10-Q 1 a10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________________________to________________________ Commission File Number: 1-9468 NVEST, L.P. (Exact name of registrant as specified in its charter) DELAWARE 13-3405992 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 399 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02116 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (617) 578-3500 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No The issuer is a limited partnership. There were 6,602,788 units of limited partner interest and 110,000 units of general partner interest outstanding at July 31, 2000. 1 of 26 NVEST, L.P. INDEX TO FORM 10-Q

2 of 26 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NVEST, L.P. BALANCE SHEET (in thousands)

See Accompanying Notes to Financial Statements. 3 of 26 NVEST, L.P. STATEMENT OF INCOME (in thousands, except per unit data, unaudited)

See Accompanying Notes to Financial Statements. 4 of 26 NVEST, L.P. STATEMENT OF CASH FLOWS (in thousands, unaudited)

See Accompanying Notes to Financial Statements. 5 of 26 NVEST, L.P. NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 1 - ORGANIZATION Nvest, L.P. ("Nvest") is a publicly traded limited partnership listed on the New York Stock Exchange. Effective with a restructuring completed on December 31, 1997 (the "Restructuring"), Nvest's business currently is to engage in the investment advisory business by acting as advising general partner of Nvest Companies, L.P. (the "Operating Partnership"). The Operating Partnership operates through investment management firms that offer a broad array of investment management products and styles across a wide range of asset categories to institutions, mutual funds and private clients. Nvest's primary asset at June 30, 2000 was 6,492,395 units of the Operating Partnership, representing a general partner's interest in the Operating Partnership. As a result of the Restructuring, Nvest receives distributions from the Operating Partnership and pays a 3.5% federal gross income tax on its proportionate share of the gross income of the Operating Partnership. Nvest expects to distribute to its unitholders substantially all of the distributions received from the Operating Partnership after accruing the 3.5% federal gross income tax, any state tax and any other expenses of Nvest. The general partner of Nvest and the managing general partner of the Operating Partnership is a wholly owned subsidiary of Metropolitan Life Insurance Company which, at June 30, 2000, owned approximately 48% of the partnership units of the Operating Partnership (including those owned indirectly through ownership of Nvest units). NOTE 2 - BASIS OF PRESENTATION The unaudited financial statements of Nvest have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with Nvest's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of management, all adjustments, consisting only of normal recurring accruals, have been made to present fairly the financial statements of Nvest at June 30, 2000 and for the three and six months ended June 30, 1999 and 2000. The financial statements of Nvest should also be read in conjunction with the consolidated financial statements of the Operating Partnership included herein. NOTE 3 - EXCHANGE OF NVEST COMPANIES, L.P. UNITS FOR NVEST, L.P. UNITS Each quarter, Nvest provides holders of Operating Partnership units a limited opportunity to exchange their units for Nvest units, subject to applicable requirements intended to ensure that the Operating Partnership remains a private partnership. During the six months ended June 30, 2000, 57,700 Operating Partnership units were exchanged for an equal number of Nvest units and Nvest received 57,700 units of the Operating Partnership. On July 3, 2000, an additional 9,625 Operating Partnership units were exchanged for an equal number of Nvest units and Nvest received 9,625 units of the Operating Partnership. Nvest has received irrevocable elections from certain holders of Operating Partnership units to exchange Operating Partnership units for units of Nvest or cash at the next quarterly exchange on October 2, 2000. Subject to the terms of the partnership agreement of the Operating Partnership and to final acceptance of such elections, holders making such elections would exchange approximately 600,000 units for units of Nvest or cash. In addition, consistent with federal tax law, the partnership agreement of the Operating Partnership generally permits holders of units to exchange a "block" of units at any time. A "block" for this purpose is at least equal to two percent of the outstanding units of the Operating Partnership, reduced by the units held by certain parties that are deemed to be affiliated with the Operating Partnership, including units held by Nvest. Currently, a "block" for this purpose is approximately 340,000 units. 6 of 26 NVEST, L.P. NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 4 - NET INCOME PER UNIT The calculation of basic and diluted net income per unit and weighted average units outstanding follows:

