-----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, UsJU+17WU7qjcN5aMJrTnnHli5XJH1dAahwfdTPKo6gse9AMWNSOg6AuY44taP67 tGEw4Uvkt7VGkTRP01t5QQ== 0001193125-04-010494.txt : 20040128 0001193125-04-010494.hdr.sgml : 20040128 20040128171841 ACCESSION NUMBER: 0001193125-04-010494 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20040128 EFFECTIVENESS DATE: 20040201 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-11101 FILM NUMBER: 04549972 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8003997788 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: TNE FUNDS TRUST DATE OF NAME CHANGE: 19940615 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: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 04549973 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8003997788 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 FORMER COMPANY: FORMER CONFORMED NAME: TNE FUNDS TRUST DATE OF NAME CHANGE: 19940615 485BPOS 1 d485bpos.txt CDC NVEST FUNDS TRUST II 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. 121 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] Amendment No. 55 [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) [X] On February 1, 2004 pursuant to paragraph (b) [_] 60 days after filing pursuant to paragraph (a)(1) [_] on (date) pursuant to paragraph (a)(1) [_] 75 days after filing pursuant to paragraph (a)(2) [_] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [_] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. This post-effective amendment relates only to Loomis Sayles Massachusetts Tax Free Income Fund, a series of the Registrant. No disclosure with respect to any other series of the Registrant is modified hereby. Part A Harris Associates Growth and Income Fund (formerly, CDC Nvest Growth and Income Fund) For Harris Associates Growth and Income Fund, the CDC Nvest Equity Funds Classes A, B, and C prospectus dated May 1, 2003, is incorporated by reference to PEA No. 119 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust II filed on April 29, 2003 (Accession No.: 0001169232-03-003289) as supplemented on June 6, 2003 (Accession No.: 0001127563-03-000113), June 20, 2003 (Accession No.: 0001127563-03-000127), July 21, 2003 (Accession No.: 0001127563-03-000162), August 22, 2003 (Accession No.: 0001127563-03-000195), December 12, 2003 (Accession No.: 0001127563-03-000263) and December 19, 2003 (Accession No.: 0001127563-03-000273). For Harris Associates Growth and Income Fund, the CDC Nvest Equity Funds Class Y prospectus dated May 1, 2003, is incorporated by reference to PEA No. 119 to the initial registration statement on Form N-1A of CDC Nvest Funds Trust II filed on April 29, 2003 (Accession No.: 0001169232-03-003289) as supplemented on June 6, 2003 (Accession No.: 0001127563-03-000113), June 20, 2003 (Accession No.: 0001127563-03-000127), July 21, 2003 (Accession No.: 0001127563-03-000162), August 22, 2003 (Accession No.: 0001127563-03-000195), December 12, 2003 (Accession No.: 0001127563-03-000263) and December 19, 2003 (Accession No.: 0001127563-03-000273). For the Harris Associates Growth and Income Fund, the Annual Report to Shareholders of the CDC Nvest Equity Funds for the fiscal year ended December 31, 2002 is incorporated by reference to Form N-30D of CDC Nvest Funds Trust II filed on February 28, 2003 (Accession No.: 0001047469-03-007269). For the Harris Associates Growth and Income Fund, the Semiannual Report to Shareholders of the CDC Nvest Equity Funds for the period ended June 30, 2003 is incorporated by reference to Item 1 to Form N-CSR of CDC Nvest Funds Trust II filed on August 28, 2003 (Accession No.:0001193125-03-043175). [LOGO] CDC NVEST FUNDS/SM/ CDC IXIS Asset Management Distributors
WHAT'S INSIDE Goals, Strategies & Risks Page 2 Fund Fees & Expenses..... Page 6 Management Team.......... Page 9 Fund Services............ Page 11 Financial Performance.... Page 24
CDC Nvest Tax Free Income Funds [LOGO] LOOMIS SAYLES & Company L.P. Loomis Sayles Massachusetts Tax Free Income Fund (formerly CDC Nvest Massachusetts Tax Free Income Fund) Loomis Sayles Municipal Income Fund (formerly CDC Nvest Municipal Income Fund) Prospectus February 1, 2004 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 P.O. Box 219579, Kansas City, MO 64121-9579 800-225-5478 www.cdcnvestfunds.com Table of Contents Goals, Strategies & Risks Loomis Sayles Massachusetts Tax Free Income Fund....... 2 Loomis Sayles Municipal Income Fund.................... 4 Fund Fees & Expenses Fund Fees & Expenses .................................. 6 More About Risk More About Risk ....................................... 8 Management Team Meet the Funds' Investment Adviser .................... 9 Meet the Funds' Portfolio Managers .................... 10 Fund Services Investing in the Funds ................................ 11 How Sales Charges Are Calculated ...................... 12 Ways to Reduce or Eliminate Sales Charges ............. 13 It's Easy to Open an Account .......................... 14 Buying Shares ......................................... 15 Selling Shares ........................................ 16 Selling Shares in Writing ............................. 17 Exchanging Shares ..................................... 18 Restrictions on Buying, Selling and Exchanging Shares . 18 How Fund Shares Are Priced ............................ 20 Dividends and Distributions ........................... 21 Tax Consequences ...................................... 21 Compensation to Securities Dealers .................... 22 Additional Investor Services .......................... 23 Financial Performance Financial Performance ................................. 24 Glossary of Terms Glossary of Terms ..................................... 26
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. [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Massachusetts Tax Free Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Robert Payne and Martha A. Strom
Category: Tax Free Income Ticker Symbol: Class A Class B --------------- NEFMX NEMBX
Investment Goal The Fund seeks to maintain a high level of current income exempt from federal and Massachusetts personal income taxes. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies The Fund typically invests in a mix of Massachusetts municipal bonds, including general obligation bonds and issues secured by specific revenue streams. It is a fundamental policy of the Fund to, under normal market conditions, invest at least 80% of its net assets in investments the income of which is exempt from federal and Massachusetts income tax (which may include securities of issuers located outside of Massachusetts so long as the income of such securities is exempt from federal and Massachusetts income tax). Additionally, at least 85% of the Fund's assets will consist of securities rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Fitch Investor Services, Inc. ("Fitch") or Baa or better by Moody's Investors Service, Inc. ("Moody's") or securities that are non-rated but are considered to be of comparable quality by Loomis Sayles. To achieve this goal, the Fund maintains policies that provide that (1) at least 90% of its net assets are invested in debt obligations on which the interest is exempt from federal income tax (other than the alternative minimum tax ("AMT")) and Massachusetts personal income tax ("Massachusetts Tax-Exempt Securities") and (2) not more than 20% of its assets are invested in securities on which the interest is subject to AMT for individuals. Loomis Sayles follows a conservative total-return oriented investment approach in selecting securities for the Fund. It takes into account economic and market conditions as well as issuer-specific data, and attempts to construct a portfolio with the following characteristics: .. Average credit rating of A (as rated by S&P or Moody's) .. Average maturity of between 15 and 25 years In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. The Fund's portfolio managers work closely with municipal bond analysts to develop an outlook on the economy from research provided by various Wall Street firms as well as specific forecasting services. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the Fund's investment universe. This value analysis uses quantitative tools such as internal and external computer systems and software. .. The Fund's portfolio managers and analysts then perform a careful and continuous credit analysis to identify the range of the credit quality spectrum they believe most likely to provide the Fund with the highest level of tax free income consistent with overall credit quality. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. The portfolio managers primarily invest in general obligation bonds and revenue bonds issued by the Massachusetts government and its agencies. The Fund may also: .. Invest up to 15% of its assets in lower-quality bonds (those rated BB or lower by S&P or Fitch, or Ba or lower by Moody's, or considered to be of comparable grade by Loomis Sayles if non-rated). .. Invest in zero-coupon bonds. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. (See back cover.) Principal Investment Risks 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. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. 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. - -------------------------------------------------------------------------------- 2 Principal Investment Risks - continued State specific: Weakness in the local or national economy and other economic or regulatory events impacting Massachusetts generally could adversely affect the credit ratings and creditworthiness of Massachusetts municipal securities in which the Fund invests and the ability of issuers to make principal and interest payments. For additional information see the section entitled "More About Risk." 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 compare with those of a broad measure of market performance. 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 adviser assumed that function on September 1, 2003. Prior to that, it served as the subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by a previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different had the current advisory arrangements and investment policies been in place for all periods shown. 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. [CHART] (up triangle) Highest Quarterly Return: First Quarter 1995, up 7.55% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 (down triangle) Lowest Quarterly Return: First - ------ ------ ----- ----- ----- ------ ----- ----- ----- ----- Quarter 1994, down 6.11% - -7.34% 17.83% 3.24% 9.32% 4.92% -4.12% 9.27% 3.21% 8.12% 5.04%
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 compare to those of the Lehman Brothers Municipal Bond Index, an unmanaged index of bonds issued by states, municipalities and other government entities having maturities of more than one year. 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 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 Lehman Brothers Municipal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns (for the periods ended December 31, 2003) Past 1 Year Past 5 Years Past 10 Years Class A - Return Before Taxes 0.56% 3.29% 4.28% Return After Taxes on Distributions* 0.56% 3.27% 4.24% Return After Taxes on Distributions & Sales of Fund Shares* 1.72% 3.43% 4.32% Class B - Return Before Taxes -0.63% 3.18% 4.04% Lehman Brothers Municipal Bond Index** 5.31% 5.83% 6.03%
* 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. After-tax returns are shown for only Class A shares. After-tax returns for Class B shares of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. For past expenses of Classes A and B shares, see the section entitled "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 3 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Municipal Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Robert Payne and Martha A. Strom
Category: Tax Free Income Ticker Symbol: Class A Class B --------------- NEFTX NETBX
Investment Goal The 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 ("municipal securities"), which pay interest that is exempt from regular federal income tax but may be subject to the federal alternative minimum tax. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets in municipal investments the income from which is exempt from federal income tax (other than the alternative minimum tax). The Fund will not change such policy without shareholder approval. The Fund may invest not more than 20% of its net assets in debt obligations on which the interest is subject to the alternative minimum tax for individuals. It will invest at least 85% of its assets in investment-grade bonds (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's") or are non-rated but are considered to be of comparable quality by Loomis Sayles), and the other 15% may be invested in lower-quality bonds (those rated below BBB by S&P and below Baa by Moody's or are considered to be of comparable quality by Loomis Sayles) or non-rated bonds. The Fund's portfolio managers will generally shift assets among investment-grade bonds depending on economic conditions and outlook in order to increase appreciation potential. Loomis Sayles follows a total-return oriented investment approach in selecting securities for the Fund. It takes into account economic conditions and market conditions as well as issuer-specific data, such as: .. revenue projections and spending requirements/forecasts .. earnings prospects and cash flow .. debt as a percentage of assets and cash flow .. borrowing requirements, debt maturity schedules and reserve requirements .. the relationship between cash flows and dividend obligations .. the experience and perceived strength of management .. price responsiveness of the security to interest rate changes In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook for the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the municipal marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. The Fund's portfolio managers and analysts then perform a careful and continuous credit analysis to identify the range of the credit quality spectrum they believe most likely to provide the Fund with the highest level of tax-free income consistent with overall quality. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. The portfolio managers primarily invest in general obligation bonds and revenue bonds nationwide and across a variety of municipal sectors. This use of multi-state and multi-sector diversification helps provide increased protection against local economic downturns or bond rating downgrades. The Fund may also: .. Invest in "private activity" bonds, which may subject a shareholder to an alternative minimum tax. .. Invest in zero-coupon bonds. .. 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 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. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. - -------------------------------------------------------------------------------- 4 Principal Investment Risks - continued Municipal Securities: Weakness in the local or national economy and other economic or regulatory events impacting municipal issuers generally could adversely affect the credit ratings and credit worthiness of the issuers of the municipal securities in which the Fund invests and the ability of issuers to make principal and interest payments. For additional information see the section entitled "More About Risk." 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 compare with those of a broad measure of market performance. 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 adviser assumed that function on September 1, 2003. Prior to that, it served as the subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by a previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance may have been different had the current advisory arrangements and investment policies been in place for all periods shown. 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. [CHART] total return+ /\ Highest Quarterly Return: First Quarter 1995, up 8.46% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 \/ Lowest Quarterly Return: First Quarter 1994, - ------ ------ ----- ----- ----- ------ ----- ----- ----- ----- down 6.55% - -7.99% 17.22% 4.63% 8.58% 5.33% -2.76% 8.76% 3.00% 7.31% 4.63%
+ The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Municipal Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. 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 compare to those of the Lehman Brothers Municipal Bond Index, an unmanaged index of bonds issued by states, municipalities and other governmental entities having maturities of more than one year. 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 Lehman Brothers Municipal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns+ (for the periods ended December 31, 2003) Past 1 Year Past 5 Years Past 10 Years Class A - Before Taxes -0.08% 3.41% 4.19% Return After Taxes on Distributions* -0.08% 3.12% 4.16% Return After Taxes on Distributions & Sales of Fund Shares* 1.35% 3.33% 4.26% Class B - Return Before Taxes -1.29% 3.00% 3.90% Lehman Brothers Municipal Bond Index** 5.31% 5.83% 6.03%
+ The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Municipal Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * 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. After-tax returns are shown for only Class A shares. After-tax returns for Class B shares of the Fund will vary. ** The returns of the Index do not reflect the effect of taxes. For past expenses of Classes A and B shares, see the section entitled "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 5 [GRAPHIC] 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)
Massachusetts Tax Free Income Fund Municipal Income Fund Class A Class B Class A Class B Maximum sales charge (load) imposed on purchases (as a percentage of offering price)(1)(2) 4.25% None 4.50% None Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable)(2) (3) 5.00% (3) 5.00% Redemption fees None* None* None* None*
(1) A reduced sales charge on Class A 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." * 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)
Massachusetts Tax Free Income Fund* Municipal Income Fund Class A Class B Class A Class B Management fees 0.60% 0.60% 0.46% 0.46% Distribution and/or service (12b-1) fees 0.35% 1.00%** 0.25% 1.00%** Other expenses 0.43% 0.43% 0.39% 0.39% Total annual fund operating expenses 1.38% 2.03% 1.10% 1.85%
* Loomis Sayles has given a binding undertaking to limit the amount of this Fund's total fund operating expenses, exclusive of brokerage expenses, interest expense, taxes and organizational and extraordinary expenses, to 1.40% and 2.05% annually of the Fund's average daily net assets for Class A and Class B shares, respectively. This undertaking is in effect through January 31, 2005, and is reevaluated on an annual basis. ** 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. - -------------------------------------------------------------------------------- 6 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: .. You invest $10,000 in a Fund for the time periods indicated; .. Your investment has a 5% return each year; .. A Fund's operating expenses remain the same; and .. 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:
Massachusetts Tax Free Income Fund Municipal Income Fund Class A Class B Class A Class B (1) (2) (1) (2) 1 year $ 560 $ 706 $ 206 $ 557 $ 688 $ 188 3 years $ 843 $ 937 $ 637 $ 784 $ 882 $ 582 5 years $1,148 $1,293 $1,093 $1,029 $1,201 $1,001 10 years** $2,012 $2,192 $2,192 $1,730 $1,973 $1,973
(1) Assumes redemption at end of period. (2) Assumes no redemption at end of period. * The example is based on Total Annual Fund Operating Expenses 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. - -------------------------------------------------------------------------------- 7 [GRAPHIC] 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 The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. 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 adviser are subject to greater credit risk than funds that do not invest in such securities. Information Risk The risk that key information about a security is inaccurate or unavailable. Interest Rate Risk The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk 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 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, and Rule 144A Securities. Management Risk The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk 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. Opportunity Risk 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, Swap Contracts and Other Derivatives Risks 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 currency exchange rates. These types of transactions will be used primarily for hedging purposes including anticipatory hedging. Political Risk The risk of losses directly attributable to government or political actions. This risk may be more acute for issuers of municipal securities. Valuation Risk The risk that a Fund has valued certain securities at a higher price than the price at which they can be sold. - -------------------------------------------------------------------------------- 8 [GRAPHIC] Management Team Meet the Funds' Investment Adviser The CDC Nvest Funds family (as defined below) currently includes 22 mutual funds. The CDC Nvest Funds family had combined assets of $4.7 billion as of September 30, 2003. CDC Nvest Funds are distributed through CDC IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers the CDC Nvest Tax Free Income Funds (the "Funds" and each a "Fund"). CDC Nvest Equity Funds, CDC Nvest Star Funds, CDC Nvest Income Funds, CDC Nvest Tax Free Funds, Loomis Sayles Research Fund, Loomis Sayles Growth Fund and Loomis Sayles International Equity Fund (each a "CDC Nvest Fund") and CDC Nvest Cash Management Trust -- Money Market Series (a CDC Nvest Fund and the "Money Market Fund") constitute the "CDC Nvest Funds." Adviser Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as adviser to the Funds. Loomis Sayles is a subsidiary of CDC IXIS Asset Management North America, L.P. ("CDC IXIS Asset Management North America"), which is a subsidiary of CDC IXIS Asset Management, a French asset manager. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $50.7 billion in assets under management as of September 30, 2003. Loomis Sayles is well known for its professional research staff, which is one of the largest in the industry. Loomis Sayles makes investment decisions for each of the Funds.+ The combined advisory and subadvisory fees paid by the Funds during the fiscal year ended September 30, 2003, as a percentage of each Fund's average daily net assets, were 0.464% for the Municipal Income Fund and 0.600% for the Massachusetts Tax Free Income Fund. Portfolio Trades In placing portfolio trades, each Fund's adviser may use brokerage firms that market the Fund's shares or are affiliated with CDC IXIS Asset Management North America, Loomis Sayles' parent company. In placing trades, Loomis Sayles will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. Transactions with Other Investment Companies. To the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC, each Fund may invest any of its daily cash balances in shares of investment companies that are advised by Loomis Sayles or its affiliates (including affiliated money market and short-term bond funds). Each Fund may borrow money for temporary or emergency purposes in accordance with its investment restrictions. Subject to the terms of any applicable exemptive relief that may be granted by the SEC, a Fund may borrow for such purposes from other investment companies advised by Loomis Sayles or its affiliates in an interfund lending program. In such a program, a Fund and affiliated funds would be permitted to lend and borrow money for certain temporary or emergency purposes directly to and from one another. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit a Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by Loomis Sayles or an affiliate. + Prior to September 1, 2003, CDC IXIS Asset Management Advisers, L.P. served as adviser to the Loomis Sayles Massachusetts Tax Free Income Fund and CDC Nvest Municipal Income Fund, the predecessor fund to the Loomis Sayles Municipal Income Fund. Loomis Sayles was the CDC Nvest Municipal Income Fund's subadviser during such period. Effective September 1, 2003, CDC IXIS Asset Management Advisers, L.P. serves as advisory administrator to the Loomis Sayles Massachusetts Tax Free Income Fund. - -------------------------------------------------------------------------------- 9 [GRAPHIC] Management Team Meet the Funds' Portfolio Managers Robert Payne Robert Payne has co-managed the Massachusetts Tax Free Income Fund and Municipal Income Fund since January 2003. Mr. Payne is Vice President and Portfolio Manager of Loomis Sayles. His investment career began in 1967 and he has been with Loomis Sayles since 1982. He received a B.S. from the University of Utah and has over 36 years of investment experience. Martha A. Strom Martha A. Strom has co-managed the Massachusetts Tax Free Income Fund and Municipal Income Fund since January 2002. Ms. Strom is Vice President and Portfolio Manager of the Municipal Bond Investment Team of Loomis Sayles. Her investment career began with Loomis Sayles in 1988. Following a five-year period with Nuveen Investments where she was Assistant Vice President and Fixed Income Research Analyst, Ms. Strom rejoined Loomis Sayles in 2001. Ms. Strom received a B.S. from Boston University and has over 16 years of investment management experience. - -------------------------------------------------------------------------------- 10 [GRAPHIC] Fund Services Investing in the Funds Choosing a Share Class Each Fund offers Classes A and B 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 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 .. 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." .. You pay lower annual expenses than Class B shares, giving you the potential for higher returns per share. .. 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 .. You do not pay a sales charge when you buy Fund shares. All of your money goes to work for you right away. .. You pay higher annual expenses than Class A shares. .. 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." .. Your Class B shares will automatically convert into Class A shares after 8 years, which reduces your annual expenses. .. Investors will not be permitted to purchase $100,000 or more of Class B shares as a single investment per account. There may be certain exceptions to this restriction for omnibus accounts and other nominee accounts. Investors may want to consider the lower operating expense of Class A shares in such instances. You may pay a charge on redemption if you redeem Class A shares within 1 year of purchase. For past expenses of Classes A and B 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. - -------------------------------------------------------------------------------- 11 [GRAPHIC] 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. For investors investing in Class A shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure that the investor obtains the proper "breakpoint" discount. See the next section entitled "Ways to Reduce or Eliminate Sales Charges." Additional information concerning sales load breakpoints is available from a financial intermediary, by visiting www.cdcnvestfunds.com or in the Fund's statement of additional information. To qualify, it is your responsibility to provide required documentation. For more information, contact the Funds at 800-225-5478.
