechanical or electronic devices provided that the Fund and the Bank agree in writing that such procedures afford adequate safeguards for the Fund's assets. 3. Separate Accounts. So long as the Fund has more than one Portfolio, ----------------- the Bank will segregate the assets of each Portfolio to which this Agreement relates into a separate account for each such Portfolio containing the assets of such Portfolio (and all investment earnings thereon). Unless the context otherwise requires, any reference in this Agreement to any actions to be taken by the Fund shall be deemed to refer to the Fund acting on behalf of one or more of its Portfolios, any reference in this Agreement to any assets of the Fund, including, without limitation, any Portfolio Securities and cash and earnings thereon, shall be deemed to refer only to assets of the applicable Portfolio, any duty or obligation of the Bank hereunder to the Fund shall be deemed to refer to duties and obligations with respect to such individual Portfolio and any obligation or liability of the Fund hereunder shall be binding only with respect to such individual Portfolio, and shall be discharged only out of the assets of such Portfolio. -2- 4. Certification as to Authorized Persons. The Secretary or an -------------------------------------- Assistant Secretary of the Fund will at all times maintain on file with the Bank his or her certification to the Bank, in such form as may be acceptable to the Bank, of (i) the names and signatures of the Authorized Persons and (ii) the names of the members of the Board, it being understood that upon the occurrence of any change in the information set forth in the most recent certification on file (including without limitation any person named in the most recent certification who is no longer an Authorized Person as designated therein), the Secretary or an Assistant Secretary of the Fund will sign a new or amended certification setting forth the change and the new, additional or omitted names or signatures. The Bank will be entitled to rely and act upon any Officers' Certificate given to it by the Fund which has been signed by Authorized Persons named in the most recent certification received by the Bank. 5. Custody of Cash. As custodian for the Fund, the Bank will open and --------------- maintain a separate account or accounts in the name of the Fund or in the name of the Bank, as Custodian of the Fund, and will deposit to the account of the Fund all of the cash of the Fund, except for cash held by a subcustodian appointed pursuant to Sections 14.2 or 14.3 hereof and cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act, including borrowed funds, delivered to the Bank, subject only to draft or order by the Bank acting pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which may be continuing instructions) or, in the case of payments for redemptions and repurchases of outstanding shares of common stock of the Fund, notification from the Fund's transfer agent as provided in Section 7, requesting such payment, designating the payee or the account or accounts to which the Bank will release funds for deposit, and stating that it is for a purpose permitted under the terms of this Section 5, specifying the applicable subsection, the Bank will make payments of cash held for the accounts of the Fund, insofar as funds are available for that purpose but only as permitted in subsections 5.1-5.9 below. 5.1 Purchase of Securities. Upon the purchase of securities for the ---------------------- Fund, against contemporaneous receipt of such securities by the Bank or, with respect only to securities held outside the United States, against delivery of such securities to the Bank in accordance with generally accepted settlement practices and customs with respect to the assets of registered investment companies in the jurisdiction or market in which the transaction occurs, or with respect to transactions for which a written Proper Instruction specifically instructs the Bank that it is not required to purchase securities against contemporaneous receipt, registered in the name of the Fund or in the name of, or properly endorsed and in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the account of the Bank pursuant to the provisions of Section 6 below, each such payment to be made at the purchase price shown on a broker's confirmation (or transaction report in the case of Book-Entry Paper (as that term is defined in Section 6.6 hereof)) of purchase of the securities received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made. 5.2 Redemptions. In such amount as may be necessary for the repurchase ----------- or redemption of shares of beneficial interest in the Fund offered for repurchase or redemption in accordance with Section 7 of this Agreement. 5.3 Distributions and Expenses of Fund. For the payment on the account ---------------------------------- of the Fund, in each case in accordance with Proper Instructions, of dividends or other distributions to shareholders as may from time to time be declared by the Board, interest, taxes, management or supervisory fees, distribution fees, fees of the Bank for its services hereunder and reimbursement of the expenses and liabilities of the Bank, as provided hereunder, fees of any transfer agent, fees for legal, accounting, and auditing services, or other operating expenses of the Fund. -3- 5.4 Payment in Respect of Securities. For payments in connection with -------------------------------- the conversion, exchange or surrender of Portfolio Securities or securities subscribed to by the Fund held by or to be delivered to the Bank. 5.5 Repayment of Loans. To repay loans of money made to the Fund, but, ------------------ in the case of final payment, only upon redelivery to the Bank of any Portfolio Securities pledged or hypothecated therefor and upon surrender of documents evidencing the loan. 5.6 Repayment of Cash. To repay the cash delivered to the Fund for the ----------------- purpose of collateralizing the obligation to return to the Fund securities borrowed from the Fund representing Portfolio Securities, but only upon redelivery to the Bank of such borrowed securities. 5.7 Foreign Exchange Transactions. ----------------------------- (a) For payments in connection with foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery (collectively, "Foreign Exchange Agreements") which may be entered into by the Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper Instructions to specify the currency broker or banking institution (which may be the Bank, or any other subcustodian or agent hereunder, acting as principal) with which the contract or option is made, and the Bank shall have no duty with respect to the selection of such currency brokers or banking institutions with which the Fund deals or for their failure to comply with the terms of any contract or option. (b) In order to secure any payments in connection with Foreign Exchange Agreements which may be entered into by the Bank with or on behalf of the Fund pursuant to Proper Instructions, the Fund agrees that the Bank shall have a continuing lien and security interest, to the extent of any payment due under any Foreign Exchange Agreement, in and to any property at any time held by the Bank for the Fund's benefit or in which the Fund has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any such payment due under any Foreign Exchange Agreement against any balance of account standing to the credit of the Fund on the Bank's books. 5.8 Other Authorized Payments. For other authorized transactions of the ------------------------- Fund, or other obligations of the Fund incurred for proper Fund purposes; provided that before making any such payment the Bank will also receive a certified copy of a resolution of the Board signed by an Authorized Person (other than the Person certifying such resolution) and certified by its Secretary or an Assistant Secretary, naming the person or persons to whom such payment is to be made, and either describing the transaction for which payment is to be made and declaring it to be an authorized transaction of the Fund, or specifying the amount of the obligation for which payment is to be made, setting forth the purpose for which such obligation was incurred and declaring such purpose to be a proper trust or corporate purpose. 5.9 Termination. Upon the termination of this Agreement as hereinafter ----------- set forth pursuant to Section 16 of this Agreement and upon (i) the merger of any Portfolio or Portfolios into or the consolidation of any Portfolio or Portfolios with any investment company or series thereof or (ii) the liquidation or dissolution of any Portfolio or Portfolios. 5.10 Availability of Federal Funds. Upon mutual agreement between the ----------------------------- Fund and the Bank, the Bank shall, upon receipt of Proper Instructions, make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Bank in the amount of checks received in payment for shares of beneficial interest in the Fund which are deposited into an account of the Fund. -4- 6. Securities. ---------- 6.1 Segregation and Registration. Except as otherwise provided herein, ---------------------------- and except for securities to be delivered to any subcustodian appointed pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold pursuant to the provisions hereof, in a separate account or accounts and physically segregated at all times from those of other persons, any and all Portfolio Securities which may now or hereafter be delivered to it by or for the account of the Fund. All such Portfolio Securities will be held or disposed of by the Bank for, and subject at all times to, the instructions of the Fund pursuant to the terms of this Agreement. Subject to the specific provisions herein relating to Portfolio Securities that are not physically held by the Bank, the Bank will register all Portfolio Securities (unless otherwise directed by Proper Instructions or an Officers' Certificate), in the name of a registered nominee of the Bank in which name are held no securities or other property in which the Bank or any affiliate of the Bank has any direct or indirect interest, and will execute and deliver all such certificates in connection therewith as may be required by such laws or regulations or under the laws of any state. The Fund will from time to time furnish to the Bank appropriate instruments to enable it to hold or deliver in proper form for transfer, or to register in the name of its registered nominee, any Portfolio Securities which may from time to time be registered in the name of the Fund. 6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank ------------------ will vote any of the Portfolio Securities held hereunder, except in accordance with Proper Instructions or an Officers' Certificate. The Bank will execute and deliver, or cause to be executed and delivered, to the Fund all notices, proxies and proxy soliciting materials delivered to the Bank with respect to such Portfolio Securities, such proxies to be executed by the registered holder of such Portfolio Securities (if registered otherwise than in the name of the Fund), but without indicating the manner in which such proxies are to be voted. 6.3 Corporate Action and Information. The Bank shall promptly notify -------------------------------- the Fund of all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and maturity of futures contracts purchased or sold by the Fund) received by the Bank from issuers of Portfolio Securities. If at any time the Bank is notified that an issuer of any Portfolio Security has taken or intends to take a corporate action (a "Corporate Action") that affects the rights, privileges, powers, preferences, qualifications or ownership of a Portfolio Security (including, without limitation, liquidation, consolidation, merger, recapitalization, reorganization, reclassification, subdivision, combination, stock split or stock dividend) which Corporate Action requires an affirmative response or action on the part of the holder of such Portfolio Security (a "Response"), the Bank shall notify the Fund promptly of the Corporate Action, the Response required in connection with the Corporate Action and the Bank's deadline for receipt from the Fund of Proper Instructions regarding the Response (the "Response Deadline"), which shall not be more than 48 hours prior to the Response expiration set by the depository processing such Corporate Action. The Bank shall forward to the Fund via telecopier and/or overnight courier all notices, information statements or other materials relating to the Corporate Action promptly after receipt of such materials by the Bank. (a) The Bank shall act upon a required Response only after receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the date specified as the Response Deadline and only if the Bank (or its agent or subcustodian hereunder) has actual possession of all necessary Portfolio Securities, consents and other materials no later than 5:00 p.m. on the date specified as the Response Deadline. -5- (b) The Bank shall have no duty to act upon a required Response if Proper Instructions relating to such Response and all necessary Portfolio Securities, consents and other materials are not received by and in the possession of the Bank no later than 5:00 p.m. on the date specified as the Response Deadline. Notwithstanding the foregoing, the Bank may, in its sole discretion, use its best efforts to act upon a Response for which Proper Instructions and/or necessary Portfolio Securities, consents or other materials are received by the Bank after 5:00 p.m. on the date specified as the Response Deadline, it being acknowledged and agreed by the parties that any undertaking by the Bank to use its best efforts in such circumstances shall in no way create any duty upon the Bank to complete such Response prior to its expiration. (c) In the event that the Fund notifies the Bank of a Corporate Action requiring a Response and the Bank has received no other notice of such Corporate Action, the Response Deadline shall be 48 hours prior to the Response expiration time set by the depository processing such Corporate Action. (d) Section 14.3(e) of this Agreement shall govern any Corporate Action involving Foreign Portfolio Securities held by an Eligible Foreign Custodian (as defined below). 6.4 Book-Entry System. Provided (i) the Bank has received a certified ----------------- copy of a resolution of the Board specifically approving deposits of Fund assets in the Book-Entry System, and (ii) for any subsequent changes to such arrangements following such approval, the Board has reviewed and approved the arrangement and the Fund has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval: (a) The Bank may keep Portfolio Securities in the Book-Entry System provided that such Portfolio Securities are represented in an account ("Account") of the Bank (or its agent) in such System which shall not include any assets of the Bank (or such agent) other than assets held as a fiduciary, custodian, or otherwise for customers; (b) The records of the Bank (and any such agent) with respect to the Fund's participation in the Book-Entry System through the Bank (or any such agent) will identify by book entry the Portfolio Securities which are included with other securities deposited in the Account and shall at all times during the regular business hours of the Bank be open for inspection by duly authorized officers, employees or agents of the Fund. Where securities are transferred to the Fund's account, the Bank shall also, by book entry or otherwise, identify as belonging to the Fund a quantity of securities in a fungible bulk of securities (i) registered in the name of the Bank or its nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve Bank; (c) The Bank shall pay for securities purchased for the account of the Fund or shall pay cash collateral against the return of Portfolio Securities loaned by the Fund upon (i) receipt of advice from the Book-Entry System that such Securities have been transferred to the Account, and (ii) the making of an entry on the records of the Bank to reflect such payment and transfer for the account of the Fund. The Bank shall transfer securities sold or loaned for the account of the Fund upon (i) receipt of advice from the Book-Entry System that payment for securities sold or payment of the initial cash collateral against the delivery of securities loaned by the Fund has been transferred to the Account; and (ii) the making of an entry on the records of the Bank to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Book-Entry System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Bank and shall be provided to the Fund at its request. The Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers to or from the account of the Fund; -6- (d) The Bank will promptly provide the Fund with any report obtained by the Bank or its agent on the Book-Entry System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Book-Entry System; (e) Upon request, the Bank shall furnish the Fund confirmation of each transfer to or from an account of the Fund in the form of a written advice or notice to the Fund copies of daily transaction sheets reflecting each day's transactions in the Book-Entry System for any account of the Fund; and (f) The Bank shall use commercially reasonable efforts to enforce effectively such rights as it may have against the Book-Entry System; at the election of the Fund, the Fund shall be entitled to be subrogated to the rights of the Bank with respect to any claim against the Book-Entry System or any other person that the Bank may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. 6.5 Use of a Depository. Provided (i) the Bank has received a certified ------------------- copy of a resolution of the Board specifically approving deposits in DTC or other such Depository and (ii) for any subsequent changes to such arrangements following such approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval: (a) The Bank may use a Depository to hold, receive, exchange, release, lend, deliver and otherwise deal with Portfolio Securities including stock dividends, rights and other items of like nature, and to receive and remit to the Bank on behalf of the Fund all income and other payments thereon and to take all steps necessary and proper in connection with the collection thereof; (b) Registration of Portfolio Securities may be made in the name of any nominee or nominees used by such Depository; (c) Payment for securities purchased and sold may be made through the clearing medium employed by such Depository for transactions of participants acting through it. Upon any purchase of Portfolio Securities, payment will be made only upon delivery of the securities to or for the account of the Fund and the Fund shall pay cash collateral against the return of Portfolio Securities loaned by the Fund only upon delivery of the securities to or for the account of the Fund; and upon any sale of Portfolio Securities, delivery of the Portfolio Securities will be made only against payment therefor or, in the event Portfolio Securities are loaned, delivery of Portfolio Securities will be made only against receipt of the initial cash collateral to or for the account of the Fund; and (d) The Bank shall use its best efforts to provide that: (i) The Depository obtains replacement of any certificated Portfolio Security deposited with it in the event such Security is lost, destroyed, wrongfully taken or otherwise not available to be returned to the Bank upon its request; -7- (ii) Proxy materials received by a Depository with respect to Portfolio Securities deposited with such Depository are forwarded immediately to the Bank for prompt transmittal to the Fund; (iii) Such Depository promptly forwards to the Bank confirmation of any purchase or sale of Portfolio Securities and of the appropriate book entry made by such Depository to the Fund's account; (iv) Such Depository prepares and delivers to the Bank such records with respect to the performance of the Bank's obligations and duties hereunder as may be necessary for the Fund to comply with the recordkeeping requirements of Section 31(a) of the 1940 Act and the regulations thereunder; and (v) Such Depository delivers to the Bank all internal accounting control reports, whether or not audited by an independent public accountant, as well as such other reports as the Fund may reasonably request in order to verify the Portfolio Securities held by such Depository. 6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the --------------------------------------------- Bank has received a certified copy of a resolution of the Board specifically approving participation in a system maintained by the Bank for the holding of commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year following such approval the Board has received and approved the arrangements, upon receipt of Proper Instructions and upon receipt of confirmation from an Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund, commercial paper issued by issuers with whom the Bank has entered into a book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry Paper, the Bank agrees that: (a) The Bank will maintain all Book-Entry Paper held by the Fund in an account of the Bank that includes only assets held by it as a fiduciary or custodian for customers; (b) The records of the Bank with respect to the Fund's purchase of Book-Entry Paper through the Bank will identify, by book-entry, commercial paper belonging to the Fund which is included in the Book-Entry System and shall at all times during the regular business hours of the Bank be open for inspection by duly authorized officers, employees or agents of the Fund; (c) The Bank shall pay for Book-Entry Paper purchased for the account of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such sale of Book-Entry Paper has been effected, and (ii) the making of an entry on the records of the Bank to reflect such payment and transfer for the account of the Fund; (d) The Bank shall cancel such Book-Entry Paper obligation upon the maturity thereof upon contemporaneous (i) receipt of advice that payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the making of an entry on the records of the Bank to reflect such payment for the account of the Fund; and (e) The Bank will send to the Fund such reports on its system of internal accounting control with respect to the Book-Entry Paper as the Fund may reasonably request from time to time. 6.7 Use of Immobilization Programs. Provided the Bank has received ------------------------------ Proper Instructions, the Bank shall enter into immobilization programs with any bank acting as a subcustodian hereunder. -8- 6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs -------------- may be physically held by the European branch of the U.S. banking institution that is the issuer of such Eurodollar CD (a "European Branch"), provided that such Portfolio Securities are identified on the books of the Bank as belonging to the Fund and that the books of the Bank identify the European Branch holding such Portfolio Securities. Notwithstanding any other provision of this Agreement to the contrary, except as stated in the first sentence of this subsection 6.8, the Bank shall be under no other duty with respect to such Eurodollar CDs belonging to the Fund. 6.9 Options and Futures Transactions. -------------------------------- (a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-the-Counter. (i) The Bank shall take action as to put options ("puts") and call options ("calls") purchased or sold (written) by the Fund regarding escrow or other arrangements (i) in accordance with the provisions of any agreement entered into upon receipt of Proper Instructions among the Bank, any broker-dealer registered with the National Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations. (ii) Unless another agreement requires it to do so, the Bank shall be under no duty or obligation to see that the Fund has deposited or is maintaining adequate margin, if required, with any broker in connection with any option, nor shall the Bank be under any duty or obligation to present such option to the broker for exercise unless it receives Proper Instructions from the Fund. The Bank shall have no responsibility for the legality of any put or call purchased or sold on behalf of the Fund, the propriety of any such purchase or sale, or the adequacy of any collateral delivered to a broker in connection with an option or deposited to or withdrawn from a Segregated Account (as defined in subsection 6.10 below). The Bank specifically, but not by way of limitation, shall not be under any duty or obligation to: (i) periodically check or notify the Fund that the amount of such collateral held by a broker or held in a Segregated Account is sufficient to protect such broker or the Fund against any loss; (ii) effect the return of any collateral delivered to a broker; or (iii) advise the Fund that any option it holds, has or is about to expire. Such duties or obligations shall be the sole responsibility of the Fund. (b) Puts, Calls and Futures Traded on Commodities Exchanges (i) The Bank shall take action as to puts, calls and futures contracts ("Futures") purchased or sold by the Fund in accordance with the provisions of any agreement entered into upon the receipt of Proper Instructions among the Fund, the Bank and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund. (ii) The responsibilities of the Bank as to futures, puts and calls traded on commodities exchanges, any Futures Commission Merchant account and the Segregated Account shall be limited as set forth in subparagraph (a)(ii) of this Section 6.9 as if such subparagraph referred to Futures Commission Merchants rather than brokers, and Futures and puts and calls thereon instead of options. -9- 6.10 Segregated Account. The Bank shall upon receipt of Proper ------------------ Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund (each a "Segregated Account"). (a) Cash and/or Portfolio Securities may be transferred into a Segregated Account upon receipt of Proper Instructions in the following circumstances: (i) in accordance with the provisions of any agreement among the Fund, the Bank and a broker-dealer registered under the Exchange Act and a member of the NASD or any Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange or the Commodity Futures Trading Commission or any registered contract market, or of any similar organizations regarding escrow or other arrangements in connection with transactions by the Fund; (ii) for the purpose of segregating cash or securities in connection with options purchased or written by the Fund or commodity futures purchased or written by the Fund; (iii) for the deposit of liquid assets, such as cash, U.S. Government securities or other high grade debt obligations, having a market value (marked to market on a daily basis) at all times equal to but not less than the aggregate purchase price due on the settlement dates of all the Fund's then outstanding forward commitment or "when-issued" agreements relating to the purchase of Portfolio Securities and all the Fund's then outstanding commitments under reverse repurchase agreements entered into with broker-dealer firms; (iv) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of Segregated Accounts by registered investment companies; or (v) for other proper trust or corporate purposes, but only, in the case of this clause (v), upon receipt of Proper Instructions. (b) Cash and/or Portfolio Securities may be withdrawn from a Segregated Account pursuant to Proper Instructions in the following circumstances: (i) with respect to assets deposited in accordance with the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in accordance with the provisions of such agreements; (ii) with respect to assets deposited pursuant to (a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's obligations under outstanding forward commitment or when-issued agreements for the purchase of Portfolio Securities and under reverse repurchase agreements; (iii) for exchange for other liquid assets of equal or greater value deposited in the Segregated Account; (iv) to the extent that the Fund's outstanding forward commitment or when-issued agreements for the purchase of portfolio securities or reverse repurchase agreements are sold to other parties or the Fund's obligations thereunder are met from assets of the Fund other than those in the Segregated Account; -10- (v) for delivery upon settlement of a forward commitment or when-issued agreement for the sale of Portfolio Securities; or (vi) with respect to assets deposited pursuant to (a)(v) above, in accordance with the purposes of such account as set forth in Proper Instructions. 