* When an option for a unit of Nvest is exercised, the Operating Partnership issues a unit to Nvest. This increases Nvest's relative ownership interest in the Operating Partnership. NOTE 5 - INVESTMENT IN THE OPERATING PARTNERSHIP Investment activity in the Operating Partnership for the six months ended June 30, 2000 follows (in thousands): Investment in the Operating Partnership at December 31, 1999 $ 61,215 Investment from exercise of options 7,225 Investment from unit exchanges (Note 3) 531 Sale of units of the Operating Partnership (Note 7) (599) Equity in earnings of the Operating Partnership 6,493 Distributions declared by the Operating Partnership ($1.20 per unit) (7,670) -------- Investment in the Operating Partnership at June 30, 2000 $ 67,195 ========

7 of 26 NVEST, L.P. NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 6 - TAX CONSIDERATIONS FOR PUBLIC UNITHOLDERS For the 2000 tax year, unitholders will receive a K-1 reflecting their share of taxable income for the period from January 1, 2000 through the proposed acquisition date. Similar to prior years, the partnership expects to mail this K-1 to unitholders no later than the first week of March 2001. Purchasers of Nvest units after August 10, 1993, are allowed an amortization deduction that reduces the amount of income on which they pay taxes. This deduction permits such unitholders to amortize a substantial portion of the price paid for Nvest units over 15 years and reduces the current effective tax rate on distributions paid by Nvest to unitholders by reducing taxable income. Amortization deductions will likely be recaptured as ordinary income if and when the units are sold. The amount of the amortization tax benefit is explained in detail in Note 7 to the financial statements of Nvest contained in Nvest's Annual Report on Form 10-K for the year ended December 31, 1999. NOTE 7 - UNIT REPURCHASE PLAN On September 16, 1999, the Board of Directors of the general partner of Nvest and the Operating Partnership extended a plan to repurchase up to one million limited partnership units of the partnerships through September 30, 2000. The repurchase plan, which was initiated on September 15, 1998, authorizes the purchase of units in either the open market or privately negotiated transactions. In the case of purchases of Nvest units, the Operating Partnership has made a corresponding purchase at the same cost of Operating Partnership units from Nvest. During the six months ended June 30, 1999 and 2000, respectively, 202,273 and 33,000 units were repurchased at a cost of $5,220,000 and $599,000. The 2000 unit repurchases all occurred during the first quarter of 2000. As a result of the proposed acquisition of Nvest by CDC Asset Management, no further unit repurchases are anticipated. NOTE 8 - CONTINGENT LIABILITIES The business units of the Operating Partnership are from time to time subject to legal proceedings and claims that arise in the course of their businesses. In the opinion of management, the amount of any ultimate liability with respect to currently pending actions will not have a material adverse effect on the results of operations or financial condition of Nvest. NOTE 9 - PROPOSED ACQUISITION OF NVEST AND THE OPERATING PARTNERSHIP On June 16, 2000, Nvest and its operating partnership, Nvest Companies, L.P., announced that they had signed a definitive agreement to be acquired by Paris-based CDC Asset Management, an affiliate of Caisse des Depots Group, for $40 per unit, subject to possible downward adjustment (but not below $34 per unit). This transaction includes all public and private units. The acquisition is expected to close during the fourth quarter of 2000, and is subject to a number of approvals and conditions including (1) approval by a majority in interest of the unitholders of each of Nvest and the Operating Partnership that are not affiliated with Metropolitan Life Insurance Company, (2) approval by mutual fund shareholders and other client consents, and (3) other contractual and regulatory approvals. 8 of 26 THE OPERATING PARTNERSHIP CONSOLIDATED BALANCE SHEET (in thousands)

See Accompanying Notes to Consolidated Financial Statements. 9 of 26 THE OPERATING PARTNERSHIP CONSOLIDATED STATEMENT OF INCOME (in thousands, except per unit data, unaudited)

See Accompanying Notes to Consolidated Financial Statements. 10 of 26 THE OPERATING PARTNERSHIP CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, unaudited)