Massachusetts Tax Free Income Fund Municipal Income Fund Class A Sales Charges Class A Sales Charges As a % of As a % of As a % of As a % of Your Investment offering price your investment offering price your investment Less than $ 50,000 4.25% 4.44% 4.50% 4.71% $ 50,000 - $ 99,999 4.00% 4.17% 4.50% 4.71% $ 100,000 - $249,999 3.50% 3.63% 3.50% 3.63% $ 250,000 - $499,999 2.50% 2.56% 2.50% 2.56% $ 500,000 - $999,999 2.00% 2.04% 2.00% 2.04% $1,000,000 or more* 0.00% 0.00% 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. 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 (except in the 3rd and 4th years, which have the same CDSC). 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%
How the CDSC Is Applied to Your Shares The CDSC is a sales charge you pay when you redeem certain Fund shares. The CDSC: .. is calculated based on the number of shares you are selling; .. is based on either your original purchase price or the current net asset value of the shares being sold, whichever is lower; .. is deducted from the proceeds of the redemption, not from the amount remaining in your account; and .. for year one applies to redemptions through the day 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: .. increases in net asset value above the purchase price; or .. shares you acquired by reinvesting your dividends or capital gains distributions. To keep your CDSC as low as possible, each time that you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these shares available to meet your request, we will sell the shares with the lowest CDSC. Exchanges into Shares of the Money Market Fund If you exchange shares of a Fund into shares of the 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. - -------------------------------------------------------------------------------- 12 [GRAPHIC] 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: .. 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 shares may be used toward meeting the letter of intent. .. 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 the Money Market Fund unless shares are purchased through an exchange from another CDC Nvest Fund. Eliminating Sales Charges and CDSCs Class A shares may be offered without front-end sales charges or a CDSC to the following individuals and institutions: .. Any government entity that is prohibited from paying a sales charge or commission to purchase mutual fund shares; .. Selling brokers, sales representatives, registered investment advisers, financial planners or other intermediaries under arrangements with the Distributor; .. 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); .. Participants in certain Retirement Plans with at least 100 eligible employees (one-year CDSC may apply); .. Non-discretionary and non-retirement accounts of bank trust departments or trust companies only if they principally engage in banking or trust activities; and .. Investments of $100,000 or more in CDC Nvest Funds or the Money Market Fund by clients of an adviser or subadviser to any CDC Nvest Fund or the Money Market Fund. Repurchasing Fund Shares You may apply proceeds from redeeming Class A shares of the Funds (without paying a front-end sales charge) to repurchase Class A shares 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. Class A or B 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: .. to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); .. to make payments through a systematic withdrawal plan; or .. due to shareholder death or disability. If you think you may be eligible for a sales charge elimination or reduction, contact your financial representative or CDC Nvest Funds. Check the Statement of Additional Information (the "SAI") for details. - -------------------------------------------------------------------------------- 13 [GRAPHIC] Fund Services It's Easy to Open an Account To Open an Account with CDC Nvest Funds: 1.Read this Prospectus carefully. The Funds will only accept accounts from U.S. citizens with a U.S. address or resident aliens with a U.S. address and a U.S. taxpayer identification number. 2.Determine how much you wish to invest. The following chart shows the investment minimums for various types of accounts:
Minimum to Open an Account Using Minimum to Investment Builder Minimum for Type of Account Open an Account or Payroll Deduction Existing 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
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: . purchase, exchange or redeem shares in your existing accounts (certain restrictions may apply); . review your account balance, recent transactions, Fund prices and recent performance; . order duplicate account statements; and . obtain tax information. Please see the following pages for other ways to buy, exchange or sell your shares. - -------------------------------------------------------------------------------- 14 [GRAPHIC] Fund Services Buying Shares
Opening an Account Adding to an Account Through Your Investment Dealer . Call your investment dealer for information about opening or adding to an account. Dealers may charge you a processing or service fee in connection with the purchase of fund shares. By Mail . Make out a check in U.S. dollars for the . Make out a check in U.S. dollars for the investment amount, payable to "CDC Nvest investment amount, payable to "CDC Nvest [GRAPHIC] Funds." Third party checks and "starter" Funds." Third party checks and "starter" checks will not be accepted. checks will not be accepted. . Mail the check with your completed . Complete the investment slip from an account application to CDC Nvest Funds, P.O. Box statement or include a letter specifying the 219579, Kansas City, MO 64121-9579. 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.) . Obtain a current prospectus for the Fund . Call your investment dealer or CDC Nvest into which you are exchanging by calling Funds at 800-225-5478 or visit [GRAPHIC] your investment dealer or CDC Nvest Funds www.cdcnvestfunds.com to request an at 800-225-5478. exchange. . Call your investment dealer or CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. By Wire . Call CDC Nvest Funds at 800-225-5478 to . Visit www.cdcnvestfunds.com to add shares to obtain an account number and wire transfer your account by wire. [GRAPHIC] instructions. Your bank may charge you for . Instruct your bank to transfer funds to State such a transfer. Street Bank & Trust Company, ABA# 011000028, and DDA # 99011538. . 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") . Ask your bank or credit union whether it is a . Call CDC Nvest Funds at 800-225-5478 or member of the ACH system. visit www.cdcnvestfunds.com to add shares to [GRAPHIC] . Complete the "Bank Information" section on your account through ACH. your account application. . If you have not signed up for the ACH system, . Mail your completed application to CDC please call CDC Nvest Funds or visit Nvest Funds, P.O. Box 219579, Kansas City, www.cdcnvestfunds.com for a Service Options MO 64121-9579. Form. Automatic Investing Through Investment Builder . Indicate on your application that you would . Please call CDC Nvest Funds at 800-225-5478 like to begin an automatic investment plan or visit www.cdcnvestfunds.com for a Service [GRAPHIC] through Investment Builder and the amount Options Form. A signature guarantee may be of the monthly investment ($25 minimum). required to add this privilege. . Include a check marked "Void" or a deposit . See the section entitled "Additional Investor slip from your bank account. Services." Automatic Investing Through Payroll Deduction . Call CDC Nvest Funds at 800-225-5478 or . Call CDC Nvest Funds at 800-225-5478 or visit www.cdcnvestfunds.com for Payroll visit www.cdcnvestfunds.com for Payroll [GRAPHIC] Deduction Authorization Form. Deduction Authorization Form. . Indicate on your application that you would . See the section entitled "Additional Investor like to begin Payroll Deduction and include Services." the Payroll Deduction Authorization Form.
- -------------------------------------------------------------------------------- 15 [GRAPHIC] 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 . Call your investment dealer for information. Dealers may charge you a processing or service fee in connection with the redemption of fund shares. By Mail . Write a letter to request a redemption. Specify the name of your Fund, class of shares, account number, the exact [GRAPHIC] registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section entitled "Selling Shares in Writing." . The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. . Mail your request by regular mail to CDC Nvest Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or by registered, express or certified mail to CDC Nvest Funds, 330 West 9th Street, Kansas City, MO 64105-1514. . 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.) . Obtain a current prospectus for the Fund into which you are exchanging by calling your investment dealer or CDC [GRAPHIC] Nvest Funds at 800-225-5478. . Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an exchange. By Wire . Complete the "Bank Information" section on your account application. [GRAPHIC] . 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. . 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 . Ask your bank or credit union whether it is a member of the ACH system. [GRAPHIC] . Complete the "Bank Information" section on your account application. . 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. . Call CDC Nvest Funds or visit www.cdcnvestfunds.com to request an ACH redemption. . Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days. By Telephone . Call CDC Nvest Funds at 800-225-5478 to choose the method you wish to use to redeem your shares. You may receive [GRAPHIC] 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.) . Call CDC Nvest Funds at 800-225-5478 or your financial representative for more information. [GRAPHIC] . Because withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. By Check (for Class A shares of Massachusetts Tax Free Income Fund only) . Select the checkwriting option on your application and complete the signature card. [GRAPHIC] . To add this privilege to an existing account, call CDC Nvest Funds at 800-225-5478 for a Service Options Form. . Each check must be written for $500 or more. . You may not close your account by withdrawal check. Please call your financial representative or CDC Nvest Funds to close an account.
- -------------------------------------------------------------------------------- 16 [GRAPHIC] 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: .. your address of record has been changed within the past 30 days; .. you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; .. 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 .. 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. The Funds will only accept signature guarantees bearing the STAMP2000 Medallion imprint. A signature guarantee can be obtained from one of the following sources: .. a financial representative or securities dealer; .. a federal savings bank, cooperative, or other type of bank; .. a savings and loan or other thrift institution; .. a credit union; or .. a securities exchange or clearing agency. The 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 Individual, joint, . The request must include the signatures of all persons authorized to sign, sole including title, if applicable. proprietorship, . Signature guarantee, if applicable (see above). UGMA/UTMA (minor . Additional documentation may be required. accounts) Corporate or . The request must include the signatures of all persons authorized to sign, association including title. accounts Owners or trustees . The request must include the signatures of all trustees authorized to sign, of trust accounts including title. . If the names of the trustees are not registered on the account, please provide a copy of the trust document certified within the past 60 days. . Signature guarantee, if applicable (see above). Joint tenancy . The request must include the signatures of all surviving tenants of the account. whose co-tenants . Copy of the death certificate. are deceased . Signature guarantee if proceeds check is issued to other than the surviving tenants. Power of Attorney . The request must include the signatures of the attorney-in-fact, indicating such (POA) title. . A signature guarantee. . Certified copy of the POA document stating it is still in full force and effect, specifying the exact Fund and account number, and certified within 30 days of receipt of instructions.* Executors of . The request must include the signatures of all those authorized to sign, estates, including capacity. administrators, . A signature guarantee. guardians, . Certified copy of court document where signer derives authority, e.g., Letters of conservators 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. - -------------------------------------------------------------------------------- 17 [GRAPHIC] Fund Services Exchanging Shares In general, you may exchange shares of your Fund for shares of the same class of another CDC Nvest Fund that offers such class of shares, 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 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 such funds may be legally sold. For federal income tax purposes, an exchange of fund shares for shares of another 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 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 The Funds 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 for any reason, including if the transaction is deemed not to be in the best interests of the Fund's other shareholders or possibly disruptive to the management of the Fund. Limits on Frequent Trading. Without limiting the right of each Fund and the Distributor to refuse any purchase or exchange order, each Fund and the Distributor may (but are not obligated to) restrict purchases and exchanges for the accounts of "market timers." With respect to exchanges, an account may be deemed to be one of a market timer if (i) more than two exchange purchases of any Fund are made for the account over a 90-day interval as determined by the Fund; or (ii) the account makes one or more exchange purchases of any Fund over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. With respect to new purchases of a Fund, an account may be deemed to be one of a market timer if (i) more than twice over a 90-day interval as determined by the Fund, there is a purchase in a Fund followed by a subsequent redemption; or (ii) there are two purchases into a Fund by an account, each followed by a subsequent redemption over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. The preceding are not exclusive lists of activities that the Funds and the Distributor may consider to be "market timing." Trade Activity Monitoring. Trading activity is monitored selectively on a daily basis in an effort to detect excessive short-term trading activities. If a Fund or the Distributor believes that a shareholder or financial intermediary has engaged in market timing or other excessive, short-term trading activity, it may, in its discretion, request that the shareholder or financial intermediary stop such activities or refuse to process purchases or exchanges in the accounts. In its discretion, a Fund or the Distributor may restrict or prohibit transactions by such identified shareholders or intermediaries. In making such judgments, the Funds and the Distributor seek to act in a manner that they believe is consistent with the best interests of all shareholders. The Funds and the Distributor also reserve the right to notify financial intermediaries of your trading activity. Because the Funds and the Distributor will not always be able to detect market timing activity, investors should not assume that the Funds will be able to detect or prevent all market timing or other trading practices that may disadvantage the Funds. For example, the ability of the Funds and the Distributor to monitor trades that are placed by omnibus or other nominee accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the record of a Fund's underlying beneficial owners. Purchase Restrictions Each Fund is required by federal regulations to obtain certain personal information from you and to use that information to verify your identity. The Fund may not be able to open your account if the requested information is not provided. Each Fund reserves the right to refuse to open an account, close an account and redeem your shares at the then current price or take other such steps that the Fund deems necessary to comply with federal regulations if your identity cannot be verified. - -------------------------------------------------------------------------------- 18 [GRAPHIC] Fund Services Restrictions on Buying, Selling and Exchanging Shares (continued) Selling Restrictions The table below describes restrictions placed on selling shares of any Fund described in this Prospectus: Restriction Situation The Fund may suspend . When the New York the right of redemption Stock Exchange (the or postpone payment for "Exchange") is closed more than 7 days: (other than a weekend/holiday) . During an emergency . During any other period permitted by the SEC The Fund reserves the . With a notice of a right to suspend dispute between account services or registered owners refuse transaction . With requests: suspicion/evidence of a fraudulent act The Fund may pay the . When it is detrimental redemption price in for a Fund to make whole or in part by a cash payments as distribution in kind of determined in the sole readily marketable discretion of the securities in lieu of adviser cash or may take up to 7 days to pay a redemption request in order to raise capital: The Fund may withhold . When redemptions are redemption proceeds made within 10 until the check or calendar days of funds 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 Policy Each Fund assesses a minimum balance fee on an annual basis for accounts that fall below the minimum amount required to establish an account, as previously described in this Prospectus. The minimum balance fee is assessed by the automatic redemption of shares in the account in an amount sufficient to pay the fee. This minimum balance fee does not apply to accounts with active investment builder and payroll deduction programs, accounts that fall below the minimum as a result of the automatic conversion from Class B shares to Class A shares, accounts held through the National Securities Clearing Corporation, or retirement accounts. In its discretion, the Fund may also close the account and send the account holder the proceeds if the account falls below the minimum amount. - -------------------------------------------------------------------------------- 19 [GRAPHIC] 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 share
The net asset value of Fund shares is determined according to this schedule: .. 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 Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if Loomis Sayles 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 fixed income markets are 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. .. 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." .. 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 from the investment dealer before 5:00 p.m. Eastern time* on the same day will be based on the net asset value determined on that day. * Under limited circumstances, the Distributor may enter into contractual agreements pursuant to which orders received by your investment dealer before the close of the Exchange and transmitted to the Distributor prior to 9:30 a.m. on the next business day are processed at the net asset value determined on the day the order was received by your investment dealer. 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: .. Equity securities -- market price or as provided by a pricing service if market price is unavailable. .. 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. .. Short-term obligations (remaining maturity of less than 60 days) -- amortized cost (which approximates market value). .. Securities traded on foreign exchanges -- market price on the non-U.S. exchange, unless the Fund believes that an occurrence after the close of the exchange will materially affect the security's value. In that case, the security may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by the Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. .. Options -- last sale price, or if not available, last offering price. .. Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. .. All other securities -- fair market value as determined by the adviser 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 is more likely to result in a price that reflects fair value. The Funds may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. - -------------------------------------------------------------------------------- 20 [GRAPHIC] Fund Services Dividends and Distributions The Funds generally distribute most or all of their net investment income (tax exempt and taxable income other than long-term capital gains) in the form of dividends. Each Fund declares dividends for each class daily and pays them monthly. The net investment income accruing on Saturdays, Sundays and other days on which the Exchange is closed is declared as a dividend on the immediately following business day. Each Fund expects to distribute all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. To the extent permitted by law, the Board of Trustees may adopt a different schedule as long as payments are made at least annually. 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. Each Fund also intends to meet all the requirements of the Code necessary to ensure that it is qualified to pay "exempt interest dividends." Distributions from the Funds. Fund distributions designated as exempt-interest dividends are not generally subject to federal income tax. Although exempt interest dividends are not taxable, you must report them on your tax return if you are required to file. This is an information reporting requirement and does not convert tax-exempt interest to taxable interest. Exempt interest income is generally a "tax preference item" and may be subject to the alternative minimum tax. In addition, in the case of Massachusetts Tax Free Income Fund, such distributions are not generally subject to Massachusetts state income tax to the extent they derive from certain qualified Massachusetts obligations and provided that the Fund identifies such distributions in written notice to shareholders within 60 days from the end of the taxable year. The federal exemption for "exempt-interest dividends" does not necessarily result in exemption from state and local taxes. Distributions of these dividends may be exempt from local and state taxation to the extent they are derived from the state and locality in which you reside. You should check the consequences under your local and state tax laws before investing in the Fund. In addition to investments in securities generating exempt interest dividends, the Funds may invest a portion of their assets in securities that generate income that is not exempt from federal or state taxes. As such, distributions from the Funds may consist of ordinary dividends, capital gain distributions, undistributed capital gains, or return of capital in addition to exempt interest dividends. 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. 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. Taxable 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. As the Funds will invest primarily in fixed-income securities, it is not expected that any taxable distributions will be eligible for treatment as qualified dividend income. - -------------------------------------------------------------------------------- 21 [GRAPHIC] Fund Services Tax Consequences (continued) If you receive social security or railroad retirement benefits, a portion of those benefits may be subject to federal income tax as a result of receiving exempt interest dividends. Also, an investment in the Funds may result in a liability for federal alternative minimum tax as well as state and local taxes, both for individual and corporate shareholders. Each Fund may at times purchase tax-exempt securities at a discount from the price at which they were originally issued. For federal income tax purposes, some or all of this market discount will be included in the Fund's ordinary income and will be taxable to you as such when it is distributed to you. 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. Transactions in Fund Shares. 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 state or local taxes. 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. Class A shares of the Massachusetts Tax Free Income Fund also pay an annual distribution fee of 0.10% 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). 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 B shares. Because these distribution fees are paid out of the Funds' assets on an ongoing basis, over time these fees for Class B 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. - -------------------------------------------------------------------------------- 22 [GRAPHIC] 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." Payroll Deduction Program Payroll Deduction enables you to invest after-tax dollars directly from your paycheck into CDC Nvest Funds (current tax year is assumed). Once you've invested an initial $25 to open an account in each of your desired funds, you may invest as little as $25 per fund per pay period. It is important that you first check to ensure that your employer can accommodate this service. To enroll in the Payroll Deduction 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. * 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. - -------------------------------------------------------------------------------- 23 [GRAPHIC] 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 PricewaterhouseCoopers LLP, independent auditors, whose report, along with each Fund's financial statements, is included in the Fund's annual report to shareholders. The annual reports are incorporated by reference into the SAI, both of which are available free of charge upon request from the Distributor. For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ---------------------------------------- ---------------------------------------- Net asset Net realized Dividends Diributions beginning Net and unrealized Total from from from net of the investment gain (loss) on investment net investment realized Total period income investments operations income capital gain distributions --------- ---------- -------------- ---------- -------------- ------------ ------------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2003(e) $16.40 $0.49 $ 0.01 $ 0.50 $(0.49) $ -- $(0.49) 12/31/2002 15.82 0.67 0.59 1.26 (0.68) -- (0.68) 12/31/2001(d) 16.06 0.75 (0.24) 0.51 (0.75) -- (0.75) 12/31/2000 15.48 0.82 0.57 1.39 (0.81) -- (0.81) 12/31/1999 17.02 0.82 (1.50) (0.68) (0.83) (0.03) (0.86) 12/31/1998 17.13 0.86 (0.04) 0.82 (0.85) (0.08) (0.93) Class B 9/30/2003(e) 16.36 0.41 0.01 0.42 (0.41) -- (0.41) 12/31/2002 15.78 0.57 0.58 1.15 (0.57) -- (0.57) 12/31/2001(d) 16.03 0.64 (0.24) 0.40 (0.65) -- (0.65) 12/31/2000 15.45 0.71 0.58 1.29 (0.71) -- (0.71) 12/31/1999 16.98 0.71 (1.49) (0.78) (0.72) (0.03) (0.75) 12/31/1998 17.09 0.74 (0.03) 0.71 (0.74) (0.08) (0.82) MUNICIPAL INCOME FUND Class A 9/30/2003(e) $ 7.43 $0.23 $(0.02) $ 0.21 $(0.23) $ -- $(0.23) 12/31/2002 7.25 0.34 0.18 0.52 (0.34) -- (0.34) 12/31/2001(d) 7.39 0.36 (0.14) 0.22 (0.36) -- (0.36) 12/312000 7.17 0.40 0.21 0.61 (0.39) -- (0.39) 12/31/1999 7.76 0.39 (0.59) (0.20) (0.39) -- (0.39) 12/31/1998 7.75 0.39 0.01 0.40 (0.39) -- (0.39) Class B 9/30/2003(e) 7.44 0.19 (0.03) 0.16 (0.19) -- (0.19) 12/31/2002 7.25 0.29 0.19 0.48 (0.29) -- (0.29) 12/31/2001(d) 7.39 0.31 (0.14) 0.17 (0.31) -- (0.31) 12/31/2000 7.17 0.35 0.21 0.56 (0.34) -- (0.34) 12/31/1999 7.76 0.33 (0.59) (0.26) (0.33) -- (0.33) 12/31/1998 7.75 0.33 0.01 0.34 (0.33) -- (0.33)