6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon -------------------------------------- receipt of Proper Instructions relating to the purchase by the Fund of interest-bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in such amounts and to such bank or banks as shall be indicated in such Proper Instructions. The Bank shall include in its records with respect to the assets of the Fund appropriate notation as to the amount of each such deposit, the banking institution with which such deposit is made (the "Deposit Bank"), and shall retain such forms of advice or receipt evidencing the deposit, if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed Portfolio Securities of the Fund and the responsibility of the Bank therefore shall be the same as and no greater than the Bank's responsibility in respect of other Portfolio Securities of the Fund. 6.12 Transfer of Securities. The Bank will transfer, exchange, deliver ---------------------- or release Portfolio Securities held by it hereunder, insofar as such Portfolio Securities are available for such purpose, provided that the Bank will allow any transfer, exchange, delivery or release under this Section only upon receipt of Proper Instructions. The Proper Instructions shall state that such transfer, exchange or delivery is for a purpose permitted under the terms of this Section 6.12, and shall specify the applicable subsection, or describe the purpose of the transaction with sufficient particularity to permit the Bank to ascertain the applicable subsection. After receipt of such Proper Instructions, the Bank will transfer, exchange, deliver or release Portfolio Securities only in the following circumstances: (a) Upon sales of Portfolio Securities for the account of the Fund, against contemporaneous receipt by the Bank of payment therefor in full, or, with respect only to securities held outside the United States, against payment to the Bank in accordance with generally accepted settlement practices and customs with respect to the assets of registered investment companies in the jurisdiction or market in which the transaction occurs, or, with respect to transactions for which a written Proper Instruction specifically instructs the Bank that it is not required to purchase securities against contemporaneous receipt, in accordance with such written Proper Instructions, each such payment to be in the amount of the sale price shown in a broker's confirmation of sale received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made; (b) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan of merger, consolidation, reorganization, share split-up, change in par value, recapitalization or readjustment or otherwise, upon exercise of subscription, purchase or sale or other similar rights represented by such Portfolio Securities, or for the purpose of tendering shares in the event of a tender offer therefor, provided, however, that in the event of an offer of exchange, tender offer, or other exercise of rights requiring the physical tender or delivery of Portfolio Securities, the Bank shall have no liability for failure to so tender in a timely manner unless such Proper Instructions are received by the Bank at least two business days prior to the date required for tender, and unless the Bank (or its agent or subcustodian hereunder) has actual possession of such Portfolio Security at least two business days prior to the date of tender; -11- (c) Upon conversion of Portfolio Securities pursuant to their terms into other securities; (d) For the purpose of redeeming in-kind shares of the Fund upon authorization from the Fund; (e) In the case of option contracts owned by the Fund, for presentation to the endorsing broker; (f) When such Portfolio Securities are called, redeemed or retired or otherwise become payable; (g) For the purpose of effectuating the pledge of Portfolio Securities held by the Bank in order to collateralize loans made to the Fund by any bank, including the Bank; provided, however, that such Portfolio Securities will be released only upon payment to the Bank for the account of the Fund of the moneys borrowed, provided further, however, that in cases where additional collateral is required to secure a borrowing already made, and such fact is made to appear in the Proper Instructions, Portfolio Securities may be released for that purpose without any such payment. In the event that any pledged Portfolio Securities are held by the Bank, they will be so held for the account of the lender, and after notice to the Fund from the lender in accordance with the normal procedures of the lender and any loan agreement between the fund and the lender that an event of deficiency or default on the loan has occurred, the Bank may deliver such pledged Portfolio Securities to or for the account of the lender; (h) For the purpose of releasing certificates representing Portfolio Securities, against contemporaneous receipt by the Bank of the fair market value of such security, as set forth in the Proper Instructions received by the Bank before such payment is made; (i) For the purpose of delivering securities lent by the Fund to a bank or broker dealer, but only against receipt in accordance with street delivery custom except as otherwise provided herein, of adequate collateral as agreed upon from time to time by the Fund and the Bank, and upon receipt of payment in connection with any repurchase agreement relating to such securities entered into by the Fund; (j) For other authorized transactions of the Fund or for other proper trust or corporate purposes; provided that before making such transfer, the Bank will also receive Proper Instructions specifying the Portfolio Securities to be delivered, setting forth the transaction in or purpose for which such delivery is to be made, declaring such transaction to be an authorized transaction of the Fund or such purpose to be a proper trust or corporate purpose, and naming the person or persons to whom delivery of such securities shall be made; and (k) Upon termination of this Agreement as hereinafter set forth pursuant to Section 16 of this Agreement and upon (i) the merger of any Portfolio or Portfolios into or the consolidation of any Portfolio or Portfolios with any investment company or series thereof or (ii)the liquidation or dissolution of any Portfolio or Portfolios.. As to any deliveries made by the Bank pursuant to this Section 6.12, securities or cash receivable in exchange therefor shall be delivered to the Bank. -12- 7. Redemptions. In the case of payment of assets of the Fund held by ----------- the Bank in connection with redemptions and repurchases by the Fund of outstanding shares of beneficial interest, the Bank will rely on notification by the Fund's distributor or transfer agent of receipt of a request for redemption and certificates, if issued, in proper form for redemption before such payment is made. Payment shall be made in accordance with the Agreement and Declaration of Trust and By-laws of the Fund, as in effect from time to time (the "Articles"), from assets available for said purpose. 8. [Reserved] 9. Actions of Bank Without Prior Authorization. Notwithstanding ------------------------------------------- anything herein to the contrary, unless and until the Bank receives an Officers' Certificate to the contrary, the Bank will take the following actions without prior authorization or instruction of the Fund or the transfer agent: 9.1 Endorse for collection and collect on behalf of and in the name of the Fund on a timely basis all checks, drafts, or other negotiable or transferable instruments or other orders for the payment of money received by it for the account of the Fund and collect on a timely basis and hold for the account of the Fund all income, dividends, interest and other payments or distributions of cash with respect to the Portfolio Securities held thereunder; 9.2 Present for payment all coupons and other income items held by it for the account of the Fund which call for payment upon presentation as and when they become due and take reasonable action to collect interest when due on securities held hereunder and hold the cash received by it upon such payment for the account of the Fund; 9.3 Receive and hold for the account of the Fund all securities received as a distribution on Portfolio Securities as a result of a stock dividend, share split-up, reorganization, recapitalization, merger, consolidation, readjustment, distribution of rights and similar securities issued with respect to any Portfolio Securities held by it hereunder; 9.4 Execute as agent on behalf of the Fund all necessary ownership and other certificates and affidavits required by the Internal Revenue Code or the regulations of the Treasury Department issued thereunder, or by the laws of any state, now or hereafter in effect, inserting the Fund's name on such certificates as the owner of the securities covered thereby, to the extent it may lawfully do so and as may be required to obtain payment in respect thereof. The Bank will execute and deliver such certificates in connection with Portfolio Securities delivered to it or by it under this Agreement as may be required under the provisions of the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, or under the laws of any State; 9.5 Present for payment all Portfolio Securities which are called, redeemed, retired or otherwise become payable as and when due, and hold cash received by it upon payment for the account of the Fund; and 9.6 Exchange interim receipts or temporary securities for definitive securities. 10. Collections and Defaults. The Bank will use reasonable efforts to ------------------------ collect on a timely basis any funds which may to its knowledge become collectible arising from Portfolio Securities, including dividends, interest and other income, and to transmit to the Fund notice actually received by it of any call for redemption, offer of exchange, right of subscription, reorganization or other proceedings affecting such Securities. If Portfolio Securities upon which such income is payable are in default or payment is refused after due demand or presentation, the Bank will notify the Fund in writing of any default or refusal to pay within two business days from the day on which it receives knowledge of such default or refusal. -13- 11. Maintenance of Records and Accounting Services. The Bank will ---------------------------------------------- maintain records with respect to transactions for which the Bank is responsible pursuant to the terms and conditions of this Agreement, and in compliance with the applicable rules and regulations of the 1940 Act, with particular attention to Section 31 thereof and the Rules thereunder. The books and records of the Bank pertaining to its actions under this Agreement and reports by the Bank or its independent accountants concerning its accounting system, procedures for safeguarding securities and internal accounting controls will be the property of the Fund, will be open to inspection and audit at all times during regular business hours by officers of or auditors employed by the Fund and employees or agents of the Securities and Exchange Commission and will be preserved by the Bank in the manner and in accordance with the applicable rules and regulations under the 1940 Act. The Bank shall perform fund accounting and shall keep the books of account and render statements or copies from time to time as reasonably requested by the Treasurer or any executive officer of the Fund. The Bank shall assist generally in the preparation of reports to shareholders and others, audits of accounts, and other ministerial matters of like nature. The Bank shall provide the Fund, at such times as the Fund may reasonably require, with reports by its independent public accountants on the accounting system, internal controls and procedures for safeguarding securities, and any other issues for which such reports are generally available to clients of the Bank. The Bank shall take all reasonable actions as may be necessary or prudent to obtain from year to year favorable opinions from the Bank's independent public accountants with respect to its accounting system, internal controls and procedures for safeguarding securities and any other issues for which such reports are generally available to clients of the Bank. The Bank shall take all reasonable action, as the Fund may from time to time request, to assist the Fund in obtaining from its independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, Form N-SAR and other annual reports filed with the Securities and Exchange Commission and with respect to any other requirements of the Securities and Exchange Commission. 12. Fund Evaluation and Yield Calculation ------------------------------------- 12.1 Fund Evaluation. The Bank shall compute and, unless otherwise --------------- directed by the Board, determine as of the close of regular trading on the New York Stock Exchange on each day on which said Exchange is open for unrestricted trading and as of such other days, or hours, if any, as may be authorized by the Board, the net asset value and the public offering price of a share of capital stock of the Fund, such determination to be made in accordance with the provisions of the Articles and By-laws of the Fund and the Prospectus and Statement of Additional Information relating to the Fund, as they may from time to time be amended, and any applicable resolutions of the Board at the time in force and applicable; and promptly to notify the Fund, the proper exchange and the NASD or such other persons as the Fund may request of the results of such computation and determination. In computing the net asset value hereunder, the Bank may rely in good faith upon information furnished to it by any Authorized Person in respect of (i) the manner of accrual of the liabilities of the Fund and in respect of liabilities of the Fund not appearing on its books of account kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such reserves have been authorized, (iii) the source of the quotations to be used in computing the net asset value, (iv) the value to be assigned to any security for which no price quotations are available, and (v) the method of computation of the public offering price on the basis of the net asset value of the shares, and the Bank shall not be responsible for any loss occasioned by such reliance or for any good faith reliance on any quotations received from a source pursuant to (iii) or (iv) above. -14- 12.2. Yield Calculation. The Bank will compute the performance results ----------------- of the Fund (the "Yield Calculation") in accordance with the provisions of Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases") promulgated by the Securities and Exchange Commission, and any subsequent amendments to, published interpretations of or general conventions accepted by the staff of the Securities and Exchange Commission with respect to such releases or the subject matter thereof ("Subsequent Staff Positions"), subject to the terms set forth below: (a) The Bank shall compute the Yield Calculation for the Fund for the stated periods of time as shall be mutually agreed upon, and communicate in a timely manner the result of such computation to the Fund. (b) In performing the Yield Calculation, the Bank will derive the items of data necessary for the computation from the records it generates and maintains for the Fund pursuant Section 11 hereof. The Bank shall have no responsibility to review, confirm, or otherwise assume any duty or liability with respect to the accuracy or correctness of any such data supplied to it by the Fund, any of the Fund's designated agents or any of the Fund's designated third party providers. (c) At the request of the Bank, the Fund shall provide, and the Bank shall be entitled to rely on, written standards and guidelines to be followed by the Bank in interpreting and applying the computation methods set forth in the Releases or any Subsequent Staff Positions as they specifically apply to the Fund. In the event that the computation methods in the Releases or the Subsequent Staff Positions or the application to the Fund of a standard or guideline is not free from doubt or in the event there is any question of interpretation as to the characterization of a particular security or any aspect of a security or a payment with respect thereto (e.g., original issue discount, participating debt security, income or return of capital, etc.) or otherwise or as to any other element of the computation which is pertinent to the Fund, the Fund or its designated agent shall have the full responsibility for making the determination of how the security or payment is to be treated for purposes of the computation and how the computation is to be made and shall inform the Bank thereof on a timely basis. The Bank shall have no responsibility to make independent determinations with respect to any item which is covered by this Section, and shall not be responsible for its computations made in accordance with such determinations so long as such computations are mathematically correct. (d) The Fund shall keep the Bank informed of all publicly available information and of any non-public advice, or information obtained by the Fund from its independent auditors or by its personnel or the personnel of its investment adviser, and the Bank shall not be deemed to have knowledge of such information (except as contained in the Releases) unless it has been furnished to the Bank in writing. 13. Additional Services. The Bank shall perform the additional services ------------------- for the Fund as are set forth on Appendix B hereto. Appendix B may be amended ---------- ---------- from time to time upon agreement of the parties to include further additional services to be provided by the Bank to the Fund. 14. Duties of the Bank. ------------------ 14.1 Performance of Duties and Standard of Care. In performing its ------------------------------------------ duties hereunder and any other duties listed on any Schedule or Appendix hereto, the Bank shall be held to the exercise of reasonable care, shall act in good faith and shall act without negligence or willful misfeasance. In performing its duties hereunder and any other duties listed on any Schedule or Appendix hereto, if any, the Bank will be entitled to receive and act upon the advice of independent counsel of national standing of its own selection, which may be counsel for the Fund, and will be without liability for any action taken or thing done or omitted to be done in accordance with this Agreement in good faith in conformity with such advice. -15- The Bank will be under no duty or obligation to inquire into and will not be liable for: (a) the validity of the issue of any Portfolio Securities purchased by or for the Fund, the legality of the purchases thereof or the propriety of the price incurred therefor; (b) the legality of any sale of any Portfolio Securities by or for the Fund or the propriety of the amount for which the same are sold; (c) the legality of an issue or sale of any common shares of the Fund or the sufficiency of the amount to be received therefor; (d) the legality of the repurchase of any common shares of the Fund or the propriety of the amount to be paid therefor; (e) the legality of the declaration of any dividend by the Fund or the legality of the distribution of any Portfolio Securities as payment in kind of such dividend; and (f) except as otherwise specifically contemplated hereby, any property or moneys of the Fund unless and until received by it, and any such property or moneys delivered or paid by it pursuant to the terms hereof. Moreover, the Bank will not be under any duty or obligation to ascertain whether any Portfolio Securities at any time delivered to or held by it for the account of the Fund are such as may properly be held by the Fund under the provisions of its Articles, any federal or state statutes or any rule or regulation of any governmental agency. 14.2 Agents and Subcustodians with Respect to Property of the Fund Held ------------------------------------------------------------------ in the United States. The Bank may employ agents of its own selection in the - -------------------- performance of its duties hereunder and shall be responsible for the acts and omissions of such agents as if performed by the Bank hereunder. Without limiting the foregoing, certain duties of the Bank hereunder may be performed by one or more affiliates of the Bank. Upon receipt of Proper Instructions, the Bank may employ subcustodians selected by or at the direction of the Fund (each a "Fund-Selected Subcustodian"), provided that any such Fund-Selected Subcustodian meets at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect to property of the Fund held in the United States. The Bank shall have no more or less responsibility or liability to the Fund or any other person by reason of any act or omission of any such Fund-Selected Subcustodian than any such Fund-Selected Subcustodian has to the Bank, and the Fund shall indemnify the Bank and hold it harmless from and against any and all actions, suits and claims arising directly or indirectly out of the performance of any such Fund-Selected Subcustodian. Upon request of the Bank, the Fund shall assume the entire defense of any action, suit, or claim subject to the foregoing indemnity. The Fund shall pay all fees and expenses of any Fund-Selected Subcustodian. -16- 14.3 Duties of the Bank with Respect to Property of the Fund Held ------------------------------------------------------------ Outside of the United States. - ---------------------------- (a) Appointment of Foreign Custody Manager. -------------------------------------- (i) If the Fund has appointed the Bank Foreign Custody Manager (as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties and obligations with respect to the Fund's Portfolio Securities and other assets maintained outside the United States (the "Foreign Portfolio Securities") shall be, to the extent not set forth herein, as set forth in the Delegation Agreement between the Fund and the Bank (the "Delegation Agreement"). (ii) If the Fund has appointed any person or entity Foreign Custody Manager other than the Bank, the Bank shall act only upon Proper Instructions from the Fund with regard to any of the Fund's Portfolio Securities or other assets held or to be held outside of the United States, and the Bank shall be without liability for any Claim (as that term is defined in Section 15 hereof) arising out of maintenance of the Fund's Portfolio Securities or other assets outside of the United States. The Fund also agrees that it shall enter into a written agreement with such Foreign Custody Manager that shall obligate such Foreign Custody Manager to provide to the Bank in a timely manner all information required by the Bank in order to complete its obligations hereunder. The Bank shall not be liable for any Claim arising out of the failure of such Foreign Custody Manager to provide such information to the Bank. (b) Segregation of Securities. The Bank shall identify on its ------------------------- books as belonging to the Fund the Foreign Portfolio Securities held by each foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign Custody Manager, subject to receipt by the Bank of the necessary information from such Eligible Foreign Custodian if the Foreign Custody Manager is not the Bank. (c) Access of Independent Accountants of the Fund. If the Bank --------------------------------------------- is the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as an Eligible Foreign Custodian insofar as such books and records relate to the performance of such foreign banking institution with regard to the Fund's Portfolio Securities and other assets. (d) Reports by Bank. If the Bank is the Fund's Foreign Custody --------------- Manager, the Bank will supply to the Fund the reports required under the Delegation Agreement. (e) Transactions in Foreign Custody Account. Transactions with --------------------------------------- respect to the assets of the Fund held by an Eligible Foreign Custodian shall be effected pursuant to Proper Instructions from the Fund to the Bank and shall be effected in accordance with the applicable agreement between the Foreign Custody Manager and such Eligible Foreign Custodian. If at any time any Foreign Portfolio Securities shall be registered in the name of the nominee of the Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless from any liability by reason of the registration of such securities in the name of such nominee (other than liability arising from the negligence, willful misfeasance or bad faith of the Eligible Foreign Custodian or the Bank or any of their officers, employees, agents, including when such officers, employees or agents are acting on behalf of the nominee). -17- Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Portfolio Securities received for the account of the Fund and delivery of Foreign Portfolio Securities maintained for the account of the Fund may be effected in accordance with the customary established securities trading or securities processing practices and procedures with respect to the assets of registered investment companies in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. In connection with any action to be taken with respect to the Foreign Portfolio Securities held hereunder, including, without limitation, the exercise of any voting rights, subscription rights, redemption rights, exchange rights, conversion rights or tender rights, or any other action in connection with any other right, interest or privilege with respect to such Foreign Portfolio Securities (collectively, the "Rights"), the Bank shall promptly transmit to the Fund such information in connection therewith as is made available to the Bank by the Eligible Foreign Custodian, and shall promptly forward to the applicable Eligible Foreign Custodian any instructions, forms or certifications with respect to such Rights, and any instructions relating to the actions to be taken in connection therewith, as the Bank shall receive from the Fund pursuant to Proper Instructions. Notwithstanding the foregoing, the Bank shall have no further duty or obligation with respect to such Rights, including, without limitation, the determination of whether the Fund is entitled to participate in such Rights under applicable U.S. and foreign laws, or the determination of whether any action proposed to be taken with respect to such Rights by the Fund or by the applicable Eligible Foreign Custodian will comply with all applicable terms and conditions of any such Rights or any applicable laws or regulations, or market practices within the market in which such action is to be taken or omitted. (f) Tax Law. Except to the extent the Bank acts or fails to ------- act in contravention of its obligations under this Agreement, the Bank shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Bank as custodian of the Fund by the tax laws of any jurisdiction, and it shall be the responsibility of the Fund to notify the Bank of the obligations imposed on the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Eligible Foreign Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information. (g) Contracts with Eligible Foreign Custodians. The Bank shall ------------------------------------------ use its best efforts to ensure that each contract with an Eligible Foreign Custodian shall provide indemnification rights that match the indemnification rights of the Fund hereunder, including indemnification for any Claim (as defined below) arising as a result of the negligence, willful misfeasance or bad faith of the Eligible Foreign Custodian. 14.4 Insurance. The Bank shall use the same care with respect to the --------- safekeeping of Portfolio Securities and cash of the Fund held by it as it uses in respect of its own similar property but it need not maintain any special insurance for the benefit of the Fund. 14.5 Advances by the Bank. The Bank may, in its sole discretion, -------------------- advance funds on behalf of the Fund to make any payment permitted by this Agreement upon receipt of any Proper Instructions for such payments by the Fund. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Fund's account with the Bank, or for any other reason) this Agreement deems any such overdraft or related indebtedness a loan made by the Bank to the Fund payable on demand. Such overdraft shall bear interest at the current rate charged by the Bank for such loans unless the Fund shall provide the Bank with agreed upon compensating balances. The Fund agrees that the Bank shall have a continuing lien and security interest to the extent of any overdraft or indebtedness and to the extent required by law, in and to any property at any time held by it for the Fund's benefit or in which the Fund has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon, against any balance of account standing to the credit of the Fund on the Bank's books. -18- 14.6. Fees and Expenses of the Bank. For the services rendered by the ----------------------------- Bank hereunder, the Fund will pay to the Bank such fees at such rate as shall be agreed upon in writing by the parties from time to time. The Fund will also pay or reimburse the Bank from time to time for any transfer taxes payable upon any transfers made hereunder, and for all reasonable and necessary proper disbursements, expenses and charges made or incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any) including any indemnities for any loss, liabilities or expense to the Bank as provided herein. The Bank will also be entitled to reimbursement by the Fund for any reasonable conversion or transfer work done in connection with the termination of this Agreement by the Fund. Fees and expenses will be calculated and invoiced monthly. Fees and expenses owed to the Bank for any month may be charged against any cash balance held by the Fund beginning on the first (1st) business day after the end of such month based on information then available, provided that any such charges are subject to adjustment after the Fund reviews the applicable invoice. Fees charged to an account may result in an overdraft that will be subject to normal interest charges. 15. Limitation of Liability. ----------------------- 15.1 Notwithstanding anything in this Agreement to the contrary, in no event shall the Bank or any of its officers, directors, employees or agents (collectively, the "Indemnified Parties") be liable to the Fund or any third party, and the Fund shall indemnify and hold the Bank and the Indemnified Parties harmless from and against any and all loss, damage, liability, actions, suits, claims, costs and expenses, including legal fees, (a "Claim") arising as a result of any act or omission of the Bank or any Indemnified Party under this Agreement, except for any Claim arising from the negligence, willful misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting the foregoing, neither the Bank nor the Indemnified Parties shall be liable for, and the Bank and the Indemnified Parties shall be indemnified against, any Claim (other than Claims arising from the negligence, willful misfeasance or bad faith of the Bank or the Indemnified Party) arising as a result of: (a) Any act or omission by the Bank or any Indemnified Party in good faith reliance upon the terms of this Agreement, any Officer's Certificate, Proper Instructions, resolution of the Board, telegram, telecopier, notice, request, certificate or other instrument reasonably believed by the Bank to genuine; (b) Any act or omission of any Fund-Selected Subcustodian; (c) Any act or omission of any Foreign Custody Manager other than the Bank or any act or omission of any Eligible Foreign Custodian if the Bank is not the Foreign Custody Manager; (d) Any Corporate Action, distribution or other event related to Portfolio Securities which, at the direction of the Fund, have not been registered in the name of the Bank or its nominee; -19- (e) Any Corporate Action requiring a Response for which the Bank has not received Proper Instructions or obtained actual possession of all necessary Portfolio Securities, consents or other materials by 5:00 p.m. on the date specified as the Response Deadline; (f) Any act or omission of any European Branch of a U.S. banking institution that is the issuer of Eurodollar CDs in connection with any Eurodollar CDs held by such European Branch; (g) Information relied on in good faith by the Bank and supplied by any Authorized Person in connection with the calculation of (i) the net asset value and public offering price of the shares of capital stock of the Fund or (ii) the Yield Calculation; or (h) Any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities or transportation, the unavailability of energy sources and other similar happenings or events that cannot be controlled or contained by the Bank, its agents or subcustodians. This paragraph shall not relieve the Bank from its responsibility to provide and maintain appropriate backup and disaster recovery facilities and shall not limit the liability of the Bank if the Bank, its agents or any subcustodian has failed to provide and maintain appropriate backup and disaster recovery facilities. 15.2 Notwithstanding anything in this Agreement to the contrary, in no event shall the Fund be liable to the Bank or any third party, and the Bank shall indemnify and hold harmless the Fund and its officers, trustees, employees or agents (the "Fund Indemnified Parties") from and against any and all Claims arising from the negligence, willful misfeasance or bad faith by the Bank hereunder, provided that the Bank's indemnification obligation with respect to the acts or omissions of its Eligible Foreign Custodians hereunder shall not exceed the indemnification that the Bank may obtain from the applicable subcustodian by the law of the governing jurisdiction.. 15.3 Notwithstanding anything to the contrary in this Agreement, in no event shall the Fund or the Fund Indemnified Parties be liable to the Bank or the Indemnified Parties or the Bank or the Indemnified Parties be liable to the Fund or any of them liable to any third party for lost profits or lost revenues or any special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder. 15.4 The Fund will not be liable to the Bank for any Claim arising as a result of any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, transportation or computers (hardware or software) and computer facilities, the unavailability of energy sources and other similar happenings or events that cannot be controlled or contained by the Fund. This paragraph shall not relieve the Fund from its responsibility to provide and maintain appropriate backup and disaster recovery facilities, or appropriately delegate any obligation to provide and maintain such facilities, and shall not limit the liability of the Fund if the Fund or its agents (other than the Bank, its affiliates or any subcustodian that is not a Fund-Selected Subcustodian) has failed to provide and maintain appropriate backup and disaster recovery facilities. -20- 15.5 In order that the indemnification provisions contained in this Article 15 shall apply, upon the assertion of a claim for which a party may be required to indemnify the other, the party seeking the indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party seeking indemnification shall give the indemnifying party full and complete authority, information and assistance to defend such claim or proceeding, and the indemnifying party shall have, at its option, sole control of the defense of such claim or proceeding and all negotiations for its compromise or settlement. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent, which consent shall not be unreasonably withheld. 15.6 The obligations set forth in this Section 15 shall survive the termination of this Agreement. 15.7 Except as specifically stated otherwise in this Agreement, in any and every case in which payment for purchases of securities for an account of the Fund is made by the Bank in advance of receipt of the securities purchased in the absence of Proper Instructions on behalf of the Fund to so pay in advance, the Bank shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Bank. 16. Termination. ----------- 16.1 The term of this Agreement shall be three years commencing upon the date hereof (the "Initial Term"), unless earlier terminated as provided herein. After the expiration of the Initial Term, the term of this Agreement shall automatically renew for successive one-year terms (each a "Renewal Term") unless notice of non-renewal is delivered by the non-renewing party to the other party no later than ninety days prior to the expiration of the Initial Term or any Renewal Term, as the case may be. .. If a majority of the Board of Trustees reasonably determines that the performance of the Bank under this Agreement or the Delegation Agreement, dated as of the date hereof, by and between the Bank and the Fund does not meet industry standards, written notice of such determination setting forth the reasons for such determination shall be provided to the Bank. In the event the Bank shall not, within thirty (30) days (sixty (60) days for those deficiencies that the parties hereto agree may not reasonably be cured within thirty (30) days after receipt of such notice) thereafter, cure identified deficiencies to the reasonable satisfaction of the Board of Trustees, the Fund, with the authorization of the Board, may terminate this Agreement. Either party hereto may terminate this Agreement prior to the expiration of the Initial Term or any Renewal Term in the event the other party violates any material provision of this Agreement provided that the non-violating party gives written notice of such violation to the violating party and the violating party does not cure such violation within 60 days of receipt of such notice. 16.2 In the event of the termination of this Agreement, the Bank will immediately upon receipt or transmittal, as the case may be, of notice of termination, commence and prosecute diligently to completion the transfer of all cash and the delivery of all Portfolio Securities duly endorsed and all records maintained under Section 11 to the successor custodian when appointed by the Fund. The obligation of the Bank to deliver and transfer over the assets of the Fund held by it directly to such successor custodian will commence as soon as such successor is appointed and will continue until completed as aforesaid. If the Fund does not select a successor custodian within ninety (90) days from the date of delivery of notice of termination the Bank may, subject to the provisions of subsection 16.3, deliver the Portfolio Securities and cash of the Fund held by the Bank to a bank or trust company of the Bank's own selection which meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and undivided profits aggregating not less than $2,000,000, to be held as the property of the Fund under terms similar to those on which they were held by the Bank, whereupon such bank or trust company so selected by the Bank will become the successor custodian of such assets of the Fund with the same effect as though selected by the Board. Thereafter, the Bank and the Fund shall be released from any and all obligations under this Agreement, except for those obligations under Section 15 hereof. -21- 16.3 Prior to the expiration of ninety (90) days after notice of termination has been given, the Fund may furnish the Bank with an order of the Fund advising that a successor custodian cannot be found willing and able to act upon reasonable and customary terms and that there has been submitted to the shareholders of the Fund the question of whether the Fund will be liquidated or will function without a custodian for the assets of the Fund held by the Bank. In that event the Bank will deliver the Portfolio Securities and cash of the Fund held by it, subject as aforesaid, in accordance with one of such alternatives which may be approved by the requisite vote of shareholders, upon receipt by the Bank of a copy of the minutes of the meeting of shareholders at which action was taken, certified by the Fund's Secretary and an opinion of counsel to the Fund in form and content satisfactory to the Bank. Thereafter, the Bank and the Fund shall be released from any and all obligations under this Agreement, except for those obligations under Section 15 hereof. 16.4 The Fund shall reimburse the Bank for any reasonable expenses for any reasonable conversion or transfer work done in connection with the termination of this Agreement by the Fund. 16.5 All records of the Bank relating to its performance of its duties as custodian (the "Records") shall be the property of the Fund, and the Fund or its agents shall have the right of access to the Records upon reasonable notice to the Bank. The Bank shall, upon request, deliver to the Fund all Records upon termination of this Agreement, and the Bank hereby agrees that, whether such termination is due to breach of this Agreement by the Fund or otherwise, the Bank shall have no right to claim any interest in the Records and shall make reasonable efforts to comply with any request for delivery of the Records to the Fund or its designated agent upon termination of this Agreement. 17. Confidentiality. --------------- 17.1 Both parties hereto agree than any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency or self-regulatory organization. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision. 17.2 The parties further agree that any Nonpublic Personal Information, as defined under Section 248.3(t) of Regulation S-P ("Regulation S-P"), promulgated under the Gramm-Leach-Bliley Act (the "Act"), disclosed by a party hereunder is for the specific purpose of permitting the other party to perform the services set forth in this Agreement. Each party agrees that, with respect to such information, it will comply with Regulation S-P and the Act and that it will not disclose any Nonpublic Personal Information received in connection with this Agreement, to any other party, except as necessary to carry out the services set forth in this Agreement or as otherwise permitted by Regulation S-P or the Act. Each party hereto agrees that the requirements of this Section 17.2 are in addition to and not in limitation of its responsibilities under Section 17.1 above. -22- 18. Notices. Any notice or other instrument in writing authorized or ------- required by this Agreement to be given to either party hereto will be effective upon actual receipt thereof, which may be conclusively demonstrated by (i) signed receipt from United States Postal Service registered mail, (ii) with telecopier written confirmation, or (iii) hand delivery with signature to such party at its office at the address set forth below, namely: (a) In the case of notices sent to the Fund to: c/o CDC IXIS Asset Management Services, Inc. 399 Boylston Street Boston, MA 02116 Attention: Fund Administration Department Head With a copy to: General Counsel (b) In the case of notices sent to the Bank to: Investors Bank & Trust Company 200 Clarendon Street, P.O. Box 9130 Boston, Massachusetts 02117-9130 Attention: Geoffrey O'Connell, Senior Director - Client Management With a copy to: John E. Henry, General Counsel or at such other place as such party may from time to time designate in writing. 19. Amendments. This Agreement may not be altered or amended, except by ---------- an instrument in writing, executed by both parties. 20. Parties. This Agreement will be binding upon and shall inure to the ------- benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by the Fund without the written consent of the Bank or by the Bank without the written consent of the Fund, authorized and approved by its Board; and provided further that termination proceedings pursuant to Section 16 hereof will not be deemed to be an assignment within the meaning of this provision. 21. Governing Law. This Agreement and all performance hereunder will be ------------- governed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. 22. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 23. Entire Agreement. This Agreement, together with its Appendices and ---------------- any agreements dated as of the date hereof between the parties hereto and relating hereto, constitute the sole and entire agreement between the parties relating to the subject matter herein and does not operate as an acceptance of any conflicting terms or provisions of any other instrument and terminate and supersede any and all prior agreements and undertakings between the parties relating to the subject matter herein. 24. Limitation of Liability. The Bank agrees that the obligations ----------------------- assumed by the Fund hereunder shall be limited in all cases to the assets of the Fund and that the Bank shall not seek satisfaction of any such obligation from the officers, agents, employees, trustees, or shareholders of the Fund. -23- 25. Several Obligations of the Portfolios; Additional Portfolios. This ------------------------------------------------------------ Agreement is an agreement entered into between the Bank and the Fund with respect to each Portfolio. With respect to any obligation of the Fund on behalf of any Portfolio arising out of this Agreement, the Bank shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates as though the Bank had separately contracted with the Fund by separate written instrument with respect to each Portfolio. In the event the Fund establishes one or more additional series with respect to which the Fund wishes to employ the Bank to act as custodian hereunder, the Fund shall notify the Bank in writing. Upon written acceptance by the Bank, such series shall be deemed a "Portfolio" hereunder and shall become subject to, and shall enjoy the benefits of, the provisions of this Agreement to the same extent as the existing Portfolios, except to the extent that such provisions (including those relating to compensation and expenses payable by the Fund and its Portfolios) may be modified with respect to each additional Portfolio in writing by the Fund and the Bank at the time of the addition of the Portfolio. 26. Trust Notice. A copy of the Agreement and Declaration of Trust ------------ establishing the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Fund by the officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging respectively to each Portfolio. [Remainder of Page Intentionally Left Blank] -24- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first written above. CDC NVEST FUNDS TRUST I By: /s/ John Hailer --------------- Name: John Hailer Title: President Investors Bank & Trust Company By: /s/ Andrew M. Nesvet -------------------- Name: Andrew M. Nesvet Title: Managing Director -25- Appendices ---------- Appendix A.................................Series of the Fund Appendix B.................................Additional Services -26- Appendix A: Series of the Fund Series of CDC Nvest Funds Trust I CDC Nvest CDC Nvest CDC Nvest Balanced Fund Bond Income Fund Capital Growth Fund CDC Nvest CDC Nvest CDC Nvest Government Securities Fund International Equity Fund Large Cap Growth Fund CDC Nvest CDC Nvest Jurika & Voyles CDC Nvest Municipal Income Fund Relative Value Fund Targeted Equity Fund CDC Nvest CDC Nvest CDC Nvest Star Advisers Fund Star Small Cap Fund Star Value Fund CDC Nvest CDC Nvest CDC Nvest Star Worldwide Fund Star Growth Fund Strategic Income Fund -27- Appendix B Additional Services ------------------- None -28- EX-99.G 7 exhg2.txt EXHIBIT G2 Exhibit (g)(2) DELEGATION AGREEMENT AGREEMENT, dated as of May 1, 2002 by and between INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Delegate"), and CDC NVEST FUNDS TRUST II, a Massachusetts business trust (the "Fund"). WHEREAS, pursuant to the provisions of Rule 17f-5 under the Investment Company Act of 1940, as amended (the "1940 Act"), and subject to the terms and conditions set forth herein, the Board of Trustees of the Fund desires to delegate to the Delegate certain responsibilities concerning Foreign Assets (as defined below), and the Delegate hereby agrees to retain such delegation, as described herein; and WHEREAS, pursuant to the provisions of Rule 17f-7 under the 1940 Act, and subject to the terms and conditions set forth herein, the Board of Trustees of the Fund desires to retain the Delegate to provide certain services concerning Foreign Assets, and the Delegate hereby agrees to provide such services, as described herein; NOW THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows: 1. DEFINITIONS Capitalized terms in this Agreement have the following meanings: a. AUTHORIZED REPRESENTATIVE Authorized Representative means any one of the persons who are empowered, on behalf of the parties to this Agreement, to receive notices from the other party and to send notices to the other party. b. BOARD Board means the Board of Trustees of Fund. c. COUNTRY RISK Country Risk means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's financial infrastructure (including any Securities Depositories operating in such country); prevailing custody and settlement practices; and laws applicable to the safekeeping and recovery of Foreign Assets held in custody. d. ELIGIBLE FOREIGN CUSTODIAN Eligible Foreign Custodian has the meaning set forth in Rule 17f-5(a)(1), but also includes, for purposes of this Agreement, foreign branches of U.S. Banks (as the term "U.S. Bank" is defined in Rule 17f-5(a)(7)). 1 e. FOREIGN ASSETS Foreign Assets has the meaning set forth in Rule 17f-5(a)(2) f. FOREIGN CUSTODY MANAGER Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(3). g. SECURITIES DEPOSITORY Securities Depository has the meaning set forth in Rule 17f-4(a). h. MONITOR Monitor means to re-assess or re-evaluate, at reasonable intervals or when otherwise reasonably necessary, a decision, determination or analysis previously made, and shall be construed as such term may be construed pursuant to relevant positions publicly articulated by the Securities and Exchange Commission or its staff. 2. REPRESENTATIONS a. DELEGATE'S REPRESENTATIONS Delegate represents that it is a trust company chartered under the laws of the Commonwealth of Massachusetts and is a U.S. Bank as defined in Rule 17f-5(a)(7). Delegate further represents that the persons executing this Agreement and any amendment or appendix hereto on its behalf are duly authorized to so bind the Delegate with respect to the subject matter of this Agreement. b. FUND'S REPRESENTATIONS Fund represents that the Board has determined that it is reasonable to rely on Delegate to perform the responsibilities described in this Agreement. Fund further represents that the persons executing this Agreement and any amendment or appendix hereto on its behalf are duly authorized to so bind the Fund with respect to the subject matter of this Agreement. 3. JURISDICTIONS AND DEPOSITORIES COVERED a. INITIAL JURISDICTIONS AND DEPOSITORIES The authority delegated by this Agreement in connection with Rule 17f-5 applies only with respect to Foreign Assets held in the jurisdictions listed in APPENDIX A1. Delegate's responsibilities under this Agreement in connection with Rule 17f-7 apply only with respect to the Securities Depositories listed in APPENDIX A2. Upon the creation of a new Securities Depository in any of the jurisdictions listed in APPENDIX A1 at the time of such creation, such Securities Depository will automatically be deemed to be listed in APPENDIX A2 and will be covered by the terms of this Agreement. 2 b. ADDED JURISDICTIONS AND DEPOSITORIES Jurisdictions and related Securities Depositories may be added to APPENDIX A1 and APPENDIX A2, respectively, by written agreement in the form of APPENDIX B. Delegate's responsibility and authority with respect to any jurisdiction or Securities Depository, respectively, so added will commence at the later of (i) the time that Delegate's Authorized Representative and Board's Authorized Representative have both executed a copy of APPENDIX B listing such jurisdiction and/or Securities Depository, or (ii) the time that Delegate's Authorized Representative receives a copy of such fully executed APPENDIX B, provided that, with respect to the addition of any Securities Depository to Appendix A2 pursuant to this Section 3(b), such addition shall be effective only if Delegate has delivered to the Fund or its investment adviser the information specified in Section 6(c) of this Agreement relating to the Securities Depository's qualification as an Eligible Securities Depository and a risk analysis for such Securities Depository in accordance with Rule 17f-7(a)(1)(i)(A). c. WITHDRAWN JURISDICTIONS Board may withdraw its (i) delegation to Delegate with respect to any jurisdiction or (ii) retention of Delegate with respect to any Securities Depository, upon written notice to Delegate. Delegate may withdraw its (i) acceptance of delegation with respect to any jurisdiction or (ii) retention with respect to any Securities Depository, upon written notice to Board. Sixty days (or such longer period as to which the parties agree in such event) after receipt of any such notice by the Authorized Representative of the party other than the party giving notice, Delegate shall have no further responsibility or authority under this Agreement with respect to the jurisdiction(s) or Securities Depository as to which delegation is withdrawn. 4. DELEGATION OF AUTHORITY TO ACT AS FOREIGN CUSTODY MANAGER a. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS Subject to the provisions of this Agreement and the requirements of Rule 17f-5 (and any other applicable law), Delegate is authorized and directed to place and maintain Foreign Assets (but no other assets) in the care of any Eligible Foreign Custodian(s) selected by Delegate in each jurisdiction to which this Agreement applies, except that Delegate does not accept such authorization and direction with regard to Securities Depositories. b. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS Subject to the provisions of this Agreement and the requirements of Rule 17f-5 (and any other applicable law), Delegate is authorized to, and shall, enter into, on behalf of Fund, such written contracts governing Fund's foreign custody arrangements with such Eligible Foreign Custodians as Delegate deems appropriate. Each such contract will satisfy the requirements of Rule 17f-5(c )(2). All arrangements between Delegate and the Eligible Foreign Custodians will be governed by a written contract that Delegate has determined will provide reasonable care for Fund's Foreign Assets. 5. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS AND CONTRACTS 3 In each case in which Delegate has exercised the authority delegated under this Agreement to place Foreign Assets with an Eligible Foreign Custodian, Delegate is authorized to, and shall, on behalf of Fund, establish a system to Monitor the appropriateness of maintaining Foreign Assets with such Eligible Foreign Custodian under Rule 17f-5(c )(1). In each case in which Delegate has exercised the authority delegated under this Agreement to enter into a written contract governing Fund's foreign custody arrangements, Delegate is authorized to, and shall, on behalf of Fund, establish a system to Monitor the appropriateness and performance of such contract. In the event Delegate determines that the custody arrangement with an Eligible Foreign Custodian are no longer appropriate, Delegate shall notify the Fund and the investment adviser of Fund. 6. SECURITIES DEPOSITORIES a. In accordance with the requirements of Rule 17f-7, Delegate shall, concurrent with the execution of this Agreement and annually thereafter, provide the Fund or its investment adviser with an analysis of the custody risks associated with maintaining assets with each Securities Depository listed on APPENDIX A2 hereto as amended from time to time. b. In accordance with the requirements of Rule 17f-7, Delegate shall Monitor the custody risks associated with maintaining assets with each Securities Depository listed on APPENDIX A2 hereto on a continuing basis, and shall promptly notify the Fund or its investment adviser of any material change in such risks. c. Delegate shall, concurrent with the execution of this Agreement (or an amendment to Appendix A2, as the case may be), provide each Fund or its investment adviser with information which will enable such Fund or its investment adviser to determine whether each Securities Depository listed in Appendix A2 is an Eligible Securities Depository as defined in Rule 17f-7(b)(1). Delegate shall notify each Fund or its investment adviser of any material change in any information provided by Delegate regarding whether a Securities Depository meets the definition of Eligible Securities Depository promptly after becoming aware of any such change. 7. GUIDELINES AND PROCEDURES FOR THE EXERCISE OF DELEGATED AUTHORITY a. BOARD'S CONCLUSIVE DETERMINATION REGARDING COUNTRY RISK In exercising its delegated authority under this Agreement, Delegate may assume, for all purposes, that Board (or Fund's investment adviser, pursuant to authority delegated by Board) has considered, and pursuant to its fiduciary duties to Fund and Fund's shareholders, determined to accept, such Country Risk as is incurred by placing and maintaining Foreign Assets in the jurisdictions to which this Agreement applies. In exercising its delegated authority under this Agreement, Delegate may also assume that Board (or Fund's investment adviser, pursuant to authority delegated by Board) has Monitored, and will continue to Monitor, such Country Risk to the extent Board (or such investment adviser) deems necessary or appropriate. Except as specifically described herein, nothing in this Agreement shall require Delegate to make any selection or to engage in any Monitoring on behalf of Fund that would entail consideration of Country Risk. 4 b. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS In exercising the authority delegated under this Agreement to place Foreign Assets with an Eligible Foreign Custodian, Delegate shall determine that Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the market in which the Foreign Assets will be held, after considering all factors relevant to the safekeeping of such Foreign Assets, including, without limitation: i. The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the method of keeping custodial records, and the security and data protection practices; ii. Whether the Eligible Foreign Custodian has the financial strength to provide reasonable care for Foreign Assets and to fulfill its indemnification obligations; iii. The Eligible Foreign Custodian's general reputation and standing; iv. Whether Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of the Eligible Foreign Custodian in the United States or the Eligible Foreign Custodian's consent to service of process in the United States; v. Whether the contract with the Eligible Foreign Custodian contains indemnification rights that match the indemnification rights of the Fund hereunder; and vi. In the case of an Eligible Foreign Custodian that is a banking institution or trust company, any additional factors and criteria set forth in APPENDIX C to this Agreement. c. EVALUATION OF WRITTEN CONTRACTS In exercising the authority delegated under this Agreement to enter into written contracts governing Fund's foreign custody arrangements with an Eligible Foreign Custodian, Delegate shall determine that such contracts provide reasonable care for Foreign Assets based on the standards described in Section 7(b) above. In making this determination, Delegate shall ensure that the terms of such contracts comply with the provisions of Rule 17f-5(c)(2). The Delegate shall use its best efforts to ensure that each contract with an Eligible Foreign Custodian shall provide indemnification rights that match the indemnification rights of the Fund hereunder, including indemnification for any Claim (as defined below) arising from the negligence, willful misfeasance or bad faith of the Eligible Foreign Custodian. The Delegate shall provide Fund a list of each of the Fund's foreign custody arrangements with an Eligible Foreign Custodian that does not provide for indemnification for Claims arising from the negligence of the Eligible Foreign Custodian. The Delegate agrees to promptly notify Fund of any change in any of the Fund's foreign custody arrangement such that the list so provided (or any amended list) is no longer accurate or complete by delivering to Fund an amended list and shall, upon request, provide a summary of the 5 indemnification clauses in the contracts governing the Fund's foreign custodial arrangements. d. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS In exercising the authority delegated under this Agreement, Delegate will establish a system to Monitor the appropriateness of maintaining Foreign Assets with an Eligible Foreign Custodian and the appropriateness and performance of a written contract governing Fund's foreign custody arrangements. In doing so, Delegate shall consider any relevant factors and criteria, including those set forth in APPENDIX D to this Agreement. If, as a result of its Monitoring of Eligible Foreign Custodian relationships hereunder or otherwise, the Delegate determines in its reasonable discretion that it is in the best interest of the safekeeping of the Foreign Assets to move such Foreign Assets to a different Eligible Foreign Custodian, the Fund shall bear any expense related to such relocation of Foreign Assets. 8. STANDARD OF CARE a. In exercising the authority delegated under this Agreement with regard to its duties as a Foreign Custody Manager, Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of Foreign Assets of an investment company registered under the 1940 Act would exercise. b. In carrying out its responsibilities under this Agreement with regard to the placement of the Fund's assets with a Securities Depository, Delegate agrees to exercise reasonable care, prudence and diligence. 9. REPORTING REQUIREMENTS Delegate agrees to provide written reports notifying Board of the placement and withdrawal of Foreign Assets with a particular Eligible Foreign Custodian and any revisions to APPENDIX A2 quarterly for consideration at the next regularly scheduled meeting of the Board or earlier if (i) deemed necessary or advisable by the Delegate in its reasonable discretion or (ii) requested by the Board. Delegate agrees to provide written reports notifying the Board of any other material change in the foreign custody arrangement of the Fund promptly after the occurrence of such material change. 10. PROVISION OF INFORMATION REGARDING COUNTRY RISK With respect to the jurisdictions listed in APPENDIX A1, or added thereto pursuant to Article 3, Delegate agrees to provide the Board and the Fund's investment adviser with access to Eyes to the WorldTM, a service available through the Delegate's Web Site at www.ibtco.com, containing information relating to Country Risk, if available, as is specified in APPENDIX E to this Agreement. Such information relating to Country Risk shall be updated from time to time as the Delegate deems necessary. In addition, the Delegate shall offer to the Fund such additional information relating to Country Risk and upon the same terms as the Delegate makes available to other registered investment companies for which it serves as Foreign Custody Manager. 11. LIMITATION OF LIABILITY. 6 a. Notwithstanding anything in this Agreement to the contrary, in no event shall the Delegate or any of its officers, directors, employees or agents (collectively, the "Indemnified Parties") be liable to the Fund or any third party, and the Fund shall indemnify and hold the Delegate and the Indemnified Parties harmless from and against any and all loss, damage, liability, actions, suits, claims, costs and expenses, including legal fees, (a "Claim") arising as a result of any act or omission of the Delegate or any Indemnified Party under this Agreement, except for any Claim arising from the negligence, willful misfeasance or bad faith of the Delegate or any Indemnified Party or breach of the standard of care set forth in Section 8. Without limiting the foregoing, (i) except as may arise from the Delegate's or any Indemnified Party's own negligence, willful misfeasance, or bad faith, neither the Delegate nor the Indemnified Parties shall be liable for, and the Delegate and the Indemnified Parties shall be indemnified against, any Claim arising as a result of any act or omission by the Delegate or any Indemnified Party in reasonable good faith reliance upon the terms of this Agreement, any resolution of the Board, telegram, telecopy, notice, request, certificate or other instrument reasonably believed by the Delegate to be genuine; and (ii) except as may arise from the Delegate's or any Indemnified Party's own gross negligence, willful misfeasance, or bad faith, neither the Delegate nor the Indemnified Parties shall be liable for, and the Delegate and the Indemnified Parties shall be indemnified against, any claim arising as a result of any information which the Delegate provides or does not provide under Section 10 hereof. b. Notwithstanding anything to the contrary in this Agreement, in no event shall a party to this Agreement be liable to another party or any third party for (i) lost profits or lost revenues or any special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder or (ii) any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, or transportation, the unavailability of energy sources and other similar happenings or events. This paragraph shall not relieve the Bank from its responsibility to provide and maintain appropriate backup and disaster recovery facilities and shall not limit the liability of the Bank if the Bank, its agents or any subcustodian has failed to provide and maintain appropriate backup and disaster recovery facilities. This paragraph shall not relieve the Fund from its responsibility to provide and maintain appropriate backup and disaster recovery facilities, or appropriately delegate any obligation to provide and maintain such facilities, and shall not limit the liability of the Fund if the Fund or its agents (other than the Bank, its affiliates or any subcustodian) has failed to provide and maintain appropriate backup and disaster recovery facilities. c. The Delegate will indemnify and hold harmless the Fund, its officers, trustees, employees, and agents (collectively, the "Fund Indemnified Parties") and hold each of them harmless from any losses, claims, damages, liabilities, or actions in respect thereof (including reasonable legal expenses) to which the Fund or any Fund Indemnified Party may become subject, insofar as such losses, claims, damages, liabilities or actions in respect thereof arise from the failure of Delegate to comply with the terms of this Agreement or the negligence, willful misfeasance or bad faith of the Delegate or any Indemnified Party or breach of the standard of care set forth in Section 8, provided that the Delegate's indemnification obligation with respect to the acts or omissions of its subcustodians hereunder shall not exceed the indemnification that the Delegate may obtain from the applicable subcustodian by the law of the governing jurisdiction. 7 d. At the Fund's election, the Fund shall be subrogated to the rights of the Delegate with respect to any claims against an Eligible Foreign Custodian relating to the Fund's assets as a consequence of any loss, damage, cost, expense, liability or claim arising out of or in connection with such Foreign Eligible Custodian's performance of obligations under contracts with the Delegate governing the Fund's foreign custody arrangements, if and to the extent that the Fund (or any of its series) has not been made whole for any such loss, damage, cost, expense, liability or claim. e. The obligations set forth in this Section 11 shall survive the termination of this Agreement. 