See Accompanying Notes to Consolidated Financial Statements. 11 of 26 THE OPERATING PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - ORGANIZATION Nvest Companies, L.P. (the "Operating Partnership") operates through investment management firms that offer a broad array of investment management products and styles across a wide range of asset categories to institutions, mutual funds and private clients. The business of the Operating Partnership was conducted by Nvest, L.P. ("Nvest") prior to the Restructuring completed on December 31, 1997. The general partner of Nvest and the managing general partner of the Operating Partnership is a wholly owned subsidiary of Metropolitan Life Insurance Company which, at June 30, 2000, owned approximately 48% of the partnership units of the Operating Partnership (including those owned indirectly through ownership of Nvest units). NOTE 2 - BASIS OF PRESENTATION The unaudited consolidated financial statements of the Operating Partnership should be read in conjunction with Nvest's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of management, all adjustments, consisting only of normal recurring accruals, have been made to present fairly the financial statements of the Operating Partnership at June 30, 2000 and for the three and six months ended June 30, 1999 and 2000. Certain amounts in prior period financial statements have been reclassified to conform with the 2000 presentation. NOTE 3 - CONTINGENT LIABILITIES The business units of the Operating Partnership are from time to time subject to legal proceedings and claims which arise in the course of their businesses. In the opinion of management, the amount of any ultimate liability with respect to currently pending actions will not have a material adverse effect on the results of operations or financial condition of the Operating Partnership. NOTE 4 - UNIT REPURCHASE PLAN On September 16, 1999, the Board of Directors of the general partner of Nvest and the Operating Partnership extended a plan to repurchase up to one million limited partnership units of the partnerships through September 30, 2000. The repurchase plan, which was initiated on September 15, 1998, authorizes the purchase of units in either the open market or privately negotiated transactions. In the case of purchases of Nvest units, the Operating Partnership has made a corresponding purchase at the same cost of Operating Partnership units from Nvest. During the six months ended June 30, 1999 and 2000, respectively, 202,273 and 33,000 units were repurchased at a cost of $5,220,000 and $599,000. The 2000 unit repurchases all occurred during the first quarter of 2000. As a result of the proposed acquisition of Nvest by CDC Asset Management, no further unit repurchases are anticipated. NOTE 5 - NOTES PAYABLE The Operating Partnership has a $165 million revolving credit agreement, which expires October 28, 2001. The balance of $40 million outstanding under this agreement as of June 30, 2000 is classified as long-term notes payable. The outstanding debt of the Operating Partnership totaled $310 million at June 30, 2000. 12 of 26 THE OPERATING PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 6 - PROPOSED ACQUISITION OF NVEST AND THE OPERATING PARTNERSHIP On June 16, 2000, Nvest and its operating partnership, Nvest Companies, L.P., announced that they had signed a definitive agreement to be acquired by Paris-based CDC Asset Management, an affiliate of Caisse des Depots Group, for $40 per unit, subject to possible downward adjustment (but not below $34 per unit). This transaction includes all public and private units. The acquisition is expected to close during the fourth quarter of 2000, and is subject to a number of approvals and conditions including (1) approval by a majority in interest of the unitholders of each of Nvest and the Operating Partnership that are not affiliated with Metropolitan Life Insurance Company, (2) approval by mutual fund shareholders and other client consents, and (3) other contractual and regulatory approvals. 