(a)A sales charge for Class A shares and a contingent deferred sales charge for Class B shares are not reflected in total return calculations. (b)Had certain expenses not been reduced during the period, total returns would have been lower. (c)The investment adviser agreed to reimburse a portion of the Fund's expenses during the period. Without this reimbursement, expense ratios would have been higher. (d)As required, effective January 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on debt securities. The effect of this change for the year ended December 31, 2001, for Massachusetts Tax Free Income Fund was to increase the ratio of net investment income to average net assets from 4.66% to 4.67% for Class A shares and from 4.02% to 4.03% for Class B shares. For Municipal Income Fund, the effect of this change was to increase net investment income per share by $.01 and decrease net realized and unrealized gains and losses per share by $.01 for Class A shares and Class B shares, and increase the ratio of net investment income to average net assets from 4.84% to 4.89% for Class A shares and from 4.09% to 4.14% for Class B shares. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (e)For the nine months ended September 30, 2003. (f)Computed on an annualized basis for periods less than one year. - -------------------------------------------------------------------------------- 24
Ratios to average net assets ------------------------------ Net asset Net assets, Net value, Total end of investment Portfolio end of return the period Expenses income turnover period (%)(a) (000) (%)(f) (%)(f) rate (%) --------- ------ ----------- -------- ---------- --------- $16.41 3.1 $ 86,368 1.38 3.99 9 16.40 8.1 92,053 1.34 4.19 33 15.82 3.2(b) 89,376 1.35(c) 4.67 60 16.06 9.3(b) 91,785 1.13(c) 5.24 68 15.48 (4.1)(b) 97,270 1.00(c) 5.02 73 17.02 4.9(b) 113,910 1.00(c) 4.93 125 16.37 2.6 6,185 2.03 3.34 9 16.36 7.4 6,742 1.99 3.54 33 15.78 2.5(b) 8,313 2.00(c) 4.03 60 16.03 8.6(b) 8,715 1.78(c) 4.59 68 15.45 (4.7)(b) 8,874 1.65(c) 4.37 73 16.98 4.2(b) 9,026 1.65(c) 4.28 125 $ 7.41 2.9 $126,906 1.10 4.14 42 7.43 7.3 133,005 1.06 4.67 33 7.25 3.0 137,852 1.07 4.89 80 7.39 8.8 142,539 0.95 5.39 156 7.17 (2.8) 152,829 0.93 5.13 137 7.76 5.3 172,643 0.93 5.03 26 7.41 2.2 10,884 1.85 3.39 42 7.44 6.7 12,326 1.81 3.92 33 7.25 2.2 14,549 1.82 4.14 80 7.39 8.0 14,520 1.70 4.64 156 7.17 (3.5) 15,644 1.68 4.38 137 7.76 4.5 15,878 1.68 4.28 26
- -------------------------------------------------------------------------------- 25 Glossary of Terms Bid price -- The price a prospective buyer is ready to pay. This term is used by traders who maintain firm bid and offer prices in a given security by standing ready to buy or sell security units at publicly quoted prices. 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. 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. 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. 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 assets -- A Fund's assets minus its liabilities. With respect to the Funds that have a policy to invest 80% of their net assets in particular kinds of securities, "net assets" as used in such policies means net assets plus borrowings made for investment purposes. 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-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). 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. - -------------------------------------------------------------------------------- 26 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. - -------------------------------------------------------------------------------- 27 Notes - -------------------------------------------------------------------------------- 28 Notes - -------------------------------------------------------------------------------- 29 [GRAPHIC] 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 Fund's 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 any time 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 Fund's reports and SAI are available free from the Edgar Database on 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. (CID), 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.NASD.com. CID distributes the CDC Nvest Funds and Loomis Sayles Funds. If you have a complaint concerning CID or any of its (Investment Company Act File No. 811-242) (Investment Company Act File No. 811-6241) representatives or associated persons, please direct it to CDC IXIS Asset Management Distributors, L.P., Attn: Director of Compliance, 399 Boylston Street - 6/th/ Floor, Boston, MA 02116 or call us at 800-225-5478. XTF51-0204 Part B Harris Associates Growth and Income Fund (formerly, CDC Nvest Growth and Income Fund) For Harris Associates Growth and Income Fund, Statement of Additional Information - Part I for the CDC Nvest Equity Funds dated May 1, 2003 is incorporated by reference to PEA No. 119 initial registration statement on Form N-1A of CDC Nvest Funds Trust II filed on April 29, 2003 (Accession No.: 0001169232-03-003289) as supplemented on July 21, 2003 (Accession No.: 0001127563-03-000162). For Harris Associates Growth and Income Fund, Statement of Additional Information - Part II for the CDC Nvest dated May 1, 2003 is incorporated by reference to PEA No. 119 initial registration statement on Form N-1A of CDC Nvest Funds Trust II filed on April 29, 2003 (Accession No.: 0001169232-03-003289) as revised on October 1, 2003 (Accession No.: 0001193125-03-060151) and supplemented on December 19, 2003 (Accession No.: 0001127563-03-000273). [LOGO OF CDC NVEST FUNDS/SM/] - -------------------------------------------------------------------------------- Statement of Additional Information - PART I February 1, 2004 Loomis Sayles Massachusetts Tax Free Income Fund (formerly CDC Nvest Massachusetts Tax Free Income Fund) Loomis Sayles Municipal Income Fund (formerly CDC Nvest Municipal Income Fund) This Statement of Additional Information (the "Statement") contains information which may be useful to investors but which is not included in the Prospectus of the 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 February 1, 2004, as from time to time revised or supplemented (the "Prospectus"). The Statement should be read together with the Prospectus. Investors may obtain the Prospectus without charge from CDC IXIS Asset Management Distributors, L.P. (the "Distributor"), Prospectus Fulfillment Desk, 399 Boylston Street, Boston, MA 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 listed above. Part II includes information about the Funds and other CDC Nvest Funds. The Loomis Sayles Massachusetts Tax Free Income Fund is a diversified fund and a series of CDC Nvest Funds Trust II, a registered open-end management investment company that offers shares of a total of two separate series. Prior to September 15, 2003, the Loomis Sayles Municipal Income Fund was a series (the "Predecessor Fund") of CDC Nvest Funds Trust I. Effective September 12, 2003, the Predecessor Fund was reorganized as a series of the Loomis Sayles Funds II, a registered open-end management investment company that offers shares of a total of thirteen series, and was renamed the "Loomis Sayles Municipal Income Fund" (the "Successor Fund"). CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and Loomis Sayles Funds II are collectively referred to in this Statement as the "Trusts" and are each referred to as a "Trust." Financial performance information included or incorporated herein with respect to the Successor Fund includes that of the Predecessor Fund. The Funds' financial statements and accompanying notes that appear in each Fund's 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. Table of Contents Part I Page ---- INVESTMENT RESTRICTIONS ......................................................ii FUND CHARGES AND EXPENSES ....................................................iv OWNERSHIP OF FUND SHARES .....................................................vi 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 - -------------------------------------------------------------------------------- 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"). The other restrictions set forth below are not fundamental policies and may be changed by the Trusts' Board of Trustees. Except in the case of restrictions marked with a dagger (+) below, the percentages set forth below and the percentage limitations set forth in the Prospectus 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. Loomis Sayles Massachusetts Tax Free Income Fund Loomis Sayles Massachusetts Tax Free Income Fund (the "Massachusetts Fund") will not: *(1) 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. *(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) 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. *(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 or interests therein. *(5) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(6) 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. (7) Purchase securities restricted as to resale, if, as a result, such investments would exceed 5% of the value of the Fund's net assets. *(8) Purchase any securities (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. *(9) 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. (10) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. *(11) Invest less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in investments the ii income of which is exempt from federal and Massachusetts state income tax. (12) Invest less than 90% of its net assets in debt obligations on which the interest is exempt from federal income tax (other than the alternative minimum tax) and Massachusetts personal income tax. (13) Invest more than 20% of its assets in securities on which the interest is subject to the alternative minimum tax for individuals. In restriction (11), 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. The Fund will not purchase an investment if, immediately after and as a result of such purchase, less than 85% of the Fund's assets would consist of securities rated AAA, AA, A or BBB by Standard & Poor's or Fitch, or Aaa, Aa, A, or Baa by Moody's or are non-rated but are considered to be of comparable quality by the Fund's subadviser. Loomis Sayles Municipal Income Fund Loomis Sayles Municipal Income Fund (the "Municipal 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 securities (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) Invest more than 25% of its total assets (taken at current value) in private activity bonds that are based, directly or indirectly, on the credit of private entities in any one industry or in securities of private issuers in any one industry. (In the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries). *(4) Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(5) Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(6) Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(7) Purchase or sell commodities, except that the Fund may purchase and sell future contracts and options, may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities. *(8) 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. *(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) Write, purchase, or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, iii calls or combinations thereof with regard to futures contracts. *(11) Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. +(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 the Trust's trustees). *(13) Invest less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in municipal investments the income from which is exempt from federal income tax (other than the alternative minimum tax). (14) Invest more than 20% of the Fund's net assets in debt obligations on which the interest is subject to the alternative minimum tax for individuals. The Fund may invest more than 25% of its assets in private activity bonds, subject to limitation (3) above. In restriction (13), 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. - -------------------------------------------------------------------------------- FUND CHARGES AND EXPENSES - -------------------------------------------------------------------------------- ADVISORY FEES Pursuant to separate advisory agreements, dated September 1, 2003 for the Massachusetts Fund and September 12, 2003 for the Municipal Income Fund, Loomis, Sayles & Company, L.P. ("Loomis Sayles") has agreed, subject to the supervision of the Board of Trustees of the Trusts, to manage the investment and reinvestment of the assets of each Fund and to provide a range of administrative services to each Fund. For the services described in the advisory agreements, each Fund has agreed to pay Loomis Sayles an advisory fee at the annual rate set forth in the following table. Advisory Fee payable by Fund to Loomis Sayles Fund (as a % of average daily net assets of the Fund) - --------------------- ------------------------------------------------ Massachusetts Fund 0.300% of the first $100 million 0.250% of amounts in excess of $100 million Municipal Income Fund 0.500% of the first $100 million 0.375% of amounts in excess of $100 million Loomis Sayles has given binding undertakings to the Massachusetts Fund to reduce its fees and, if necessary, to bear certain expenses associated with operating the Fund in order to limit the Fund's total operating expenses, exclusive of brokerage expenses, interest expense, taxes and organizational and extraordinary expenses, to an annual rate of 1.40% and 2.05% of such assets attributable to the Fund's Class A and Class B shares, respectively. The undertakings will be binding on Loomis Sayles until April 30, 2004 and then from May 1, 2004 through January 31, 2005, subject to the obligation of the Fund to pay such deferred fees and expenses in later periods to the extent that the expenses of the Massachusetts Fund fall below the annual rate of 1.40% of average daily net assets for Class A shares and 2.05% for Class B shares; provided, however, that the Fund is not obligated to pay any such deferred fees or expense reimbursement more than one year after the end of the fiscal year in which the fee or expense was deferred. For the last three fiscal years, the following table shows the total advisory fees (including any subadvisory fees) paid by the Funds and of these amounts, the total paid to CDC IXIS Advisers, the Funds' former adviser, Loomis Sayles, the Fund's current adviser and the Funds' former subadviser, and the total paid to any other former subadvisers of the Funds: iv Advisory Fees/1/ ---------------------------------------- 1/1/01- 1/1/02- 1/1/03- 12/31/01 12/31/02 9/30/03/2,3/ ----------- ----------- ------------ Massachusetts Fund - ------------------------------------- ---------------------------------------- Total Advisory Fee $ 600,558 $ 590,987 $ 402,028 - ------------------------------------- ---------------------------------------- CDC IXIS Advisers Fee Earned $ 300,278 $ 295,493 $ 189,740 Amount Waived $ 7,304 -- -- Total Paid $ 292,974 $ 295,493 $ 189,740 - ------------------------------------- --------------------------------------- Loomis Sayles/4/ Fee Earned -- -- $ 212,288 Amount Waived -- -- -- Total Paid $ 151,859 $ 295,494 $ 212,288 - ------------------------------------- ---------------------------------------- Back Bay Advisors/4/ Fee Earned $ 148,421 -- -- Amount Waived $ 7,304 -- -- Total Paid $ 141,117 -- -- 1/1/01- 1/1/02- 1/1/03- 12/31/01 12/31/01 9/30/03++ Municipal Income Fund - -------------------------------------------------------------------------------- Total Advisory Fee $ 717,087 $ 686,999 $ 488,937 - -------------------------------------------------------------------------------- CDC IXIS Advisers Total Paid $ 358,543 $ 343,500 $ 218,301 - -------------------------------------------------------------------------------- Loomis Sayles/4/ Total Paid $ 181,586 $ 343,499 $ 270,636 - -------------------------------------------------------------------------------- Back Bay Advisors* Total Paid $ 176,958 -- -- /1/ On September 12, 2003, the Predecessor Fund reorganized into the Successor Fund and, as a result, the Successor Fund assumed the financial and accounting information of the Predecessor Fund. The table therefore includes fees under previous investment advisory arrangements applicable to the Predecessor Fund. The advisory fees reported through fiscal year 2002 reflect these arrangements. In addition, effective September 1, 2003, the investment advisory agreements among the Funds and CDC IXIS Advisers were amended to replace CDC IXIS Advisers with Loomis Sayles as investment adviser to the Funds. Prior to September 1, 2003, Loomis Sayles managed the assets of the Funds as subadviser under separate investment subadvisory agreements that terminated on September 1, 2003. The Massachusetts Fund's subadvisory agreement provided for the same advisory fees as currently payable by the Fund to Loomis Sayles. The Municipal Income Fund's subadvisory agreement provided for a subadvisory fee of 0.2500% of the first $100 million of the Fund's average daily net assets and 0.1875% of amounts in excess of $100 million of the Fund's average daily net assets. CDC IXIS Advisers continues to provide certain administrative and oversight services to the Massachusetts Fund. /2/ Each Fund's fiscal year end changed from December 31 to September 30. /3/ Amounts do not include any advisory administration fees paid to CDC IXIS Advisers. /4/ Prior to June 1, 2001 Back Bay Advisors, L.P. ("Back Bay Advisors") served as subadviser to each Fund, pursuant to separate subadvisory agreements between CDC IXIS Advisers and Back Bay Advisors providing for the same subadvisory fees as were payable by each Fund to Loomis Sayles as subadviser to each Fund. ADVISORY ADMINISTRATION AGREEMENT Pursuant to a separate advisory administration agreement dated September 1, 2003, Massachusetts Fund has retained CDC IXIS Advisers to provide certain administrative and oversight services to the Fund. For the services described in the advisory administration agreement, CDC IXIS Advisers receives fees at the annual rates set forth in the following table: Advisory Administration fee payable to CDC IXIS Advisers Fund (as a % of average daily net assets of the Fund) - --------------------- ------------------------------------------------ Massachusetts Fund 0.30% of the first $100 million 0.25% of amounts in excess of $100 million For the period September 1, 2003 to September 30, 2003, the following table shows the advisory administration fees paid by the Massachusetts Fund to CDC IXIS Advisers: 9/1/03 - Advisory Administration Fee 9/30/03 - --------------------------- ---------- Massachusetts Fund $ 22,549 BROKERAGE COMMISSIONS v Neither of the Funds nor the Predecessor Fund paid any brokerage commissions for the fiscal years ended December 31, 2001, 2002 and for the period from January 1, 2003 through September 30, 2003. For a description of how transactions in portfolio securities are effected and how the Funds' adviser selects brokers, see "Portfolio Transactions and Brokerage" in Part II of this Statement. SALES CHARGES AND 12B-1 FEES As explained in Part II of this Statement, the Class A and Class B shares of each Fund pay the Distributor fees under separate plans adopted pursuant to Rule 12b-1 under the 1940 Act ("Plans"). The following table shows the amounts of Rule 12b-1 fees paid by the Funds (or their Predecessor) during the fiscal years ended December 31, 2001 and 2002 and for the period January 1, 2003 to September 30, 2003. All amounts paid under the Plans during the last fiscal year were paid as compensation to the Distributor. Compensation payable under the Plans may be paid regardless of the Distributor's expenses. The anticipated benefits to the Funds of the Plans include the ability to attract and maintain assets. 1/1/01- 1/1/02- 1/1/03- Fund 12/31/01 12/31/02 9/30/03 - --------------------------------- --------- --------- --------- Massachusetts Fund (Class A) $ 320,575 $ 318,340 $ 230,730 (Class B) $ 86,125 $ 75,554 $ 48,402 Municipal Income Fund (Class A) $ 357,421 $ 341,958 $ 242,276 (Class B) $ 149,211 $ 130,927 $ 85,415 During the period January 1, 2003 through September 30, 2003, the Distributor's expenses relating to the Fund's 12b-1 plans were as follows (Class B compensation to investment dealers excludes advance commissions sold to a third party): Massachusetts Fund - ------------------ (Class A Shares) Compensation to Investment Dealers $ 155,075 Compensation to Distributor's Sales Personnel and Other Related Costs $ 29,549 TOTAL $ 184,624 (Class B Shares) Compensation to Investment Dealers $ 11,536 Compensation to Distributor's Sales Personnel and Other Related Costs $ 5,808 TOTAL $ 17,344 Municipal Income Fund - --------------------- (Class A Shares) Compensation to Investment Dealers $ 229,934 Compensation to Distributor's Sales Personnel and Other Related Costs $ 185,716 TOTAL $ 415,650 (Class B Shares) Compensation to Investment Dealers $ 17,234 Compensation to Distributor's Sales Personnel and Other Related Costs $ 21,941 TOTAL $ 39,175 - -------------------------------------------------------------------------------- OWNERSHIP OF FUND SHARES - -------------------------------------------------------------------------------- As of January 2, 2004 to the Trust's knowledge, the following persons owned of record or beneficially 5% or more of the outstanding shares of the indicated classes of the Fund or Predecessor Fund, as the case may be, set forth below. vi - ------------------------------------------------------------------------------- Ownership Fund Shareholder and Address Percentage - ------------------------------------------------------------------------------- Massachusetts Fund (Class B Shares) Pershing LLC* 14.51% P.O. Box 2052 Jersey City, NJ 07303-2052 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MLPF&S for the Sole Benefit Of its Customers* 9.21% ATTN Fund Administration ML#97CJ1 4800 Deer Lake Dr East - 2/nd/ Floor Jacksonville, FL 32246-6484 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Wexford Securities LLC. for the benefit of 5.60% Mrs. Barbara W Rubin trustee* Barbara W Rubin Living Trust 24 Pear Street East Bridgewater, MA 02333-1742 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Municipal Income Fund (Class A Shares) Pershing LLC* 7.34% P.O. Box 2052 Jersey City, NJ 07303-2052 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Class B Shares) Pershing LLC* 23.12% P.O. Box 2052 Jersey City, NJ 07303-2052 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MLPF&S for the Sole Benefit Of its Customers* 6.21% ATTN Fund Administration ML#97CH7 4800 Deer Lake Dr East - 2/nd/ Floor Jacksonville, FL 32246-6484 - ------------------------------------------------------------------------------- vii * Such ownership may be beneficially held by individuals or entities other than the owner listed. To the extent that any listed shareholder beneficially owns more than 25% of a Fund, it may be deemed to "control" such Fund within the meaning of the 1940 Act. The effect of such control may be to reduce the ability of other shareholders of the Fund to take actions requiring the affirmative vote of holders of a plurality or majority of the Fund's shares without the approval of the controlling shareholder. viii [LOGO OF CDC NVEST FUNDS] Statement of Additional Information -- PART II February 1, 2004 CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II LOOMIS SAYLES FUNDS II The following information applies generally to the funds listed below (the "Funds" and each a "Fund", or the "CDC Nvest Funds"). The Funds constitute certain series of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, and Loomis Sayles Funds II (the "Trusts" and each a "Trust"). In certain cases, the discussion applies to some but not all of the Funds, as well as series of Loomis Sayles Funds I. Certain data applicable to particular Funds is found in Part I of this Statement of Additional Information (together with this document, the "Statement") as well as in the Prospectuses of the Funds dated February 1, 2004, 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 II Series of Loomis Sayles Funds II - --------------------------------- ---------------------------------- -------------------------------- Loomis Sayles Core Plus Bond Fund Loomis Sayles Massachusetts Tax Loomis Sayles Growth Fund ("Core Plus Bond Fund") (formerly, Free Income Fund ("Growth Fund") CDC Nvest Bond Income Fund) ("Massachusetts Fund")(formerly, Loomis Sayles High Income Fund Loomis Sayles Government CDC Nvest Massachusetts Tax ("High Income Fund") (formerly, Securities Fund Free Income Fund) CDC Nvest High Income Fund) ("Government Securities Fund") Loomis Sayles International Equity (formerly, CDC Nvest Government Fund Securities Fund) ("International Equity Fund") Loomis Sayles Investment Grade Bond Fund ("Investment Grade Bond Fund") Loomis Sayles Limited Term Government and Agency Fund ("Limited Term Government and Agency Fund") (formerly, Loomis Sayles Limited Term U.S. Government Fund) Loomis Sayles Municipal Income Fund ("Municipal Income Fund") (formerly, CDC Nvest Municipal Income Fund) Loomis Sayles Research Fund ("Research Fund") Loomis Sayles Strategic Income Fund ("Strategic Income Fund") (formerly, CDC Nvest Strategic Income Fund) - ----------------------------------------------------------------------------------------------------------------------
Table of Contents Part II MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS ..................... 4 MANAGEMENT OF THE TRUSTS .................................................. 31 PORTFOLIO TRANSACTIONS AND BROKERAGE ...................................... 63 DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES ......................... 72 PORTFOLIO TURNOVER ........................................................ 76 HOW TO BUY SHARES ......................................................... 76 NET ASSET VALUE AND PUBLIC OFFERING PRICE ................................. 77 REDUCED SALES CHARGES ..................................................... 78 SHAREHOLDER SERVICES ...................................................... 80 REDEMPTIONS ............................................................... 87 STANDARD PERFORMANCE MEASURES ............................................. 90 INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ............... 96 FINANCIAL STATEMENTS ...................................................... 100 APPENDIX A ................................................................ 108
A-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 of a Fund in managing the Fund and that are not principal strategies. A Fund's primary strategies are detailed in its Prospectuses. The list of securities under each category below is not intended to be an exclusive list of securities for investment. An adviser 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. An adviser may invest in some securities under a given category as a primary strategy and in other securities under the same category as a secondary strategy. An adviser may invest in any security that falls under the specific category including securities that are not listed below.