12. EFFECTIVENESS AND TERMINATION OF AGREEMENT This Agreement shall be effective as of the later of the date of execution on behalf of Board or Delegate and shall remain in effect until terminated as provided herein. This Agreement may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination by the Fund will become effective 90 days after receipt by the Bank of such notice; and termination by the Bank will become effective 180 days after receipt by the Fund of such notice. 13. AUTHORIZED REPRESENTATIVES AND NOTICES The respective Authorized Representatives of Fund and Board, and the addresses to which notices and other documents under this Agreement are to be sent to each, are as set forth in APPENDIX F. Any Authorized Representative of a party may add or delete persons from that party's list of Authorized Representatives by written notice to an Authorized Representative of the other party. 14. GOVERNING LAW This Agreement shall be constructed in accordance with the laws of the Commonwealth of Massachusetts without regard to principles of choice of law. 15. PORTFOLIOS This Agreement is an agreement entered into between the Delegate and the Fund with respect to each series or portfolios of the Fund (the "Portfolios") set forth on APPENDIX G. With respect to any obligation of the Fund on behalf of any Portfolio arising out of this Agreement, the Delegate shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates as though the Delegate had separately contracted with the Fund by separate written instrument with respect to each Portfolio. Furthermore, unless the context otherwise requires, any reference in this Agreement to any actions to be taken by the Fund shall be deemed to refer to the Fund acting on behalf of one or more of its Portfolios, any reference to the assets or Foreign Assets of the Fund, including any Foreign Assets, shall be deemed to refer only to assets of the applicable Portfolio, and any duty or obligation of the Delegate hereunder to the Fund shall be deemed to refer to duties and obligations with respect to such individual Portfolios. In the event that the Fund establishes one or more additional Portfolios with respect to which the Fund wishes to employ the Delegate to act as delegate hereunder, the Fund shall notify the Delegate in writing. Upon written acceptance by the Delegate, such Portfolio shall become subject to the provisions of this Agreement to the same extent as the 8 existing Portfolios, except to the extent that such provisions (including those relating to the compensation and expenses payable by the Fund and its Portfolios) may be modified with respect to each additional Portfolio in writing by the Fund and the Delegate at the time of the addition of the Portfolio. 16. TRUST NOTICE A copy of the Agreement and Declaration of Trust establishing the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Fund by the officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging respectively to each Portfolio. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first written above. Investors Bank & Trust Company By: /S/ ROBERT D. MANCUSO Name: Robert D. Mancuso Title: Senior Vice President CDC NVEST FUNDS TRUST II By: /S/ JOHN HAILER Name: John Hailer Title: President 10 LIST OF APPENDICES A1 -- Jurisdictions Covered A2 - Securities Depositories Covered B -- Additional Jurisdictions/Securities Depositories Covered C -- Additional Factors and Criteria To Be Applied in the Selection of Eligible Foreign Custodians That Are Banking Institutions or Trust Companies D -- Factors and Criteria To Be Applied in Establishing Systems For the Monitoring of Foreign Custody Arrangements and Contracts E -- Information Regarding Country Risk F -- Authorized Representatives 11 A1-1 APPENDIX A1 JURISDICTIONS COVERED [delete those countries which are not delegated] Argentina Kenya Austria Korea Australia Latvia Bahrain Lebanon Bangladesh Lithuania Belgium Luxembourg Bermuda Malaysia Bolivia Mauritius Botswana Mexico Brazil Morocco Bulgaria Namibia Canada Netherlands Chile New Zealand China Norway Clearstream (Cedel) Oman Colombia Pakistan Costa Rica Panama Croatia Papau New Guinea Cyprus Peru Czech Republic Philippines Denmark Poland Ecuador Portugal Egypt Romania Estonia Russia Euroclear Singapore Finland Slovak Republic France Slovenia Germany South Africa Ghana Spain Greece Sri Lanka Hong Kong Swaziland Hungary Sweden Iceland Switzerland India Taiwan Indonesia Thailand Ireland Turkey Israel Ukraine Italy United Kingdom Ivory Coast Uruguay Japan Venezuela Jordan Zambia Kazakhstan Zimbabwe A1-1 A2-4 APPENDIX A2 SECURITIES DEPOSITORIES COVERED
- ------------------------------------------------------- ----------------------------------------------------- Argentina CDV Philippines PCD CRYL RoSS - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Australia Austraclear Ltd. Poland CRBS CHESS NDS RITS - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Austria OeKB AG Portugal Central de Valores Mobiliarios - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Bahrain None Romania NBR SNCDD Stock Exchange Registry, Clearing & Settlement - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Bangladesh None Russia DCC NDC VTB - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Belgium BKB Singapore CDP CIK MAS - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Bermuda None Slovak Republic NBS SCP - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Botswana None Slovenia KDD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Brazil CBLC South Africa STRATE CETIP The Central Depository SELIC (Pty) Ltd. - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Bulgaria The Bulgarian National Spain Banco de Espana Bank SCLV The Central Depository - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Canada Bank of Canada Sri Lanka CDS CDS - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Chile DCV Sweden VPC AB - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- China SSCC Switzerland SIS SegaIntersettle AG SSCCRC - ------------------------------------------------------- ----------------------------------------------------- A2-1 - ------------------------------------------------------- ----------------------------------------------------- Clearstream Taiwan TSCD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Colombia DCV Thailand TSD DECEVAL - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Costa Rica CEVAL Turkey CBT Takasbank - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Croatia CNB Ukraine Depository of the Ministry of Finance National Bank of SDA Ukraine MFS Depository - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Czech Republic SCP Uruguay None TKD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Denmark VP United Kingdom CMO CREST - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Ecuador DECEVALE, S.A. Venezuela BCV CVV - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Egypt Misr for Clearing, Zambia Bank of Zambia Settlement & Dep. LuSE CSD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Estonia ECDSL Zimbabwe None - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Euroclear - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Finland APK - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- France Sicovam SA - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Germany Clearstream - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Ghana None - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Greece Bank of Greece CSD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Hong Kong CCASS CMU - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Hungary Keler Ltd. - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- India CDSL NSDL - ------------------------------------------------------- ----------------------------------------------------- A2-2 - ------------------------------------------------------- ----------------------------------------------------- Indonesia Bank Indonesia PT.KSEI - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Ireland CREST Gilt Settlement Office - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Israel TASE Clearing House Ltd. - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Italy Banca d-Italia Monte Titoli - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Ivory Coast* Depositaire Central/ Banque de Reglement - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Japan Bank of Japan JASDEC - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Jordan SDC - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Kazakhstan Kazakhstan Central Securities Depository - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Kenya Central Bank of Kenya Central Depository - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Korea KSD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Latvia Bank of Latvia LCD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Lebanon Banque de Liban MIDCLEAR - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Lithuania CSDL - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Luxembourg Clearstream - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Malaysia BNM (SSTS) MCD - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Mauritius CDS - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Mexico S.D. Indeval - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Morocco Maroclear S.A. - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Netherlands NECIGEF - ------------------------------------------------------- ----------------------------------------------------- A2-3 - ------------------------------------------------------- ----------------------------------------------------- New Zealand New Zealand Central Securities Depository - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Norway VPS - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Oman MDSRC - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Pakistan Central Depository Co. of Pakistan Limited State Bank of Pakistan - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- ----------------------------------------------------- Peru CAVALI - ------------------------------------------------------- ----------------------------------------------------- - ------------------------------------------------------- -----------------------------------------------------
* Benin, Burkina-Faso, Guinea Bissau, Mali, Nigeria, Senegal, and Togo are available through the Ivory Coast A2-4 B-1 APPENDIX B ADDITIONAL JURISDICTIONS COVERED Pursuant to Article 3 of this Agreement, Delegate and Board agree that the following jurisdictions shall be added to Appendix A1: [insert additional countries/depositories] Investors Bank & Trust Company By: ___________________________________ Name: Title: CDC NVEST FUNDS TRUST II By:____________________________________ Name: Title: DATE: ______________________________ B-1 C-1 APPENDIX C ADDITIONAL FACTORS AND CRITERIA TO BE APPLIED IN THE SELECTION OF ELIGIBLE FOREIGN CUSTODIANS THAT ARE BANKING INSTITUTIONS OR TRUST COMPANIES In addition to the factors set forth in Rule 17f-5(c)(1), in selecting Eligible Foreign Custodians that are banking institutions or trust companies, Delegate shall consider the following factors, if such information is available (check all that apply): _________ None _________ Other (list below): C-1 APPENDIX D FACTORS AND CRITERIA TO BE APPLIED IN THE ESTABLISHING SYSTEMS FOR THE MONITORING OF FOREIGN CUSTODY ARRANGEMENTS AND CONTRACTS In establishing systems for the Monitoring of foreign custody arrangements and contracts with Eligible Foreign Custodians, Delegate shall consider the following factors, if such information is available: 1. Operating performance 2. Established practices and procedures 3. Relationship with market regulators 4. Contingency planning D-1 APPENDIX E INFORMATION REGARDING COUNTRY RISK To aid the Board in its determinations regarding Country Risk, Delegate will furnish Board annually with respect to the jurisdictions specified in Article 3, the following information: 1. Copy of Addenda or Side Letters to Subcustodian Agreements 2. Legal Opinion, if available, with regard to: a) Access to books and records by the Fund's accountants b) Ability to recover assets in the event of bankruptcy of a custodian c) Ability to recover assets in the event of a loss d) Likelihood of expropriation or nationalization, if available e) Ability to repatriate or convert cash or cash equivalents 3. Audit Report 4. Copy of Balance Sheet from Annual Report 5. Country Profile Matrix containing market practice for: a) Delivery versus payment b) Settlement method c) Currency restrictions d) Buy-in practice e) Foreign ownership limits f) Unique market arrangements E-1 APPENDIX F AUTHORIZED REPRESENTATIVES The names and addresses of each party's authorized representatives are set forth below: A. BOARD Board of Trustees CDC Nvest Funds 399 Boylston Street Boston, MA 02116 With a copy to: CDC Nvest Funds 399 Boylston Street Boston, MA 02116 Attention: General Counsel B. DELEGATE Investors Bank & Trust Company 200 Clarendon Street P.O. Box 9130 Boston, MA 02117-9130 Attention: Geoffrey O'Connell, Senior Director, Client Management Fax: (617) 330-6033 With a copy to: Investors Bank & Trust Company 200 Clarendon Street P.O. Box 9130 Boston, MA 02117-9130 Attention: Andrew S. Josef, Assistant General Counsel Fax: (617) 946-1929 F-1 APPENDIX G PORTFOLIOS SERIES OF CDC NVEST FUNDS TRUST II CDC Nvest Growth and Income Fund CDC Nvest High Income Fund CDC Nvest Limited Term U.S. Government Fund CDC Nvest Massachusetts Tax Free Income Fund CDC Nvest Short Term Bond Fund F-2 EX-99.H 8 exhh3.txt EXHIBIT H3 Exhibit (h)(3) SECURITIES LENDING AGENCY AGREEMENT BETWEEN INVESTORS BANK & TRUST COMPANY AND CDC NVEST FUNDS TRUST II SECURITIES LENDING AGENCY AGREEMENT AGREEMENT, dated as of May 1, 2002, between CDC Nvest Funds Trust II, a Massachusetts business trust (the "Lender"), on behalf of the series listed on Schedule I as such Schedule I may be amended by mutual agreement of the parties from time to time (the "Portfolios"), and Investors Bank & Trust Company, a trust company organized and existing under the laws of the Commonwealth of Massachusetts (the "Bank"). WHEREAS, the Bank currently acts as custodian for securities held by it in the Account (as defined below) from time to time on behalf of the Lender; and WHEREAS, the Lender desires to appoint the Bank as its agent for the purpose of lending securities in the Account as more fully set forth below; and WHEREAS, the Bank has agreed to act as the Lender's agent for such purpose pursuant to the terms hereof; NOW, THEREFORE, for and in consideration of the mutual promises set forth herein, the parties hereto agree as follows: 1. DEFINITIONS. Whenever used in this Agreement, unless the context otherwise requires, the following words shall have the meanings set forth below. Capitalized terms used but not defined herein shall have the meaning assigned to them in the applicable Securities Borrowing Agreement. 1.1 "Account" shall mean the custodial account or accounts established and maintained by the Bank on behalf of the Lender for the safekeeping of securities and monies received by the Bank from time to time. 1.2 "Approved Investment" shall mean any type of security, participation or interest in property in which Cash Collateral may be invested or reinvested, as set forth on Schedule II hereto (which may be amended from time to time to add additional Approved Investments with the written consent of the Bank and the Lender, or to delete any Approved Investment at the written direction of the Lender). 1.3 "Authorized Person" shall be any officer of the Lender and any other person, whether or not any such person is an officer or employee of the Lender, duly authorized by resolutions of the Board of Trustees of the Lender to give Oral and/or Written Instructions on behalf of the Lender, such persons to be designated in a Certificate which contains a specimen signature of such person. 1.4 "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for receiving and delivering Government Securities (as defined herein), its successors and nominees, as described in Section (b)(2) of Rule 17f-4 under the 1940 Act. 1.5 "Borrower" shall mean any entity named on Schedule III hereto (as such Schedule may be amended from time to time to add additional Borrowers with the written consent of the Bank and the Lender, or to delete any Borrower at the written direction of the Lender). The Lender will promptly notify the Bank if at any time: (a) any potential Borrower which is a broker-dealer registered under the Securities Exchange Act of 1934 (the "1934 Act"), a broker-dealer exempted from registration under Section 15(a)(1) of the 1934 Act as a dealer of exempted Government Securities, or a bank, has discretionary authority or control with respect to the investment of any Securities available for Loan, or (b) any potential Borrower not described in clause (a) above is a party who is with respect to the Lender in such a position that a loan would be considered a conflict of interest under applicable law. If the Lender provides such notice, the Bank shall take appropriate action to prevent the Lender from engaging in a Loan with any potential Borrower so identified by the Lender. The Bank shall be entitled to rely upon such notices from the Lender (and the absence of such notices) in its operation of this securities lending program. 1.6 "Cash Collateral" shall mean either fed funds or New York Clearing House funds, as applicable for a particular loan of Securities. 1.7 "Certificate" shall mean any notice, instruction, schedule or other instrument in writing, authorized or required by this Agreement to be given to the Bank, which is actually received by the Bank and signed on behalf of the Lender by an Authorized Person or a person reasonably believed by the Bank to be an Authorized Person. 1.8 "Collateral" shall mean Cash Collateral unless the Bank and the Lender have agreed in writing to additional collateral, including Government Securities and Letters of Credit. 1.9 "Collateral Account" shall mean a segregated account established and maintained by the Bank for the purpose of holding Collateral, including Cash Collateral, and Approved Investments, interest, dividends and other payments and distributions received with respect to Collateral and Approved Investments ("Distributions"), and any Securities Loan Fee paid by Borrowers in connection with Securities loans hereunder. 1.10 "Depository" shall mean the Depository Trust Company, Participant's Trust Company, Euroclear, and any other securities depository or clearing agency (and their respective successors and nominees) authorized under applicable law or regulation to act as a securities depository or clearing agency, including any foreign securities depository approved by the Lender. 1.11 "Government Security" shall mean book-entry Treasury securities (as defined in Subpart 0 of Treasury Department Circular No. 300, 31 C.F.R. 306) and any other securities issued or fully guaranteed by the United States government or any agency or instrumentality of the United States government. 1.12 "Letter of Credit" shall mean a clean, unconditional and irrevocable letter of credit in favor of the Bank as agent for the Lender issued by a bank named on Schedule IV hereto as may be amended from time to time to add additional banks by the written consent of the parties hereto, or to delete any Bank at the written direction of the Lender. 1.13 "Loan Ceiling Amount" shall mean, with respect to any Portfolio, the amount set forth on Schedule V hereto opposite such Portfolio's name, as such Schedule may be amended from time to time by the Lender, which amendment shall become effective upon delivery to the Bank. 1.14 "Oral Instructions" shall mean verbal instructions actually received by the Bank from an Authorized Person or from a person reasonably believed by the Bank to be an Authorized Person. 1.15 "Rebate" shall mean the amount payable by the Lender to a Borrower (as set forth in a Receipt) in connection with Securities loans at any time collateralized by Cash Collateral. 1.16 "Receipt" shall mean an advice or confirmation setting forth the terms of a particular loan of Securities hereunder, including, without limitation, the Collateral with respect to such loan. 1.17 "Replacement Securities" shall mean securities of the same issuer, class and denomination as lent Securities. 1.18 "Securities Borrowing Agreement" shall mean with, respect to any Borrower, the agreement pursuant to which the Bank lends securities on behalf of its customers (including the Lender) to such Borrower as may be amended from time to time. 2 1.19 "Securities Loan Fee" shall mean the amount payable by a Borrower to the Bank, as agent for the Lender, pursuant to the applicable Securities Borrowing Agreement in connection with Securities loans, if any, collateralized by Collateral that is not Cash Collateral. 1.20 "Security" shall mean any Government Securities, non-U.S. securities, common stock and other equity securities, bonds, debentures, corporate debt securities, notes, mortgages or other obligations, and any certificates, warrants or other instruments representing rights to receive, purchase, or subscribe for the same, or evidencing or representing any other rights or interests therein, which are available for lending pursuant to Section 2.2 of this Agreement. 1.21 "Written Instructions" shall mean written communications actually received by the Bank from an Authorized Person or from a person reasonably believed by the Bank to be an Authorized Person by letter, memorandum, telegram, cable, telex, telecopy facsimile, computer, video (CRT) terminal or other on-line system, or any other method whereby the Bank is able to verify with a reasonable degree of certainty the identity of the sender of such communications or the sender is required to provide a password or other identification code. 2. APPOINTMENT; SCOPE OF AGENCY AUTHORITY. 2.1 APPOINTMENT. The Lender hereby appoints the Bank as its agent to lend Securities in the Account to Borrowers from time to time as hereinafter set forth, and the Bank hereby accepts appointment as such agent and agrees to so act. 2.2 SECURITIES SUBJECT TO LENDING. Unless the Lender provides otherwise in writing to the Bank and subject to the next sentence of this Section 2.2, all individual Securities maintained in the Account shall be available for lending pursuant to this Agreement. The Bank shall not loan any Securities maintained in a Portfolio's Account such that, after giving effect to such loan, an amount greater than that Portfolio's Loan Ceiling Amount will be lent pursuant to this Agreement. Upon receiving a notice from the Lender that Securities that have been loaned to a Borrower should no longer be considered available for lending under this Agreement (whether because of the sale of such securities or otherwise), the Bank shall terminate the loan of such Securities for the Account of such Lender by notice to the Borrower or by reallocation in which case the Bank shall ensure the return of such Securities to the Account of such Lender and may immediately cause another Fund to loan Securities of the same class and issuer to the same or a different Borrower. 2.3 SECURITIES BORROWING AGREEMENT. The Lender hereby acknowledges receipt of a Securities Borrowing Agreement with respect to each Borrower and authorizes the Bank to lend Securities in the Account to Borrowers pursuant to such agreements. The Bank shall promptly provide the Lender with copies of any amendments or changes to such agreements. The Lender may elect to terminate any Borrower from Schedule III if it opposes the change. 2.4 LOAN OPPORTUNITIES. The Lender acknowledges and agrees that the Bank shall have the right to decline to make any loans of Securities under any Securities Borrowing Agreement and to discontinue lending under any Securities Borrowing Agreement in its sole discretion, provided that the Bank notify the Lender of its decision to discontinue lending within a reasonable period of time after such decision is made. The Lender agrees that it shall have no claim against the Bank based on, or relating to, loans made for other customers or for the Bank's own account, or loan opportunities refused hereunder, whether or not the Bank has made fewer or more loans for any other customer or for the Bank's own account than for the Lender, and whether or not any loan for another customer or for the Bank's own account, or the opportunity refused, could have resulted in loans made hereunder. Notwithstanding anything herein to the contrary, the Bank will allocate securities lending opportunities among its customers using reasonable and equitable methods established by the Bank from time to time. 2.5 USE OF BOOK-ENTRY SYSTEM AND DEPOSITORIES. The Lender hereby authorizes the Bank on a continuous and on-going basis, to deposit in the Book-Entry System and any Depositories all Securities eligible for deposit therein and to utilize the Book-Entry System and Depositories to the extent possible in connection with its receipt and delivery of Securities, Collateral, Approved Investments and monies under this Agreement. Where Securities, Collateral and Approved Investments eligible for deposit in the Book-Entry System or a Depository are transferred to the Account, the Bank shall identify as belonging to the Lender a 3 quantity of securities in a fungible bulk of securities shown on the Bank's account on the books of the Book-Entry System or the applicable Depository. Securities, Collateral and Approved Investments deposited in the Book-Entry System or a Deposit will be represented in accounts which include only assets held by the Bank for customers, including but not limited to accounts in which the Bank acts in a fiduciary or agency capacity. 3. REPRESENTATIONS AND WARRANTIES. 3.1 LENDER'S REPRESENTATIONS. The Lender hereby represents and warrants to the Bank, which representations and warranties shall be deemed to be continuing and to be reaffirmed on any day that a Securities loan hereunder is outstanding, that: (a) This Agreement and the use of the Approved Investments has been approved and will be reapproved annually by the Board of Trustees of the Lender as being in the best interests of shareholders of the Lender; this Agreement is, and each Securities loan and Approved Investment will be, legally and validly entered into by the Lender, does not, and will not, violate any statute, regulation, rule, order or, judgment binding on the Lender, or any provision of the Lender's agreement and declaration of trust or by-laws, or any material agreement binding on the Lender or affecting its property, and is enforceable against the Lender in accordance with its terms, except as may be limited by bankruptcy, insolvency or similar laws, or by equitable principles relating to or limiting creditors rights generally; (b) The person executing this Agreement and all Authorized Persons acting on behalf of the Lender has and have been duly and properly authorized to do so; (c) It is lending Securities as principal for its own account and it will not transfer, assign or encumber its interest in, or rights with respect to, any securities loans; and (d) All Securities subject to lending pursuant to Section 2.2 of this Agreement are free and clear of all liens, claims, security interests and encumbrances and no such Security subject to lending has been sold. The Lender shall promptly delete from the list referenced in Section 2.2 hereof any and all Securities which are no longer subject to the representations contained in this sub-paragraph (d). 3.2 BANK'S REPRESENTATIONS. The Bank hereby represents and warrants to the Lender, which representations and warranties shall be deemed to be continuing and to be reaffirmed on any day that a Securities loan hereunder is outstanding, that: (a) This Agreement is legally and validly entered into by the Bank, does not and will not, violate any statute, regulation, rule, order or, judgment binding on the Bank, or any provision of the Bank's charter or by-laws, or any agreement binding on the Bank or affecting its property, and is enforceable against the Bank in accordance with its terms, except as may be limited by bankruptcy, insolvency or similar laws, or by equitable principles relating to or limiting creditors rights generally; (b) The person executing this Agreement on behalf of the Bank and all persons acting on the Bank's behalf pursuant to this Agreement has and have been duly and properly authorized to do so; (c) The Bank has taken all necessary action to authorize such execution and delivery of this Agreement and the performance of its obligations hereunder; and (d) The execution, delivery and performance by the Bank of this Agreement will at all times comply with all applicable laws and regulations. 4. SECURITIES LENDING TRANSACTIONS. 4 4.l LOAN INITIATION. From time to time the Bank may lend Securities to Borrowers and deliver such Securities against receipt of Collateral in accordance with the applicable Securities Borrowing Agreement. The Bank shall deliver to the Lender a Receipt in connection with each loan made hereunder, prior to settlement of such loan. 4.2 RECEIPT OF COLLATERAL; APPROVED INVESTMENTS. (a) For each loan hereunder the Bank shall (i) initially receive (a) Collateral equivalent to no less than 102% of the market value of the Securities lent in the case of lent Securities denominated in U.S. Dollars or whose primary trading market is located in the United States or sovereign debt issued by foreign governments, or (b) Collateral equivalent to no less than 105% of the market value of the Securities lent in the case of lent Securities that are not denominated in U.S. Dollars or whose primary trading market is not located in the United States, and (ii) thereafter shall request on a daily basis as necessary additional Collateral, (a) which in the case of lent Securities denominated in U.S. Dollars or whose primary trading market is located in the United States or sovereign debt issued by foreign governments, shall be an amount such that the value of the Cash Collateral in no event be equivalent to less than 101.5% of the market value of the Securities lent (as determined in accordance with the applicable Securities Borrowing Agreement), and (b) which in the case of other types of lent Securities, shall be an amount such that the value of the Collateral in no event be equivalent to less than 104.5% of the market value of the Securities lent (as determined in accordance with the applicable Securities Borrowing Agreement). The Bank is hereby authorized and directed, without obtaining any further approval from the Lender, to invest and reinvest all or substantially all of the Cash Collateral received in any Approved Investment. The Bank shall credit all Collateral, Approved Investments and Distributions received with respect to Collateral and Approved Investments to the Collateral Account and mark its books and records to identify the Lender's ownership thereof as appropriate. (b) All Approved Investments shall be for the account and risk of the Lender. To the extent any loss arising out of Approved Investments results in a deficiency in the amount of Collateral available for return to a Borrower pursuant to the Securities Borrowing Agreement, the Lender agrees to pay the Bank on demand cash in an amount equal to such deficiency. (c) Except as otherwise provided herein, all Collateral, Approved Investments and Distributions credited to the Collateral Account shall be controlled by, and subject only to the instructions of, the Bank, and the Bank shall not be required to comply with any instructions of the Lender with respect to the same. (d) Subject to any agreed upon limits imposed by the Lender in writing on the investment of Collateral, the Bank does not assume any market or investment risk of loss with respect to the investment of Cash Collateral. Subject to the foregoing, the Bank shall exercise reasonable care, skill, diligence and prudence in the administration and investment of Collateral. If the income from the Collateral so invested is insufficient to pay the Rebate, the Lender and the Bank shall share the responsibility for making up the amount of the shortfall in accordance with the fee split as may be agreed to in writing by the parties hereto from time to time. The parties hereto agree that the Bank does not have investment discretion over the Collateral. 