13 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Any statements in this report that are not historical facts are intended to fall within the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as "expect," "look," "believe," "anticipate," "may," "will," or similar statements or variations of such terms. Any forward-looking statements should be considered in light of the risks and uncertainties associated with Nvest and the Operating Partnership and their businesses, economic and market conditions prevailing from time to time, and the application and interpretation of federal and state tax laws and regulations, all of which are subject to material changes and which may cause actual results to vary materially from what had been anticipated. Certain factors that affect Nvest and the Operating Partnership have been described in Nvest's Annual Report on Form 10-K for the year ended December 31, 1999, particularly under Item 1, "Business--Forward-Looking Statements" and include factors such as conditions affecting fee revenues, reliance on key personnel, competition, regulatory and legal factors, and tax considerations. Readers are encouraged to review these factors carefully. In addition, certain statements in this report regarding the merger of Nvest, L.P. and Nvest Companies, L.P. with CDC Asset Management are based on management's current expectations or beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: the inability to obtain, or meet conditions imposed for, governmental, client and other third party consents and approvals required in connection with the merger; or the failure of Nvest, L.P. and Nvest Companies, L.P. unitholders to approve the merger. GENERAL At year-end 1997, Nvest completed a restructuring (the "Restructuring") that included the transfer of its business, assets and liabilities to a newly formed operating partnership, Nvest Companies, L.P. (the "Operating Partnership"). As a result of the Restructuring, Nvest's primary asset consists of its economic interest in the Operating Partnership. Nvest records its investment in the Operating Partnership under the equity method of accounting based on its proportionate share of net income of the Operating Partnership. At June 30, 2000, Nvest owned approximately 6.5 million units, or approximately 15% of the economic interests in the Operating Partnership. As part of the Restructuring, Nvest elected to retain its partnership tax status in return for paying an annual 3.5% federal gross income tax on its proportionate share of the gross income of the Operating Partnership. For further information regarding the Restructuring, please refer to Nvest's Annual Report on Form 10-K for the year ended December 31, 1999, particularly the discussion under Item 1, "Business--1997 Restructuring of the Partnership." As a result of the Restructuring, Management's Discussion and Analysis includes two sections. In the first section, the results of Nvest for the three and six months ended June 30, 2000 are compared to the results for the three and six months ended June 30, 1999. In the second section, the results of the Operating Partnership for the three and six months ended June 30, 2000 are compared to the results for the three and six months ended June 30, 1999. 14 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) PROPOSED ACQUISITION OF NVEST AND THE OPERATING PARTNERSHIP On June 16, 2000, Nvest and its operating partnership, Nvest Companies, L.P., announced that they had signed a definitive agreement to be acquired by Paris-based CDC Asset Management, an affiliate of Caisse des Depots Group, for $40 per unit subject to downward adjustment (but not below $34 per unit). This transaction includes all public and private units. The acquisition, which is subject to certain client, regulatory and unitholder approvals, is expected to close during the fourth quarter of 2000. If the transaction is consummated, all unitholders will be entitled to receive the applicable unit price in cash without interest for each unit owned. This price is subject to a downward adjustment if the "Revenue Run-Rate" at the closing (as defined in the agreement) falls below 90% of the Revenue Run-Rate as of April 30, 2000. The $40 price will be reduced by 1% for each 1% the Revenue Run-Rate falls below 90% of the April 30 Revenue Run-Rate down to 85% of that amount, and it will be reduced by 2% for each 1% that the amount falls below 85%, down to a minimum unit price of $34. As of June 30, 2000, the Revenue Run-Rate is approximately the same as the base revenue run rate specified in the agreement. By definition, the impact of market appreciation and depreciation is excluded from this calculation. As part of the agreement, the Operating Partnership has agreed to pay out 80 percent of its operating cash flow in distributions through the completion of the transaction. The Operating Partnership and, consequently, Nvest (through its ownership interest in the Operating Partnership), expect to incur certain costs in obtaining client, regulatory and unitholder approvals for this transaction. The Operating Partnership's share of the transaction costs, which will be reflected between July 1, 2000 and the closing date of the transaction, is expected to range between $3 million and $5 million, and will reduce operating cash flow. 15 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NVEST, L.P.