- ----------------------------------------------------------------------------------------------------------------- Fund Securities Practices - ---- ---------- --------- - ----------------------------------------------------------------------------------------------------------------- Core Plus Bond Fund Debt Securities (Asset-backed When-issued Securities Securities, Collateralized Mortgage Illiquid Securities Obligations, Structured Notes, Stripped Futures Contracts Securities, Zero-coupon Securities, Options Pay-in-kind Securities, Convertible Swap Contracts Securities) Foreign Securities (Depositary Receipts) - ----------------------------------------------------------------------------------------------------------------- Government Securities Fund When-issued Securities Futures Contracts Options - ----------------------------------------------------------------------------------------------------------------- Growth Fund Equity Securities (Growth Stocks, Value Temporary Defensive Strategies Stocks) Portfolio Turnover Debt Securities (Structured Notes, When-issued Securities Zero-coupon Securities, Pay-in-kind Repurchase Agreements Securities, Stripped Securities, Step Futures Contracts Coupon Securities, Mortgage-related Options Securities, Asset-backed Securities, Swap Contracts Collateralized Mortgage Obligations, Short Sales U.S. Government Securities) Illiquid Securities Foreign Securities (Supranational Privatizations Entities, Emerging Markets) - ----------------------------------------------------------------------------------------------------------------- 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, Temporary Defensive Strategies Collateralized Mortgage Obligations, Portfolio Turnover Fixed Income Securities, Convertible When-issued Securities Securities) Repurchase Agreements Foreign Securities (Bonds, Lower-quality Securities Lending Debt Securities, Corporate Securities, Swap Contracts Convertible Securities, Government Securities, Supranational Entities, Warrants) - -----------------------------------------------------------------------------------------------------------------
A-3
- ----------------------------------------------------------------------------------------------------------------- Fund Securities Practices - ---- ---------- --------- - ----------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund Temporary Defensive Strategies Portfolio Turnover - ----------------------------------------------------------------------------------------------------------------- Limited Term Government and Agency Debt Securities (Mortgage-related When-issued Securities Fund Securities, Collateralized Mortgage Futures Contracts Obligations, Stripped Securities) Options Foreign Securities (Currency Hedging) Illiquid Securities - ----------------------------------------------------------------------------------------------------------------- Massachusetts Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings Mortgage-related Securities, Stripped When-issued Securities Securities, Pay-in-kind Securities, U.S. Futures Contracts Government Securities) Options Illiquid Securities Reverse Repurchase Agreements - ----------------------------------------------------------------------------------------------------------------- Municipal Income Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings Stripped Securities, U.S. Government When-issued Securities Securities) Futures Contracts Options Illiquid Securities - ----------------------------------------------------------------------------------------------------------------- Research Fund Equity Securities (REITs, Real Estate Temporary Defensive Strategies Securities) Portfolio Turnover Debt Securities (Fixed Income When-Issued Securities, Securities Zero-coupon Securities, Repurchase Agreements Collateralized Mortgage Obligations) Swap Transactions - ----------------------------------------------------------------------------------------------------------------- Strategic Income Fund Debt Securities (Asset-backed Initial Public Offerings securities, Collateralized Mortgage When-issued Securities Obligations, Step Coupon Securities) Futures Contracts Equity Securities (Investment Options Companies) Swap Contracts Foreign Securities (Currency Hedging) Illiquid Securities Short Sales Reverse Repurchase Agreements - -----------------------------------------------------------------------------------------------------------------
A-4 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 a 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. Risks. Debt securities are subject to market risk 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. Sometimes, an issuer may make these payments from money raised through a variety of sources, including, with respect to issuers of municipal securities, (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 to make these payments could be affected by general economic conditions, issues specific to the issuer, litigation, legislation or other political events, the bankruptcy of the issuer or war, natural disasters, terrorism or other major events. 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 and municipal 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. 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"). 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 behind 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 A-5 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 and other asset-backed and mortgage-backed securities 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 rated investment-grade by Standard & Poor's Rating Group ("Standard & Poor's" or "S&P") or Moody's Investor's Service, Inc. ("Moody's") or is unrated but considered to be of equivalent quality by an investment adviser. 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." 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 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 A-6 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 tend to reduce yield to maturity, and a slower-than-expected prepayment rate may have the opposite effect of increasing yield to maturity. If a Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will tend to increase, and slower-than-expected prepayments tend to 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 usually 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 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 A-7 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 analysis of the issuer's creditworthiness and financial prospects, and of the adviser'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. Structured notes may be considered derivative securities. Tax Exempt Securities. The Funds, especially 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 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. A-8 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 adviser will consider such an event as part of its normal, ongoing review of all the Fund's portfolio securities. 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 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 A-9 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: .. 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. .. 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. .. 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. Risks. 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. .. "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 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. .. "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. .. "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. Risks. U.S. government securities generally do not involve the credit risks associated with investments in other A-10 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. Securities such as Ginnie Maes, Fannie Maes and Freddie Macs are guaranteed as to the payment of principal and interest by the relevant entity (e.g., GNMA, FNMAE or FHLMC) but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government 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. 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 holders of preferred stock, whose claims take precedence over the claims of those who own common stock. While offering greater potential for long-term growth, equity securities generally are more volatile and more risky than some other forms of investment, particularly debt securities. Therefore, the value of your investment in a Fund may sometimes decrease. A Fund may invest in equity securities of companies with relatively small market capitalizations. 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. 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. . Small Capitalization Companies -- Certain Funds may invest in companies with relatively small market capitalizations. Such investments may involve greater risk than is usually A-11 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. 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. 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. 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 such countries. In other cases, when a Fund's adviser 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 A-12 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 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 States corporation. All depositary receipts, including those denominated in U.S. dollars, will be subject to foreign currency exchange risk. 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 A-13 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 with respect to these securities, which are often purchased for defensive purposes. 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, 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. A-14 .. 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 resalable, 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 has determined, under guidelines established by each Trust's Board of Trustees, that the particular issue is liquid. Initial Public Offerings. Certain funds may purchase securities of companies that are offered pursuant to an initial public offerings ("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. The Funds' investment in IPO securities may have a significant impact on a Fund's performance and may result in significant capital gains. Private Placements. Certain Funds may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for these securities, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell the securities when its investment adviser believes that it is advisable to do so or may be able to sell the securities only at prices lower than if the securities were more widely held. At times, it also may be more difficult to determine the fair value of the securities for purposes of computing a Fund's net asset value. While private placements may offer opportunities for investment that are not otherwise available on the open market, the securities so purchased are often "restricted securities," which are securities that cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "Securities Act") or the availability of an exemption from registration (such as Rule 144 or Rule 144A under the Securities Act), or that are not readily marketable because they are subject to other legal or contractual delays or restrictions on resale. The absence of a trading market can make it difficult to ascertain a market value for illiquid investments such as private placements. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for a Fund to sell them promptly at an acceptable price. A Fund may have to A-15 bear the extra expense of registering the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations typically are less readily available for these securities. The judgment of a Fund's investment adviser may at times play a greater role in valuing these securities than in the case of unrestricted securities. Generally speaking, restricted securities may be sold only to qualified institutional buyers, in a privately negotiated transaction to a limited number of purchasers, in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration, or in a public offering for which a registration statement is in effect under the Securities Act. A Fund may be deemed to be an underwriter for purposes of the Securities Act when selling restricted securities to the public so that the Fund may be liable to purchasers of the securities if the registration statement prepared by the issuer, or the prospectus forming a part of the registration statement, is materially inaccurate or misleading. 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 A-16 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 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 A-17 on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. Certain Funds may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at a time when, in the case of a call warrant, the exercise price is less than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. Certain Funds may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, the Fund may buy put options on the foreign currency. If the value of the currency declines, the Fund will have the right to sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio. Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, 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. A-18 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 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 A-19 stock index futures may not correspond perfectly to hours of trading on the foreign exchange to which a particular foreign stock index future relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged. Price movement correlation also may be distorted by the illiquidity of the futures and options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in futures contracts or options because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, futures and options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, speculators trading spreads between futures markets may create temporary price distortions unrelated to the market in the underlying securities. Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. An exchange-traded option may be closed out only on a national securities or commodities exchange, which generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option with the result that the Fund would have to exercise the option in order to realize any profit. If 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(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. A-20 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 and/or movements of the relevant indices 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. Certain Funds may, but are not required to, use a number of derivative instruments for risk management purposes or as part of their investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodities, and related indexes. Loomis Sayles may decide not to employ any of these strategies and there is no assurance that any derivatives strategy used by the Funds will succeed. In addition, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Funds will engage in these transactions to reduce exposure to other risks when that would be beneficial. Examples of derivative instruments that the Funds may use include options contracts, futures contracts, options on futures contracts, zero-strike warrants and options, swap agreements and debt-linked and equity-linked securities. The Loomis Sayles High Income Fund may invest in publicly or privately issued interests in investment pools whose underlying assets are credit default, credit-linked, interest rate, currency exchange and/or equity-linked swap contracts (individually a "Swap and all together "Swaps") and related underlying securities or securities loan agreements. Swaps are agreements between two or more parties to exchange sequences of cash flows over a period in the future. The pools' investment results may be designed to correspond generally to the performance of a specified securities index or "basket" of securities, or sometimes a single security. These types of pools are often used to gain exposure to multiple securities with less of an investment than would be required to invest directly in the individual securities. They may also be used to gain exposure to foreign securities markets without investing in the foreign securities themselves and/or the relevant foreign market. To the extent that the Fund invests in pools of Swaps and related underlying securities or securities loan agreements whose return corresponds to the performance of a foreign securities index or one or more of foreign securities, investing in such pools will involve risks similar to the risks of investing in foreign securities. See "Foreign Securities" above. In addition, the investing Fund bears the risk that the pool may default on its obligations under the interests in the pool. The investing Fund also bears the risk that a counterparty of an underlying Swap, the issuer of a related underlying security or the counterparty of an underlying securities loan agreement may default on its obligations. Swaps are often used for many of the same purposes as, and share many of the same risks with, other derivative instruments such as, participation notes and zero-strike warrants and options and debt-linked and/or equity-linked securities. Interests in privately offered investment pools of Swap may be considered illiquid and, except to the extent that such interests are issued under Rule 144A and deemed liquid, subject to the Fund's restrictions on investments in illiquid securities. 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 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 A-21 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 generally 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. 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 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 A-22 securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend on the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. 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. Insurance on Portfolio Holdings. 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 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' adviser, 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 A-23 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' adviser 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 fund 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 (as determined by the adviser) 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. 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 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 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. Interfund Transactions (All Funds). To the extent permitted by applicable law and/or pursuant to exemptive relief from the Securities and Exchange Commission (the "SEC"), a Fund may invest any of its daily cash balances in shares of investment companies that are advised by its investment manager or its affiliates including affiliated money market and short-term bond funds. Each Fund may borrow money for temporary or emergency purposes in accordance with its investment restrictions. Subject to the terms of any applicable exemptive relief granted by the SEC, a Fund may borrow for such purposes from other investment companies advised by an investment manager or its affiliates in an interfund lending program. A-24 In such a program, a Fund and affiliated funds would be permitted to lend and borrow money for certain temporary or emergency purposes directly to and from one another. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit the Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by the investment manager or an affiliate. 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. On May 14, 2003 for the Loomis Sayles Funds I and June 10, 2003 for the Loomis Sayles Funds II, shareholders voted to elect each Trustee listed below to serve on each Trust's Board. Effective June 10, 2003, the Board of Trustees of CDC Nvest Funds Trusts I, II, III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust, and AEW Real Estate Income Fund (the "CDC Nvest Funds Trusts") approved new trustees for the trusts in connection with the integration of the CDC Nvest Funds Trusts with Loomis Sayles Funds I and Loomis Sayles Funds II (together, Loomis Sayles Funds I and Loomis Sayles Funds II comprise the "Loomis Sayles Funds Trusts"). These approvals resulted in a combined Board of Trustees for the CDC Nvest Funds Trusts and the Loomis Sayles Funds Trusts (together, the "CDC Nvest and Loomis Sayles Funds Trusts"). The table below provides certain information regarding the trustees and officers of the CDC Nvest Funds Trusts and Loomis Sayles Funds 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.
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Portfolios in Fund Position(s) Term of Office and Principal Complex Other Held with Length of Time Occupation(s) Overseen Directorships -------- Name, Age and Address Funds Served During Past 5 Years** Held --------------------- ----- ------ ------------------- ---- - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ Graham T. Allison, Jr. Trustee Until retirement* Douglas Dillon 41 Director, Taubman (63) Professor and Director Centers, Inc. 399 Boylston Street Contract 19 Years for the CDC of the Belfer Center of Boston, MA 02116 Review and Nvest Funds Trusts; less Science for Board Member, USEC Governance than 1 year for the International Affairs, Inc. Committee Loomis Sayles Funds John F. Kennedy School Member Trusts of Government, Harvard University - ------------------------------------------------------------------------------------------------------------------------------------ Edward A. Benjamin Trustee Until Retirement* Retired 41 Director, (65) Coal, Energy 399 Boylston Street Audit Less than 1 year Investments & Boston, MA 02116 Committee Management, LLC; Member Director, Precision Optics Corporation (optics manufacturer) - ------------------------------------------------------------------------------------------------------------------------------------
A-25
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Portfolios in Fund Position(s) Term of Office and Principal Complex Other Held with Length of Time Occupation(s) Overseen Directorships -------- Name, Age and Address Funds Served During Past 5 Years** Held --------------------- ----- ------ --------------------- ---- - ------------------------------------------------------------------------------------------------------------------------------------ Precision Optics Corporation (optics Manufacturer) - ------------------------------------------------------------------------------------------------------------------------------------ Daniel M. Cain Trustee Until retirement* President and CEO, Cain 41 Trustee, Universal (58) Brothers & Company, Health Realty 452 Fifth Avenue Chairman of 7 years for the CDC Incorporated Income Trust; New York, NY 10018 the Audit Nvest Funds Trusts; less (investment banking) Committee than 1 year for the Director, Sheridan Loomis Sayles Funds Healthcorp Trusts - ------------------------------------------------------------------------------------------------------------------------------------ Paul G. Chenault Trustee Until Retirement* Retired; Trustee, First 41 Director, Mailco (70) Variable Life (variable Office Products, 5852 Pebble Beach Way Contract Less than 1 year for the life insurance) Inc. San Luis Obispo, CA Review and CDC Nvest Funds Trusts; 93401-8270 Governance 4 years for the Loomis Committee Sayles Funds Trusts - ------------------------------------------------------------------------------------------------------------------------------------ Kenneth J. Cowan (71) Trustee Until retirement* Retired 41 None 399 Boylston Street Boston, MA 02116 Chairman of 28 years for the CDC the Contract Nvest Funds Trusts; less Review and than 1 year for the Governance Loomis Sayles Funds Committee Trusts - ------------------------------------------------------------------------------------------------------------------------------------ Richard Darman (60) Trustee Until retirement* Partner, The Carlyle 41 Director and 399 Boylston Street Group (investments); Chairman, AES Boston, MA 02116 Contract 7 years for the CDC Chairman of Board of Corporation Review and Nvest Funds Trusts; less Directors of AES Governance than 1 year for the Corporation Committee Loomis Sayles Funds (international power Member Trusts company); formerly, Professor, John F. Kennedy School of Government, Harvard University - ------------------------------------------------------------------------------------------------------------------------------------ Sandra O. Moose (61) Trustee Until retirement* President, Strategic Director, Verizon One Exchange Place Advisory Services. E Communications; Boston, MA 02109 Audit 21 years for the CDC (management consulting); Director, Rohm and Committee Nvest Funds Trusts; less formerly Senior Vice Haas Company Member than 1 year for the President and Director, (specialty Loomis Sayles Funds The Boston Consulting chemicals) Trusts Group, Inc. (management consulting) - ------------------------------------------------------------------------------------------------------------------------------------ John A. Shane (70) Trustee Until retirement* President, Palmer 41 Director, Gensym 200 Unicorn Park Drive Service Corporation Corporation; Woburn, MA 01801 21 years for the CDC (venture capital Director, Overland Contract Nvest Funds Trusts; less organization) Storage, Inc.; Review and than 1 year for the Director, Abt Governance Loomis Sayles Funds Associates Inc. Committee Trusts Member - ------------------------------------------------------------------------------------------------------------------------------------
A-26
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Portfolios in Fund Position(s) Term of Office and Principal Complex Other Held with Length of Time Occupation(s) Overseen Directorships -------- Name, Age and Address Funds Served During Past 5 Years Held --------------------- ----- ------ ------------------- ---- - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ Robert J. Blanding/1/ CEO, Loomis Not Applicable President, Chairman, 41 None (56) Sayles Funds Director and Chief 555 California Street II; less than 1 year Executive Officer, San Francisco, CA 94104 President Loomis Sayles; and CEO, Loomis Sayles Funds I Trustee - ------------------------------------------------------------------------------------------------------------------------------------ John T. Hailer/2/ (43) President Not Applicable President and Chief 41 None 399 Boylston Street and CEO of Executive Officer, CDC Boston, MA 02116 the CDC 3 Years for the CDC IXIS Asset Management Nvest Funds Nvest Funds Trusts; less Distributors, L.P.; Trusts; than 1 year for the formerly, Senior Vice Executive Loomis Sayles Funds President, Fidelity Vice Trusts Investments President, Loomis Sayles Funds I; President, Loomis Sayles Funds II Trustee - ------------------------------------------------------------------------------------------------------------------------------------ Peter S. Voss/3/ (57) Chairman of Not Applicable Director, President and 41 Trustee, Harris 399 Boylston Street the Board Chief Executive Associates Boston, MA 02116 11 years for the CDC Officer, CDC IXIS Asset Investment Trust4 Trustee Nvest Funds Trusts; less Management North than 1 year for the America, L.P. Loomis Sayles Funds Trusts - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------
*All Trustees serve until retirement, resignation or removal from the Board. The current retirement age is 72. **Each person listed above holds the same position(s) with the CDC Nvest Funds Trusts and Loomis Sayles Funds Trusts. Previous positions during the past five years with CDC IXIS Asset Management Distributors, L.P. (the "Distributor"), CDC IXIS Advisers or Loomis Sayles 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. /1/ Mr. Blanding is deemed an "interested person" of CDC Nvest Funds Trusts and the Loomis Sayles Funds Trusts because he holds the following positions with affiliated persons of the Trusts: President, Chairman, Director and Chief Executive Officer of Loomis, Sayles & Company, L.P. ("Loomis Sayles"). /2/Mr. Hailer is an "interested person" of the CDC Nvest Funds Trusts and the Loomis Sayles Funds Trusts 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"). /3/Mr. Voss is an "interested person" of the CDC Nvest Funds Trusts and the Loomis Sayles Funds Trusts 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 Loomis, Sayles & Company, Inc.; Member of Reich & Tang Asset Management, LLC; Director of Westpeak Investment Advisors, Inc.; Director of Vaughan, Nelson Investment Management, L.P.; Director, Hansberger Group, Inc.; Member, Board of Managers, Harris Alternatives L.L.C.; and Director and Member of the Executive Board of CDC IXIS Asset Management. /4/ As of January 30, 2003, Harris Associates Investment Trust had seven series that were overseen by its Board of Trustees. A-27
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Portfolios in Fund Position(s) Term of Office* and Principal Complex Other Held with Length of Time Occupation(s) Overseen Directorships -------- Name, Age and Address Funds Served During Past 5 Years** Held --------------------- ----- ------ --------------------- ---- - ------------------------------------------------------------------------------------------------------------------------------------ Nicholas H. Palmerino Treasurer Less than 1 year with Senior Vice President, Not Applicable Not Applicable (38) CDC Nvest Fund Trusts CDC IXIS Asset 399 Boylston Street and Loomis Sayles Management Services, Boston, MA 02116 Funds Trusts Inc.; Senior Vice President, CDC IXIS Asset Management Advisers, L.P.; formerly, Vice President, Loomis, Sayles & Company, L.P. - ------------------------------------------------------------------------------------------------------------------------------------ John E. Pelletier (39) Secretary, 6 years as Secretary Senior Vice President, Not Applicable Not Applicable 399 Boylston Street Chief Legal with the CDC Nvest General Counsel, Boston, MA 02116 Officer Funds Trusts and Loomis Secretary and Clerk, Sayles Funds Trusts CDC IXIS Distribution Corporation; Senior Less than 1 year as Vice President, General Chief Legal Officer Counsel, Secretary and with Loomis Sayles Clerk, CDC IXIS Asset Funds Trusts and CDC Management Nvest Funds Trusts 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. - ------------------------------------------------------------------------------------------------------------------------------------ Daniel J. Fuss (70) Executive 2 Years for Loomis Vice Chairman and Not Applicable Not Applicable One Financial Center Vice Sayles Funds II; prior Director, Loomis, Boston, MA 02111 President to 2002; President and Sayles& Company, L.P. Loomis Trustee Sayles Funds Less than 1 Year for the II CDC Nvest Funds Trusts - ------------------------------------------------------------------------------------------------------------------------------------ Frank LoPiccolo (50) Anti-Money Less than 1 Year for the Senior Vice President, Not Applicable Not Applicable Laundering CDC Nvest Fund and CDC IXIS Asset Officer Loomis Sayles Fund Trusts Management, Inc. - ------------------------------------------------------------------------------------------------------------------------------------