4.3 DISTRIBUTIONS ON LOANED SECURITIES. Except as provided in the next sentence, all interests, dividends, and other distributions paid with respect to loaned Securities shall be credited to the Lender's Account on the date such amounts are delivered by the Borrower to the Bank. Any non-cash distribution on loaned Securities which is in the nature of a stock split or a stock dividend shall be added to the applicable loan (and shall be considered to constitute loaned Securities) as of the date such non-cash distribution is received by the Borrower. 4.4 MARKS TO MARKET. The Bank shall on each Business Day mark to market in U.S. dollars the value of all Securities loaned hereunder and all Collateral and accordingly receive and release Collateral in accordance with the applicable Securities Borrowing Agreement. 4.5 COLLATERAL SUBSTITUTIONS. The Bank shall accept substitutions of Collateral in accordance with the applicable Securities Borrowing Agreement and shall credit all such substitutions to the Collateral Account; provided, however, that unless other Collateral has been mutually agreed upon in writing by the Bank and the Lender, no other Collateral may be substituted for Cash Collateral. 5 4.6 TERMINATION OF LOANS. The Bank shall terminate any Securities loan to a Borrower in accordance with the applicable Securities Borrowing Agreement as soon as practicable (but in any event within three business days after notice by the Fund) after: (a) receipt by the Bank of a notice of termination pursuant to the Securities Borrowing Agreement; (b) receipt by the Bank of Written Instructions instructing it to terminate a Securities loan; (c) receipt by the Bank of Written Instructions deleting the Borrower to whom such loan was made from Schedule III hereto; (d) upon the Bank's becoming aware of the occurrence of any default pursuant to the applicable Securities Borrowing Agreement requiring termination of such loan; or (e) whenever the Bank, in its sole discretion, elects to terminate such loan. 4.7 SECURITIES LOAN FEE. The Bank shall receive any applicable Securities Loan Fee paid by Borrowers pursuant to the Securities Borrowing Agreement and credit all such amounts received to the Collateral Account. 4.8 THE BORROWER'S FINANCIAL CONDITION. The Bank has delivered to the Lender each of the Borrower's most recent statements that have been made available to the Bank pursuant to the Securities Borrowing Agreements. The Bank shall promptly deliver to the Lender (i) all statements and financial information subsequently delivered to the Bank and required to be furnished to the Bank under the Securities Borrowing Agreements and (ii) all statements and financial information regarding the Borrowers reasonably requested by the Lender. 4.9 TRANSFER TAXES AND NECESSARY COSTS. All transfer taxes and necessary costs with respect to the transfer of the loaned Securities by the Lender to the Borrower and the Borrower to the Lender upon the termination of the loan shall be paid, and each Securities Borrowing Agreement shall require such taxes and costs to be paid, by the Borrower. 4.10 REMEDIES UPON DEFAULT. In the event of any default by a Borrower under the applicable Securities Borrowing Agreement, the Bank shall use its best efforts to pursue, on behalf of the Lender, any remedies that the Bank or the Lender may have under the applicable Securities Borrowing Agreement. 4.11 RETURN OF COLLATERAL. The Collateral shall be returned to the Borrower at the termination of the loan upon the return of the lent Securities by the Borrower in accordance with the applicable Securities Borrowing Agreement. 4.12 BANK'S OBLIGATION. Except as specifically set forth herein, or in any applicable Securities Borrowing Agreement, the Bank shall have no duty or obligation to take action to effect payment by a Borrower of any amounts owed by such Borrower pursuant to the Securities Borrowing Agreement. 5. CONCERNING THE BANK. 5.1 STANDARD OF CARE: INDEMNIFICATION. (a) It is expressly understood and agreed that in exercising its rights and performing its obligations hereunder, the Bank owes no fiduciary duty to the Lender. The Bank shall not be liable for any costs, expenses, damages, liabilities or claims (including attorneys and accountants fees) incurred by the Lender, except those costs, expenses, damages, liabilities or claims arising out of the negligence, willful misconduct, bad faith, willful misfeasance or nonfeasance on the part of, or reckless disregard of its obligations and duties hereunder by, the Bank or any party to whom the Bank delegates any of its duties hereunder or a breach by the Bank of the terms of this Agreement. The Bank shall have no obligation hereunder for costs, expenses, damages, liabilities or claims (including reasonable attorneys and accountants fees), which are sustained or incurred by reason of any action or inaction by the Book-Entry System or any Depository or their respective successors or nominees. In no event shall the 6 Bank be liable for special, punitive or consequential damages, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages. (b) The Lender agrees to indemnify the Bank and to hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including reasonable fees and expenses of counsel, which the Bank may sustain or incur or which may be asserted against the Bank by reason of or as a result of any action taken or omitted by the Bank in connection with or arising out of the Bank's operating under and in compliance with this Agreement, except those costs, expenses, damages, liabilities or claims arising out of the Bank's negligence, willful misconduct, bad faith, willful misfeasance or nonfeasance, or reckless disregard of its obligations and duties hereunder. The foregoing indemnity shall be a continuing obligation of the Lender, its successors and assigns, notwithstanding the termination of any loans hereunder or of this Agreement. Actions taken or omitted in reasonable reliance upon Oral or Written Instructions, any Certificate, or upon any information, order, indenture, stock certificate, power of attorney, assignment, affidavit or other instrument reasonably believed by the Bank to be genuine or bearing the signature of a person or persons reasonably believed by the Bank to be genuine or bearing the signature of a person or persons reasonably believed to be authorized to sign, countersign or execute the same, shall be presumed to have been taken or omitted in good faith. (c) The Bank shall indemnify and hold harmless the Lender from and against any and all loss, liability, costs, damages, actions, claims and expenses, including reasonable fees and expenses of counsel, that the Lender may sustain or incur or which may be asserted against the Lender arising out of the the Bank's negligence, willful misconduct, bad faith, misfeasance or nonfeasance or the reckless disregard of its obligations and duties hereunder. (d) If at the time of a default by a Borrower with respect to a loan hereunder, some or all of the lent Securities under such loan have not been returned by the Borrower, and subject to the terms of this Agreement, the Bank shall indemnify the Lender against the failure of the Borrower as follows: (i) The Bank shall purchase a number of Replacement Securities equal to the number of such unreturned lent Securities, to the extent that such Replacement Securities are available on the open market. Such Replacement Securities shall be purchased by applying the proceeds of the Collateral with respect to such loan to the purchase of such Replacement Securities. Subject to the Lender obligations set forth in Section 5.3 and 5.7 hereof, if and to the extent that such proceeds are insufficient or the Collateral is unavailable, the purchase of such Replacement Securities shall be made at the Bank's expense. (ii) If the Bank is unable to purchase Replacement Securities pursuant to paragraph (i) above, the Bank shall credit to the Lender's account an amount equal to the market value of the unreturned lent Securities for which Replacement Securities are not so purchased, determined as of the earlier of (i) the first day on which the Bank was required to make a demand for additional Collateral from the Borrower (and the Bank failed to make such demand or such demand did not result in the delivery of such additional Collateral) or (ii) the first day on which the lent Securities were not returned as required by the terms of the applicable loan. (iii) In addition to making the purchases or credits required by paragraphs (i) and (ii) hereof, the Bank shall credit to the Lender's account the value of all distributions on the lent Securities (not otherwise credited to the Lender's accounts with the Bank), the record dates for which occur before the date that the Bank purchases Replacement Securities pursuant to paragraph (i) or credits the Lender's account pursuant to paragraph (ii). (iv) Any credits required under paragraphs (i), (ii) or (iii) hereof shall be made by application of the proceeds of the Collateral (if any) that remains after the purchase of Replacement Securities pursuant to paragraph (i). If and to the extent that the Collateral is unavailable or the value of the proceeds of the remaining Collateral is less than the value of the sum of the credits required to be made under Paragraphs (i), (ii) or (iii), such credits shall be made at the Bank's expense. (v) If after application of paragraphs (i) through (iv) hereof, additional Collateral remains or any previously unavailable Collateral becomes available or any additional amounts owed by the Borrower with 7 respect to such loan are received from the Borrower, the Bank shall apply the proceeds of such Collateral or such additional amounts first to reimburse itself for any amounts expended by the Bank pursuant to paragraphs (i) through (iv) above, and then to credit to the Lender's account all other amounts owed by the Borrower to the Lender with respect to such loan under the applicable Securities Borrowing Agreement. (vi) In the event that the Bank is required to make any payment and/or incur any loss or expense under this Section, the Bank shall, to the extent of such payment, loss, or expense, be subrogated to, and succeed to, all of the rights of the Lender against the Borrower under the applicable Securities Borrowing Agreement. 5.2 NO OBLIGATION TO INQUIRE. Without limiting the generality of the foregoing, the Bank shall be under no obligation to inquire into, and shall not be liable for, the validity of the issue of any Securities at any time held in the Account. 5.3 ADVANCES, OVERDRAFTS AND INDEBTEDNESS; SECURITY INTEREST. (a) The Bank may, in its sole discretion, advance funds on behalf of the Lender in order to pay to Borrowers any Rebates or to return to Borrowers Cash Collateral to which they are entitled pursuant to the applicable Securities Borrowing Agreement. The Bank may also, in its sole discretion and as a matter of bookkeeping convenience, credit the Account with interest, dividends or other distributions payable on Securities prior to its actual receipt of final payment therefor and the Lender agrees that such bookkeeping credits may also be reflected on its books, and otherwise, as "immediately available" or "same day" funds or by some similar characterization. Notwithstanding any such credit or characterization, all such credits shall be conditional upon the Bank's actual receipt of final payment and may be reversed by the Bank to the extent that final payment is not received. If the Bank, in its sole discretion, permits the Lender to use funds credited to the Account prior to receipt by the Bank of final payment thereof, the Lender shall nonetheless continue to bear the risk of, and liability for, the Bank's non-receipt of final payment in full. (b) The Lender agrees to repay the Bank on demand the amount of any advance or credit described in Section 5.3(a) above or any other amount owed by the Lender hereunder plus accrued interest at a rate per annum (based on a 360-day year for the actual number of days involved) as agreed to by the parties in writing from time to time. In order to secure repayment of any credit, advance, overdraft or other indebtedness of the Lender to the Bank arising hereunder, the Lender hereby agrees that the Bank shall have a continuing lien and security interest, to the extent of any such amounts owing, in and to all assets now or hereafter held in the Account and the Collateral Account, which is then in the Bank's possession or control or in the possession or control of any third party acting on the Bank's behalf. In this regard, the Bank shall be entitled to charge any amounts owed to the Bank hereunder against any balance of account standing to the credit of the Lender on the Bank's books and, without limiting the foregoing, to all the rights and remedies of a pledgee under common law and a secured party under the Massachusetts Uniform Commercial Code and/or any other applicable laws and/or regulations as then in effect. (c) The rights and obligations of the Bank and the rights and obligations of the Lender under this Section are absolute and unconditional whether or not the Bank would be entitled to indemnification pursuant to Section 5.l(b) hereof. (d) For all purposes of this Agreement, payment with respect to a transaction will not be "final" until the Bank shall have received immediately available funds which under applicable law or rule are irreversible, which are not subject to any security interest, levy or other encumbrance, and which are specifically applicable, or deemed by the Bank to be specifically applicable, to such transaction. A debit by the Bank to any other account of the Lender maintained by the Bank or to an account of any third party to whom or for whose account Securities have been delivered shall not constitute final payment to the extent that such debit creates an overdraft or does not otherwise result in the receipt by the Bank of immediately available, irreversible and unencumbered funds. 5.4 ADVICE OF COUNSEL. The Bank may, with respect to questions of law, apply for and obtain the advice and opinion of counsel and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. 8 5.5 NO COLLECTION OBLIGATIONS. Except as set forth in Section 5.1(d) above, Bank shall be under no obligation or duty to take action to effect collection of any amounts payable in respect of Securities or Approved Investments if such Securities or Approved Investments are in default, or if payment is refused after due demand and presentation. 5.6 PRICING METHODS. The Bank is authorized to utilize any recognized pricing information service or any other means of valuation specified in the applicable Securities Borrowing Agreement ("Pricing Methods") in order to perform its valuation responsibilities with respect to loaned Securities, Collateral and Approved Investments. 5.7 AGENT'S FEE. In connection with each Securities loan hereunder the Lender shall pay to the Bank a fee equal to 40% of (a) net realized income derived from Approved Investments, plus (b) any Securities Loan Fee paid or payable by the Borrower, minus (c) any Rebate paid by the Bank to the Borrower. The Bank is authorized, on a monthly basis, to charge its fee and any other amounts owed by the Lender hereunder against the Account and/or Collateral Account. 5.8 RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Bank shall be entitled to rely upon any Certificate, any information contained on any Schedule hereto as may be amended in accordance with the terms hereof, and Written or Oral Instruction actually received by the Bank and reasonably believed by the Bank to be duly authorized and delivered. The Lender agrees to forward to the Bank Written Instructions confirming Oral Instructions in such manner so that such Written Instructions are received by the Bank by the close of business of the same day that such Oral Instructions are given to the Bank. The Lender agrees that the fact that such confirming Written Instructions are not received on a timely basis or that contrary instructions are received by the Bank shall in no way affect the validity or enforceability of the transactions authorized by the Lender. The Bank will use reasonable efforts to report any subsequently received contrary instructions. In this regard, the records of the Bank shall be presumed to reflect accurately any Oral Instructions given by an Authorized Person or a person reasonably believed by the Bank to be an Authorized Person. 5.9 CONFIDENTIALITY. The Bank may not disclose or supply any information regarding the Account or any non-public information obtained hereunder regarding any Lender unless required by any law or governmental regulation now or hereafter in effect or requested to do so by the Lender; provided that Bank may disclose or supply information regarding the Account as necessary in the sole discretion of the Bank in order to facilitate (without identifying the Lender or any Portfolio), effect or continue any loans hereunder. The parties agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision. 5.10 STATEMENTS. The Bank will at least daily furnish the Lender with statements relating to loans hereunder and Collateral. 5.11 FORCE MAJEURE. Neither the Bank nor the Lender shall be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, transportation, the unavailability of energy sources and other similar happenings or events except as results from the negligence of such party or any party to whom such party delegates its duties hereunder. 5.12 NO IMPLIED DUTIES. (a) The Bank shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement and in the applicable Securities Borrowing Agreement, and no covenant or obligation shall be implied against the Bank in connection with this Agreement. 9 (b) The Lender shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against the Lender in connection with this Agreement. 6. TERMINATION. This Agreement may be terminated by either party upon delivery to the other party of a written notice specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. Notwithstanding any such termination, this Agreement shall continue in full force and effect with respect to all loans of Securities outstanding on the date of termination. 7. MISCELLANEOUS. 7.1 EXCLUSIVITY. Prior to the termination of this Agreement or notice of termination of this Agreement, the Lender agrees that it shall not enter into any other agreement with any third party whereby such third party is permitted to make loans on behalf of the Lender of any securities held by the Bank in the Account from time to time. 7.2 CERTIFICATES. The Lender agrees to furnish to the Bank a new Certificate in the event that any present Authorized Person ceases to be an Authorized Person or in the event that any other Authorized Persons are appointed and authorized. Until such new Certificate is received, the Bank shall be fully protected in acting upon Oral Instructions or signatures of the present Authorized Persons. 7.3 NOTICES. (a) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Bank, shall be sufficiently given if addressed to the Bank and received by it at its offices at 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts 02117-9130, Attention: Securities Lending Department, with a copy to: John E. Henry, General Counsel, or at such other place as the Bank may from time to time designate in writing. (b) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Lender shall be sufficiently given if addressed to the Lender and received by it at its offices at c/o CDC IXIS Asset Management Services, Inc., 399 Boylston Street, Boston, MA 02116, Attention: Fund Administration Department Head, with a copy to: General Counsel, or at such other place as the Lender may from time to time designate in writing. 7.4 CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to a party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of a party to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by a party of any right preclude any other or future exercise thereof or the exercise of any other right. 7.5 SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby, and if any provision is inapplicable to any person or circumstances, it shall nevertheless remain applicable to all other persons and circumstances. 7.6 AMENDMENTS. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. 7.7 SUCCESSORS AND ASSIGNS. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party without the written consent of the other. 7.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts without regard to conflict of laws principles thereof. The Lender hereby consents to the jurisdiction of a state or federal court situated in Boston, Massachusetts in connection with any dispute arising hereunder. 10 7.9 NO THIRD PARTY BENEFICIARIES. In performing hereunder, the Bank is acting solely on behalf of the Lender and no contractual or service relationship shall be deemed to be established hereby between the Bank and any other person. 7.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 7.11 SIPA NOTICE. THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT THE LENDER WITH RESPECT TO LOANS HEREUNDER AND, THEREFORE, THE COLLATERAL DELIVERED TO THE BANK AS AGENT FOR THE LENDER MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF A BORROWER'S OBLIGATION IN THE EVENT SUCH BORROWER FAILS TO RETURN THE LOANED SECURITIES. 7.12 PORTFOLIOS. This Agreement is an agreement entered into between the Bank and the Lender with respect to each Portfolio. With respect to any obligation of the Lender on behalf of any Portfolio arising out of this Agreement, the Bank shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates as though the Bank had separately contracted with the Lender by separate written instrument with respect to each Portfolio. Furthermore, unless the context otherwise requires, any reference in this Agreement to any actions to be taken by the Lender shall be deemed to refer to the Lender acting on behalf of one or more of its Portfolios, any reference to the assets of the Lender shall be deemed to refer only to assets of the applicable Portfolio, and any duty or obligation of the Bank hereunder to the Lender shall be deemed to refer to duties and obligations with respect to such individual Portfolios. In the event that the Lender establishes one or more additional Portfolios with respect to which the Lender wishes to employ the Bank to act as securities lending agent hereunder, the Lender shall notify the Bank in writing. Upon written acceptance by the Bank, such Portfolio shall become subject to the provisions of this Agreement to the same extent as the existing Portfolios, except to the extent that such provisions (including those relating to the compensation and expenses payable by the Lender and its Portfolios) may be modified with respect to each additional Portfolio in writing by the Lender and the Bank at the time of the addition of the Portfolio. 7.13 TRUST NOTICE. A copy of the Agreement and Declaration of Trust establishing the Lender is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Lender by the officers of the Lender as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging respectively to each Portfolio. [Remainder of Page Intentionally Left Blank] 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate officers, thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written. CDC NVEST FUNDS TRUST II By: /S/ JOHN HAILER Name: John Hailer Title: President INVESTORS BANK & TRUST COMPANY By: /S/ ROBERT D. MANCUSO Name: Robert D. Mancuso Title: Senior Vice President 12 SCHEDULE I PORTFOLIOS SERIES OF CDC NVEST FUNDS TRUST II CDC Nvest Growth and Income Fund CDC Nvest High Income Fund CDC Nvest Limited Term U.S. Government Fund CDC Nvest Massachusetts Tax Free Income Fund CDC Nvest Short Term Bond Fund SCHEDULE II APPROVED INVESTMENTS BANK OBLIGATIONS Time Deposits and Bankers Acceptances with Domestic and Foreign Banks including Offshore Time Deposits. All Banks obligations will have a short term rating of F-1, A-1, or P-1 from Fitch, S & P or Moody's at time of purchase. MONEY MARKET FUNDS Institutional Money Market Funds that meet the requirements of sections (c)(2), (c)(3) and (c)(4) of Rule 2a-7 under the Investment Company Act and that have assets greater than $500 million, including, without limitation, the Merrimac Cash Fund series of Merrimac Funds*. REPURCHASE AGREEMENTS Collateral held by IBT or a third party sub-custodian. Collateralized at a minimum of 102%. Eligible collateral includes US Government Securities. The following are acceptable counterparties. Bear Stearns & Co, Inc. CS First Boston Corporation Goldman Sachs & Co. Lehman Brothers, Inc. Merrill Lynch Government Securities Morgan Stanley & Co., Inc. Prudential Securities, Inc. UBS, Inc. COMMERCIAL PAPER Must be rated A-1 by S&P or P-1 by Moody's at time of purchase. OTHER Mutual funds or other pooled investment vehicles managed by Reich & Tang Asset Management to the extent permitted by applicable law or SEC exemptive relief. GENERAL ALL INVESTMENTS WILL BE US DOLLAR DENOMINATED. THE FINAL MATURITY FOR ANY SECURITY/ISSUE WILL BE ONE YEAR OR LESS. ALL INVESTMENTS WILL BE IN COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940. By: /S/ THOMAS P. CUNNINGHAM Title: Treasurer Date: May 1, 2002 - -------- * The Bank acts as investment advisor to and serves as custodian, administrator and transfer agent of the Merrimac Funds. SCHEDULE III APPROVED BORROWERS Bank of America Securities LLC Bear, Stearns Securities Corp. Credit Suisse First Boston Corporation (includes DLJ Securities Corp.) Deutsche Bank Securities Inc. Goldman, Sachs & Co. ING Barings, LLC Lehman Brothers Inc. JP Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith, Inc. Morgan Stanley & Co. (includes Morgan Stanley Securities Services Inc.) Prudential Securities, Inc. Salomon Smith Barney Inc. UBS Inc. (includes UBS Warburg Inc. and UBS PaineWebber, Inc.) By: /S/ THOMAS P. CUNNINGHAM Title: Treasurer Date: May 1, 2002 SCHEDULE IV LETTER OF CREDIT BANKS None SCHEDULE V LOAN CEILING AMOUNTS CDC Nvest Growth and Income Fund 0% CDC Nvest High Income Fund 33 1/3% CDC Nvest Limited Term U.S. Government Fund 33 1/3% CDC Nvest Short Term Corporate Income Fund 33 1/3% CDC Nvest Massachusetts Tax Free Income Fund 33 1/3% EX-99.P 9 p2.txt EXHIBIT P2 Exhibit (p)(2) CDC IXIS ASSET MANAGEMENT ADVISERS, L.P. CDC IXIS ASSET MANAGEMENT DISTRIBUTORS, L.P. CDC IXIS ASSET MANAGEMENT SERVICES, INC. CODE OF ETHICS APRIL 1, 2002 This is the Code of Ethics of CDC IXIS Asset Management Advisers, L.P. (CIA), CDC IXIS Asset Management Distributors, L.P. (CID) and CDC IXIS Asset Management Services, Inc. (CIS) (the "Firms"). THINGS YOU NEED TO KNOW TO USE THIS CODE 1. TERMS - Terms in BOLDFACE TYPE have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms. The definitions are at the end of the Code. 2. ASSOCIATES AND ACCESS PERSONS - All officers, directors and employees of the Firms are considered ASSOCIATES. To understand what parts of this Code apply to you, you need to know whether you are considered an ASSOCIATE only, or are also considered an ACCESS PERSON, and if so, whether you are considered a Level 1 or Level 2 ACCESS PERSON. If you don't know, ask the COMPLIANCE OFFICER. Most officers and directors of the Firms are regarded as Level 1 ACCESS PERSONS, as defined in Part IV, and along with virtually all other ASSOCIATES of the Firms do not have regular access to information regarding the purchase and sale of a security by a RETAINED DISCRETION CLIENT, but may have regular access to information regarding the purchase or sale of a securities by DELEGATED DISCRETION CLIENTS. A limited number of ASSOCIATES of the Firms are regarded as Level 2 ACCESS PERSONS, as defined in Part IV, because they have regular opportunity for access to information regarding portfolio transactions of RETAINED DISCRETION CLIENTS. Throughout the organization, most ASSOCIATES do not make or influence decisions regarding investment transactions. As a result, Part III of this Code, relating to personal securities transactions, only applies to ASSOCIATES who have been designated Level 2 ACCESS PERSONS, and Part II applies to all ACCESS PERSONS. The Compliance Department will maintain a list of all ACCESS PERSONS subject to reporting requirements under this Code of Ethics. Periodically, the Firms' Compliance Department will evaluate these lists and determine if any changes need to be made. Anyone who has not been advised that he or she has been designated an ACCESS PERSON but has reason to believe that he or she is an ACCESS Person, or any ACCESS PERSON who is unsure which Level of ACCESS PERSON he or she is, should contact the Firms' COMPLIANCE OFFICER. 3. COMPLIANCE DEPARTMENT AND COMPLIANCE OFFICER - Given the structure of the Firms, and CIA in particular, the administration of the Code of Ethics may be geographically and functionally split between Oakland, California and Boston, Massachusetts. The Firms maintain Compliance functions in both locations. 1 All ASSOCIATES are assigned to either the Boston (Corporate Headquarters) or Oakland Compliance Departments. Compliance will advise ASSOCIATES which location they are assigned to upon hire and annually thereafter. It is expected that while ASSOCIATES will interact with both Boston and Oakland Compliance, that they primarily work with their assigned COMPLIANCE OFFICER. If an ASSOCIATE has any question concerning which location he or she is assigned to, he or she can contact either location for assistance. For purposes of this Code of Ethics, COMPLIANCE OFFICERS located in Boston, Massachusetts and Oakland, California will collectively be referred to as the "COMPLIANCE OFFICER". The COMPLIANCE OFFICER has the authority to grant written waivers of the provisions of this Code in appropriate instances. However: |X| the Firms expect that waivers will be granted only in rare instances; and |X| some provisions of the Code are mandated by Securities and Exchange Commission (SEC) rules and cannot be waived. 4. ORGANIZATION OF THE CODE - This Code has five sections: Part I - Applies to ALL ASSOCIATES Part II - Applies to All ACCESS PERSONS Part III - Applies to Level 2 ACCESS PERSONS only Part IV - Definitions Part V - Forms 5. FORMS - There are three Reporting Forms that both Level 1 and Level 2 ACCESS PERSONS have to submit under this Code. Level 2 ACCESS PERSONS must also complete a Preclearance Request Form (Form D) before trading in a COVERED SECURITY. All ASSOCIATES must use Form D to obtain approval to participate in INITIAL PUBLIC OFFERINGS and PRIVATE PLACEMENTS. You can get copies of all forms from the COMPLIANCE OFFICER. 6. DELEGATED DISCRETION CLIENTS - The Firms have limited involvement in the business of providing investment advice or engaging in the investment decision-making process for registered investment companies. While CIA is the named adviser to most of the CDC Nvest Funds, and CID is the distributor to all CDC Nvest Funds, the Firms perform no portfolio management activities for registered investment companies directly, and therefore, largely do not employ methods of analysis or utilize other sources of information. For the CDC Nvest Funds on which CIA serves as named adviser, all portfolio management functions have been delegated to the named subadvisers of the Funds, each of which has executed subadvisory agreements with CIA. There are other CDC Nvest Funds for which CIA does not serve as adviser, but in each case CID is the Distributor for all CDC Nvest Funds. Therefore, all registered investment company clients are currently considered DELEGATED DISCRETION CLIENTS. 