* Restricted unit plan compensation is fully allocated to certain limited partners of the Operating Partnership, and is added back to net income to determine net income available for allocation. ** Net income per unit - diluted is calculated based on Nvest's percentage ownership of the Operating Partnership on a diluted basis, which was 14.360% and 15.039% for the three months ended June 30, 1999 and 2000, respectively, and 14.438% and 14.596% for the six months ended June 30, 1999 and 2000, respectively. See Note 4 of the Notes to Financial Statements of Nvest, L.P. for the calculation of net income per unit. General Nvest derives its net income and cash available for distribution from its ownership of units in the Operating Partnership. At June 30, 2000, Nvest owned approximately 6.5 million units of the Operating Partnership, representing an approximate 15% interest. Each quarter, Nvest distributes to its unitholders substantially all of the distributions received from the Operating Partnership after accruing its federal and state tax obligations and miscellaneous operating expenses. Nvest's major expense is the 3.5% federal gross income tax that is payable on Nvest's proportionate share of the Operating Partnership's gross income. 16 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NVEST, L.P. (CONTINUED) DISTRIBUTIONS TO UNITHOLDERS On June 20, 2000, the Operating Partnership declared a quarterly distribution of $0.60 per unit, payable on August 15, 2000. Nvest, in turn, declared a distribution of $0.46 per unit, with the $0.14 difference consisting primarily of the tax obligations discussed above. The Operating Partnership has significant non-cash expenses which allow both it and, therefore, Nvest to maintain a distribution level in excess of net income. Changes in operating cash flow of the Operating Partnership directly impact the amount of distributions that Nvest may pay. As part of the agreement with CDC Asset Management, the Operating Partnership has agreed to pay out 80 percent of its operating cash flow through the completion of the transaction. Operating cash flow will be reduced by approximately $3 million to $5 million of estimated transaction costs. STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 Nvest's net income of $0.36 per unit (diluted) for the three months ended June 30, 2000 decreased $0.10 per unit from $0.46 per unit (diluted) for the three months ended June 30, 1999. The results reflect lower net income at the Operating Partnership. Equity in earnings of the Operating Partnership of $3.2 million for the three months ended June 30, 2000 was down $0.6 million from $3.8 million for the three months ended June 30, 1999. Nvest receives a pro rata share of the Operating Partnership's net income available for allocation based on its equity interest in the Operating Partnership. The decrease was primarily due to lower net income at the Operating Partnership combined with a slightly lower equity interest in the Operating Partnership. Nvest's ownership of the Operating Partnership on a weighted average basis (basic) declined from 14.310% for the three months ended June 30, 1999 to 14.236% for the three months ended June 30, 2000, mostly as a result of the unit repurchase plan. For further information, please see Management's Discussion and Analysis of the Operating Partnership's results, below. Gross income tax and other expenses consist primarily of a 3.5% federal tax on Nvest's proportionate share of the gross income of the Operating Partnership. STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 Nvest's net income of $0.76 per unit (diluted) for the six months ended June 30, 2000 decreased $0.18 per unit from $0.94 per unit (diluted) for the six months ended June 30, 1999. The results reflect lower net income at the Operating Partnership. Equity in earnings of the Operating Partnership of $6.5 million for the six months ended June 30, 2000 was down $1.2 million from $7.7 million for the six months ended June 30, 1999. Nvest receives a pro rata share of the Operating Partnership's net income available for allocation based on its equity interest in the Operating Partnership. The decrease was primarily due to lower net income at the Operating Partnership combined with a slightly lower equity interest in the Operating Partnership. Nvest's ownership of the Operating Partnership on a weighted average basis (basic) declined from 14.365% for the six months ended June 30, 1999 to 14.216% for the six months ended June 30, 2000, mostly as a result of the unit repurchase plan. For further information, please see Management's Discussion and Analysis of the Operating Partnership's results, below. Gross income tax and other expenses consist primarily of a 3.5% federal tax on Nvest's proportionate share of the gross income of the Operating Partnership. 17 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NVEST, L.P. (CONTINUED) CAPITAL RESOURCES AND LIQUIDITY Nvest distributes to its unitholders substantially all of the distributions received from the Operating Partnership, after accruing its tax obligations and miscellaneous operating expenses. To the extent that there are any temporary cash shortfalls due to the timing of tax payments and the receipt of quarterly distributions, the Operating Partnership makes short-term loans available to Nvest. As discussed above, Nvest has entered into a definitive agreement for CDC Asset Management to acquire all the outstanding units of Nvest and the Operating Partnership at $40 per unit, subject to possible downward adjustment (but not below $34 per unit). This transaction is subject to certain client, regulatory and unitholder approvals, and is expected to close during the fourth quarter of this year. Please see the discussion under the "Proposed Acquisition of Nvest and the Operating Partnership" above. 18 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THE OPERATING PARTNERSHIP