A-28 *Each officer of the CDC Nvest Funds Trusts and Loomis Sayles Funds Trusts serve for an indefinite term in accordance with each Trust's current By-laws until the date his or her sucessor is elected and qualified, or until he or she sooner dies, retires, is removed or becomes disqualified. **Each person listed above holds the same position(s) with the CDC Nvest Funds Trusts and Loomis Sayles Funds Trusts. Previous positions during the past five years with CDC IXIS Asset Management Distributors, L.P. (the "Distributor"), CDC IXIS Advisers or Loomis Sayles 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 trustees have delegated certain authority to the Audit Committee and Contract Review and Governance Committee. Prior to the unification of the boards of Trustees, the Board of Trustees of the Trust included three committees: Audit Committee, Contract Review Committee and Nominating and Governance Committee. During the period from October 1, 2002 to June 10, 2003, each of these committees met twice. The CDC Nvest and Loomis Sayles Funds Trusts currently have two standing Board Committees. The Contract Review and Governance Committee of the Trusts is comprised solely of Independent Trustees and considers matters relating to advisory, subadvisory and distribution arrangements, potential conflicts of interest between the adviser and the trusts, and governance matters relating to the trusts. During the period June 10, 2003 to September 30, 2003, this Committee held two meetings. The Audit Committee of the Trusts is comprised solely of Independent Trustees and considers matters relating to the scope and results of the Trusts' audits and serves as a forum in which the independent auditors 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 period June 10, 2003 to September 30, 2003 this Committee held six meetings. The current membership of each committee is as follows: Audit Committee Contract Review and Governance Committee --------------- ---------------------------------------- Daniel M. Cain - Chairman Kenneth J. Cowan - Chairman Edward A. Benjamin Graham T. Allison, Jr. Sandra O. Moose Paul G. Chenault Richard Darman John A. Shane Trustee Fees The Trusts pay no compensation to their officers or to their trustees who are Interested Trustees. 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 A-29 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 and Loomis Sayles Funds Trusts based on a formula that takes into account, among other factors, the relative net assets of each mutual fund portfolio. In addition, for oversight of the AEW Real Estate Income Fund each Trustee receives a retainer fee at the annual rate of $2,000 and meeting attendance fees of $375 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 $2,000. Furthermore, each committee chairman receives an additional retainer fee (beyond the $2,000 fee) at the annual rate of $1,000. The retainer fees assume four Committee meetings per year. Each Trustee is compensated $200 per Committee meeting that he or she attends in excess of four per year. During the fiscal year ended September 30, 2003 for CDC Nvest Funds Trust I and II and Loomis Sayles Funds II 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 Funds Trust III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust-Money Market Series and Loomis Sayles Funds I. The table also sets forth, as applicable, pension or retirement benefits accrued as part of fund expenses, as well as estimated annual retirement benefits and total compensation paid to Trustees by trusts in the CDC Nvest Funds Trusts and Loomis Sayles Funds Trusts: A-30
- ------------------------------------------------------------------------------------------------------------------------------------ Pension or Retirement Estimated Aggregate Aggregate Aggregate Benefits Annual Total Compensation Compensation from Compensation from Accrued as Benefits Compensation from CDC Nvest CDC Nvest Funds Loomis Sayles Part of Fund Upon from the Funds Trust 1* Trust II* Funds II* Expenses Retirement Fund Complex+* -------------- --------- --------- -------- ---------- -------------- - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ Joseph Alaimo $ 0 $ 0 $19,177 $0 $0 $46,250 - ------------------------------------------------------------------------------------------------------------------------------------ Graham T. Allison, Jr. $37,179 $5,896 $11,278 $0 $0 $77,683 - ------------------------------------------------------------------------------------------------------------------------------------ Edward A. Benjamin** $ 8,234 $1,463 $20,684 $0 $0 $60,975 - ------------------------------------------------------------------------------------------------------------------------------------ Daniel M. Cain $40,209 $6,417 $13,468 $0 $0 $88,858 - ------------------------------------------------------------------------------------------------------------------------------------ Kenneth J. Cowan $39,524 $6,271 $12,010 $0 $0 $83,120 - ------------------------------------------------------------------------------------------------------------------------------------ Paul G. Chenault** $ 6,718 $1,195 $19,227 $0 $0 $55,125 - ------------------------------------------------------------------------------------------------------------------------------------ Richard Darman $37,179 $5,896 $11,278 $0 $0 $77,683 - ------------------------------------------------------------------------------------------------------------------------------------ Sandra O. Moose $37,865 $6,041 $12,735 $0 $0 $82,421 - ------------------------------------------------------------------------------------------------------------------------------------ John A. Shane $36,349 $5,773 $11.278 $0 $0 $76,196 - ------------------------------------------------------------------------------------------------------------------------------------ Pendelton P. White $37,179 $5,896 $11,278 $0 $0 $77,683 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ Peter S. Voss $ 0 $ 0 $ 0 $0 $0 $ 0 - ------------------------------------------------------------------------------------------------------------------------------------ John T. Hailer $ 0 $ 0 $ 0 $0 $0 $ 0 - ------------------------------------------------------------------------------------------------------------------------------------ Robert J. Blanding $ 0 $ 0 $ 0 $0 $0 $ 0 - ------------------------------------------------------------------------------------------------------------------------------------
*Amounts include payments deferred by trustees for the fiscal year ended September 30, 2003, with respect to the Trusts. The total amount of deferred compensation accrued for Loomis Sayles Funds II as of September 30, 2003 for the Trustees is as follows: Benjamin ($6,317), Cowan ($6,418) and Darman ($11,244). The total amount of deferred compensation accrued for CDC Nvest Funds Trust I as of September 30, 2003 for the Trustees is as follows: Benjamin ($6,569), Cowan ($17,055) and Darman ($37,179). The total amount of deferred compensation accrued for CDC Nvest Funds Trust II as of September 30, 2003 for the Trustees is as follows: Benjamin ($758), Cowan ($2,079) and Darman ($4,735). **Amounts include amounts held through the deferred compensation plan. + Total Compensation represents amounts paid during 2003 to a trustee for serving on the board of trustees of nine (9) trusts with a total of forty-one (41) funds as of September 30, 2003. Total compensation reflects payments for periods of less than one year for certain Funds due to a change in the fiscal year end of these Funds. For the twelve months ended September 30, 2003 the Trustees received the following amounts: Alaimo ($46,250), Allison ($82,500), Benjamin ($60,975), Cain ($92,550), Chenault ($55,125), Cowan ($88,250), Darman ($82,500), Moose ($86,800), Shane (80,575) and White ($82,500). 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. As a result of this arrangement, each trust, 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 and immediately reinvested in shares of the Fund(s) selected by the Trustees. At January 2, 2004, the officers and trustees of the Trusts collectively owned less than 1% of the then outstanding shares of each Fund and each Trust, except that the officers and trustees of the Trust owned beneficially 9.86% of the Loomis Sayles Institutional High Income Fund. The amount includes shares held by the Loomis Sayles Employees' Profit Sharing Plan (the "Profit Sharing Plan") or the Loomis Sayles Funded Pension Plan (the "Pension Plan"). As of January 2, 2004, the Profit Sharing Plan owned the following percentages of the outstanding of the indicated Funds: 18.20% of Loomis Sayles Growth Fund, 4.19% of the Loomis Sayles Investment Grade Bond Fund, and 8.39% of Loomis Sayles Research Fund. As of January 2, 2004, the Pension Plan owned the following percentages of the outstanding shares of the indicated Funds: 18.05% of Loomis Sayles Growth Fund, 12.93% of Loomis Sayles International Equity Fund, and 53.53% of Loomis Sayles Research Fund. A-31 The trustee of the Pension Plan and Profit Sharing Plan is Charles Schwab Trust Company. The Pension Plan's Advisory /Committee, which is composed of the same individuals listed below as trustees of the Profit Sharing Plan, has the sole voting and investment power with respect to the Pension Plan's shares. The trustees of the Profit Sharing Plan are Robert Ix, John DeBeer, Stephanie Lord, Teri Mason, Richard Skaggs, Timothy Hunt, Greg O'Hara, Vincent Stanton, Paul Sherba and Kurt Wagner. Except for Timothy Hunt, John DeBeer and Vincent Stanton, each member of the Advisory Committee is an officer and employee of Loomis Sayles. Plan participants are entitled to exercise investment and voting power over shares owned of record by the Profit Sharing Plan. Shares not voted by participants are voted in the same proportion as the shares voted by the voting participants. The address for the Profit Sharing Plan and the Pension Plan is One Financial Center, Boston, Massachusetts. As of December 31, 2003, the trustees had the following ownership in the Funds:
Dollar Range of Fund Graham T. Edward Daniel Paul G. Kenneth Richard Sandra O. John A. Shares* Allison, A. M. Cain** Chenault** J. Darman** Moose** Shane** Jr.** Benjamin** Cowan** Core Plus Bond Fund A A A A B A A A Government Securities A A A A B A A A Fund Massachusetts Tax Free A A A A A A A A Income Fund Growth Fund A A A A B A A A High Income Fund A A A A B A A A International Equity Fund A A A A B A A A Investment Grade Bond A A A A B A A A Fund Limited Term Government A A A A B A A A and Agency Fund Municipal Income Fund A A A A A A A A Research Fund A A A D B A A A Strategic Income Fund A C A A C A A A Aggregate Dollar Range E C E D E E E A of Fund Shares in Funds Overseen by Trustee in the Trusts
* A. None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000 **Amounts include amounts held through the deferred compensation plan. Interested Trustees
Dollar Range of Fund Shares* Robert J. Blanding John T. Hailer Peter S. Voss Core Plus Bond Fund A A A Government Securities Fund A A A Massachusetts Tax Free Income Fund A A A Growth Fund E A A High Income Fund A A A International Equity Fund E C A Investment Grade Bond Fund A A A Limited Term Government and Agency Fund A A A Municipal Income Fund A A A Research Fund A A A Strategic Income Fund A A A Aggregate Dollar Range of Fund Shares in Funds E E E Overseen by Trustee in the Trusts
* A. None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000 A-32 **Amounts include "notional" amounts held through the deferred compensation plan. Advisory Agreements Each Fund's advisory agreement with Loomis Sayles & Company, L.P. ("Loomis Sayles") provides that the adviser 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 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, or its 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 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 advisory 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 the 1940 Act). In addition, each agreement with Loomis Sayles will automatically terminate if its relevant Trust or Fund shall at any time be required by Loomis Sayles to eliminate all reference to the words "Loomis" and "Sayles" in the name of the Trust or the Fund, unless the continuance of the agreement after such change of name is approved by a majority of the outstanding voting securities of the relevant Fund and by a majority of the trustees who are not interested persons of the Trust or Loomis Sayles. Each advisory agreement provides that the adviser 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. In addition to serving as investment adviser to the Funds, the Strategic Income Fund, Municipal Income Fund, and each series of Loomis Sayles Funds II (formerly, "Loomis Sayles Funds"), Loomis Sayles acts as investment adviser to each series of Loomis Sayles Funds I (formerly, "Loomis Sayles Investment Trust"), a registered open-end management investment company. Loomis Sayles also serves as adviser to a number of other open-end management companies and provides investment advice to numerous other corporate and fiduciary clients. Under a separate Advisory Administration Agreement dated September 1, 2003, CDC IXIS Advisers oversees the portfolio management services provided to the Funds by their adviser and provides certain administrative services. Subject to the review of the Board of Trustees, CDC IXIS Advisers monitors the adviser to assure that the adviser 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 the Funds 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 A-33 Fund's registration statement under federal and state laws. CDC IXIS Advisers does not determine what investments will be purchased or sold for any Fund. Under each advisory agreement with Loomis Sayles, if the total ordinary business expenses of a Fund or the Trust as a whole for any fiscal year exceeds the lowest applicable limitation (based on percentage of average net assets or income) prescribed by any state in which the shares of the Fund or the Trust are qualified for sale, Loomis Sayles shall pay such excess. Loomis Sayles will not be required to reduce its fee or pay such expenses to an extent or under circumstances that would result in any Fund's inability to qualify as a regulated investment company under the Code. The term "expenses" is defined in the advisory agreements or in relevant state regulations and excludes brokerage commissions, taxes, interest, distribution-related expenses, and extraordinary expenses. As described in the Prospectuses, Loomis Sayles has agreed to certain additional contractual arrangements to limit certain Fund's expenses. Board Approval of the Existing Advisory Agreements The Board of Trustees, including the Independent Trustees, considers matters bearing on each Fund's advisory 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. The advisory 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 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, may also consider other material facts such as (1) the adviser's results and financial condition, (2) each Fund's investment objective and strategies and the size, education and experience of the advisers' 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 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. The Board of Trustees most recently approved the renewal of the Trusts' advisory agreements at their meeting held in May 2003, and for certain new series of Loomis Sayles Funds II on June 12, 2003. On that date, the Board of Trustees also approved amendments to advisory contracts for the Income Funds, Tax Free Income Funds, Growth Fund, International Equity Fund, Research Fund and Investment Grade Bond Fund. In considering the advisory 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 agreements included the following: . 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. . 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. A-34 . the nature, quality, cost and extent of administrative and shareholder services performed by the advisers and affiliated companies, under the existing advisory agreements and under separate agreements covering transfer agency functions and administrative services. . 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 relating to such limitations and the amount and nature of fees paid by shareholders. The information on advisory 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, such as the engagement of affiliates of the adviser to provide distribution, brokerage and transfer agency services to the Fund, and the benefits of research made available to the adviser by reason of brokerage commissions generated by the Fund's securities transactions. In evaluating each Fund's advisory fees, the Trustees also took into account the demands, complexity and quality of the investment management of such Fund. . the level of the advisers' profits in respect of the management of the Funds. The Trustees considered the profits realized by the advisers in connection with the operation of each Fund. . 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 agreements should be continued through May 31, 2004. Information About the Organization and Ownership of the Advisers 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 Asset Management 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 Asset Management 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. CDC IXIS Asset Management North America is an indirect subsidiary of CDC IXIS Asset Management, a French asset manager. CDC IXIS Asset Management is the primary investment management subsidiary of Caisse des Depots et Consignations ("CDC"). Founded in 1816, CDC is a major French diversified financial institution with a strong global presence in the banking, insurance, investment banking, asset management and global custody industries. CDC IXIS Asset Management is owned 80% by CDC IXIS, a French investment bank that in turn is owned jointly by CDC and Eulia. Eulia, a French financial institution, is a joint venture between CDC and the Caisse Nationale des Caisses d'Epargne, an association of French savings banks. CDC owns 35% of the Caisse Nationale des Caisses d'Epargne. The remaining 20% of CDC IXIS Asset Management is owned by CNP Assurances, a leading French insurance company. CDC owns 37% of CNP Assurances. The main place of business of CDC IXIS Asset Management is 7, place des Cinq Martyrs du Lycee Buffon, 75015 Paris, France. The registered address of CDC IXIS is 26-28, rue Neuve Tolbiac, 75658 Paris Cedex 13. The registered address of CNP Assurances is 4, place Raoul Dautry, 75015 Paris, France. The registered address of Eulia and Caisse Nationale des Caisses d'Epargne is 5, rue Masseran, 75007 Paris, France. The registered office of CDC is 56, rue de Lille, 75007 Paris, France. The fifteen principal subsidiary or affiliated asset management firms of CDC IXIS Asset Management North America, L.P. collectively had approximately $135 billion in assets under management or administration as of September 30, 2003. A-35 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 Asset Management North America owns the entire limited partnership interest in Loomis Sayles. Allocation of Investment Opportunity Among Funds and Other Investors Managed by Advisers; Cross Relationships of Officers and Trustees 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 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 advised by Loomis Sayles also invest. If one of these Funds and such other clients advised 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 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. 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 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 A-36 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 on Class A shares 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. Prior to 1993, reimbursable expenses of the Distributor could be carried forward for reimbursement in future years. Subsequently, the Class A Plan for each Fund was amended to stop allowing new sums to be carried forward and the Distributor was only permitted to carry forward sums that had already accrued. The amounts of unreimbursed Class A expenses carried over into 2003 from previous plan years were as follows:
Fund Amount Carried Forward Amendment Date* ---- ---------------------- --------------- Core Plus Bond $1,919,349 9/13/93 Government Securities $1,583,658 9/24/93 Municipal Income $1,700,600 9/13/93 Limited Term Government and Agency $2,272,723 9/24/93
*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 Government and Agency 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. 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 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 series of the CDC Nvest Funds Trusts or the Loomis Sayles Funds Trusts. 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 relevant Funds based on their relative net assets. Expenses allocated to each 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. A-37 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 Asset Management North America and may receive compensation from each Fund's adviser 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 and (3) enhanced portfolio management opportunities and bargaining position with third party service providers and economies of scale arising from having asset levels higher than they would be if the plans were not in place. 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, Loomis Sayles Funds I and certain Funds in Loomis Sayles Funds II. The address of the Distributor is 399 Boylston Street, Boston, Massachusetts, 02116. 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. All Income Funds (except Limited Term Government and Agency Fund)+ 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. 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:
Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors 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 none 0.00% 0.25% 0.25% Sales Charge (2) 0.25%
A-38 Limited Term Government and Agency Fund
Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors 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. +Prior to September 12, 2003, Investment Grade Bond Fund offered Institutional, Retail and Admin Classes of shares. On May 21,2003, Admin Class shares were merged into Retail Class shares; and on September 12, 2003, Retail Class shares were converted to Class A shares of the Funds. On September 12, 2003, Institutional Class shares were converted to Class Y shares of the Funds. (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. 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: High Income, Strategic Income, Core Plus Bond and Government Securities Funds (Class B only for Government Securities Funds)
Maximum Front -End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year 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% All amounts for Class C none 1.00% 0.00% 1.00%
A-39 Limited Term Government and Agency Fund
Maximum Front -End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year Investors Commission Service Fee 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% All amounts for Class C none 1.00% 0.00% 1.00%
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. 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: Municipal Income Fund
Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors 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 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 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: A-40 Municipal Income Fund
Maximum Front -End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year 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. 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:
Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year by Investors 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% Less than $100,000 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 none 0.00% 0.25% 0.25% Sales 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 First Year First Year or Commission Service Fee Compensation Investment (% of offering price) (% of net investment) (% of offering period) - ---------- --------------------- --------------------- ---------------------- All amounts for Class B 3.75% 0.25% 4.00%
A-41 Equity Funds+ For Class A shares of the Loomis Sayles 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. The portion of the various fees and expenses for Class A shares of the Loomis Sayles Funds that are paid to securities dealers are shown below:
- ------------------------------------------------------------------------------------------------------------------- Maximum Maximum Maximum Maximum Sales Charge Paid Reallowance or First Year First Year 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 None 0.00% 0.25% 0.25% Sales Charge (2) - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
+Prior to September 12, 2003, the Growth Fund, International Equity Fund and Research Fund offered Institutional, Retail and Admin Classes of shares. On May 21, 2003, Admin Class shares were merged into Retail Class shares; and on September 12, 2003, Retail Class shares were converted to Class A shares of the Funds. On September 12, 2003, Institutional Class shares were converted to Class Y shares of the Funds. (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 Loomis Sayles 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 Loomis Sayles Funds that are paid to securities dealers are shown below:
Maximum Front -End Sales Maximum Maximum Maximum Charge Paid by Reallowance or First Year First Year 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% All amounts for Class C none 1.00% 0.00% 1.00%
(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 Loomis Sayles Growth Fund, Loomis Sayles International Equity Fund and Loomis Sayles Research Fund under the section entitled "Ways to Reduce or Eliminate Sales Charges." 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 A-42 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, the Adviser and their affiliates may out of their own resources make additional payments to dealers who sell shares of the Funds. These payments may include: (i) full reallowance of the sales charge of Class A shares, (ii) additional compensation with respect to the sale and/or servicing of Class A, B and C shares, (iii) payments based upon factors such as the length of time the assets of a dealer's clients have been invested in the Funds and the levels of those clients' assets and (iv) 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 Fund seminars and conferences, e.g., due diligence meetings held for training and educational purposes. The payment of these concessions and any other compensation offered will conform with state and federal laws and the rules of any self-regulatory organization, such as the National Association of Securities Dealers, Inc ("NASD"). The participation of such firms in financial assistance programs is at the discretion of the firm. These payments described in this paragraph may be significant to the dealers receiving the payments and the entities paying them. Dealers may charge their customers a processing fee or service fee in connection with the purchase or redemption of fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by its individual dealer. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in the Funds' Prospectuses and this Statement. Customers will be provided with specific information about any processing or service fees charged by their dealer. The commissions and sales charges for the last three fiscal years were allocated as follows: CDC NVEST TRUST I
12/31/01 12/31/02 9/30/03/1/ -------- -------- ---------- Total commissions on sales of Class A shares $3,227,553 $2,020,945 $189,617 Amount reallowed to other securities dealers $2,813,759 $1,771,806 $169,080 Amount retained by Distributor $ 413,794 $ 249,139 $ 20,537 Total CDSCs on redemptions of Classes A, B and C shares $2,711,885 $2,994,886 $373,136 Amount paid to FEP Capital, L.P. $2,638,993 $2,925,808 $347,801 Amount retained by Distributor* $ 72,892 $ 69,078 $ 25,335
*See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust I. CDC NVEST TRUST II
12/31/01 12/31/02 9/30/03/1/ -------- -------- --------- Total commissions on sales of Class A shares $498,712 $342,644 $27,141 Amount reallowed to other securities dealers $434,971 $302,974 $23,608 Amount retained by Distributor $ 63,741 $ 39,670 $ 3,533 Total CDSCs on redemptions of Classes A, B and C shares $610,331 $580,262 $20,590 Amount paid to FEP Capital, L.P. $584,849 $546,418 $20,590 Amount retained by Distributor* $ 25,482 $ 33,844 $ 0
A-43 *See "Other Arrangements" for information about amounts received by the Distributor from CDC Nvest Funds Trust I's investment advisers or the Funds directly for providing certain administrative services relating to CDC Nvest Funds Trust II. /1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2003. LOOMIS SAYLES FUNDS II
9/30/01 9/30/02 9/30/03 ------- ------- ------- Total commissions on sales of Class A shares $0 $0 $648,831 Amount reallowed to other securities dealers $0 $0 $581,586 Amount retained by Distributor $0 $0 $ 67,245 Total CDSCs on redemptions of Classes A, B and C shares $0 $0 $401,639 Amount paid to FEP Capital, L.P. $0 $0 $374,111 Amount retained by Distributor* $0 $0 $ 27,528
Custodial Arrangements. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, Massachusetts 02116, serves as the custodian for Trusts within the CDC Nvest Funds Trusts and for the Loomis Sayles High Income Fund, Loomis Sayles Strategic Income Fund, Loomis Sayles Limited Term Government and Agency Fund and Loomis Sayles Municipal Income Fund. 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. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts 02102, is the custodian for Trusts within the Loomis Sayles Funds Trusts (other than the Loomis Sayles High Income Fund, Loomis Sayles Strategic Income Fund, Loomis Sayles Limited Term Government and Agency Fund and Loomis Sayles Municipal Income Fund). As such, State Street Bank holds in safekeeping certificated securities and cash belonging to the Funds and, in such capacity, is the registered owner of securities held in book entry form belonging to the Funds. Upon instruction, State Street Bank receives and delivers cash and securities of the Funds in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Funds and calculates the total net asset value, total net income, and net asset value per share of each Fund on a daily basis. Independent Auditors. The Trusts' independent auditors are PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110. The independent auditors conduct an annual audit of each Fund's financial statements, assist in the review of federal and state income tax returns and consult with the Trusts as to matters of accounting and federal and state income taxation. The financial highlights in the Prospectuses for the Funds, and the financial statements contained in those Funds' Annual Reports for the year ended September 30, 2003 and incorporated by reference into this statement, have been so included in reliance on the reports of the Trusts' independent accountants, given on the authority of said firm as experts in auditing and accounting. Counsel to the Funds. Ropes & Gray LLP, located at One International Place, Boston, MA 02110, serves as counsel to the Funds. Other Arrangements Arrangements with the CDC Nvest Funds Trusts Pursuant to a contract between the Trusts and CIS, CIS, whose principal business address is 399 Boylston Street, A-44 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 periods ended September 30, 2003: Fund 1/01/03 - 9/30/03/1/ ---- -------------------- Core Plus Bond $250,569 Government Securities $101,082 High Income $ 61,539 Limited Term Government and Agency $156,896 Massachusetts $107,952 Municipal Income $151,736 Strategic Income $273,373 2/03/03 - 9/30/03/2/ -------------------- Growth $16,334 International Equity $16,870 Investment Grade Bond $ 7,425 Research $13,244 /1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2003. /2/ CIS became the shareholder servicing and transfer agent for each Fund on February 2, 2003. Prior to February 2, 2003, BFDS, an unaffiliated entity, served as the shareholder servicing and transfer agent. 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 September 30, 2003, 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. A-45 For these services CIS received the following fees from the Funds for the fiscal years ended December 31, 2001 and 2002 and the period January 1, 2003 through September 30, 2003:
Fiscal Year Ended December 31, January 1 through ------------------------------ September 30,/1/ ------------- Fund 2001 2002 2003 - ---- ---- ---- ---- Core Plus Bond $150,335 $181,783 $195,955 Government Securities $ 41,391 $ 52,701 $ 58,828 High Income $ 42,424 $ 32,625 $ 30,130 Limited Term Government and Agency $ 64,921 $ 78,121 $89,8774 Massachusetts $ 47,060 $ 56,477 $ 57,360 Municipal Income $ 74,157 $ 85,701 $ 85,899 Strategic Income $118,473 $124,140 $162,160
/1/ The Funds' fiscal year ends on September 30. For certain Funds, this reflects a change, effective September 12, 2003, from a prior fiscal year-end of December 31. The results shown are therefore calculated for the period from January 1, 2003 through September 30, 2003.