2 The role of CIA with respect to DELEGATED DISCRETION CLIENTS is: |X| To provide business management and administrative services including: the structuring of product, market positioning, pricing, general oversight and interfacing with subadvisers on portfolio performance issues. |X| To monitor and oversee the investment management of DELEGATED DISCRETION CLIENTS and the services provided by the subadvisers including portfolio performance, and to review controls over portfolio trading and portfolio holdings to ensure that the each DELEGATED DISCRETION CLIENT is being managed in accordance with its objectives, policies and restrictions. While as an adviser to registered investment companies, CIA is empowered with discretionary authority in the management of CDC Nvest Fund portfolios, this discretion has been delegated to subadvisers. 7. RETAINED DISCRETION CLIENTS - On January 1, 2002 CIA launched a separate account initiative. Leveraging the trading infrastructure of an affiliated adviser (Jurika & Voyles), CIA markets the investment expertise of its advisory affiliates and other advisory firms to separate account platforms. While CIA primarily relies on model portfolios provided by affiliates or third party subadvisers to manage client assets, it retains discretionary authority over RETAINED DISCRETION CLIENT portfolios. The role of CIA with respect to RETAINED DISCRETION CLIENT accounts is: |X| To provide clients access to affiliated and unaffiliated subadvisers through existing separate account platforms. |X| To provide business management and administrative services to separate accounts including: the structuring of the service, market positioning, pricing, general oversight and interfacing with the subadvisers on portfolio performance issues. |X| To monitor and maintain portfolios according to the model portfolios provided by subadvisers, considering any additional restrictions put into place by the client. |X| To oversee the activities of the subadvisers, and ensure that all separate account activity is conducted in accordance with regulatory requirements. For purposes of this Code of Ethics, DELEGATED DISCRETION CLIENTS and RETAINED DISCRETION CLIENTS are collectively referred to as CLIENTS. 3 PART I--APPLIES TO ALL ASSOCIATES CIA is engaged in two distinct types of advisory activity and the level of exposure that each ASSOCIATE has to either type of activity is the primary factor in determining whether an ASSOCIATE is an ACCESS PERSON, and if so, whether he or she is considered a Level 1 or Level 2 ACCESS PERSON. A. GENERAL RULES Regardless of whether an ASSOCIATE is named an ACCESS PERSON, or which Level of ACCESS PERSON he or she has been designated, it is improper for ASSOCIATES to: |X| Use for their own benefit (or the benefit of anyone other than the CLIENTS) information about the trading activity of the CLIENTS or recommendations of the advisers or subadvisers; or |X| Take advantage of investment opportunities that would otherwise be available for the CLIENTS. Also, as a matter of business policy, the Firms want to avoid even the appearance that their ASSOCIATES receive any improper benefit from information about trading activity of CLIENTS, the advisers or subadvisers, or from our relationships with the brokerage and advisory communities. The Firms expect all ASSOCIATES to comply with the spirit of the Code, as well as the specific rules contained in the Code. B. TRANSACTION RESTRICTIONS INITIAL PUBLIC OFFERINGS AND PRIVATE PLACEMENTS. ASSOCIATES may not acquire securities in an INITIAL PUBLIC OFFERING (IPO) or PRIVATE PLACEMENT unless prior written approval is obtained from the COMPLIANCE OFFICER, and participation does not present a conflict of interest with any CLIENTS or impede the equitable distribution of the offering to the public. Any request for allocation of an IPO or a PRIVATE PLACEMENT to an ASSOCIATE that is any way connected with his or her position in the Firms will be denied. Further, the COMPLIANCE OFFICER may deny approval requests for any reason. ASSOCIATES must request approval for participation in an IPO or PRIVATE PLACEMENT by submitting a completed Form D to his or her assigned COMPLIANCE OFFICER. These requests must include: |X| A brief description of the PRIVATE PLACEMENT or IPO opportunity |X| In the case of a PRIVATE PLACEMENT, the nature of the employee's participation |X| A statement as to whether participation in the PRIVATE PLACEMENT or IPO is connected with the ASSOCIATE'S position with the Firms or will result in any conflicts of interest with CLIENT portfolios 4 C. GIFTS TO OR FROM BROKERS, CLIENTS OR OTHERS No ASSOCIATE may accept or receive on his or her own behalf or on behalf of the Firms any gift or other accommodations from a vendor, broker, securities salesman, client or prospective client (a "business contact") that might create a conflict of interest or interfere with the impartial discharge of such ASSOCIATE'S responsibilities to the Firms or the CLIENTS or place the recipient or the Firms in a difficult or embarrassing position. This prohibition applies equally to gifts to members of the FAMILY/HOUSEHOLD of ASSOCIATES. No ASSOCIATE may give or receive on his or her own behalf or on behalf of the Firms, any gift or other accommodation to a business contact that may be construed as an improper attempt to influence the recipient. In no event should gifts to or from any one business contact have a value that exceeds the annual limitation on the dollar value of gifts established by the COMPLIANCE OFFICER from time to time (currently $100). These policies are not intended to prohibit normal business entertainment such as meals or tickets to sporting events or the theatre. PLEASE NOTE THAT BUSINESS ENTERTAINMENT IS DIFFERENT THAN GIVING OR RECEIVING GIFTS. IF YOU ARE UNSURE WHETHER SOMETHING IS A GIFT OR BUSINESS ENTERTAINMENT, ASK THE COMPLIANCE OFFICER. D. SERVICE ON THE BOARD OR AS AN OFFICER OF ANOTHER COMPANY To avoid conflicts of interest, "inside information" concerns and other compliance and business issues, the Firms prohibit all their ASSOCIATES from serving as officers or members of the board of any other entity, except with the advance written approval of the relevant Firm. Approval must be obtained through a COMPLIANCE OFFICER, and will ordinarily require consideration by senior management. The Firms can deny approval for any reason. This prohibition does not apply to service as an officer or board member of any parent, subsidiary or affiliate of the Firms, nor does it apply to members of the Firms' board, who are not employees of the Firms. E. VIOLATIONS AND PENALTIES The Firms treat violations of this Code (including violations of the spirit of the Code) very seriously. If you violate either the letter or the spirit of this Code, the Firms might take a variety of remedial measures. These may include imposing penalties or fines, cutting your compensation, demoting you, requiring disgorgement of trading gains, imposing a ban on your personal trading, suspending or terminating your employment or reporting the matter to civil or criminal authorities. 5 Improper trading activity can constitute a violation of this Code. You can also be considered in violation of this Code by failing to file required reports in a timely manner, or by making inaccurate or misleading reports or statements concerning trading activity or securities accounts. You can be considered in violation of this Code even if no harm results from your conduct. If you have any doubt or uncertainty about what this Code requires or permits, you should ask a COMPLIANCE OFFICER. Do not just guess at the answer, since ignorance of the requirements of the Code or the legal regulations underlying the Code will not serve as an excuse for a violation 6 PART II--APPLIES TO ALL ACCESS PERSONS A. REPORTING REQUIREMENTS NOTE: One of the most complicated aspects of complying with this Code is understanding what holdings, transactions and accounts you must report and what accounts are subject to trading restrictions. For example, accounts of certain members of your FAMILY/HOUSEHOLD are covered, as are certain categories of trust accounts, certain investment pools in which you might participate, and certain accounts that others may be managing for you. To be sure you understand what holdings, transactions and accounts are covered, it is essential that you carefully review the definitions of COVERED SECURITY, FAMILY/HOUSEHOLD and BENEFICIAL OWNERSHIP in the "Definitions" section (Part IV) of this Code. NOTE: ALL REPORTS SPECIFIED IN PART II OF THIS CODE MUST BE SUBMITTED TO THE CIA COMPLIANCE DEPARTMENT LOCATED IN BOSTON, MASSACHUSETTS REGARDLESS OF THE COMPLIANCE OFFICER TO WHICH YOU HAVE BEEN ASSIGNED. YOU MUST FILE THE REPORTS DESCRIBED BELOW, EVEN IF YOU HAVE NO HOLDINGS, TRANSACTIONS OR ACCOUNTS TO LIST IN THE REPORTS, AND WHETHER OR NOT DUPLICATE CONFIRMATIONS HAVE BEEN FORWARDED TO THE COMPLIANCE DEPARTMENT. 1. INITIAL HOLDINGS REPORT. No later than 10 days after you become an ACCESS PERSON, you must file with the COMPLIANCE OFFICER an initial Holdings Report on Form A (copies of all reporting forms are located in Part V of this Code and are also available from the COMPLIANCE OFFICER). Form A requires you to list all COVERED SECURITIES in which you (or members of your FAMILY/HOUSEHOLD) have BENEFICIAL OWNERSHIP. It also requires you to list all brokers, dealers and banks where you maintained an account in which ANY securities (not just COVERED SECURITIES) were held or could have been held for the direct or indirect benefit of you or a member of your FAMILY/HOUSEHOLD on the date you became an ACCESS PERSON. Form A also requires you to confirm that you have read and understand this Code, that you understand that it applies to you and members of your FAMILY/HOUSEHOLD and that you understand whether you are an ACCESS PERSON, and if so, which level of ACCESS PERSON you have been designated under the Code. 2. QUARTERLY TRANSACTION REPORTS. No later than 10 days after the end of March, June, September and December each year, you must file with the COMPLIANCE OFFICER a Quarterly Transactions Report on Form B. Form B requires you to report all transactions during the most recent calendar quarter in COVERED SECURITIES, in which you (or a member of your FAMILY/HOUSEHOLD) had BENEFICIAL OWNERSHIP. It also requires you to either confirm or amend your complete list of all brokers, dealers and banks in which you or a member of your FAMILY/HOUSEHOLD established an account in which ANY securities (not just COVERED SECURITIES) were held, or could have been held during the quarter for the direct or indirect benefit of you or a member of your FAMILY/HOUSEHOLD. 7 3. ANNUAL HOLDINGS REPORTS. By January 30 of each year, you must file with the COMPLIANCE OFFICER an Annual Holdings Report on Form C as of December 31 of the preceding year. Form C requires you to list all COVERED SECURITIES in which you (or a member of your FAMILY/HOUSEHOLD) had BENEFICIAL OWNERSHIP as of December 31. It also requires you to list all brokers, dealers and banks in which you or a member of your FAMILY/HOUSEHOLD maintained an account in which ANY securities (not just COVERED SECURITIES) were held, or could have been held for the direct or indirect benefit of you or a member of your FAMILY/HOUSEHOLD on December 31. Form C also requires you to confirm that during the prior year, except as otherwise indicated therein, you have complied with all applicable requirements of the Code and have reported all accounts, holdings and transactions required to be reported under the Code, and that you understand that you have been designated an ACCESS PERSON under the Code. 4. DUPLICATE CONFIRMATION STATEMENTS. If an ACCESS PERSON or any member of their FAMILY/HOUSEHOLD have a securities account with any broker, dealer or bank, it is RECOMMENDED that he or she direct that broker, dealer or bank to send, directly to the Firm's COMPLIANCE OFFICER, duplicate copies of all transaction confirmation statements relating to that account. While this is a RECOMMENDATION for those ASSOCIATES that have been designated a Level 1 ACCESS PERSON, it is a REQUIREMENT for those ASSOCIATES that have been designated Level 2 ACCESS PERSONS (see Part III of this Code). B. TRANSACTION RESTRICTIONS 1. INITIAL PUBLIC OFFERINGS AND PRIVATE PLACEMENTS. Level 1 ACCESS PERSONS may not acquire securities in an INITIAL PUBLIC OFFERING (IPO) or PRIVATE PLACEMENT unless prior written approval is obtained from the COMPLIANCE OFFICER. See Part I of this Code (Section B - Transaction Restrictions). 2. BLACKOUT PERIOD. No ACCESS PERSON (including any member of the FAMILY/HOUSEHOLD of such ACCESS PERSON) may purchase or sell any COVERED SECURITY within the seven calendar days immediately before or after a calendar day on which any DELEGATED DISCRETION CLIENT purchases or sells that COVERED SECURITY (or any closely related security, such as an option or a related convertible or exchangeable security), unless the ACCESS PERSON had no actual knowledge that the COVERED SECURITY (or any closely related security) was being considered for purchase or sale for any DELEGATED DISCRETION CLIENT account. Note that the total blackout period is 15 days (the day of the DELEGATED DISCRETION CLIENT trade, plus seven days before and seven days after). Level 1 ACCESS PERSONS do not have regular access to information regarding the purchase or sale of a security by RETAINED DISCRETION CLIENTS, but may have regular access to information regarding the purchase or sale of a security by DELEGATED DISCRETION CLIENTS. For this reason the blackout period for Level 1 Access Persons applies only to trades of DELEGATED DISCRETION CLIENTS. Level 2 ACCESS PERSONS are subject to different blackout periods which apply to both DELEGATED DISCRETION CLIENTS (as discussed in this section) and RETAINED DISCRETION CLIENTS (as discussed in Part III of this Code). 8 NOTE: All transactions for Level 1 and Level 2 ACCESS PERSONS will be compared to transactions executed by subadvisers on behalf of DELEGATED DISCRETION CLIENTS. While trading within the 15-day Blackout Period is not automatically considered a violation of the Code but is instead subject to the knowledge condition set forth above, the COMPLIANCE OFFICER will monitor personal securities trading activity and if a pattern develops between the trading activity of an ACCESS PERSON and any DELEGATED DISCRETION CLIENT it will be investigated. If it is determined that a violation has occurred, the Firms will generally require any profits from the transactions to be disgorged and donated to charity, but may impose other sanctions as deemed necessary. C. EXEMPT TRANSACTIONS The blackout period restrictions relative to DELEGATED DISCRETION CLIENT trades, and in the case of Level 2 ACCESS PERSONS as discussed in Part III of this Code, the blackout period restrictions relative to RETAINED DISCRETION CLIENT trades, and preclearance requirements do not apply to the following categories of transactions: |X| Transactions in any COVERED SECURITY guaranteed by the United States Government, or any securities issued or guaranteed by its agencies or instrumentalities. |X| Transactions in common or preferred stocks of a class that is publicly traded and issued by a company with a stock market capitalization of at least $10 billion U.S. dollars (or the equivalent in foreign currency). |X| Transactions in futures and options contracts on interest rate instruments or indexes, and options on such contracts. |X| Transactions that occur by operation of law or under any other circumstance in which no investment discretion is exercised, and no recommendations are made by the ACCESS PERSON or any member of their FAMILY/HOUSEHOLD. |X| Purchases pursuant to the exercise of rights issued pro rata to all holders of the class of a COVERED SECURITY held by the ACCESS PERSON (or FAMILY/HOUSEHOLD member) and received by the ACCESS PERSON (or FAMILY/HOUSEHOLD member) from the issuer. |X| Purchases of a COVERED SECURITY pursuant to an automatic investment, withdrawal or dividend reinvestment plan. |X| Transactions in Exchange Traded Funds (ETFs), as well as any related options. 9 Please note that these transactions are not exempted from the reporting requirements of this Code. D. COMPLIANCE OFFICER APPROVAL The COMPLIANCE OFFICER is charged with responsibility for ensuring that the reporting requirements of this Code of Ethics are adhered to by all ACCESS PERSONS. The COMPLIANCE OFFICERS shall be responsible for ensuring that the review requirements of this Code of Ethics are performed in a prompt manner. All ASSOCIATES are assigned to either the Boston (Corporate Headquarters) or Oakland Compliance Departments. You will be advised which location you have been assigned to upon hire and annually thereafter. It is expected that while ASSOCIATES will interact with both Boston and Oakland Compliance, that they primarily work with their assigned COMPLIANCE OFFICER. If you have any question concerning which location you are assigned to, please contact either location for assistance. 10 PART III--APPLIES TO LEVEL 2 ACCESS PERSONS A. PRECLEARANCE REQUIREMENT NOTE: Level 2 ACCESS PERSONS are required to request and receive preclearance by a COMPLIANCE OFFICER before executing the purchase or sale of a COVERED SECURITY. Given the nature of CIA's current advisory operations, which primarily consist of post-trade oversight of other investment advisers, or approving, and in some cases effecting, transactions for RETAINED DISCRETION CLIENT accounts designed to mirror model portfolios supplied by affiliated or third party subadvisers, CID's role as a distributor and underwriter, and CIS's role as an administrator and transfer agent, the Firms have determined that preclearance of transactions is appropriately limited to those individuals that have been designated Level 2 ACCESS PERSONS under this Code. Nonetheless, the Firms reserve the right to require any ASSOCIATE to preclear transactions at any time and, if requested by the Firms, an ASSOCIATE will obtain the approval of his or her designated COMPLIANCE OFFICER before buying or selling any security, for such period (which may be indefinite) as the COMPLIANCE OFFICER shall determine. 1. PRECLEARANCE. No Level 2 ACCESS PERSON shall purchase or sell any COVERED SECURITY for his or her own account (or the account of any member of his or her FAMILY/HOUSEHOLD) without proper preclearance. Trades must be completed on the same day that preclearance is granted. This applies to all trades in a COVERED SECURITY, even limit orders. Instruments representing an indirect interest in a COVERED SECURITY, such as options and warrants, also must be precleared. There is no requirement to obtain preclearance for Exempt Transactions (as they are defined in Part II of this Code). As part of the preclearance process, Level 2 ACCESS PERSONS are required to submit a completed Preclearance Request Form (Form D) to their designated COMPLIANCE OFFICER. Trades in COVERED SECURITIES cannot be executed until the COMPLIANCE OFFICER provides written approval on Form D. Preclearance will not be granted prior to 2:30 p.m. ET (11:30 a.m. PT) or at any time when there are open orders relating to the implementation of changes to model portfolios in the same COVERED SECURITY for RETAINED DISCRETION CLIENTS. Further, preclearance will not be granted for any trades that would violate the blackout period restriction as it applies to personal transactions effected within 7 days after a RETAINED DISCRETION CLIENT trade (see Section D below). NOTE: Preclearance procedures consider pending and executed trades for RETAINED DISCRETION CLIENTS, and Level 2 ACCESS PERSONS ONLY. Given that the extremely limited nature of CIA's current advisory operations with respect to its role as adviser to DELEGATED DISCRETION CLIENTS is restricted to post-trade oversight of other affiliated and unaffiliated subadvisers. CIA has determined that it is neither practicable nor necessary to determine, in advance, through preclearance whether proposed trades conflict with trades conducted on behalf of DELEGATED DISCRETION CLIENTS. Trades for both DELEGATED DISCRETION CLIENTS and RETAINED DISCRETION CLIENTS will be reviewed against trades reported by Level 2 ACCESS PERSONS as part of the quarterly reporting process, and potential violations of the Code will be investigated. 11 2. PRECLEARANCE AUTHORIZATION FORMS. Level 2 ACCESS PERSONS must submit a signed preclearance authorization form (Form D) to their designated COMPLIANCE OFFICER and receive approval for the transaction BEFORE executing a trade for all COVERED SECURITIES transactions that are required to be precleared. The only COVERED SECURITIES transactions for which such preclearance is NOT required are Exempt Transactions (as defined in Part II of this Code). Level 2 ACCESS PERSONS should keep a copy of all signed and completed preclearance forms for a period of at least 6 months. A sample Form D can be found in the appendix of this Code and additional copies may be obtained from a COMPLIANCE OFFICER. B. DUPLICATE CONFIRMATION REQUIREMENT If any Level 2 ACCESS PERSON or member of his or her FAMILY/HOUSEHOLD has a securities account (in which Covered Securities are held, or could be held) with any broker, dealer or bank, he or she must direct that broker, dealer or bank to send, directly to the COMPLIANCE OFFICER located in Boston, contemporaneous duplicate copies of all transaction confirmation statements relating to that account. Individuals that are subject to both this Code and Jurika & Voyles' Code of Ethics must have duplicate confirmation statements sent to the Compliance Departments located in both Boston and Oakland. C. TRANSACTION RESTRICTIONS 1. INITIAL PUBLIC OFFERINGS AND PRIVATE PLACEMENTS. Level 2 ACCESS PERSONS like Level 1 ACCESS PERSONS, may not acquire securities in an INITIAL PUBLIC OFFERING (IPO), or PRIVATE PLACEMENT unless prior written approval is obtained from the COMPLIANCE OFFICER. See Part I of this Code (Section B - Transaction Restrictions). 2. BLACKOUT PERIOD. Only Level 2 ACCESS PERSONS of the Firms have regular access to information regarding the purchase or sale of a COVERED SECURITY by RETAINED DISCRETION CLIENTS in connection with their regular functions. For this reason Level 2 ACCESS PERSONS are subject to both the blackout period explained in Part II of this Code as it relates to DELEGATED DISCRETION CLIENT trades and the following blackout period restrictions that only apply to RETAINED DISCRETION CLIENT trades. No Level 2 ACCESS PERSON (including any member of the FAMILY/HOUSEHOLD of such Level 2 ACCESS PERSON) may purchase or sell any COVERED SECURITY within the seven calendar days immediately before a day on which any RETAINED DISCRETION CLIENT purchases or sells that COVERED SECURITY (or any closely related security, such as an option or a related convertible or exchangeable security), unless the Level 2 ACCESS PERSON had no actual knowledge that the COVERED SECURITY (or any closely related security) was being considered for purchase or sale for any RETAINED DISCRETION CLIENT account. Note that the total blackout period is 8 days (the day of the RETAINED DISCRETION CLIENT trade, plus the seven days before). 12 The blackout period does not apply to Level 2 ACCESS PERSON transactions concurrent with RETAINED DISCRETION CLIENT transactions merely intended to rebalance, liquidate or open accounts for RETAINED DISCRETION CLIENTS of separate account programs where CIA acts as the adviser, for the following reasons. CIA relies on model portfolios supplied by investment advisory affiliates and third party investment advisory firms; due to the nature of CIA's separate account program, a number of these RETAINED DISCRETION CLIENTS may add or withdraw funds, and open or close accounts on a daily basis; the trades generated by these activities are unpredictable; they are not caused by a change in the investment opinion of CIA or any of its subadvisers; they tend to be small in size with little or no market impact; they are of an administrative nature; and if triggering a blackout period, they would likely have the effect of "blacking out" every security traded by RETAINED DISCRETION CLIENTS of CIA on every trading day. The blackout period does apply, however, to transactions concurrent with RETAINED DISCRETION CLIENT transactions related to implementation of changes to model portfolios or related to changes in the investment opinion of CIA or any of its subadvisers. NOTE: All transactions for Level 2 ACCESS PERSONS will be compared to transactions executed by CIA or a subadviser on behalf of RETAINED DISCRETION CLIENTS. While trading within the 8-day blackout period is not automatically considered a violation of the Code but is instead subject to the knowledge condition set forth above, the COMPLIANCE OFFICER will monitor personal securities trading activity and if a pattern develops between the trading activity of an ACCESS PERSON and any RETAINED DISCRETION CLIENT it will be investigated. If it is determined that a violation has occurred, the Firms will generally require any profits from the transactions to be disgorged and donated to charity, but may impose other sanctions as deemed necessary. D. EXEMPT TRANSACTIONS - Exempt transactions are not subject to the preclearance requirement or blackout restrictions described in this Part III. See Part II of this Code (Section B - TRANSACTION RESTRICTIONS FOR A LIST OF EXEMPT TRANSACTIONS). E. COMPLIANCE OFFICER APPROVAL The COMPLIANCE OFFICER is charged with responsibility for ensuring that the preclearance and reporting requirements of this Code of Ethics are adhered to by all ACCESS PERSONS. See Part II of this Code (Section D - COMPLIANCE OFFICER Approval). 13 PART IV--DEFINITIONS The following terms have special meanings in this Code of Ethics: ACCESS PERSON ASSOCIATE BENEFICIAL OWNERSHIP CLIENT COMPLIANCE OFFICER COVERED SECURITY DELEGATED DISCRETION CLIENT FAMILY/HOUSEHOLD INITIAL PUBLIC OFFERING PRIVATE PLACEMENT RETAINED DISCRETION CLIENT The special meanings of these terms as used in this Code of Ethics are explained below. Some of these terms (such as "BENEFICIAL OWNERSHIP") are sometimes used in other contexts, not related to Codes of Ethics, where they have different meanings. For example, "BENEFICIAL OWNERSHIP" has a different meaning in this Code of Ethics than it does in the SEC's rules for proxy statement disclosure of corporate directors' and officers' stockholdings, or in determining whether an investor has to file 13D or 13G reports with the SEC. IMPORTANT: IF YOU HAVE ANY DOUBT OR QUESTION ABOUT WHETHER AN INVESTMENT, ACCOUNT OR PERSON IS COVERED BY ANY OF THESE DEFINITIONS, ASK A COMPLIANCE OFFICER. DO NOT JUST GUESS AT THE ANSWER. ACCESS PERSON means ACCESS PERSON as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this includes: |X| Any director, officer, or general partner of a Firm. |X| Any employee of an investment adviser or any person in a control relationship to a investment adviser who, in connection with his or her regular functions or duties, participates in the selection of a CLIENT'S portfolio securities or who has access to information regarding a CLIENT'S future purchases or sales of securities. |X| Any director, officer, or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of securities for a CLIENT for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the CLIENT regarding the purchase or sale of securities. 14 Due to the nature of the Firms' activities and for the purposes of administering this Code, the Firms have created two levels of ACCESS PERSONS based on the particular requirements of their regular functions or duties. CIA is engaged in two distinct types of advisory activity and the level of exposure that each ASSOCIATE has to either type of activity is the primary factor in determining whether an ASSOCIATE is an ACCESS PERSON, and if so, whether he or she is considered a Level 1 or Level 2 ACCESS PERSON. Level 1 ACCESS PERSONS are those ASSOCIATES who do not have regular access to information regarding the purchase or sale of a security by RETAINED DISCRETION CLIENTS, but may have regular access to information regarding the purchase or sale of a security by CLIENTS as well as access to information about CLIENT assets subject to a subadvisory arrangement with CIA (DELEGATED DISCRETION CLIENTS). Level 2 ACCESS PERSONS are those ASSOCIATES of the Firms who, in connection with their regular functions may obtain information regarding the purchase or sale of a security by RETAINED DISCRETION CLIENTS. General information about ACCESS PERSONS: |X| An ACCESS PERSON that has regular access to trading information about both DELEGATED DISCRETION CLIENTS and RETAINED DISCRETION CLIENTS will be considered Level 2 ACCESS PERSONS. |X| An ACCESS PERSON who normally assists only in the preparation of public reports, or receives public reports, but receives no information about current recommendations or trading for RETAINED DISCRETION CLIENTS, is not necessarily a Level 2 ACCESS Person. |X| A single instance or infrequent, inadvertent instances of obtaining knowledge does not make an ASSOCIATE either then or for all times an ACCESS PERSON. If at any time it is determined that an ASSOCIATE has regular access to trading information for RETAINED DISCRETION CLIENTS, he or she may immediately be designated a Level 2 ACCESS PERSON. Other ASSOCIATES, who are not otherwise subject to the reporting requirements of this Code, may become subject to reporting requirements if they obtain current information concerning which securities are being purchased or sold by CLIENTS, an adviser, or a subadviser to CLIENT accounts. Any ASSOCIATES of the Firms who obtain such information must immediately notify a COMPLIANCE OFFICER. The term "ACCESS PERSON" under this Code and relating to the Firms normally does not include an employee of a company in a control relationship to the Firms, who is not an employee, officer or director of any of the Firms, where such company is required to have a Code of Ethics containing provisions reasonably necessary to prevent the ACCESS PERSON from engaging in any act, practice or course of business prohibited by Rule 17j-1(a) and such employee is required to report his transactions to such company. However, in certain instances an ASSOCIATE is an employee of both the Firms and an affiliated adviser, and may be subject to more than one Code of Ethics. 15 The Compliance Department will maintain a list of ACCESS PERSONS subject to this Code and their corresponding level designation. Anyone who does not receive quarterly report forms from the Firms but has reason to believe that he or she is an ACCESS PERSON must immediately notify a COMPLIANCE OFFICER. ASSOCIATE means any individual fully employed, dually employed with an affiliated adviser or otherwise contracted by CDC IXIS Asset Management Advisers, L.P. (CIA), CDC IXIS Asset Management Distributors, L.P. (CID) or CDC IXIS Asset Management Services, Inc. (CIS) (the "Firms"). All ASSOCIATES are subject to this Code of Ethics. BENEFICIAL OWNERSHIP means beneficial ownership as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means: any opportunity, directly or indirectly, to profit or share in the profit from any transaction in securities. BENEFICIAL OWNERSHIP is a very broad concept. Some examples of forms of BENEFICIAL OWNERSHIP include: |X| securities held in a person's own name, or that are held for the person's benefit in nominee, custodial or "street name" accounts. |X| securities owned by a member of your FAMILY/HOUSEHOLD. |X| securities owned by or for a partnership in which the person is a general partner (whether the ownership is under the name of that partner, another partner or the partnership or through a nominee, custodial or "street name" account). |X| securities that are being managed for a person's benefit on a discretionary basis by an investment adviser, broker, bank, trust company or other manager. |X| securities in a person's individual retirement account. |X| securities in a person's account in a 401(k) or similar retirement plan, even if the person has chosen to give someone else investment discretion over the account. |X| securities owned by a trust of which the person is either a TRUSTEE or a BENEFICIARY. ------- ----------- |X| securities owned by a corporation, partnership or other entity that the person controls (whether the ownership is under the name of that person, under the name of the entity or through a nominee, custodial or "street name" account). |X| securities that are traded on behalf of an investment club of which an ACCESS PERSON is a club member or in which a member of their FAMILY/HOUSEHOLD is a member. 