Note: (1) Operating cash flow, as defined by Nvest, is equal to net income plus non-cash charges for amortization of intangibles and restricted unit plan compensation. Operating cash flow per unit should not be construed as an alternative to net income per unit of Nvest, L.P. or as an alternative to cash flow from operating activities as reported in the Consolidated Statement of Cash Flows. Operating cash flow, as calculated above, may not be consistent with comparable computations by other companies. 19 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THE OPERATING PARTNERSHIP (CONTINUED) GENERAL The Operating Partnership is an investment management firm with approximately $130 billion in assets under management at June 30, 2000. It operates through twelve investment management firms and six distribution and service firms to provide a wide array of investment styles and products to institutional, mutual fund and private client markets. The Operating Partnership's assets under management include equity and fixed income securities, money market funds and real estate. The Operating Partnership seeks to grow by expanding the investment management firms' capabilities, expanding marketing efforts and distribution channels, and selectively pursuing the acquisition of investment management firms. The Operating Partnership supports its firms' existing businesses and new initiatives that demonstrate substantial potential for growth in assets under management by allocating capital and other resources to those businesses and initiatives. In addition, the Operating Partnership and the investment management firms identify opportunities for joint marketing efforts, enhanced distribution of investment products (such as mutual funds) and operational efficiencies across the organization. As discussed previously, Nvest and the Operating Partnership announced on June 16, 2000 that they have entered into a definitive agreement to be acquired by CDC Asset Management. CDC Asset Management is the investment management arm of France's Caisse des Depots Group (CDC). Please see the discussion under the "Proposed Acquisition of Nvest and the Operating Partnership" above. REVENUES The Operating Partnership's revenues derive primarily from management and advisory fees earned from services provided by the investment management firms. For institutional and private clients, fees are generally billed quarterly and are calculated as a percentage of actual assets under management at the beginning or end of the calendar quarter. For mutual fund clients, fees are billed monthly and are calculated as a percentage of the fund's average daily net assets. Changes in assets under management, which can result from changes in market values of securities, net client inflows or outflows, and acquisitions, have a major impact on revenues earned by the Operating Partnership. The Operating Partnership earns additional management and advisory fee revenues as a result of performance fees and transaction fees. Such fees are generally earned at the end of the performance contract period or upon completion of specific transactions, sometimes resulting in periodic fluctuations in the recognition of such revenues. INTANGIBLE ASSETS AND AMORTIZATION OF INTANGIBLES Intangible assets of $588 million represent the excess of the purchase price of acquisitions over the fair value of the net tangible assets acquired. Intangible assets, including investment advisory contracts and goodwill, are amortized over periods ranging from 7 to 30 years. The Operating Partnership periodically evaluates the estimated remaining lives and the carrying value of intangible assets to determine whether events and circumstances warrant adjustment. Projected undiscounted future cash flows of each acquisition are compared to the recorded values of the related 20 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THE OPERATING PARTNERSHIP (CONTINUED) intangible assets, factoring in known or expected trends, future prospects and other relevant information. If the projected future cash flows are less than the carrying value of the intangible assets, the Operating Partnership would recognize an impairment loss for the difference between the carrying amount and the estimated fair value of the intangible assets. At June 30, 2000, there was no impairment of intangible assets. Cost assigned to contracts and goodwill acquired is amortized as an operating expense. It does not, however, require the use of cash and, therefore, it is added back to net income along with restricted unit plan compensation to arrive at operating cash flow available for distribution. DISTRIBUTION POLICY The Operating Partnership generally distributes to its unitholders operating cash flow not required for normal business operations and working capital needs, including support of its growth strategy and the repurchase of units. Operating cash flow is defined as net income plus non-cash charges for amortization of intangibles and restricted unit plan compensation. During the first six months of 2000, the Operating Partnership declared regular distributions of $1.20 per unit, compared to $1.54 per unit for the first six months of 1999. The Operating Partnership's policy is to pay quarterly regular distributions, supplemented by periodic special distributions or increases in the regular distribution rate, depending on operating results. As part of the agreement with CDC Asset Management, the Operating Partnership has agreed to pay out 80 percent of its operating cash flow through the completion of the transaction. Operating cash flow will be reduced by approximately $3 million to $5 million of estimated transaction costs. ASSETS UNDER MANAGEMENT