Fiscal Year Ended Period Ended ------------ September 30, ------------- Fund 2001 2002 10/01/02 7/01/03 - - ---- ---- ---- --------- --------- - 6/30/03 9/30/03 --------- --------- Growth Fund $10,516 $10,070 $ 6,374 $ 2,537 International Equity Fund $29,088 $24,425 $11,774 $ 4,691 Investment Grade Bond Fund $20,220 $61,782 $67,850 $27,744 Research Fund $ 1,466 $ 6,720 $ 4,735 $ 1,883
* For the fiscal year-ended September 30, 2001, September 30, 2002 and the period October 1, 2002 through June 30, 2003, the table reflects the fees paid to Loomis Sayles. For the period July 1, 2003 through September 30, 2003, the table reflects fees paid to CIS. Prior to July 1, 2003, Loomis Sayles performed certain accounting and administrative services for Growth Fund, International Equity Fund, Investment Grade Bond Fund and Research Fund pursuant to an administrative services agreement (the "Administrative Services Agreement") with this Trust dated May 8, 2000. For the period May 8, 2000 through May 8, 2002, Loomis Sayles Funds reimbursed Loomis Sayles for its expenses in performing or arranging for the performance of (i) corporate secretarial services, (ii) registration and disclosure assistance, (iii) legal and compliance services, (iv) transfer agent monitoring, (v) treasury financial services, (vi) treasury regulatory services and (vii) treasury tax services and other treasury services as may arise from time to time. CIS also performs transfer agency services for Loomis Sayles Funds I and Loomis Sayles Funds II. CIS maintains shareholder accounts and prepares and mails shareholder account statements, processes shareholder transactions, mails shareholder reports, prepares and mails distribution payments, and maintains records of Fund transactions. The Trust pays CIS an asset based fee for its services. 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 A-46 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, Loomis Sayles 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. Loomis Sayles will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Subject to the overriding objective of obtaining the best possible execution of orders, Loomis Sayles 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 Advised by Loomis Sayles. Generally, Loomis Sayles seeks to obtain quality executions at favorable security prices and at competitive commission rates, where applicable, through brokers and dealers who, in Loomis Sayles' opinion, can provide the best overall net results for its clients. Transactions in unlisted equity securities (including NASDAQ securities) are frequently executed through a primary market maker but may also be executed on an Electronic Communication Network (ECN), Alternative Trading System (ATS), or other execution system. Fixed income securities are generally purchased from the issuer or a primary market maker acting as principal on a net basis with no brokerage commission paid by the client. Such securities, as well as equity securities, may also be purchased from underwriters at prices which include underwriting fees. Commissions and Other Factors in Broker or Dealer Selection Loomis Sayles uses 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 to evaluate the overall reasonableness of brokerage commissions paid on client portfolio transactions by reference to such data. In making this evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker or dealer, are taken into account. Other relevant factors may include, without limitation: (a) the execution capabilities of the brokers and/or dealers, (b) research and other products or services (as described under "Soft Dollars" below) provided by such brokers and/or dealers which are expected to enhance Loomis Sayles' general portfolio management capabilities, (c) the size of the transaction, (d) the difficulty of execution, (e) the operations facilities of the brokers and/or dealers involved, (f) the risk in positioning a block of securities, and (g) the quality of the overall brokerage and research services provided by the broker and/or dealer. "Soft Dollars" Loomis Sayles' receipt of brokerage and research products or services may sometimes be a factor in Loomis Sayles' selection of a broker or dealer to execute transactions for a Fund where Loomis Sayles believes that the broker or dealer will provide quality execution of the transactions. Such brokerage and research products or services may be paid for with Loomis Sayles' own assets or may, in connection with transactions effected for client accounts for which Loomis Sayles exercises investment discretion, be paid for with client commissions (the latter, sometimes referred to as "soft dollars"). The brokerage and research products and services that may be a factor in Loomis Sayles' selection of a A-47 broker or dealer and that may be acquired by Loomis Sayles with "soft dollars" include, without limitation, the following which aid Loomis Sayles in carrying out its investment decision-making responsibilities: a wide variety of reports, charts, publications, subscriptions, quotation services, news services, investment related hardware and software, and data on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, credit analysis, stock and bond market conditions and projections, asset allocation, portfolio structure, economic forecasts, investment strategy advice, fundamental and technical advice on individual securities, valuation advice, market analysis, advice as to the availability of securities or purchasers or sellers of securities, and meetings with management representatives of issuers and other analysts and specialists. The brokerage and research products or services provided to Loomis Sayles by a particular broker or dealer may include both (a) products and services created by such broker or dealer and (b) products and services created by a third party. If Loomis Sayles receives a particular product or service that both aids it in carrying out its investment decision-making responsibilities (i.e., a "research use") and provides non-research related uses, Loomis Sayles will make a good faith determination as to the allocation of the cost of such "mixed-use item" between the research and non-research uses and will only use "soft dollars" to pay for the portion of the cost relating to its research use. In connection with Loomis Sayles' use of "soft dollars", a Fund may pay a broker or dealer an amount of commission for effecting a transaction for the Fund in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if Loomis Sayles determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research products or services provided by the broker or dealer, viewed in terms of either the particular transaction or Loomis Sayles' overall responsibilities with respect to the Fund. Loomis Sayles may use "soft dollars" to acquire brokerage or research products and services that have potential application to all client accounts including the Funds or to acquire brokerage or research products and services that will be applied in the management of a certain group of client accounts and, in some cases, may not be used with respect to the Funds. The products or services may not be used in connection with the management of some of the accounts including the Funds that paid commissions to the broker or dealer providing the products or services and may be used in connection with the management of other accounts. Loomis Sayles' use of "soft dollars" to acquire brokerage and research products and services benefits Loomis Sayles by allowing it to obtain such products and services without having to purchase them with its own assets. Loomis Sayles believes that its use of "soft dollars" also benefits the Funds as described above. However, conflicts may arise between a Fund's interest in paying the lowest commission rates available and Loomis Sayles' interest in receiving brokerage and research products and services from particular brokers and dealers without having to purchase such products and services with Loomis Sayles' own assets. Loomis Sayles seeks to ensure that its "soft dollar" practices fall within the "safe harbor" provided by Section 28(e) of the Securities Exchange Act of 1934, as amended. For purposes of this "Soft Dollars" discussion, the term "commission" may include (to the extent applicable) both commissions paid to brokers in connection with transactions effected on an agency basis and markups, markdowns, commission equivalents, or other fees paid to dealers in connection with certain transactions as encompassed by relevant SEC interpretation. 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 Asset Management North America or the Funds' adviser. Any 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. A-48 To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, an adviser 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 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 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." The Trust has 11 separate portfolios. Municipal Income Fund is the successor of NEL Tax Exempt Bond Funds, Inc. which commenced operations in 1977. Prior to January 5, 1996, the Municipal Income Fund was "New England Tax Exempt Income Fund"; and prior to September 15, 2003, the name of the Fund was "CDC Nvest Municipal Income Fund." The initial Fund of the Trust (now the Loomis Sayles Government Securities Fund) commenced operations on September 16, 1985. Strategic Income Fund was organized in 1995 and commenced operations on May 1, 1995, and was reorganized as a series of Loomis Sayles Funds II on September 12, 2003. The remaining Funds in the Trust are successors to the following corporations which commenced operations in the years indicated: 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 until January 1989, when the Trust was reorganized as 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 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." The Trust has two separate portfolios. Massachusetts Fund is a successor to an investment company that was organized in 1984 and reorganized as series of the Trust in January 1989. Loomis Sayles Funds II, registered with the SEC as a diversified open-end management investment company, is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (the "Declaration of Trust") dated February 20, 1991. The Trust has 14 portfolios. On September 12, 2003, the following Funds were reorganized from the CDC Nvest Funds Trusts into series of Loomis Sayles Funds II: Loomis Sayles High Income Fund (formerly, the "CDC Nvest High Income Fund"); Loomis Sayles Limited Term U.S. Government Fund (formerly, the "CDC Nvest Limited Term U.S. Government Fund"); Loomis Sayles Strategic Income Fund (formerly, the "CDC Nvest Strategic Income Fund"; and Loomis Sayles Municipal Income Fund (formerly, the "CDC Nvest Municipal Income Fund"). Loomis Sayles Limited Term U.S. Government Fund changed its name to Loomis Sayles Limited Term Government and Agency Fund in February 2004. On September 12, 2003, the following four Loomis Sayles Funds converted to the multi-class structure offered by the CDC Nvest Funds Trusts: Loomis Sayles Growth Fund; Loomis Sayles International Equity Fund; Loomis Sayles Research Fund; and Loomis Sayles Investment Grade Bond Fund. A-49 The Declarations of Trust of CDC Nvest Funds Trust I, CDC Nvest Funds Trust II and Loomis Sayles Funds II 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 this Statement and 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 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 without shareholder approval terminate the relevant Trust or Fund upon written notice to its shareholders. Voting Rights Shareholders of all Funds 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. All classes of shares of the Funds have identical voting rights except that each class of shares has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and has separate voting rights A-50 on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. Each class of shares has exclusive voting rights with respect to matters pertaining to any distribution or servicing plan or agreement applicable to that class. Matters submitted to shareholder vote will be approved by each series separately except (i) when required by the 1940 Act shares shall be voted together and (ii) when the matter does not affect all series, then only shareholders of the series affected shall be entitled to vote on the matter. 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 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 (with respect to all Trusts except Loomis Sayles Funds I and Loomis Sayles Funds II) 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 make changes of a technical nature 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 other 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 A-51 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 the Trusts. Code of Ethics The Funds, their advisers, and the Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Codes of Ethics permits employees to invest in securities for their own accounts, 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. Proxy Voting Policies The Board of Trustees of the Funds has adopted the Proxy Voting Policy and Guidelines (the "Guidelines") for the voting of proxies for securities held by any Funds. Under the Guidelines, the responsibility for voting proxies generally is delegated to a Funds' investment adviser. Decisions regarding the voting of proxies shall be made solely in the interest of the Fund and its shareholders. The exclusive purpose shall be to provide benefits to the shareholders of a Fund by considering those factors that affect the value of the securities. The adviser shall exercise its fiduciary responsibilities to vote proxies with respect to the Fund's investments that are managed by that adviser in a prudent manner in accordance with the Guidelines and the proxy voting policies of the adviser. Proposals that, in the opinion of the adviser, are in the best interests of shareholders are generally voted "for" and proposals that, in the judgment of the adviser, are not in the best interests of shareholders are generally voted "against". The adviser is responsible for maintaining certain records and reporting to the Audit Committee of the Trusts in connection with the voting of proxies. Upon request for reasonable periodic review as well as annual reporting to the SEC, the adviser shall make available to the Fund, or CDC IXIS Asset Management Services, Inc., the Fund's administrator, the records and information maintained by the adviser under the Guidelines. Loomis Sayles utilizes the services of a third party proxy voting service provider ("Proxy Service Provider") in researching and voting proxies for those accounts and funds for which Loomis Sayles has voting authority. The Proxy Service Provider has a copy of Loomis Sayles' proxy voting policy and provides vote recommendations to Loomis Sayles based on the firm's policy and theProxy Service Provider's own research. All issues presented for shareholder vote will be considered by Loomis Sayles' proxy committee (the "Proxy Committee") and, when necessary, the equity analyst following the company. Loomis Sayles will generally follow the Proxy Service Provider's recommendation, unless it deviates from Loomis Sayles' express policy or the Proxy Committee determines that the shareholders best interests are served by voting otherwise. In addition to reviewing the Proxy Service Provider's recommendations and directing Proxy Service Provider how to vote, the Proxy Committee also: (1) reviews and updates the firm's policies and procedures; (2) consults with portfolio managers and analysts; and (3) meets at least annually to discuss any issues that relate to proxy policies and voting. Loomis Sayles strives to ensure that proxies are voted in its clients' best interest and are not affected by any possible conflicts of interest by following the pre-determined policies set forth in the proxy voting manual, or, where the manual allows for discretion, generally relying on the recommendations of the Proxy Service Provider. If the firm's manual allows for discretion on a particular proposal and the Proxy Committee determines that the Proxy Service Provider's recommendation is not in the best interests of the shareholders, then the Proxy Committee may use its discretion to vote against the Proxy Service Provider's recommendation, but only after conducting a review to determine if any material conflict of interest exists, and where a material conflict exists, excluding anyone at Loomis Sayles who is subject to that conflict of interest from participating in the voting decision in any way, including providing information, opinions or recommendations to the Proxy Committee. A-52 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. The portfolio turnover rate for the fiscal period ended September 30, 2003 was significantly lower for the Fund compared to the prior fiscal period due to, among other things, Loomis Sayles High Income Fund was well positioned during the year. 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 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, for existing clients, 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. At the discretion of the Distributor, Bank Trust Departments or Trust Companies may also be eligible for investment in Class Y shares at a reduced minimum, subject to certain conditions including a requirement to meet the minimum investment balance within a specified time period. Please contact the Distributor at 800-225-5478 for more information. 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. A-53 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' or Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if CDC IXIS Advisers or Loomis Sayles 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' or Loomis Sayles' 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 market price (generally, their last sale price, or, if there is no reported sale during the day, the last reported bid price estimated by a broker, although "market price" for securities traded on NASDAQ will generally be considered to be the NASDAQ official closing price.) 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 market price on the non-U.S. 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 may be fair valued at the time the Fund dtermines its net asset value by or pursuant to procedures approved by the Board of 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. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. 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. A-54 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. Investors should note that in many cases, the Broker, and not the Funds, is responsible for ensuring that the investor receives current discounts. 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, CDC Nvest Fund, or Loomis Sayles 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 A-55 would have been paid had the Letter not been in effect, and authorizes State Street Bank to redeem escrowed shares in the amount necessary to make up the difference in sales charges. Reinvested dividends and distributions are not included in determining whether the Letter has been completed. Combining Accounts. Purchases of all series and classes of the CDC Nvest Funds (excluding the CDC Nvest Cash Management Trust - Money Market Series (the "Money Market Fund") 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 Fund 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 the Adviser. 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 to any series of the Trusts; any director, officer or partner of a client of an adviser 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 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 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 or UBS Paine Financial Services, Inc. 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 A-56 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. 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. The reduction or elimination of the sales charges in connection with special purchase plans described above reflects the absence or reduction of expenses associated with such sales. 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 additional investment or redemption from the account initiated by an investor, 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. A-57 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. 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 appropriate for a shareholder to consult a tax adviser before establishing such a plan. See "Redemptions" and "Income Dividends, Capital Gains Distributions and Tax Status" or "Taxation of Funds" 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 A-58 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, Money Market Fund or series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers that class (subject to the investor eligibility requirements, if any, of the 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. 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. As stated above, 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 Fund. On all exchanges of Class A or C shares subject to a CDSC and Class B shares into the Money Market Fund, 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 Fund 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, for Institutional Class shares of any other series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers Institutional Class shares, or for Class A shares of the Money Market Fund. These options are summarized in the Prospectuses. 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 219579, Kansas City, MO 64121-9579. 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. 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. A-59 Before requesting an exchange into any other CDC Nvest Fund, Money Market Fund, or series of Loomis Sayles Funds I or Loomis Sayles Funds II, 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 Funds as set forth in their prospectuses are as follows: Equity Funds: Loomis Sayles Growth Fund seeks long-term growth of capital. Loomis Sayles International Equity Fund seeks high investment total return through a combination of capital appreciation and current income. Loomis Sayles Research Fund seeks to provide long-term growth of capital. Income Funds: Loomis Sayles Government Securities Fund seeks a high level of current income consistent with safety of principal by investing in U.S. government securities. Loomis Sayles Limited Term Government and Agency Fund seeks a high current return consistent with preservation of capital. Loomis Sayles Strategic Income Fund seeks high current income with a secondary objective of capital growth. Loomis Sayles Core Plus Bond 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. Loomis Sayles High Income Fund seeks high current income plus the opportunity for capital appreciation to produce a high total return. Loomis Sayles Investment Grade Bond Fund seeks high total investment return through a combination of current income and capital appreciation. Tax Free Income Funds: Loomis Sayles 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. Loomis Sayles Massachusetts Tax Free Income Fund seeks to maintain a high a level of current income exempt from federal and Massachusetts personal income taxes. As of September 30, 2003, the net assets of the CDC Nvest Funds family totaled approximately $4.7 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 to establish an Automatic Exchange Plan is available from CIS or your financial representative. A-60 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 219579, Kansas City, MO 64121-9579. 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. A-61 TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH IN THE PROSPECTUS OF THE SELECTED FUND. THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH THE 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 interne 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. A-62 Written notifications to CDC Nvest Funds should be sent to: CDC Nvest Funds P. O. Box 219579 Kansas City, MO 64121-9579 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 its 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 is available at www.cdcnvestfunds.com or from 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 A-63 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 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 Government and Agency Fund and Massachusetts 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 Government and Agency Fund, Massachusetts 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 and redemption fee) 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. A-64 In order to redeem shares electronically through the ACH system, a shareholder's bank or credit union must be a member of the ACH system and the shareholder must have a completed, approved ACH application on file. In addition, the telephone request must be received no later than 4:00 p.m. (Eastern time). Upon receipt of the required information, the appropriate number shares will be redeemed and the monies forwarded to the bank designated on the shareholder's application through the ACH system. The redemption will be processed the day the telephone call is made and the monies generally will arrive at the shareholder's bank within three business days. The availability of these monies will depend on the individual bank's rules. The Funds will normally redeem shares for cash; however, the Funds reserve the right to pay the redemption price wholly or partly in kind if the relevant Trust's Board of Trustees determines it to be advisable and in the interest of the remaining shareholders of a Fund. The redemptions in kind will be selected by the Fund's adviser 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. Small Account Policy When your account falls below a set minimum as determined by the Board of Trustees from time to time, the Fund may charge you a fee in the amount of $20. You will have 30 days after being notified of the Fund's intention to charge you a fee to increase your account to the set minimum. This does not apply to certain qualified retirement plans. The Fund will impose this fee by selling the number of shares from your account necessary to pay the fee. The Funds also reserve the right to close your account and send you the proceeds if the balance in your account below a set minimum as determined by the Board of Trustees. Reinstatement Privilege (Class A shares only) The Prospectus describes redeeming shareholders' reinstatement privileges for Class A shares. Written notice and the investment check from persons wishing to exercise this reinstatement privilege must be received by your investment dealer within 120 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and the investment check and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. Even though an account is reinstated, the redemption will constitute a sale for federal income tax purposes. Investors who reinstate their accounts by purchasing shares of the Funds should consult with their tax advisers with respect to the effect of the "wash sale" rule if a loss is realized at the time of the redemption. PERFORMANCE INFORMATION Yield and Total Return Each Fund may advertise the yield of each class of its shares. Each Fund's yield will vary from time to time depending upon market conditions, the composition of its portfolio and operating expenses of the relevant Trust allocated to each Fund. These factors, possible differences in the methods used in calculating yield and the tax exempt status of distributions should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund's shares and to the relative risks associated with the investment objectives and policies of the A-65 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. 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. 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. 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. A-66 Taxation of Funds. 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. Taxation of Fund Distributions. For federal income tax purposes, distributions of investment income are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions of net capital gains from the sale of investments that the Fund owned for more than one year and that are properly designated by the Fund as capital gain dividends will be taxable as long-term capital gains. Distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income. For taxable years beginning on or before December 31, 2008, distributions of investment income designated by the Fund as derived from "qualified dividend income" will be taxed in the hands of individuals at the rates applicable to long-term capital gain provided holding period and other requirements are met at both the shareholder and Fund level. Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price the shareholder paid). Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares (other than "exempt-interest dividends" paid by the Municipal Income and Massachusetts Funds, as described in the relevant Prospectuses). Any gain resulting from the sale or exchange of Fund shares generally will be taxable as capital gains. 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. Long-term capital gain rates applicable to individuals have been temporarily reduced--in general, to 15% with lower rates applying to taxpayers in the 10% and 15% rate brackets--for taxable years beginning on or before December 31, 2008. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) A-67 (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 120-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 180-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a foreign personal holding company, foreign investment company, or passive foreign investment company. In general, distributions of investment income designated by the Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to the Fund's shares. Only qualified dividend income received by the Fund after December 31, 2002 is eligible for pass-through treatment. If the aggregate dividends received by the Fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than dividends properly designated as capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss. 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. Sale or Redemption of Shares. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other substantially identical shares of the Fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. 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. Exempt-Interest Dividends. A Fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Fund's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the Fund properly designates as exempt-interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the Fund intends to be qualified to pay exempt-interest dividends, the Fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets. 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 A-68 to determine when borrowed Funds are considered used for the purpose of purchasing or carrying particular assets, 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. Passive Foreign Investment Companies. 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 may elect 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. Foreign Taxes. 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 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. Foreign Currency Transactions. 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. Financial Products. 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. 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. Securities issued or purchased at a discount. The Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income net yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. Real Estate Investment Trusts ("REITs"). 