16 This is not a complete list of the forms of ownership that could constitute BENEFICIAL OWNERSHIP for purposes of this Code. You should ask a COMPLIANCE OFFICER if you have any questions or doubts at all about whether you or a member of your FAMILY/HOUSEHOLD would be considered to have BENEFICIAL OWNERSHIP in any particular situation. CLIENT means any individual, entity or registered investment company for which CIA serves as adviser or subadviser, or CID serves as distributor. Client information includes information obtained from entities contracted by CIA as adviser to serve as subadviser for certain CLIENTS. CIA is engaged in two distinct types of advisory activity and the level of exposure that each ASSOCIATE has to either type of activity is the primary factor in determining whether an ASSOCIATE is an ACCESS PERSON, and if so, whether he or she is considered a Level 1 or Level 2 ACCESS PERSON. COMPLIANCE OFFICER means the COMPLIANCE OFFICER of the Firms or another person that he or she has designated to perform the functions of COMPLIANCE OFFICER. For purposes of reviewing the COMPLIANCE OFFICER'S own transactions and reports under this Code, the functions of the COMPLIANCE OFFICER are performed by the Firms' General Counsel or his or her designee. COVERED SECURITY means a covered security as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means: anything that is considered a "security" under the Investment Company Act of 1940, EXCEPT: |X| Direct obligations of the U.S. Government. |X| Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt obligations, including repurchase agreements. |X| Shares of OPEN-END investment companies that are registered under the Investment Company Act (mutual funds). Security is a very broad term. It includes most kinds of investment instruments, including things that you might not ordinarily think of as "securities," such as: |X| Options on securities, on indexes and on currencies. |X| Investments in all kinds of limited partnerships. |X| Investments in foreign unit trusts, closed end funds and foreign mutual funds. |X| Investments in private investment funds, hedge funds and investment clubs. If you have any question or doubt about whether an investment is a considered a security or a COVERED SECURITY under this Code, ask a COMPLIANCE OFFICER. 17 DELEGATED DISCRETION CLIENT means any CLIENT for which the Firms have limited involvement in the business of providing investment advice or engaging in the investment decision-making process for because discretion has been delegated to another investment adviser. While it is the named adviser to most of the CDC Nvest Funds, CIA performs no actual portfolio management activities for registered investment companies directly, and therefore, largely does not employ methods of analysis or utilize other sources of information. For the CDC Nvest Funds on which CIA serves as named adviser, all portfolio management functions have been delegated to the named subadvisers of the Funds, each of which has executed subadvisory agreements with CIA. There are other CDC Nvest Funds for which CIA does not serve as adviser. In each case CID is the Distributor for all CDC Nvest Funds. Therefore all registered investment company clients are considered DELEGATED DISCRETION CLIENTS. FAMILY/HOUSEHOLD means: |X| Your spouse or domestic partner (unless he or she does not live in the same household as you and you do not contribute in any way to his or her support). |X| Your children under the age of 18. |X| Your children who are 18 or older (if they live in the same household as you or you contribute in any way to their support). |X| Any of these people who live in your household: your stepchildren, grandchildren, parents, stepparents, grandparents, brothers, sisters, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law and sisters-in-law, including adoptive relationships. |X| Any individuals for which you are exercising investment control or are doing so on one's behalf. NOTE: There are a number of reasons why this Code covers transactions in which members of your FAMILY/HOUSEHOLD have BENEFICIAL OWNERSHIP. First, the SEC regards any benefit to a person that you help support financially as indirectly benefiting you, because it could reduce the amount that you might otherwise need to contribute to that person's support. Second, members of your FAMILY/HOUSEHOLD could, in some circumstances, learn of information regarding the Firm's trading or recommendations for CLIENT accounts, and must not be allowed to benefit from that information. INITIAL PUBLIC OFFERING ("IPO") means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. PRIVATE PLACEMENT means an offering of a stock or bond that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or Pursuant to Rule 504, 505 or 506 thereunder. 18 RETAINED DISCRETION CLIENT means any CLIENT account for which CIA has retained discretionary authority. CIA provides investment management services for separate account clients using investment recommendations, in the form of model portfolios, supplied by one or more subadvisers. Although CIA has the ultimate investment decision-making authority with respect to securities to be purchased or sold, CIA generally follows the recommendations implicit in the model portfolios supplied by its subadvisers. While CIA relies primarily on these model portfolios to manage CLIENT assets, it will retain discretionary authority over CLIENT portfolios. This discretion will be primarily used to execute trades and manage accounts according to specific CLIENT requirements. 19 PART V -- FORMS 20 FORM A - INITIAL HOLDINGS REPORT NOTE: THIS FORM MUST BE COMPLETED BY ALL ACCESS PERSONS AND FILED WITH THE CIA COMPLIANCE OFFICER - BOSTON NO LATER THAN 10 DAYS AFTER BECOMING AN ACCESS PERSON UNDER CIA's CODE OF ETHICS (the "CODE"). TERMS IN BOLDFACE TYPE HAVE THE MEANINGS SET FORTH IN THE CODE. Name of ACCESS PERSON:_________________________________________________ Date I Became an ACCESS PERSON (the "Reporting Date"):_________________ Date received by COMPLIANCE OFFICER:___________________________________ INITIAL CERTIFICATION: I understand that for purposes of the Code I am classified as: ____ AN ACCESS PERSON - LEVEL 1 ____ AN ACCESS PERSON - LEVEL 2 INITIAL HOLDINGS REPORT (CHECK ONE OF THE FOLLOWING TWO BOXES): ____ Neither I, nor any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP of any COVERED SECURITIES as of the Reporting Date. ____ Attached as APPENDIX A is a complete list of all COVERED SECURITIES and/or PRIVATE PLACEMENTS in which I, and/or a member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP of on the Reporting Date. ACCOUNTS WITH BROKERS, DEALERS AND/OR BANKS (CHECK ONE OF THE FOLLOWING TWO BOXES): ____ Neither I, nor any member of my FAMILY/HOUSEHOLD, had, as of the Reporting Date, any accounts with brokers, dealers or banks in which any securities (including securities which are not COVERED SECURITIES) are held or could be held, and with respect to which I, or any member of my FAMILY/HOUSEHOLD, has BENEFICIAL OWNERSHIP. ____ All accounts that I, and/or any member of my FAMILY/HOUSEHOLD, maintain with brokers, dealers or banks in which securities (including securities which are not COVERED SECURITIES) are held or could be held, and with respect to which I, and/or a member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP as of the Reporting Date are set forth below:
- ------------------------------------------- -------------------------- ------------------ ---------------------------- NAME(S) AND ADDRESS(ES) OF INSTITUTION(S) ACCOUNT NUMBER(S) DATE ESTABLISHED NAME(S) ON ACCOUNT - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ----------------------------
21 ____ I CURRENTLY SERVE ON THE FOLLOWING BOARD(S) OF DIRECTORS: - -------------------------------------------- ----------------------------------- NAME OF COMPANY DATE OF BOARD APPOINTMENT - -------------------------------------------- ----------------------------------- - -------------------------------------------- ----------------------------------- - -------------------------------------------- ----------------------------------- - -------------------------------------------- ----------------------------------- - -------------------------------------------- ----------------------------------- - -------------------------------------------- ----------------------------------- - -------------------------------------------- ----------------------------------- All information provided in this Form A is true and complete to the best of my knowledge. I have read the Code, and agree to comply with all of its terms and conditions. I understand that I have been named an ACCESS PERSON under the Code, and have been advised which level of ACCESS PERSON I have been designated. Further I understand the specific requirements associated with being named an ACCESS PERSON of my particular level. I understand that the Code applies to me and to all investments in which I have BENEFICIAL OWNERSHIP, as well as investments in which members of my FAMILY/HOUSEHOLD have BENEFICIAL OWNERSHIP. Signed: ___________________________ Date: ___________________________ APPENDIX A - INITIAL REPORT OF ALL COVERED SECURITIES Name of ACCESS PERSON: ___________________________________ - ----------------------------------------- -------------------------------------- Title/Description of COVERED SECURITIES Number of Shares (or Principal Amount, if not a stock) - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- Note: Please use additional sheets as needed ; AND/OR. ------ ____ PLEASE SEE ATTACHED BROKERAGE STATEMENTS FOR A COMPLETE LISTING OF MY ACCOUNTS AND HOLDINGS. 22 FORM B - QUARTERLY TRANSACTION REPORT NOTE: THIS FORM MUST BE COMPLETED BY ALL ACCESS PERSONS AND FILED WITH THE CIA COMPLIANCE OFFICER - BOSTON NO LATER THAN 10 DAYS AFTER THE END OF MARCH, JUNE, SEPTEMBER AND DECEMBER OF EACH YEAR. TERMS IN BOLDFACE TYPE HAVE THE MEANINGS SET FORTH IN THE CODE. Name of ACCESS PERSON: _______________________________ LEVEL 1 OR LEVEL 2 Reporting Period/Calendar Quarter End Date: _________________________________ Date received by COMPLIANCE OFFICER: ________________________________________ TRANSACTIONS REPORT (CHECK ONE OF THE FOLLOWING THREE BOXES): ____ There were no transactions in COVERED SECURITIES during the most recently completed calendar quarter in which I, or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP. ____ Attached as APPENDIX B is a complete list of all transactions in COVERED SECURITIES during the most recently completed calendar quarter in which I, and/or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP. ____ Attached are duplicate broker confirmations of all transactions in COVERED SECURITIES during the most recently completed calendar quarter in which I, and/or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP. ____ I have requested that duplicate confirmations be sent directly to the appropriate Compliance Officer NEW SECURITIES ACCOUNTS (CHECK ONE OF THE FOLLOWING TWO BOXES): ____ Neither I, nor any member of my FAMILY/HOUSEHOLD, established any new accounts during the most recent calendar quarter with brokers, dealers or banks in which securities (including securities which are not COVERED SECURITIES) are held or could be held, and with respect to which I, and/or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP. ____ During the most recent calendar quarter, I and/or a member of my FAMILY/HOUSEHOLD established the following account(s) with brokers, dealers or banks in which securities are held or could be held, and with respect to which I, and/or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP:
- ------------------------------------------- -------------------------- ------------------ ---------------------------- NAME(S) AND ADDRESS(ES) OF INSTITUTION(S) ACCOUNT NUMBER(S) DATE ESTABLISHED NAME(S) ON ACCOUNT - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ----------------------------
____ I have requested that duplicate confirmations be sent directly to the appropriate Compliance Officer QUARTERLY CERTIFICATION I hereby certify that during the quarter covered by this report I complied with all applicable requirements of the Code, and have reported to the appropriate COMPLIANCE OFFICER all transactions required to be reported under the Code. All information provided in this Form B is true and complete to the best of my knowledge. Signed: _________________________ Date: ___________________________ 23 APPENDIX B - COMPLETE LIST OF TRANSACTIONS IN COVERED SECURITIES DURING MOST RECENT CALENDAR QUARTER Name of ACCESS PERSON: _________________________________________ Reporting Period/Calendar Quarter: ________________________________ Date received by COMPLIANCE OFFICER: _____________________________ ____ I HAVE DISCLOSED BELOW A COMPLETE LIST OF ALL BROKERAGE ACCOUNTS THAT EFFECTED TRANSACTIONS DURING THE PERIOD. - ------------------------------------- ---------------- ------------------------- RECEIPT OF DUPLICATE NAME OF BROKERAGE ACCOUNTS TRANSACTIONS STATEMENTS IN ACCOUNT? CONFIRMED BY COMPLIANCE YES/NO OFFICER? YES/NO - ------------------------------------- ---------------- ------------------------- - ------------------------------------- ---------------- ------------------------- 1. - ------------------------------------- ---------------- ------------------------- - ------------------------------------- ---------------- ------------------------- 2. - ------------------------------------- ---------------- ------------------------- - ------------------------------------- ---------------- ------------------------- 3. - ------------------------------------- ---------------- ------------------------- - ------------------------------------- ---------------- ------------------------- 4. - ------------------------------------- ---------------- ------------------------- - ------------------------------------- ---------------- ------------------------- 5. - ------------------------------------- ---------------- ------------------------- If an account's duplicate statements and confirms are not currently received by the COMPLIANCE OFFICER, please list all outstanding transactions below, including those held in physical form:
- ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- INSTITUTION TITLE OF RATE/MATURITY PRIVATE THROUGH WHICH TRADE SECURITIES NUMBER PRINCIPAL DATE PLACEMENT/ TRANSACTION DATE BUY/SELL AND CUSIP OF SHARES AMOUNT (IF APPLICABLE) PRICE IPO EFFECTED ---- -------- ---------- --------- ------ --------------- ----- --- -------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- -------------- - ------------- ------------- ----------- ---------- ------------ --------------- --------- -------------- --------------
Note: Please use additional sheets as needed 24 FORM C - ANNUAL CODE OF ETHICS CERTIFICATION; ANNUAL HOLDINGS REPORT NOTE: THIS FORM MUST BE COMPLETED BY ALL ACCESS PERSONS AND FILED WITH THE CIA COMPLIANCE OFFICER - BOSTON NO LATER THAN JANUARY 30 --- OF EACH YEAR. TERMS IN BOLDFACE TYPE HAVE THE MEANINGS SET FORTH IN THE CODE. Name of ACCESS PERSON: _________________________________ LEVEL 1 OR LEVEL 2 Calendar Year Covered by this Report: ___________________________________ Date received by COMPLIANCE OFFICER: ___________________________________ ANNUAL CERTIFICATION ____ I hereby certify that during the year covered by this report I have complied with all applicable requirements of the Code, and have reported to the COMPLIANCE OFFICER all accounts, holdings and transactions required to be reported under the Code. ____ I HAVE NOT complied with all applicable requirements of the Code, and have attached a complete written explanation of the infraction(s). ANNUAL HOLDINGS REPORT (CHECK ONE OF THE FOLLOWING TWO BOXES): ____ As of December 31, _____ neither I, nor any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP of any COVERED Securities. ____ Attached as APPENDIX C is a complete list of all COVERED SECURITIES in which I, and/or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP as of December 31, _____. ACCOUNTS WITH BROKERS, DEALERS AND/OR BANKS (CHECK ONE OF THE FOLLOWING TWO BOXES): ____ Neither I, nor any member of my FAMILY/HOUSEHOLD, as of December 31, ________, had any accounts with brokers, dealers or banks in which any securities (including securities which are not COVERED SECURITIES) were held or could be held, and with respect to which I, or a member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP. ____ All accounts that I and/or any member of my FAMILY/HOUSEHOLD maintained, as of December 31, _________, with brokers, dealers or banks in which securities (including securities which are not COVERED SECURITIES) were held or could be held, and with respect to which I, and/or any member of my FAMILY/HOUSEHOLD, had BENEFICIAL OWNERSHIP are listed below:
- ------------------------------------------- -------------------------- ------------------ ---------------------------- NAME(S) AND ADDRESS(ES) OF INSTITUTION(S) ACCOUNT NUMBER(S) DATE ESTABLISHED NAME(S) ON ACCOUNT - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ---------------------------- - ------------------------------------------- -------------------------- ------------------ ----------------------------
All information provided in this Form C is true and complete to the best of my knowledge. I understand that as an Access Person I must complete this form even if I have requested duplicate confirmations be sent directly to Compliance. Signed: ___________________________ Date: ___________________________ 25 APPENDIX C - ANNUAL REPORT OF ALL COVERED SECURITIES Name of ACCESS PERSON: ________________________________________ Date received by COMPLIANCE OFFICER: _____________________________
- ------------------------------------------------------ ------------------------------ ------------------------------ Title/Description of COVERED SECURITIES Number of Shares Principal Amount - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------ - ------------------------------------------------------ ------------------------------ ------------------------------
Note: All information should be reported as of December 31 of the MOST RECENT YEAR. Please use additional sheets as needed. ----------- - ----- Note: Please use additional sheets as needed; AND/OR. ------- ____ PLEASE SEE ATTACHED BROKERAGE STATEMENTS FOR A COMPLETE LISTING OF MY ACCOUNTS AND HOLDINGS. 26 FORM D - PRECLEARANCE FOR PERSONAL TRADES ================================================================================ I wish to effect the following trade for my personal account, an account in which I have a beneficial interest, or an account owned by a member of my FAMILY/HOUSEHOLD. Name of ASSOCIATE/ACCESS PERSON: _______________________________________________ Security:___________________________ Market Capitalization:_____________________ Number of Units:________________________________________________________________ Brokerage Firm & Account Number:________________________________________________ ================================================================================ Is this a PURCHASE or SALE?(circle one) Is it based on personal research? Yes [ ] No [ ] ================================================================================ ================================================================================ Is the proposed transaction part of an INITIAL PUBLIC OFFERING? Yes [ ] No [ ] ================================================================================ ================================================================================ Is the proposed transaction part of a PRIVATE PLACEMENT? Yes [ ] No [ ] ================================================================================ If the proposed transaction is part of an Initial Public Offering or Private Placement, please provide a brief description of the opportunity, and the nature of your participation: - -------------------------------------------------------------------------------- COMPLIANCE OFFICER Approval I HAVE REVIEWED THE CIA/CID/CIS CODE OF ETHICS AND HEREBY CONFIRM THAT THE ABOVE REFERENCED TRADE DOES NOT APPEAR TO VIOLATE ANY OF THE CONDITIONS OR RESTRICTIONS THAT ARE SET FORTH BY THE CODE. - -------------------------------------------------------------------------------- COMPLIANCE OFFICER Signature:_______________________ Date: ____________________ I agree that if I do not effect the above trade on the date indicated, the approval is null and void, and the request must be resubmitted. I understand that I may be required to cancel or unwind my trade, or be subject to sanctions under the firm's Code of Ethics, if the firm initiates an investment action for any group of clients in the above-named (or any related) security up to 7 days following the date of my trade and it is determined that I had actual knowledge that the Covered Security (or any closely related security) was being considered for purchase or sale for any client account. I further realize that if I violate the Code of Ethics in this or any other way (either intentionally or otherwise), I may be subject to sanctions as described in the Code of Ethics. - -------------------------------------------------------------------------------- If this form is being submitted to request approval for participation in an INITIAL PUBLIC OFFERING or PRIVATE PLACEMENT, my participation will not result in any conflicts with CLIENT portfolios nor was the opportunity awarded because of my position in the Firms. - -------------------------------------------------------------------------------- ASSOCIATE/ACCESS PERSON Signature/ Printed Name Date SIGNED ORIGINALS MUST BE SUBMITTED TO THE COMPLIANCE DEPARTMENT. KEEP A COPY FOR YOUR RECORDS. ASSOCIATES THAT ARE SUBJECT TO BOTH THE CIA AND JURIKA & VOYLES CODE OF ETHICS MAY SATISFY THEIR PRECLEARANCE REQUIREMENTS BY SUBMITTING ONLY THE JURIKA & VOYLES PRECLEARANCE REQUEST FORM. This form may be submitted via facsimile to the appropriate COMPLIANCE OFFICER Boston (617) 369-9604 Oakland (510) 874-4189 EX-99.P 10 p3.txt EXHIBIT P3 Exhibit (p)(3) HARRIS ASSOCIATES L.P., HARRIS ASSOCIATES SECURITIES L.P. AND HARRIS ASSOCIATES INVESTMENT TRUST CODE OF ETHICS AND STATEMENT ON INSIDER TRADING (EFFECTIVE JANUARY 31, 2002) I. DEFINITIONS A. FIRM OR HARRIS. The term "Firm" or "Harris" shall include Harris Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP"). B. TRUST. The term "Trust" shall mean Harris Associates Investment Trust, including any series of shares of beneficial interest of the Trust (each, a "Fund"). C. EMPLOYEE. The term "Employee" shall include any person employed by the Firm, whether on a full or part-time basis and all partners, officers, shareholders and directors of the Firm. D. ACCESS PERSON. The term "Access Person" shall have the meaning set forth in Section 17j-1(a)(1) of the Investment Company Act of 1940 and rules thereunder (the "Act"). Accordingly, Access Person means any director, officer, general partner, or Advisory Person (as defined below) of the Fund or HALP, but shall not include any trustee of the Trust who is not an "interested person" of the Trust. E. ADVISORY PERSON. The term "Advisory Person" shall have the meaning set forth in Section 17j-1(a)(2) of the Act. Accordingly, Advisory Person means any Employee of the Firm, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities (as defined below) by a Client (as defined below), or whose functions relate to the making of any recommendations with respect to purchases and sales. For the purpose of this Code, each Employee of the Firm with an office at the Firm's principal place of business shall be deemed to be an Advisory Person. F. PERSONS SUBJECT TO THIS CODE. Each Employee is subject to this Code. G. COVERED SECURITY. The term "Covered Security" shall have the meaning set forth in Section 2(a)(36) of the Act, 1 including any right to acquire such security, except that it shall not include securities which are direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debit instruments (including repurchase agreements), and shares issued by open-end investment companies. - -------------------------------- 1 Sec. 2(a)(36) "Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. 1 H. BENEFICIAL INTEREST OR OWNERSHIP. The term "beneficial interest or ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and rules thereunder, which includes any interest in which a person, directly or indirectly, has or shares a direct or indirect pecuniary interest. A pecuniary interest is the opportunity, directly or indirectly, to profit or share in any profit derived from any transaction. Each person will be assumed to have a pecuniary interest, and therefore, beneficial interest or ownership, in all securities held by that person, that person's spouse, all members of that person's immediate family and adults sharing the same household with that person (other than mere roommates) and all minor children of that person and in all accounts subject to their direct or indirect influence or control and/or through which they obtain the substantial equivalent of ownership, such as trusts in which they are a trustee or beneficiary, partnerships in which they are the general partner, corporations in which they are a controlling shareholder or any other similar arrangement. Any questions an Employee may have about whether an interest in a security or an account constitutes beneficial interest or ownership should be directed to the Firm's General Counsel or Compliance Department. Examples of beneficial interest or ownership are attached as Appendix A. I. CLIENT. The term "Client" shall mean any client of HALP, including any Fund. J. SPECIAL COMPLIANCE PERSON. The term "Special Compliance Person" shall mean the current Compliance Officer of Nvest Companies, L.P. and/or CDC Asset Management - North America. K. NVEST OFFICER. The term "Nvest Officer" shall mean any current officer of Nvest Companies, L.P. and/or CDC Asset Management - North America who is also an Access Person. II. CODE OF ETHICS A. GENERAL STATEMENT Harris seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in mutual funds and clients with accounts advised by the Firm is something that is highly valued and must be protected. As a result, any activity which creates even the suspicion of misuse of material non-public information by the Firm or any of its Employees, which gives rise to or appears to give rise to any breach of fiduciary duty owed to any Client, or which creates any actual or potential conflict of interest between any Client and the Firm or any of its Employees or even the appearance of any conflict of interest must be avoided and is prohibited. The Investment Company Act and rules make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by the Trust to: 2 a. employ any device, scheme, or artifice to defraud the Trust; b. make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading or in any way mislead the Trust regarding a material fact; c. engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust; or d. engage in any manipulative practice with respect to the Trust. The restrictions on personal securities transactions contained in this Code are intended to help the Firm monitor for compliance with these prohibitions. Additionally, the federal securities laws require that an investment adviser maintain a record of every transaction in any Covered Security in which an Access Person acquires any direct or indirect beneficial interest or ownership, except any transaction in an account in which the Access Person has no direct or indirect control or influence. To attempt to ensure that each Person Subject to this Code satisfies this Code and these record keeping obligations, the Firm has developed the following rules relating to personal securities trading, outside employment, personal investments with external investment managers and confidentiality. The General Counsel, Chief Executive Officer, and Compliance Officer, acting in concert, has the authority to grant written waivers of the provisions of this Code in appropriate instances. However, the Firm expects that waivers will be granted only in rare instances, and some provisions of the Code that are mandated by the Act cannot be waived. B. RESTRICTIONS ON EMPLOYEE TRADING No trading activity by an Employee in any security in which an Employee has any beneficial interest or ownership which is also the subject of a Client portfolio purchase or sale shall disadvantage or appear to disadvantage such Client transaction. Further, the following specific restrictions apply to all trading activity for Advisory Persons: i) Any transaction in a security in anticipation of client orders ("frontrunning") is prohibited, ii) Any transaction in a security which is the subject of a Firm recommendation is prohibited until the tenth business day following the dissemination of the recommendation, or any longer period specified in this Code, iii) Any transaction in a security which the Advisory Person knows or has reason to believe is being purchased or sold or considered for purchase or sale2 by any investment company advised by the Firm is prohibited until the transaction by such investment company has been completed or consideration of such transaction has been abandoned, - -------------------------------- 2 A security is "being considered for purchase or sale", the earlier of, when a recommendation to purchase or sell has been made and communicated or the security is placed on the research project list and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. 3 iv) Any same day transaction in a security in which any investment company advised by the Firm has a pending or actual transaction is prohibited. If an Advisory Person places a same day trade for such security prior to the investment company placing an order the Employee's order will be canceled, v) Any transaction in a security within two business days after any investment company advised by the Firm has traded in that security is prohibited, vi) Any transaction involving options or single stock futures relating to any security on the Firm's approved list or which are held by any investment company advised by the Firm is prohibited, and vii) Any acquisition of an equity security in an initial public offering is prohibited. Additionally, no Employee of the Firm shall knowingly sell to or purchase from the Funds or HAIT any security or other property except, in the case of the Funds, securities issued by the Funds. C. PERSONAL INVESTMENTS WITH EXTERNAL MONEY MANAGERS. All investments in which an Advisory Person has any beneficial interest or ownership placed with external investment managers (including interests in limited partnerships or trust vehicles, managed accounts, variable annuities or foreign entities) or in any account in which an Advisory Person has discretion must be approved in writing by the Compliance Department and the Chief Executive Officer prior to the commitment of initial capital. Additionally, "Investment Personnel" must obtain approval prior to investing or acquiring a beneficial ownership interest in a Limited Offering, whether directly or indirectly. "Investment Personnel" is defined in Section 17j-1(a)(7) of the Act and shall be deemed to include any officer of HAI with an office in the Firm's principal place of business; any officer of HAI who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities; any Harris portfolio manager; any member of the Harris stock selection group; any Harris financial analyst; or any Harris fund manager. A "Limited Offering" is generally defined as a private placement and can include interests in real estate or oil and gas limited partnership interests and other privately placed securities and funds. The Investment Personnel must (i) provide notice in writing to the Chief Executive Officer and the Compliance Department prior to acquiring ownership, and (ii) obtain the written approval of the Chief Executive Officer and the Compliance Department prior to acquiring ownership. The Compliance Department shall maintain a copy of such approval and reasons supporting the approval as provided under Section IV of this Code. - -------------------------------------------------------------------------------- 3 Among the clients of the Firm are private investment partnerships (partnerships) in which various Employees of the Firm have equity interests. This trading prohibition shall not restrict purchases or sales for the accounts of such partnerships provided that the Trust and such accounts are treated fairly and equitably in connection with such purchases and sales. 