Assets under management were $130 billion as of June 30, 2000. This compares to $136 billion as of June 30, 1999 and $134 billion as of March 31, 2000. 21 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THE OPERATING PARTNERSHIP (CONTINUED) The Operating Partnership continued to experience an overall shift in assets from equity assets to fixed income assets during the first six months of 2000. Assets under management declined $3 billion from $133 billion at year-end, with $3.7 billion in net outflows, offset partially by market appreciation. Nvest's net outflows occurred almost entirely during the first four months of 2000, and included the outflows from value equity products. Also, in April, MetLife assumed management of the remaining $500 million in fixed income general account assets that had been managed by Nvest firms as part of MetLife's plan to demutualize in May 2000. Outflows at The Oakmark Family of Funds leveled off during the second quarter, and institutional fixed income accounts continued to attract new assets. STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 Net income of $22.0 million for the three months ended June 30, 2000 declined $3.3 million from $25.3 million for the three months ended June 30, 1999. The decrease was primarily a result of lower management and advisory fee revenues, due to lower average assets under management and a shift in asset mix from equity assets to lower fee fixed income and money market assets. This decrease in management and advisory fees was partially offset by lower compensation expense. Management and advisory fees of $140.5 million for the three months ended June 30, 2000 decreased $4.8 million from $145.3 million for the three months ended June 30, 1999, primarily as a result of a decline in assets under management in mid to large cap value style equity products. Partially offsetting this decline were increased revenues from real estate transaction fees, risk-adjusted equity products and small cap value products on the institutional side; and growth funds, money market funds and fixed income funds on the mutual fund side. Other revenues and interest income of $18.3 million for the three months ended June 30, 2000 increased $3.8 million from $14.5 million for the three months ended June 30, 1999. The increase resulted primarily from an increase in client servicing fees, primarily transfer agency fees, which are largely offset by an increase in servicing expenses. Compensation and benefits of $76.5 million for the three months ended June 30, 2000 declined $1.8 million from $78.3 million for the three months ended June 30, 1999. Base compensation increased $2.5 million primarily as a result of annual salary increases. Variable compensation, which results from subsidiary incentive payments based on profitability, investment portfolio performance, new business sales and participation in the subsidiaries' growth in revenues and profits, declined $4.3 million. Variable compensation as a percentage of total compensation declined from 48% for the second quarter of 1999 to 44% for the second quarter of 2000. The variable compensation plans reward the subsidiaries for growth in their business, but also require them to share in the impact of declines. In this way, the variable compensation plans act to reduce fluctuations in the Operating Partnership's profitability. Occupancy, equipment and systems expense of $10.0 million for the three months ended June 30, 2000 increased $1.4 million from $8.6 million for the three months ended June 30, 1999 due to lease renewals at higher rates and costs associated with expanded business activities. Other expense of $29.5 million for the three months ended June 30, 2000 increased $2.0 million from $27.5 million for the three months ended June 30, 1999, primarily as a result of increases related to the transfer agent business, as well as increases in professional fees and marketing expenses. 22 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THE OPERATING PARTNERSHIP (CONTINUED) STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 Net income of $45.2 million for the six months ended June 30, 2000 declined $6.7 million from $51.9 million for the six months ended June 30, 1999. The decrease was primarily a result of lower management and advisory fee revenues, due to lower average assets under management and a shift in asset mix from equity assets to lower-fee fixed income and money market assets. This decrease in management and advisory fees was partially offset by lower compensation expense. Management and advisory fees of $282.0 million for the six months ended June 30, 2000 decreased $11.6 million from $293.6 million for the six months ended June 30, 1999, primarily as a result of a decline in assets under management in mid to large cap value style equity products. Partially offsetting this decline were growth in revenues from risk-adjusted equity products and small cap value products on the institutional side; and growth funds, money market funds, and fixed income funds on the mutual fund side. Other revenues and interest income of $36.3 million for the six months ended June 30, 2000 increased $7.4 million from $28.9 million for the six months ended June 30, 1999. The increase resulted primarily from an increase in client servicing fees, primarily transfer agency fees, which are largely offset by an increase in servicing