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. Income from REIT securities generally will not be eligible for treatment as qualified dividend income. Under current law, the Funds serve to block unrelated business taxable income ("UBTI") from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize A-69 UBTI by virtue of its investment in a Fund if either: (1) the Fund invests in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"); or (2) shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b). If a charitable remainder trust (as defined in 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. Backup Withholding. Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund with a correct taxpayer identification number ("TIN"), who has under-reported dividend or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding. The backup withholding tax rate is 28% for amounts paid through 2010. The backup withholding tax rate will be 31% for amounts paid after December 31, 2010. Other Tax Matters. Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of and investment on their particular tax situation. 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. 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 filing requirements imposed on foreign investors in order to qualify for exemption from the backup withholding tax rates described above (or a reduced rate of withholding provided by treaty). Under tax legislation enacted by the Massachusetts Legislature in 2002, capital gains realized on capital assets held for more than one year will be subject to a single rate of tax rather than a graduated schedule, as provided under prior law. Accordingly, Fund distributions deriving from such gains will be taxable to you based on the single rate. If a shareholder recognizes a loss with respect to the fund's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. 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. FINANCIAL STATEMENTS The financial statements of the Funds and the related reports of independent auditors included in the Funds' Annual Reports for the year ended September 30, 2003 are incorporated herein by reference. The financial statements and financial highlights for these Funds included in their 2003 Annual Reports for the year ended September 30, 2003 are incorporated by reference to such reports. The Fund's annual reports are available upon request and without charge. Each Fund will send a single copy of its annual reports to an address at which more than one shareholder of record with the same last name has indicated that mail is to be delivered. Shareholders may request additional copies of any annual or 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, A-70 Boston, Massachusetts 02116. The annual and semi-annual reports are also available on-line at the SEC's website, at www.sec.gov. A-71 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 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 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. A-1 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 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 that 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. A-2 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 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 A-3 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. 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 A-4 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 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. A-5 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. (2) Amendment No. 1 dated February 28, 2003 to the Agreement and Declaration is incorporated by reference to exhibit (a)(2) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (3) Amendment No. 2 dated August 22, 2003 to the Agreement and Declaration is incorporated by reference to exhibit (a)(3) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (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 incorporated by reference to exhibit (b)(3) to PEA No. 118 to the Registration Statement filed on February 28, 2003. (c) Instruments Defining Rights of Security Holders. Rights of shareholders as described in Article III, Section 6 of the Registrant's Agreement and Declaration are incorporated by reference to exhibit a(1) to PEA No. 117 to the Registration Statement filed on April 29, 2002 and incorporated by reference to exhibit (a)(3) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (d) Investment Advisory Contracts. (1) (i) Advisory Agreement dated October 30, 2000 between the Registrant on behalf of Harris Associates Growth and Income Fund (formerly, 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 September 1, 2003 between the Registrant on behalf of Loomis Sayles Massachusetts Tax Free Income Fund (formerly, CDC Nvest 1 Massachusetts Tax Free Income Fund) and Loomis, Sayles & Company, L.P. ("Loomis Sayles") is incorporated by reference to exhibit (d)(1)(ii) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (2) (i) Sub-advisory Agreement dated October 29, 2002 among Registrant on behalf of Harris Associates Growth and Income Fund, CDC IXIS Advisers and Harris Associates L.P. ("Harris Associates") is incorporated by reference to exhibit (d)(2)(i) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (e) Underwriting Contracts. (1) Distribution Agreement dated March 3, 2003 between Registrant on behalf of Harris Associates 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. 119 to the Registration Statement filed on April 29, 2003. (2) Distribution Agreement dated March 3, 2003 between Registrant on behalf of Loomis Sayles Massachusetts Tax Free Income Fund and CDC IXIS Distributors is incorporated by reference to exhibit (e)(3) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (3) 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 Harris Associates Growth and Income Fund, and Loomis Sayles Massachusetts Tax Free Income Fund, and Investors Bank & Trust Company ("IBT") is incorporated by reference to exhibit (g)(1) to PEA No. 118 to the Registration Statement filed on February 28, 2003. (2) Delegation Agreement dated May 1, 2002 between Registrant, on behalf of Harris Associates Growth and Income Fund, and Loomis Sayles Massachusetts Tax Free Income Fund, and IBT is incorporated by reference to exhibit (g)(2) to PEA No. 118 to the Registration Statement filed on February 28, 2003. (h) Other Material Contracts. (1) (i) Transfer Agency and Service Agreement dated November 1, 1999 between the Registrant on behalf of its respective Series, CDC Nvest Funds Trust I, CDC Nvest Funds Trust III and CDC Nvest Cash Management Trust 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. (ii) First Addendum to Transfer Agency and Service Agreement dated September 12, 2003 is incorporated by reference to exhibit (h)(1)(ii) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (iii) Second Addendum to Transfer Agency and Service Agreement dated January 1, 2 2004 is filed herewith. (2) (i) Administrative Services Agreement dated October 1, 2003 between Registrant, CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, CDC Nvest Companies Trust I, CDC Nvest Cash Management Trust, Loomis Sayles Funds I and Loomis Sayles Funds II and CIS is incorporated by reference to exhibit (h)(2)(i) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (3) Securities Lending Agency Agreement dated May 1, 2002 between the Registrant on behalf of Harris Associates Growth and Income Fund and Loomis Sayles Massachusetts Tax Free Income Fund and IBT is incorporated by reference to exhibit (h)(3) to PEA No. 118 to the Registration Statement filed on February 28, 2003. (4) CDC IXIS Advisers Fee Waiver/Reimbursement Undertakings dated April 30, 2003 between CDC IXIS Advisers and the Registrant on behalf of Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (h)(4) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (5) Assignment of Fee Waiver/Expense Reimbursement Undertakings dated September 1, 2003 between Loomis Sayles and CDC IXIS Advisers for the benefit of Loomis Sayles Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (h)(5) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (6) CDC IXIS Advisers Fee Waiver/Reimbursement Undertakings dated May 31, 2003 between CDC IXIS Advisers and the Registrant on behalf of Harris Associates Growth and Income Fund is filed herewith. (7) Loomis Sayles Fee Waiver/Reimbursement Undertakings dated February 1, 2004 between Loomis Sayles and the Registrant on behalf of Loomis Sayles Massachusetts Tax Free Income Fund is filed herewith. (8) Reliance Agreement for Exchange Privileges dated September 30, 2003 by and among CDC Nvest Companies Trust I, CDC Nvest Funds Trust I, Registrant, CDC Nvest Funds Trust III, CDC Nvest Cash Management Trust, Loomis Sayles Funds I and Loomis Sayles Funds II is incorporated by reference to exhibit (h)(6) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (9) Advisory Administration Agreement dated September 1, 2003 between Registrant, with respect to Loomis Sayles Massachusetts Tax Free Income Fund, and CDC IXIS Advisers is incorporated by reference to exhibit (h)(7) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (i) Legal Opinion. (1) Opinion and consent of counsel dated January 3, 1989 with respect to the Registrant's Harris Associates Growth and Income Fund and Loomis Sayles 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 3 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 with respect to Loomis Sayles Massachusetts Tax Free Income Fund is filed herewith. (k) Omitted Financial Statements. Not applicable. (l) Initial Capital Agreements. Not applicable. (m) Rule 12b-1 Plan. (1) (a) Rule 12b-1 Plan for class A shares of Harris Associates 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 Harris Associates Growth and Income Fund is incorporated by reference to exhibit (m)(1)(b) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for class C shares of Harris Associates 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 Loomis Sayles 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 Loomis Sayles Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (3) (b) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (n) Rule 18f-3 Plan. Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended, effective February 2004 is filed herewith. (p) Code of Ethics. (1) Code of Ethics dated August 22, 2003 for Registrant is incorporated by reference to exhibit (p)(1) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (2) Code of Ethics dated July 1, 2003 for CDC IXIS Advisers and CDC IXIS Distributors is incorporated by reference to exhibit (p)(2) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (3) Code of Ethics dated January 31, 2002 for Harris Associates is incorporated by reference to exhibit (g)(1) to PEA No. 118 to the Registration Statement filed on 4 February 28, 2003. (4) Code of Ethics dated January 14, 2000 as amended January 1, 2003 for Loomis Sayles is incorporated by reference to exhibit (p)(4) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (q) Powers of Attorney. Powers of Attorney for Peter S. Voss, Graham T. Allison, Jr., Daniel M. Cain, Kenneth J. Cowan, Richard Darman, John T. Hailer, Paul Chenault, Edward Benjamin, Robert Blanding, Sandra O. Moose and John A. Shane dated June 12, 2003 designating John M. Loder, John E. Pelletier and Nicholas H. Palmerino as attorneys to sign for each Trustee is incorporated by reference to exhibit (q) to PEA No. 120 to the Registration Statement filed on November 28, 2003. Item 24. Persons Controlled by or under Common Control with the Registrant. The Registrant is not aware of any person controlled or under common control with any of its series. 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. 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. 5 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 Asset Management North America, L.P. serves as investment adviser to Harris Associates Growth and Income Fund. 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 Harris Associates 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). (c) Loomis Sayles, the adviser of the Registrant's Loomis Sayles Massachusetts Tax Free 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 Companies Trust I Loomis Sayles Funds I Loomis Sayles Funds II (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: 6 Positions and Offices Positions and Offices Name with Principal Underwriter with Registrant - ------------------------------------------------------------------------------- CDC IXIS Asset General Partner None Management Distribution Corp. John T. Hailer President and Chief Executive President, Chief Officer Executive Officer and Trustee John E. Pelletier Senior Vice President, General Secretary and Clerk Counsel, Secretary and Clerk Scott E. Wennerholm Senior Vice President, Treasurer, None Chief Financial Officer, and Chief Operating Officer Coleen Downs Dinneen Vice President, Deputy General Assistant Secretary Counsel, Assistant Secretary and Assistant Clerk Beatriz Pina Smith Vice President and Assistant None Treasurer, Controller Anthony Lourciro Vice President and Chief Compliance None Officer Jeff Coron Senior Vice President None Robert Krantz Senior Vice President None Frank S. Maselli Senior Vice President None Curt Overway Senior Vice President None Matt Witkos Senior Vice President None Sharon Wratchford Senior Vice President None Joanne Kane Anti-Money Laundering Compliance None Officer 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 7 399 Boylston Street Boston, Massachusetts 02116 (ii) CDC IXIS Asset Management Services, Inc. 399 Boylston Street Boston, MA 02116 (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 (vi) State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 (b) For the series of the Registrant managed by Harris Associates L.P. Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602 (c) For the series of the Registrant 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. 8 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 certifies that it meets all requirements for effectiveness of this Post-Effective Amendment ("PEA") No. 121 to its Registration Statement under Rule 485(b) under the Securities Act of 1933, as amended, and has duly caused this PEA No. 121 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 January, 2004. CDC NVEST FUNDS TRUST II By: /s/ JOHN T. HAILER ---------------------------------------- John T. Hailer Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date - ----------------------------- ------------------------------ ----------------- /s/ NICHOLAS H. PALMERINO - ----------------------------- Treasurer January 28, 2004 Nicholas H. Palmerino /s/ PETER S. VOSS* - ----------------------------- Chairman of the Board; Trustee January 28, 2004 Peter S. Voss /s/ GRAHAM T. ALLISON, JR.* - ----------------------------- Trustee January 28, 2004 Graham T. Allison, Jr. /s/ EDWARD A. BENJAMIN* - ----------------------------- Trustee January 28, 2004 Edward A. Benjamin /s/ ROBERT J. BLANDING* - ----------------------------- Trustee January 28, 2004 Robert J. Blanding /s/ DANIEL M. CAIN* - ----------------------------- Trustee January 28, 2004 Daniel M. Cain /s/ PAUL G. CHENAULT* - ----------------------------- Trustee January 28, 2004 Paul G. Chenault /s/ KENNETH J. COWAN* - ----------------------------- Trustee January 28, 2004 Kenneth J. Cowan /s/ RICHARD DARMAN* - ----------------------------- Trustee January 28, 2004 Richard Darman /s/ JOHN T. HAILER - ----------------------------- Trustee, President, Chief January 28, 2004 John T. Hailer Executive Officer /s/ SANDRA O. MOOSE* - ----------------------------- Trustee January 28, 2004 Sandra O. Moose /s/ JOHN A. SHANE* - ----------------------------- Trustee January 28, 2004 John A. Shane *By: /s/ JOHN E. PELLETIER ---------------------------------------- John E. Pelletier Attorney-In-Fact** January 28, 2004 ** Powers of Attorney are incorporated by reference to exhibit (q) to PEA No. 120 to the Registration Statement filed on November 28, 2003. CDC Nvest Funds Trust II Exhibit Index Exhibits for Item 23 of Form N-1A Exhibit Exhibit Description - ------------ ----------------------------------------------------------------- (e)(3) Form of Dealer Agreement (h)(1)(iii) Second Addendum to Transfer Agency and Service Agreement (h)(6) CDC IXIS Advisers Fee Waiver/Reimbursement Undertakings (h)(7) Loomis Sayles Fee Waiver/Reimbursement Undertakings (j) Consent of PricewaterhouseCoopers LLP (n) 18f-3 Plan EX-99.(E)(3) 3 dex99e3.txt FORM OF DEALER AGREEMENT Exhibit (e)(3) 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 1 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 (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. 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 2 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. 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 3 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 CDC IXIS Asset Management Distributors, L.P. Dealer Agreement Amendment Mutual Fund Trading This amendment updates the Dealer Agreement between CDC IXIS Asset Management Distributors, L.P. ("our" or "us") and the undersigned company (the "Company" or "you"). The Company shall establish and maintain effective internal policies and controls, including operational and system controls, with respect to the processing of orders of the funds received prior to and after the close of the New York Stock Exchange - normally 4:00 p.m. Eastern Time ("Pricing Time") for the purchase, redemption and exchange of shares of mutual funds, including mutual funds distributed by us (each, a "Fund"). For all transactions in the Funds, the Company shall follow all applicable rules and regulations and shall establish internal policies regarding the timely handling of orders for the purchase, redemption and exchange of shares of the Funds ("Fund Orders") and maintain effective internal controls over the ability to distinguish and appropriately process Fund Orders received prior to and after the Fund's Pricing Time, including operational and systems controls. Specifically, the Company represents as of the date of this amendment and each time that it accepts a Fund Order on behalf of a Fund that: .. The Company's policies and procedures provide reasonable assurance that Fund Orders received by the Company prior to the Fund's Pricing Time are segregated from Fund Orders received by the Company after the Fund's Pricing Time and are properly transmitted to the Funds (or their agents) for execution at the current day's net asset value ("NAV"). .. The Company's policies and procedures provide reasonable assurances that Fund Orders received by the Company after the Fund's Pricing Time are properly transmitted to the Funds (or their agents) for execution at the next day's NAV. .. The Company's policies and procedures provide reasonable assurance that transactional information is delivered to the Funds (or their agents) in a timely manner. .. The Company has designed procedures to provide reasonable assurance that policies with regard to the receipt and processing of Fund Orders are complied with. Such procedures either prevent or detect on a timely basis instances of noncompliance with the policies governing the receipt and processing of Fund Orders. .. Policies and procedures governing the timely handling of Fund Orders have been designed and implemented effectively by all third parties to whom the Company has designated the responsibility to distinguish and appropriately process Fund Orders received prior to and after the Fund's Pricing Time. To the extent we or CDC IXIS Asset Management Services, Inc., our affiliated transfer agent, have entered into related agreements with the Company regarding your handling of Fund Orders, you acknowledge and agree that this amendment shall apply to your handling of all Fund Orders, whether authorized under the Dealer Agreement or any other agreement with us or our affiliates. The Company's submission and our acceptance of an order for the Funds, or receipt by us of an executed copy of this agreement from you represents your acknowledgement and acceptance of the terms and conditions of this amendment.
CDC IXIS Asset Management Distributors, L.P. Name of Company ____________________________________ By: __________________________ By: ________________________________ Print Name: ___________________ Print Name: _________________________ Title: ________________________ Title: ______________________________ Date: _________________________ Date: _______________________________
5 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. 6 EX-99.(H)(1)(III) 4 dex99h1iii.txt SECOND ADDENDUM TO TRANSFER AGENCY AND SERVICE AGREEMENT Execution Copy -------------- Exhibit (h)(1)(iii) SECOND ADDENDUM TO TRANSFER AGENCY AND SERVICE AGREEMENT ADDENDUM, entered into this 1/st/ day of January, 2004 by and among and CDC NVEST COMPANIES TRUST I ("Companies Trust") and CDC NVEST FUNDS TRUST I, CDC NVEST FUNDS TRUST II, CDC NVEST FUNDS TRUST III, CDC NVEST FUNDS CASH MANAGEMENT TRUST, (collectively "CDC Nvest Trusts") and LOOMIS SAYLES FUNDS I, LOOMIS SAYLES FUNDS II (collectively "Loomis Trusts" and together with Companies Trust and CDC Nvest Trusts, the "Funds") and CDC IXIS ASSET MANAGEMENT SERVICES, INC. (the "Transfer Agent"). WHEREAS, Companies Trust and Transfer Agent are parties to a Transfer Agency and Service Agreement dated as of September 1, 2000, ("Companies Trust Agreement") pursuant to which the Transfer Agent acts as transfer agent, disbursing agent, and agent in connection with certain other activities on behalf of Companies Trust; WHEREAS, CDC Nvest Trusts and Transfer Agent are parties to a Transfer Agency and Service Agreement dated as of November 1, 1999, ("CDC Nvest Trust Agreement") pursuant to which the Transfer Agent acts as transfer agent, disbursing agent, and agent in connection with certain other activities on behalf of the CDC Nvest Trusts; WHEREAS, Each of the Loomis Trusts and Transfer Agent are parties to a separate Transfer Agency and Service Agreement, each dated as of February 1, 2003, (collectively, "Loomis Trust Agreements", together with Companies Trust Agreement and CDC Nvest Trust Agreement, "Agreements") pursuant to which the Transfer Agent acts as transfer agent, disbursing agent, and agent in connection with certain other activities on behalf of the Loomis Trusts; WHEREAS, the Funds are authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets (each such series, together with all other series subsequently established by the Funds and made subject to the Agreements in accordance with Section 17 of the Agreements and in accordance with terms thereof, being hereinafter referred to as a "Portfolio," and collectively as the "Portfolios"); WHEREAS, the Funds and the Transfer Agent desire to amend Schedule A of each Agreement to reflect changes in Portfolios; WHEREAS, the Funds and the Transfer Agent desire to amend Schedule B of each Agreement to reflect changes in the services to be provided by the Transfer Agent; and WHEREAS, the Funds, on behalf of the Portfolios, and the Transfer Agent desire to amend Schedule 3.1 of the Agreements to reflect changes in fees. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Agreements, pursuant to the terms thereof, as follows: 1 Execution Copy -------------- 1. Terms. Capitalized terms used, but not defined, herein shall have the meanings given to them in the Agreements. 2. Funds. Schedule A of the Companies Trust Agreement is deleted in its entirety and replaced with Schedule A - Companies Trust attached hereto. Schedule A of the CDC Nvest Trust Agreement is deleted in its entirety and replaced with Schedule A - CDC Nvest Trusts attached hereto. Schedule A of each Loomis Trust Agreement is deleted in its entirety and replaced with Schedule A - Loomis Trusts attached hereto. 3. Services for SIMPLE IRA Record Keeping. Schedule B of the Companies Trust Agreement is amended in part to include the SIMPLE IRA Record Keeping Services set forth in Schedule B attached hereto. Schedule B of the CDC Nvest Trust Agreement is amended in part to include the SIMPLE IRA Record Keeping Services set forth in Schedule B attached hereto. Schedule B of each Loomis Trust Agreement is amended in part to include the SIMPLE IRA Record Keeping Services set forth in Schedule B attached hereto. 4. Change in Fees. Schedule 3.1 of the Agreements is deleted in its entirety and replaced with the Schedule 3.1 attached hereto. 5. Miscellaneous. This Second Addendum may be executed in any number of counterparts, each of which shall be considered an original, but all of which shall together constitute one and the same instrument. All section headings in this Second Addendum are solely for convenience of reference, and do not affect the meaning or interpretation of this Second Addendum. This Second Addendum shall have the effect of amending the Agreements but solely as to the matters set forth herein. All provisions of the Agreements not deleted, amended or otherwise modified herein shall remain in full force and effect. In the event of any inconsistency between this Second Addendum and the Agreements, this Second Addendum shall control. [Remainder of this page intentionally left blank] 2 Execution Copy -------------- IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed in its name and on its behalf by its duly authorized representative as of the date first above written. CDC IXIS ASSET MANAGEMENT SERVICES, INC. By: /s/ Christopher L. Wilson ------------------------------------ Name: Christopher L. Wilson ---------------------------------- Title: President --------------------------------- CDC NVEST FUNDS TRUST I CDC NVEST FUNDS TRUST II CDC NVEST FUNDS TRUST III CDC NVEST COMPANIES TRUST I CDC NVEST CASH MANAGEMENT TRUST LOOMIS SAYLES FUNDS II By: /s/ John T. Hailer ------------------------------------ Name: John T. Hailer ---------------------------------- Title: President --------------------------------- LOOMIS SAYLES FUNDS I By: /s/ John T. Hailer ------------------------------------ Name: John T. Hailer ---------------------------------- Title: Executive Vice President --------------------------------- 3 Execution Copy -------------- Schedule A - CDC Nvest Trusts ----------------------------- - -------------------------------------------------------------------------------- CDC Nvest Funds Trust I - -------------------------------------------------------------------------------- CDC Nvest Star Advisers Fund - -------------------------------------------------------------------------------- CDC Nvest Star Growth Fund - -------------------------------------------------------------------------------- CDC Nvest Star Small Cap Fund (Name change effective 3/1/04, Vaughan Nelson Small Cap Value Fund) - -------------------------------------------------------------------------------- CDC Nvest Star Value Fund - -------------------------------------------------------------------------------- CDC Nvest Star International Fund (Name change effective 3/1/04, Hansberger International Fund) - -------------------------------------------------------------------------------- CGM Advisor Targeted Equity Fund - -------------------------------------------------------------------------------- Loomis Sayles Core Plus Bond Fund - -------------------------------------------------------------------------------- Loomis Sayles Government Securities Fund - -------------------------------------------------------------------------------- Westpeak Capital Growth Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CDC Nvest Funds Trust II - -------------------------------------------------------------------------------- Harris Associates Growth and Income Fund (Name change effective 3/1/04, Harris Associates Large Cap Value) - -------------------------------------------------------------------------------- Loomis Sayles Massachusetts Tax Free Income Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CDC Nvest Funds Trust III - -------------------------------------------------------------------------------- Harris Associates Focused Value Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CDC Nvest Cash Management Trust - -------------------------------------------------------------------------------- CDC Nvest Cash Management Trust - Money Market Series - -------------------------------------------------------------------------------- All Portfolios within the CDC Nvest Trusts are Load Funds for purposes of Schedule 3.1 Fees. 4 Execution Copy -------------- Schedule A - Companies Trust ---------------------------- - -------------------------------------------------------------------------------- CDC Nvest Companies Trust I - -------------------------------------------------------------------------------- AEW Real Estate Fund - -------------------------------------------------------------------------------- All Portfolios within Companies Trust are Load Funds for purposes of Schedule 3.1 Fees. 5 Execution Copy -------------- Schedule A - Loomis Trusts -------------------------- - -------------------------------------------------------------------------------- Loomis Sayles Funds I - -------------------------------------------------------------------------------- Loomis Sayles Benchmark Core Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Bond Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Core Plus Fixed Income Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Fixed Income Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Global Bond Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Institutional High Income Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Intermediate Duration Fixed Income Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Investment Grade Fixed Income Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Mid Cap Growth Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles Small Cap Value Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Small Company Growth Fund (3) - -------------------------------------------------------------------------------- Loomis Sayles US Government Securities Fund (3) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Loomis Sayles Funds II - -------------------------------------------------------------------------------- Loomis Sayles Aggressive Growth Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Growth Fund (1) - -------------------------------------------------------------------------------- Loomis Sayles High Income Fund (1) - -------------------------------------------------------------------------------- Loomis Sayles International Equity Fund (1) - -------------------------------------------------------------------------------- Loomis Sayles Investment Grade Bond Fund* (1) - -------------------------------------------------------------------------------- Loomis Sayles Limited Term US Government Fund (1) (Name change effective 2/1/04, Loomis Sayles Limited Term Government and Agency Fund) - -------------------------------------------------------------------------------- Loomis Sayles Municipal Income Fund (1) - -------------------------------------------------------------------------------- Loomis Sayles Research Fund (1) - -------------------------------------------------------------------------------- Loomis Sayles Small Cap Growth Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Strategic Income Fund (1) - -------------------------------------------------------------------------------- Loomis Sayles Tax-Managed Equity Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Value Fund (2) - -------------------------------------------------------------------------------- Loomis Sayles Worldwide Fund (2) - -------------------------------------------------------------------------------- (1) Load Funds for purposes of Schedule 3.1 Fees. (2) No-Load Funds for purposes of Schedule 3.1 Fees. (3) Institutional Funds for purposes of Schedule 3.1 Fees. *Addendum and Agreement do not include Class J shares of this Fund. 6 Execution Copy -------------- Schedule B - SIMPLE IRA RECORD KEEPING SERVICES ----------------------------------------------- The Funds intend to be available as investment options to certain SIMPLE IRA plans ("SIMPLE IRAs") within the meaning of Section 408(p) of the Internal Revenue Code of 1986, as amended (the "Code") pursuant to which customers ("Employers") may adopt the SIMPLE IRAs for the benefit of individual employees ("Participants"). Participants may appoint State Street Bank and Trust Company ("State Street") as Custodian ("Custodian") of SIMPLE IRAs, the prototype of which is maintained by State Street using Internal Revenue Service ("IRS") Form 5304 SIMPLE for the Employer and IRS Form 5305-SA for the Participant. In connection therewith, the Transfer Agent shall perform the following record keeping services listed below. Transfer Agent intends to engage Boston Financial Data Services, Inc. and/or its affiliate ("Boston Financial") to perform certain of the SIMPLE IRA record keeping services to be provided by the Transfer Agent and enter into a separate SIMPLE IRA Record Keeping Services Agreement with Boston Financial to that effect, and the Funds hereby acknowledge the Transfer Agent's intent to so engage the Boston Financial. 