4 The Compliance Department will maintain a list of investment managers used by Partnerships managed internally and a list of investment managers used by Advisory Persons. If an Advisory Person has been notified that an investment manager is used by the Partnerships' managed internally, an Advisory Person must notify the Compliance Department and the Head of the Multi-Manager Area of any material withdrawal of their investment with such investment manager at least two working days prior to an Advisory Person submitting any notice of such withdrawal. To avoid a conflict of interest or the appearance of any conflict, an Advisory Person should also note the reason for the withdrawal if it relates to the investment manager's performance, organization or perceived ability to execute their trading strategy. D. ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS. Except as permitted in Section II.E., any Access Person who is a fund manager of any registered investment company that is advised by the Firm is prohibited from buying or selling a security for an account in which he or she has a beneficial interest within fifteen calendar days before and after the investment company that he/she manages trades in that security. Any profits realized on trades within the proscribed periods shall be required to be disgorged.4 E. CERTAIN ACCOUNTS EXEMPT FROM REQUIREMENTS OF CODE. Any account (including open-end investment companies and limited partnerships) for which the Firm acts as investment adviser or general partner shall be managed in accordance with the Firm's trading procedures for a Client account. Any such account shall be exempt from the provisions of Sections B, C and D of Part II of this Code if (1) accounts of persons not affiliated with the Firm are also invested in the account or (2) the account is being operated as a model portfolio in contemplation of management of Client accounts in the same or a similar strategy. F. PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS. 1) TRADING THROUGH HARRIS' TRADING DESK. - -------------------------------- 4 Any profits disgorged shall be given to a tax exempt charitable organization of Harris' choosing. 5 All transactions in Covered Securities in which an Advisory Person has any beneficial interest or ownership or in any accounts in which an Advisory Person has discretion, other than fee paying accounts ("Advisory Person account"), must be processed through the Firm's trading desk. Transactions at other brokers or banks are not permitted except in unusual circumstances and then only after the Advisory Person has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening or placing an initial order in an account with such other broker or bank, (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening or placing an initial order in such account, (iii) provided such other broker or bank with a written notice of the Advisory Person's affiliation with Harris and request that copies of confirmations and statements be sent to the Firm's Compliance Department, and provide a report to the Firm that includes the name of the broker or bank with whom the account was established, the date the account was established, and the date the report is submitted. A copy of such written notice and request should also be provided to his/her Supervisor and the Compliance Department. Even after an Advisory Person has obtained approval to execute transactions through another broker or bank, the Advisory Person must still present the Firm's trading desk with an order ticket for an order to be executed at the other broker or bank. In those exceptional situations in which it is inappropriate for the Firm's trading desk to place the order, the Advisory Person must promptly present the trading desk with a completed order ticket reflecting the details of the transaction and clearly indicating that the transaction has been completed. 2) MONITORING OF TRADES. Transactions for an account of an Advisory Person that are executed through the Firm's trading desk are to be monitored by the Trading Department and reviewed and approved by the Chief Executive Officer (or such party to whom he delegates). These transactions are unsolicited brokerage transactions, should be so marked on the original order ticket and may not be executed if they are in conflict with discretionary orders. Should a conflict arise, sharing of executions may be approved by the Head of the Investment Advisory Department, or in his/her absence, the Manager of the Trading Department. Employee accounts must be opened in the 40000 office range. The Firm will provide to the Compliance Department information (including the title of each Covered Security involved, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected, and the date on which the report is submitted) about transactions in the accounts of Advisory Persons who have accounts with the Firm. Transactions at other brokers or banks, in addition to being placed through the trading desk, are to be monitored by the Compliance Department. To accomplish this, all Access Persons, except Nvest Officers, shall submit to the Compliance Department within ten days after any transaction a report which includes the title of the Covered Security, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected and the date on which the report is submitted. This requirement may be satisfied by having the broker or bank send the Firm duplicate copies of confirmations and statements, provided that such confirmations and statements contain all of the information otherwise required to be provided in the report. The Compliance Department will maintain copies of all such transaction reports. 6 3) CANCELLATION OF TRADES. Any transaction for an account of an Access Person is subject to cancellation or reversal if it is determined by either the Chief Executive Officer (or such party to whom he delegates), the Manager of the Trading Department or the Compliance Department that the transaction is or was in conflict with or appeared to be in conflict with any Client transaction or any of the trading restrictions of this Code. Cancellations or reversals of transactions may be required after an extended period past the settlement date. The Manager of the Trading Department may also prevent the execution of orders for an Advisory Person's account if it appears that the trade may have to be canceled or reversed. Client transactions include transactions for any investment company managed by the Firm, any other discretionary advisory clients or any other accounts managed or advised by Employees of the Firm for a fee. The determination that a transaction of an Access Person may conflict with a Client transaction will be subjective and individualized and may include questions about timely and adequate dissemination of information, availability of bids and offers, as well as many other factors deemed pertinent for that transaction or series of transactions. It is possible that a cancellation or reversal of a transaction could be costly to an Access Person or his/her family. Therefore, great care is required to adhere to the Firm's trading restrictions and avoid conflicts or the appearance of conflicts. 4) PARTICIPATION IN DIVIDEND REINVESTMENT PLANS AND SYSTEMATIC PURCHASE PLANS. Advisory Persons may purchase securities through dividend reinvestment plans or systematic purchase plans without processing such transactions through the Firm's trading desk. Purchases are permitted only after the Employee has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase, and (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase. Even after the Advisory Person has obtained approval to invest in such a plan, the Advisory Person must provide the Compliance Department with duplicate copies of statements within ten days after the end of each quarter. Such report or statements must contain all of the information required to be reported with respect to transactions in Covered Securities under II(F)(2) above. The Compliance Department will maintain copies of all such transaction reports. 7 5) REPORTING ALL OTHER SECURITIES TRANSACTIONS. Because the obligations of an investment adviser to maintain records of Employee's personal securities transactions is broader than the type of transactions discussed above in this Section, all Employees have the following ADDITIONAL reporting obligations. Any transaction in a Covered Security not required to be placed through the Firm's trading desk in which an Employee has any beneficial interest or ownership (such as, real estate or oil and gas limited partnership interests and other privately placed securities and funds) must be reported to the Compliance Department or, in the case of an Nvest Officers, the Special Compliance Person. This report must be submitted within ten days after the end of each quarter and include: the title, price, number of shares and principal amount of each Covered Security involved, the date and nature of the transaction (i.e. buy/sell), the name of the broker or bank used, if any, interest rate and maturity, if applicable, and the date on which the report is submitted. This report may be in any form, including a copy of a confirmation or monthly statement. However, no report is necessary for any transaction in an account in which the Employee has no control or influence. The Special Compliance Person shall forward copies of all quarterly transaction reports for Nvest Officers to the Compliance Department. 6) INITIAL AND ANNUAL REPORTING REQUIREMENTS. Each Access Person shall initially disclose in writing to the Compliance Department or, in the case of an Nvest Officer, the Special Compliance Person within 10 business days of becoming an Access Person, and annually thereafter within 30 business days after each calendar year-end, the title, number of shares and principal amount of all Covered Securities beneficially owned by such Access Person as of the date of becoming a Access Person, or as of the preceding December 31 for annual reporting and the name of the broker or bank with whom the Access Person maintains an account in which he or she has beneficial ownership of any security. The first such annual report under this amended Code of Ethics shall be made by January 30, 2001. An Access Person need not make an Initial or Annual Report for Covered Securities held in any account over which the Employee has no direct or indirect influence or control. The Special Compliance Person shall forward copies of all initial and annual holdings reports for Nvest Officers to the Compliance Department. The Special Compliance Person may redact the number of shares and principal amount of all Covered Securities beneficially owned by such Nvest Officers on such initial and annual holdings reports, provided that a sealed copy of such holdings reports, including the number of shares and principal amount, is also provided to the Compliance Department. The sealed copies of such reports shall be made available for examination by the staff of the Securities and Exchange Commission, and for review by the Firm or outside legal counsel to the Firm if necessary to investigate apparent discrepancies or irregularities. F. CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES 8 During the period of employment with the Firm an Employee will have access to certain "confidential information" concerning the Firm and its clients. This information is a valuable asset and the sole property of the Firm and may not be misappropriated and used outside of the Firm by an Employee or former Employee. "Confidential Information", defined as all information not publicly available about the business of the Firm, may include, but is not limited to, Client and prospect names and records, research, trading and portfolio information and systems, information concerning externally managed entities or accounts which have been considered or made on behalf of fee paying clients, and the financial records of the Firm and/or its Employees. In order to protect the interests of the Firm, an Employee or ex-Employee shall not, without the express written consent of the Firm's Chief Executive Officer, disclose directly or indirectly confidential information to anyone outside of the Firm. An Employee should be extremely careful to avoid inadvertent disclosures and to exercise maximum effort to keep confidential information confidential. Any questions concerning the confidentiality of information should be directed to the Chief Executive Officer or the General Counsel. An abuse of the Firm's policy of confidentiality could subject an Employee to immediate disciplinary action that may include dismissal from the Firm. G. OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES 1) OUTSIDE EMPLOYMENT AND ASSOCIATIONS. It is Harris's policy not to permit Advisory Persons to hold outside positions of authority, including that of being an officer, partner, director or employee of another business entity (except in the case of entities managed by the Firm). Also, Harris requires that all Advisory Persons make their positions with the Firm a full-time job. The approval of Harris, and in some cases the approval of the NASD, is required before any Advisory Person may hold any outside position for any business organization, regardless of whether such position is compensated or not. Any exception to this policy must be approved in writing by the Firm's Chief Executive Officer (or other person as he may delegate) and the Access Person's Supervisor, and a copy of such approval shall be provided by the Advisory Person to the Compliance Department. Any change in the status of such approved position immediately must be reported in writing to the Compliance Department and the Advisory Person's Supervisor. Any income or compensation received by an Advisory Person for serving in such position must be paid in full to the Firm. Under no circumstance may an Advisory Person represent or suggest that Harris has approved or recommended the business activities of the outside organization or any person associated with it. 2) OUTSIDE BUSINESS ACTIVITIES. To further avoid actual or potential conflicts of interest and to maintain impartial investment advice, and equally important, the appearance of impartial investment advice, each Advisory Person must disclose in writing to the Compliance Department any special relationships and/or investments or business activities that they or their families have which could influence the investment activities of the Firm. If an Employee has any questions about any activities and the need for disclosure, the Employee should be cautious and direct any questions to the Firm's General Counsel or Compliance Department. H. CERTIFICATION OF COMPLIANCE BY ACCESS PERSONS. 9 Each Access Person is required to certify annually that (i) he or she has read and understands the Code, (ii) recognizes that he or she is subject to the Code, and (iii) he or she has disclosed or reported all Personal Securities Transactions required to be disclosed or reported under the Code. The Firm shall annually distribute a copy of the Code and request certification by all Persons Subject to this Code and shall be responsible for ensuring that all personnel comply with the certification requirement. Each Access Person who has not engaged in any personal securities transactions during the preceding year for which a report was required to be filed pursuant to the Code shall include a certification to that effect in his or her annual certification. I. ANNUAL REPORT TO THE TRUST'S BOARD OF TRUSTEES. The officers of the Trust shall prepare an annual report to the board of trustees of the Trust that: 1. summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; 2. describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed; 3. certifies to the board that the Trust has adopted procedures reasonably necessary to prevent its Investment Personnel and Access Persons from violating the Code; and 4. identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations. III. POLICY STATEMENT ON INSIDER TRADING A. BACKGROUND Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission (SEC) can recover the profits gained or losses avoided through the violative trading, obtain a penalty of up to three times the illicit windfall and issue an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations. Regardless of whether a government inquiry occurs, Harris views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including dismissal. The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the General Counsel, or, in her absence, a member of the Stock Selection Group, or the Compliance Department. You also must notify the General Counsel, or, in her absence, a member of the Stock Selection Group or the Compliance Department immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur. 10 B. POLICY STATEMENT ON INSIDER TRADING No person to whom this Policy Statement applies may trade, either personally or on behalf of others (such as Clients), while in possession of material, nonpublic information; nor may such persons communicate material, nonpublic information to others in violation of the law. This Policy Statement is drafted broadly; it will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by all Access Persons (including their spouses, minor children and adult members of their households). The section below reviews principles important to this Policy Statement. 1. WHAT IS MATERIAL INFORMATION? Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information whose disclosure will have a substantial effect on the price of a company's securities. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the General Counsel, or, in her absence, a member of the Stock Selection Group, or Compliance Department. Material information often relates to a company's results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information also may relate to the market for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. 2. WHAT IS NONPUBLIC INFORMATION? Information is "nonpublic" until it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, the Dow Jones "tape" or the WALL STREET JOURNAL or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely. 11 3. IDENTIFYING INSIDE INFORMATION Before executing any trade for yourself or others, including Clients, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps: i. Immediately alert the Trading Department to restrict trading in the security by placing the security on the restricted list maintained in the trading room. No reason or explanation should be given to the Trading Department for the restriction. ii. Report the information and proposed trade immediately to the General Counsel, or in her absence, a member of the Stock Selection Group. iii. Do not purchase or sell the securities on behalf of yourself or others, including Clients. iv. Do not communicate the information inside or outside Harris other than to the above individuals. v. After the above individuals have reviewed the issue, the Firm will determine whether the information is material and nonpublic and, if so, what action the Firm should take. 4. CONTACTS WITH PUBLIC COMPANIES For Harris, contacts with public companies represent an important part of our research efforts. Harris may make investment decisions on the basis of the Firm's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, an Access Person becomes aware of material, nonpublic information. This could happen, for example, if a company's Chief Financial Officer prematurely discloses quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, Harris must make a judgment as to its further conduct. To protect yourself, Clients and the Firm, you should contact the General Counsel, or in her absence, a member of the Stock Selection Group, or Compliance Department immediately if you believe that you may have received material, nonpublic information. 5. TENDER OFFERS Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Employees should exercise particular caution any time they become aware of nonpublic information relating to a tender offer. 12 C. PROCEDURES TO IMPLEMENT THE POLICY STATEMENTON INSIDER TRADING 1. PERSONAL SECURITIES TRADING The restrictions on Employee trading and procedures to implement those restrictions and the Firm's reporting obligations, which are set forth in Section II above, constitute the same procedures to implement this Policy Statement. Review those procedures carefully and direct any questions about their scope or applicability to the General Counsel or the Compliance Department. 2. RESTRICTIONS ON DISCLOSURES Harris Employees shall not disclose any nonpublic information (whether or not it is material) relating to Harris or its securities transactions to any person outside Harris (unless such disclosure has been authorized by Harris). Material, nonpublic information may not be communicated to anyone, including persons within Harris, except as provided in Section III(B)(3) above. Such information must be secured. For example, access to files containing material, nonpublic information and computer files containing such information should be restricted, and conversations containing such information, if appropriate at all, should be conducted in private. IV. RETENTION OF RECORDS The Compliance Department or the Secretary of the Trust will maintain the records listed below for a period of five years. Such records shall be maintained at the Firm's principal place of business in an easily accessible place: (i) a list of all persons subject to the Code during that period; (ii) receipts signed by all persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it; (iii) a copy of each Code of Ethics that has been in effect at any time during the period; (iv) a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period as well as a record of all persons responsible for reviewing these reports; and (v) a copy of any decision and the reasons supporting the decision, to approve the acquisition by Investment Personnel of Limited Offerings. 13 ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON INSIDER TRADING FOR ACCESS PERSONS CODE OF ETHICS. Harris Associates L.P. ("HALP"), Harris Associates Securities L.P. ("HASLP") and Harris Associates Investment Trust (the "Trust") have adopted a written Code of Ethics and Statement on Insider Trading (the "Code") to avoid potential conflicts of interest by HALP and HASLP personnel and to govern the use and handling of material non-public information. A copy of the Code is attached to this acknowledgement. As a condition of your continued employment with HALP and HASLP, and/or the retention of your position, if any, as an officer of the Trust, you are required to read, understand and abide by the Code. COMPLIANCE PROGRAM. The Code requires that all personnel furnish to the Compliance Department information regarding any investment account in which you have a "beneficial interest." You are also required to furnish to the Compliance Department copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales of securities in any such account, or which are effected by you or for your benefit, or the benefit of any member of your household. Additionally, you are required to furnish a report of your personal securities holdings within ten days of commencement of your employment with HALP or HASLP and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts. This compliance program also requires that you report any contact with any securities issuer, government or its personnel, or others, that, in the usual course of business, might involve material non-public financial information. The Code requires that you bring to the attention of the General Counsel any information you receive from any source which might be material non-public information. Any questions concerning the Code should be directed to the General Counsel or the Compliance Department. I affirm that I have read and understand the Code. I agree to the terms and conditions set forth in the Code. - -------------------------------- ---------------- Signature Date 1 ANNUAL AFFIRMATION OF COMPLIANCE FOR ACCESS PERSONS I affirm that: 1. I have again read and, during the past year to the best of my knowledge, have complied with the Code of Ethics and Statement of Insider Trading (the "Code"). 2. I have provided to the Compliance Department the names and addresses of each investment account that I have with any firm, including, but not limited to, broker-dealers, banks and others. (List of known accounts attached.) 3. I have provided to the Compliance Department copies of account statements or other reports showing each and every transaction in any security in which I have a beneficial interest, as defined in the Code, during the most recently ended calendar year or During the most recent calendar year there were no transactions in any security in which I had a beneficial interest required to be reported pursuant to the Code. 4. I have provided to the Compliance Department a report of my personal securities holdings as of the end of the most recent calendar year, including all required information for each security in which I have any direct or indirect beneficial ownership. - -------------------------------- ----------------- Signature Date APPENDIX A EXAMPLES OF BENEFICIAL INTEREST For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include: o securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); o securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); o securities held by you as trustee or co-trustee, where either you or any member of your immediate family (i.e., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust. o securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; o securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; o securities held by a personal holding company controlled by you alone or jointly with others; o securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or o securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. You will NOT be deemed to have beneficial ownership of securities in the following situations: o securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and o securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the General Counsel or Compliance Department. - ------------------ COMPARISON OF FOOTNOTES ------------------ - -FOOTNOTE 1- 1 Sec. 2(a)(36) "Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. - -FOOTNOTE 2- A security is "being considered for purchase or sale", the earlier of, when a recommendation to purchase or sell has been made and communicated or the security is placed on the research project list and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. - -FOOTNOTE 3- Among the clients of the Firm are private investment partnerships (partnerships) in which various Employees of the Firm have equity interests. This trading prohibition shall not restrict purchases or sales for the accounts of such partnerships provided that the Trust and such accounts are treated fairly and equitably in connection with such purchases and sales. - -FOOTNOTE 4- Any profits disgorged shall be given to a tax exempt charitable organization of Harris' choosing. - ------------------ COMPARISON OF HEADERS ------------------ - -HEADER 1- - -HEADER 2- APPENDIX A - ------------------ COMPARISON OF FOOTERS ------------------ - -FOOTER 1- 1 H - -FOOTER 2- A TXU EX-99.Q 11 exhq.txt EXHIBIT Q1 Exhibit (q)(1) CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST CASH MANAGEMENT TRUST CDC NVEST TAX EXEMPT MONEY MARKET TRUST CDC NVEST COMPANIES TRUST I AEW Real Estate Income Fund POWER OF ATTORNEY We, the undersigned, hereby constitute John M. Loder, John E. Pelletier and Mark E. Bradley, each of them singly, our true and lawful attorneys, with full power to them and each of them to sign for us, and in our names in the capacity indicated below, any and all registration statements and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time investment companies of which we are now or hereafter a Director or Trustee and to register the shares of such companies and generally to do all such things in our names and on our behalf to enable such registered investment companies to comply with the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys and any and all registration statements and amendments thereto. Witness our hands on the 22nd day of November, 2002. /s/ Graham Allison /s/ Sandra O. Moose - ------------------------------------ ------------------------------------ Graham Allison - Trustee Sandra O. Moose - Trustee /s/ Daniel M. Cain /s/ John A. Shane - ------------------------------------ ------------------------------------ Daniel M. Cain - Trustee John A. Shane - Trustee /s/ Kenneth J. Cowan /s/ Peter S. Voss - ------------------------------------ ------------------------------------ Kenneth J. Cowan - Trustee Peter S. Voss - Trustee /s/Richard Darman /s/Pendleton P. White - ------------------------------------ ------------------------------------ Richard Darman - Trustee Pendleton P. White - Trustee /s/ John T. Hailer - ------------------------------------ John T. Hailer - Trustee EX-99.Q 12 exhq2.txt EXHIBIT Q2 Exhibit (q)(2) CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST CASH MANAGEMENT TRUST CDC NVEST TAX EXEMPT MONEY MARKET TRUST CDC NVEST COMPANIES TRUST I AEW Real Estate Income Fund POWER OF ATTORNEY We, the undersigned, hereby constitute John M. Loder, John E. Pelletier and Nicholas H. Palmerino, each of them singly, our true and lawful attorneys, with full power to them and each of them to sign for us, and in our names in the capacity indicated below, any and all registration statements and any and all amendments thereto to be filed with the Securities and Exchange Commission for the purpose of registering from time to time investment companies of which we are now or hereafter a Director or Trustee and to register the shares of such companies and generally to do all such things in our names and on our behalf to enable such registered investment companies to comply with the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all requirements and regulations of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys and any and all registration statements and amendments thereto. Witness our hands on the 28thday of February, 2003. /s/ Graham Allison /s/ Sandra O. Moose - ------------------------------- ------------------------------------------ - ------------------------------- ------------------------------------------ Graham Allison - Trustee Sandra O. Moose - Trustee /s/ Daniel M. Cain /s/ John A. Shane - ------------------------------- ------------------------------------------ - ------------------------------- ------------------------------------------ Daniel M. Cain - Trustee John A. Shane - Trustee /s/ Kenneth J. Cowan /s/ Peter S. Voss - ------------------------------- ------------------------------------------ - ------------------------------- ------------------------------------------ Kenneth J. Cowan - Trustee Peter S. Voss - Trustee /s/ Richard Darman /s/ Pendleton P. White - ------------------------------- ------------------------------------------ - ------------------------------- ------------------------------------------ Richard Darman - Trustee Pendleton P. White - Trustee /s/ John T. Hailer - ------------------------------- - ------------------------------- John T. Hailer - Trustee -----END PRIVACY-ENHANCED MESSAGE-----