expenses. Compensation and benefits of $155.0 million for the six months ended June 30, 2000 declined $6.2 million from $161.2 million for the six months ended June 30, 1999. Base compensation increased $6.2 million primarily as a result of annual salary increases. Variable compensation, which results from subsidiary incentive payments based on profitability, investment portfolio performance, new business sales and participation in the subsidiaries' growth in revenues and profits, declined $12.4 million. Variable compensation as a percentage of total compensation declined from 49% for the first six months of 1999 to 43% for the first six months of 2000. The variable compensation plans reward the subsidiaries for growth in their business, but also require them to share in the impact of declines. In this way, the variable compensation plans act to reduce fluctuations in the Operating Partnership's profitability. Occupancy, equipment and systems expense of $19.3 million for the six months ended June 30, 2000 increased $2.3 million from $17.0 million for the six months ended June 30, 1999 due to lease renewals at higher rates and costs associated with expanded business activities. Other expense of $57.8 million for the six months ended June 30, 2000 increased $5.4 million from $52.4 million for the six months ended June 30, 1999, primarily as a result of increases related to the transfer agent business and higher sales to intermediaries distributing money market mutual fund products, as well as increases in professional fees and marketing expenses. CAPITAL RESOURCES AND LIQUIDITY Operating cash flow not required for normal business operations and working capital needs, including support of the Operating Partnership's growth strategy and the repurchase of units, is generally distributed to unitholders each quarter. Distributions to unitholders are typically declared during the last month of calendar quarters. The Operating Partnership has the ability to make distributions in excess of net income due to its non-cash amortization expense. The Board of Directors set the regular distribution rate at $0.60 per unit in December of 1999, to be adjusted periodically or supplemented by special distributions, depending upon operating results. On June 20, 2000, the Operating Partnership declared a regular distribution of $0.60 per unit, payable on August 15, 2000, to unitholders of record on June 30, 2000. As part of the agreement with CDC Asset Management, the Operating 23 of 26 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THE OPERATING PARTNERSHIP (CONTINUED) Partnership has agreed to pay out 80 percent of its operating cash flow in distributions through the completion of the transaction, which is expected to occur during the fourth quarter of 2000. The Operating Partnership declared distributions of $1.20 per unit for the first six months of 2000, which approximated 80 percent of its operating cash flow. Operating cash flow will be reduced by approximately $3 million to $5 million of estimated transaction costs related to the proposed acquisition. The Operating Partnership has a $165 million revolving credit agreement, which expires October 28, 2001. The balance of $40 million outstanding under this agreement as of June 30, 2000 is classified as long-term. In addition, the Operating Partnership has a $20 million line of credit, all of which was available as of June 30, 2000. As of June 30, 2000, the Operating Partnership estimates that $49 million in cash and/or units may be paid to the sellers of certain firms previously acquired. Such amounts would be paid over a seven-year period following the respective closing dates through December 31, 2006, depending upon the attainment of certain post-closing revenue and profit levels. A total of $10 million of this amount has been accrued as of June 30, 2000, and will be paid during the third quarter of 2000 in a combination of cash and units. Substantially all of the contingent consideration, if paid, is expected to be accounted for as additional purchase price. PART I. ITEM. 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Please refer to Item 7A of Nvest's Annual Report on Form 10-K for the year ended December 31, 1999. 24 of 26 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 2.1 Agreement and Plan of Merger by and among Nvest, L.P., Nvest Companies, L.P., Nvest Corporation, CDC Finance, CDC Asset Management, CDCAM North America Corporation, CDCAM Partnership, L.P., and CDCAM Partnership II, L.P. (incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K as filed with the Commission on June 20, 2000). 27 Financial Data Schedule. 99.1 Press Release of Nvest, L.P. dated June 16, 2000 (incorporated by reference to Exhibit 99.1 of Registrant's Current Report on Form 8-K as filed with the Commission on June 20, 2000). (B) REPORTS ON FORM 8-K On June 20, 2000, Nvest, L.P. (the "Partnership") filed a Current Report on Form 8-K regarding an Agreement and Plan of Merger by and among Nvest, Nvest Companies, L.P., Nvest Corporation, CDC Finance, CDC Asset Management, CDCAM North America Corporation, CDCAM Partnership, L.P. and CDCAM Partnership II, L.P. The agreement and a press release regarding such agreement were filed as exhibits to the Form 8-K. 25 of 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NVEST, L.P. Registrant /s/ G. NEAL RYLAND AUGUST 9, 2000 ------------------------------------ -------------------- G. Neal Ryland Date Executive Vice President and Chief Financial Officer /s/ DUNCAN B.E. WILKINSON AUGUST 9, 2000 ------------------------------------ -------------------- Duncan B.E. Wilkinson Date Senior Vice President and Controller 26 of 26

NVEST LP 10-Q