1. Plan Set-Up. Transfer Agent shall: (a) Establish the SIMPLE IRAs on appropriate systems based on the information submitted by the Employer on the plan application; and (b) Provide each Employer access to an Internet web-based software ("Plan Web") for the Employer to transmit payroll information for individual Participants or assist each Employer to use Automated Clearing House ("ACH") as the funding method for payrolls. 2. Participant Set-Up. Transfer Agent shall: (a) Establish Participant accounts with Participant selected allocations submitted by the Participant on new account applications; and (b) Maintain individual Participant accounts, including beneficiary information provided by the Participant on the appropriate system in the name of the Custodian for the benefit of the individual Participants. 3. Payroll Processing. (a) Using Plan Web, the Employer will provide Transfer Agent with the payroll information for each individual Participant, including amount of deferral, amount of match or qualified non-elective contribution, as applicable for each payroll period (hereinafter collectively referred to as "Contributions"). The Employer will also provide Transfer Agent with the total dollar amount of Contributions for each payroll period for all Participants in the SIMPLE IRAs. The Employer will simultaneously provide Transfer Agent with the monies to effectuate the Contributions requested; and (b) Transfer Agent will reconcile payrolls on Plan Web. 4. Processing Transactions. Transfer Agent shall perform the following processing transactions: 7 Execution Copy -------------- (a) Receive for acceptance and execute/process such instructions from the Employer for the Contributions to Participants' accounts. When Transfer Agent receives such instructions in good order (including receipt of appropriate monies), it will credit such Shares to the appropriate Participant account; (b) Receive for acceptance and execute/process such instructions from Participants for the contribution and distribution to and from Participants' accounts for the purchase and sale of Shares, as appropriate; record the appropriate number of Shares, as appropriate in the appropriate Participant account. When the Transfer Agent receives such purchase orders in good order (including receipt of the appropriate monies), it will credit such Shares to the appropriate Participant account; (c) At the appropriate time and when Transfer Agent receives monies paid with respect to any sale, credit such monies to the appropriate Participant account; (d) Effect exchanges of Shares, as appropriate, by the Participants upon receipt of appropriate instructions in good order; (e) Receive payments and information for dividends and distributions declared by the Funds in the form of an earnings roster and process/execute such in accordance with instructions for each Participant account; (f) Maintain records of accounts for and advise the Participants quarterly as to the foregoing; (g) Provide annual mailings to Participants who will be turning 70 1/2 with respect to required minimum distributions and establish such distributions based upon Participants' written instructions; (h) For exchanges and allocation changes of shares or monies, provide daily confirmations to Participants and maintain records thereof; (i) Provide Automated Voice Response Unit ("VRU") and Internet services for Participant inquiries and transactions; and (j) Upon receipt of data from the Employer with respect to termination of Participants' employment with Employers and the death of Participants, Transfer Agent will process such transactions and maintain such records for the data received. 5. Reporting. Transfer Agent shall: (a) Process Federal tax withholding as requested by a Participant upon distribution of assets from a Participant's account; (b) Transmit to the IRS the tax dollar amounts withheld according to IRS prescribed formats or requirements; (c) Produce and mail annually Form 1099R to Participants reflecting distributed amounts and federal tax withholding; 8 Execution Copy -------------- (d) Produce and mail annually Form 5498 to each Participant reflecting total contributions deposited to such Participant's account; (e) Forward copies of all required forms to the IRS; (f) Produce and mail to Participant's address of record a quarterly statement and confirmation statements reflecting the financial activity of Participant's account; (g) Produce and mail to the Employer's address of record a quarterly report reflecting the financial activity of the SIMPLE IRA; and (h) Produce and mail to the Employer's address of record a confirmation report of any Contributions received for the Employer's SIMPLE IRA. [Remainder of this page intentionally left blank] 9 EX-99.(H)(6) 5 dex99h6.txt CDC IXIS ADVISERS FEE WAIVER/REIMBURSEMENT UNDERTAKINGS Exhibit (h)(6) May 31, 2003 CDC Nvest Funds Trust I CDC Nvest Funds Trust II 399 Boylston Street Boston, MA 02116 Re: Fee Waiver/Expense Reimbursement -------------------------------- Ladies and Gentlemen: CDC IXIS Asset Management Advisers, L.P. ("CDC IXIS Advisers") notifies you that it will waive its management fee (and, to the extent necessary, bear other expenses of the Funds listed below) through the date listed below to the extent that expenses of each class of a Fund, exclusive of brokerage, interest, taxes and deferred organizational and extraordinary expenses, would exceed the following annual rates: Name of Fund Expense Cap - ---------------------------------------- ------------------------------------ June 1, 2003 through April 30, 2004: CDC Nvest Strategic Income Fund 1.25% for Class A shares 2.00% for Class B shares 2.00% for Class C shares 1.00% for Class Y shares CDC Nvest Growth and Income Fund 1.30% for Class A shares 2.05% for Class B shares 2.05% for Class C shares 1.05% for Class Y shares With respect to each Fund, CDC IXIS Advisers shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its management fee or otherwise) in later periods to the extent that a Fund's expenses fall below the annual rates set forth above. Provided, however, that a Fund is not obligated to pay any such deferred fees more than one year after the end of the fiscal year in which the fee was deferred. During the periods covered by this letter agreement, the expense cap arrangement set forth above for each of the Funds may only be modified by mutual agreement between CDC IXIS Advisers and the Trust after approval by a majority vote of the "non-interested" Trustees of the Trusts affected. For purposes of determining any such waiver or expense reimbursement, expenses of the class of the Funds shall not reflect the application of balance credits made available by the Funds' custodian or arrangements under which broker-dealers that execute portfolio transactions for the Funds' agree to bear some portion of Fund expenses. We understand and intend that you will rely on this undertaking in preparing and filing the Registration Statements on Form N-1A for the above referenced Funds with the Securities and Exchange Commission, in accruing each Fund's expenses for purposes of calculating its net asset value per share and for other purposes permitted under Form N-1A and/or the Investment Company Act of 1940, as amended, and expressly permit you to do so. CDC IXIS Asset Management Advisers, L.P. By:/s/ John E. Pelletier ------------------------------------- John E. Pelletier Title: Senior Vice President, General Counsel, Secretary & Clerk EX-99.(H)(7) 6 dex99h7.txt LOOMIS SAYLES FEE WAIVER/REIMBURSEMENT UNDERTAKINGS [LOOMIS SAYLES LETTERHEAD] Exhibit (h)(7) February 1, 2004 CDC Nvest Funds Trust II Loomis Sayles Funds II 399 Boylston Street Boston, MA 02116 Re: Fee Waiver/Expense Reimbursement Ladies and Gentlemen: Loomis, Sayles & Company, L.P. notifies you that it will waive its management fee (and, to the extent necessary, bear other expenses of the Funds listed below) through the relevant date listed below to the extent that expenses of each class of a Fund, exclusive of brokerage, interest, taxes and deferred organizational and extraordinary expenses, would exceed the following annual rates: Name of Fund Expense Cap September 12, 2003 through January 31, 2005: Loomis Sayles Growth Fund 1.10% for Class A shares 1.85% for Class B shares 1.85% for Class C shares 0.85% for Class Y shares February 1, 2004 through January 31, 2005: Loomis Sayles Research Fund 1.25% for Class A shares 2.00% for Class B shares 2.00% for Class C shares 0.85% for Class Y shares Loomis Sayles International Equity Fund 1.60% for Class A shares 2.35% for Class B shares 2.35% for Class C shares 1.00% for Class Y shares Loomis Sayles Investment Grade Bond Fund 0.95% for Class A shares 1.70% for Class B shares 1.70% for Class C shares 0.55% for Class Y shares 1.30% for Class J shares May 1, 2004 through January 31, 2005: Loomis Sayles Massachusetts Tax Free 1.40% for Class A shares Income Fund 2.05% for Class B shares Loomis Sayles Strategic Income Fund 1.25% for Class A shares 2.00% for Class B shares 2.00% for Class C shares 1.00% for Class Y shares With respect to each Fund, Loomis, Sayles & Company, L.P. shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its management fee or otherwise) in later periods to the extent that a Fund's expenses fall below the annual rates set forth above. Provided, however, that a Fund is not obligated to pay any such deferred fees more than one year after the end of the fiscal year in which the fee was deferred. During the periods covered by this letter agreement, the expense cap arrangement set forth above for each of the Funds may only be modified by a majority vote of the "non-interested" Trustees of the Trusts affected. For purposes of determining any such waiver or expense reimbursement, expenses of the class of the Funds shall not reflect the application of balance credits made available by the Funds' custodian or arrangements under which broker-dealers that execute portfolio transactions for the Funds' agree to bear some portion of Fund expenses. We understand and intend that you will rely on this undertaking in preparing and filing the Registration Statements on Form N-1A for the above referenced Funds with the Securities and Exchange Commission, in accruing each Fund's expenses for purposes of calculating its net asset value per share and for other purposes permitted under Form N-1A and/or the Investment Company Act of 1940, as amended, and expressly permit you to do so. Loomis, Sayles & Company, L.P. By: /s/ Kevin Charleston -------------------------------- Name: Kevin Charleston Title: Chief Financial Officer EX-99.(J) 7 dex99j.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit (j) CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated November 21, 2003, relating to the financial statements and financial highlights which appears in the September 30, 2003 Annual Report to Shareholders of the Loomis Sayles Massachusetts Tax Free Income Fund (formerly the CDC Nvest Massachusetts Tax Free Income Fund), a series of CDC Nvest Funds Trust II. The financial statements and financial highlights are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Performance" and "Independent Auditors" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts January 28, 2004 EX-99.(N) 8 dex99n.txt 18F-3 PLAN Exhibit (n) CDC Nvest Cash Management Trust CDC Nvest Companies Trust I CDC Nvest Funds Trust I CDC Nvest Funds Trust II CDC Nvest Funds Trust III Loomis Sayles Funds I Loomis Sayles Funds II Amended and Restated Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 Effective as of February, 2004 Each series of CDC Nvest Cash Management Trust, CDC Nvest Companies Trust I, CDC Nvest Funds Trust I, CDC Nvest Funds Trust II, CDC Nvest Funds Trust III, Loomis Sayles Funds I and Loomis Sayles Funds II (each series individually a "Fund" and such Trusts collectively the "Trusts") may from time to time issue one or more of the following classes of shares: Class A shares, Class B shares, Class C shares, Class J shares, Class Y shares, Admin Class shares, Institutional Class shares and Retail Class shares. Shares of each class of a Fund shall represent an equal pro rata interest in such Fund and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each class shall have a different designation; (b) each class shall bear any Class Expenses, as defined in below; and (c) each class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class, and shall have exclusive voting rights on any matter submitted to shareholders that relates solely to that class. In addition, each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Funds' prospectuses (including statements of additional information) as from time to time in effect. The differences in expenses among these classes of shares, and the conversion and exchange features of each class of shares, are set forth below in this Plan, which is subject to change, to the extent permitted by law and by the Declaration of Trust and By-Laws of each Trust, by action of the Board of Trustees of each Trust. CDC Nvest Cash Management Trust (the "Money Market Fund") in certain instances is treated differently. In such instances, the treatment is specifically noted. Initial Sales Charge Class A shares are offered at a public offering price that is equal to their net asset value ("NAV") plus a sales charge of up to 5.75% of the public offering price (which maximum may be less for certain Funds, as described in the Funds' prospectuses as from time to time in effect). The sales charges on Class A shares are subject to reduction or waiver as permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940 Act") and as described in the Funds' prospectuses as from time to time in effect. Prior to December 1, 2000, Class C shares were offered at a public offering price equal to their NAV, without an initial sales charge. From December 1, 2000 through January 31, 2004, Class C shares were offered at a public offering price that was equal to their net asset value ("NAV") plus a sales charge of 1.00% of the public offering price (which maximum may be less for certain Funds, as was described in the Funds' then effective prospectuses as may have been in effect from time to time ). The sales charges on Class C shares were subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Funds' then effective prospectuses as may have been in effect from time to time. On and after February 1, 2004, Class C shares are offered at a public offering price equal to their NAV, without an initial sales charge. Class J shares of the Funds are offered at a public offering price that is equal to their net asset value ("NAV") plus a front end sales charge of up to 3.50% of the public offering price (which maximum may be less for certain Funds, as described in the Fund's prospectus as from time to time in effect). The sales charges on Class J shares -1- are subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Funds' prospectuses as from time to time in effect. Class B, Class C, Class Y, Admin Class, Retail Class and Institutional Class shares are offered at their NAV, without an initial sales charge. Class A shares of the Money Market Fund are offered at their net asset value ("NAV"), without an initial sales charge. Contingent Deferred Sales Charge Purchases of Class A shares of $1 million or more, purchases of Class C shares or purchases by certain retirement plans as described in the Funds prospectuses, that are redeemed within one year from purchase are subject to a contingent deferred sales charge (a "CDSC") of 1% of either the purchase price or the NAV of the shares redeemed, whichever is less. Class A and C shares are not otherwise subject to a CDSC. Class B shares that are redeemed within 6 years from purchase are subject to a CDSC of up to 5% (4% for shares purchased prior to May 1, 1997) of either the purchase price or the NAV of the shares redeemed, whichever is less; such percentage declines the longer the shares are held, as described in the Funds' prospectuses as from time to time in effect. Class B shares purchased with reinvested dividends or capital gain distributions are not subject to a CDSC. The CDSC on Class A, Class B and Class C shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' prospectuses as from time to time in effect. Class J, Class Y, Admin Class, Institutional Class and Retail Class shares are not subject to any CDSC. Class A, Class B and Class C shares of the Money Market Fund are offered at their net asset value ("NAV"), without a CDSC. Service, Administration and Distribution Fees Class A, Class B, Class C, Class J, Admin Class and Retail Class shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans") for such classes. Class A, Class B, Class C, Class J, Admin Class and Retail Class shares also bear any costs associated with obtaining shareholder approval of any amendments to a 12b-1 Plan. There is no 12b-1 Plan for Class Y or Institutional Class shares. Amounts payable under the 12b-1 Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. Class A, Class B, Class C, Retail Class shares each pay, pursuant to the 12b-1 Plans, a service fee of up to .25% per annum of the average daily net assets attributable to such class (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Class A shares do not pay a distribution fee, with the exception that the Class A shares of Loomis Sayles Massachusetts Tax Free Income Fund and Loomis Sayles Limited Term U. S. Government Fund pay, pursuant to the 12b-1 Plans, a distribution fee of up to .10% per annum of the average daily net assets of such Fund attributable to Class A shares (which percentage may be less for either such Fund, as described in the Funds' registration statements as from time to time in effect). Class B and Class C shares pay, pursuant to the 12b-1 Plans, a distribution fee of up to .75% per annum of the average daily net assets attributable to such class of shares. -2- Class J shares pay, pursuant to the 12b-1 Plans, distribution and service fees of up to .75% of the average net assets attributable to Class J shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Admin Class shares pay, pursuant to the 12b-1 Plans, distribution and service fees of up to .25% of the average daily net assets attributable to Admin class shares. In addition, Admin Class shares pay administrative fees to certain financial intermediaries for providing personal service and account maintenance for their customers who hold Admin class shares. These fees are paid on the average daily net assets attributable to Admin Class shares at the annual rate stated in the Funds' registration statements as from time to time in effect. Class A, Class B and Class C shares of the Money Market Fund do not pay any distribution or service fees. Conversion and Exchange Features Class B shares automatically convert to Class A shares of the same Fund eight years after purchase, except that Class B shares purchased through the reinvestment of dividends and other distributions on Class B shares convert to Class A shares at the same time as the shares with respect to which they were purchased are converted. This conversion from Class B shares 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. Class Y shares of a Fund purchased through wrap fee programs offered by certain broker-dealers will, upon termination of the holder's participation in the wrap fee program and at the discretion of the broker-dealer, be converted to Class A shares of the same Fund. Class A, Class C, Class Y, Class J, Admin Class, Institutional Class or Retail Class shares do not convert to any other class of shares. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Class A shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Class A shares of any other Fund that offers Class A shares without the payment of a sales charge, except that if Class A shares of a Fund are exchanged for shares of a Fund with a higher sales charge, then the difference in sales charges must be paid on the exchange. The holding period for determining any CDSC will include the holding period of the shares exchanged. Class A shares may also be exchanged for Class A shares of the Money Market Fund, in which case the holding period for purposes of determining the expiration of the CDSC on such shares, if any, will stop and will resume only when an exchange is made back into Class A shares of a Fund other than the Money Market Fund. If the Money Market Fund shares received in an exchange are subsequently redeemed for cash, they will be subject to a CDSC to the same extent that the shares exchanged would have been subject to a CDSC at the time of the exchange into the Money Market Fund. Class A shares of the Money Market Fund so purchased may be exchanged for Class A shares of a Fund without sales charge or CDSC to the same extent as the Class A shares exchanged for the Money Market Fund Class A shares could have been so exchanged. The holding period for determining any CDSC for the acquired Fund shares will not include the period during which the Money Market Fund shares were held, but will include the holding period for the Class A Fund shares that were exchanged for the Money Market Fund shares. Class A shares of the Money Market Fund on which no sales charge was previously paid or for which no holding period for purposes of determining the applicable CDSC may be exchanged for Class A shares of any other Funds on the basis of relative net asset value plus the sales charge applicable to initial purchases of Class A shares of the other Fund into which the shareholder is exchanging, and the holding period for purposes of determining the CDSC will commence at the time of the exchange. Class A shares of a Fund acquired in connection with certain deferred compensation plans offered by New England Life Insurance Company ("NELICO") and its affiliates to any of their directors, senior officers, agents or general agents may be exchanged, at the holder's option and with the consent of NELICO, for Class Y shares of the same Fund or for Class Y shares of any other Fund that offers Class Y shares. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Class B shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Class B shares of any other Fund that offers Class B shares, without the payment of a CDSC. The holding period for determining the CDSC and the conversion to Class A shares will include the holding period of the -3- shares exchanged. Class B shares of any Fund may also be exchanged for Class B shares of the Money Market Fund, without the payment of a CDSC, in which case the holding period for purposes of determining the expiration of the CDSC on such shares, if any, will stop and will resume only when an exchange is made back into Class A shares of a Fund other than the Money Market Fund. If the Money Market Fund shares received in an exchange are subsequently redeemed for cash, they will be subject to a CDSC to the same extent that the shares exchanged would have been subject to a CDSC at the time of the exchange into the Money Market Fund. If such Money Market Fund shares are exchanged for Class B shares of a Fund other than the Money Market Fund, no CDSC will apply to the exchange, and the holding period for the acquired shares will include the holding period of the shares that were exchanged for the Money Market Fund shares (but not the period during which the Money Market Fund shares were held). Class B shares of the Money Market Fund may be exchanged for Class B shares of any other Fund on the basis of relative net asset value, subject to the CDSC schedule of the Fund acquired. For purposes of computing the CDSC payable upon redemption of shares acquired by such exchange, and the conversion of such shares to Class A shares, the holding period of any other Fund's shares that were exchanged for Class B shares of the Money Market Fund is included, but the holding period of the Class B shares of the Money Market Fund is not included. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Class C shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Class C shares of any other Fund that offers Class C shares, without payment of a CDSC. The holding period for determining the CDSC will include the holding period of the shares exchanged. Class C shares may also be exchanged for Class C shares of the Money Market Fund without the payment of a CDSC in which case the holding period for purposes of determining the expiration of the CDSC on such shares, if any, will stop and will resume only when an exchange is made back into Class C shares of a Fund. If the Money Market Fund shares received in an exchange are subsequently redeemed for cash, they will be subject to a CDSC to the same extent that the shares exchanged would have been subject to a CDSC at the time of the exchange into the Money Market Fund. Class C shares of the Money Market Fund may be exchanged for Class C shares of any other Fund on the basis of relative net asset value, subject to the CDSC schedule of the Fund acquired. Class C shares in accounts of a Money Market Fund that were established prior to December 1, 2000 or that had previously been subject to a sales charge or that are established after January 31, 2004, may be exchanged for Class C shares of a Fund without a sales charge. Class C shares in accounts of a Money Market Fund established on or after December 1, 2000 and through January 31, 2004 may have been exchanged into Class C shares of a Fund subject to the Fund's applicable sales charge and CDSC. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Class J shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Class J shares of any other Fund that offers Class J shares without the payment of a sales charge. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Class Y shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, (i) for Class Y shares of any other Fund that offers Class Y shares, (ii) for Institutional Class of any other Fund that offers Institutional Class or (iii) for Class A shares of the Money Market Fund that does not offer Class Y shares or Institutional Class shares to the general public. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Admin Class shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Admin Class shares of any other Fund that offers Admin Class shares without the payment of a sales charge. Admin Class shares may also be exchanged for Class A shares of the Money Market Fund. To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Institutional Class shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, (i) for Institutional Class shares of any other Fund that offers Institutional Class shares, (ii) for Class Y shares of any other Fund that offers Class Y shares or (iii) for Class A shares of the Money Market Fund that does not offer Class Y shares or Institutional Class shares to the general public. -4- To the extent provided in the registration statement of the relevant Fund as from time to time in effect, Retail Class shares of any Fund may be exchanged, at the holder's option and subject to minimum investment requirements, for Retail Class shares of any other Fund that offers Retail Class shares without the payment of a sales charge. Retail Class shares may also be exchanged for Class A shares of the Money Market Fund. All exchanges are subject to the eligibility requirements or other restrictions of the Fund to which the shareholder is exchanging. The Funds reserve the right to terminate or limit the exchange privilege of any shareholder deemed to be engaging in market timing activity as defined in the Funds' prospectuses as from time to time in effect. The Funds may terminate or change the exchange privilege at any time upon 60 days' notice to shareholders. Allocation of Income and Expenses Each Class of shares pays the expenses associated with its different distribution and shareholder servicing arrangements ("Account Expenses"). Each class of shares may, at the Trustees' discretion, also pay a different share of other expenses (together with 12b-1 fees and Account Expenses, "Class Expenses"), not including advisory fees or other expenses related to the management of the Trust's assets, if these expenses are actually incurred in a different amount by that class, or if the class receives services of a different kind or to a different degree than other classes. The gross income of each Fund generally shall be allocated to each class on the basis of net assets. To the extent practicable, certain expenses (other than Class Expenses as defined above, which shall be allocated more specifically) shall be subtracted from the gross income on the basis of the net assets of each class of each Fund. These expenses include: . Expenses incurred by a Trust (including, but not limited to, fees of Trustees, insurance and legal counsel) not attributable to a particular Fund or to a particular class of shares of a Fund ("Trust Level Expenses"); and . Expenses incurred by a Fund not attributable to any particular class of the Fund's shares (for example, advisory fees, custodial fees, or other expenses relating to the management of the Fund's assets) ("Fund Expenses"). Expenses of a Fund shall be apportioned to each class of shares depending upon the nature of the expense item. Trust Level Expenses and Fund Expenses shall be allocated among the classes of shares based on their relative net assets in relation to the net assets of the relevant Trust. Approved Class Expenses shall be allocated to the particular class to which they are attributable. However, if a Class Expense can no longer be attributed to a class, it will be charged to a Fund for allocation among classes in proportion to the net assets of each such class. Any additional Class Expenses not specifically identified above which are subsequently identified and determined to be properly allocated to one class of shares shall not be so allocated until approved by the Board of Trustees of the Trust in light of the requirements of the 1940 Act and the Internal Revenue Code of 1986, as amended (the "Code"). Each Trust reserves the right to utilize any other appropriate method to allocate income and expenses among the classes, including those specified in Rule 18f-3(c)(1), provided that a majority of the Trustees and a majority of the Independent Trustees determine that the method is fair to the shareholders of each class and consistent with the requirements of Rule 18f-3. -5- -----END PRIVACY-ENHANCED MESSAGE-----