<DOCUMENT>
<TYPE>497
<SEQUENCE>1
<FILENAME>d497.txt
<DESCRIPTION>CDC NVEST FUNDS TRUST II
<TEXT>
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
WHAT'S INSIDE
<S> <C>
Goals, Strategies & Risks Page 2
Fund Fees & Expenses..... Page 23
More About Risk.......... Page 26
Management Team.......... Page 28
Fund Services............ Page 31
Financial Performance.... Page 50
</TABLE>
IXIS Advisor Income and Tax Free Income Funds
[LOGO] LOOMIS SAYLES & Company L.P.
Loomis Sayles Core Plus Bond Fund
Loomis Sayles High Income Fund
Loomis Sayles Investment Grade Bond Fund
Loomis Sayles Limited Term Government and Agency Fund
Loomis Sayles Massachusetts Tax Free Income Fund
Loomis Sayles Municipal Income Fund
Loomis Sayles Strategic Income Fund
Prospectus
February 1, 2005
(as revised May 1, 2005)
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
IXIS Advisor Funds.
IXIS Advisor Funds
P.O. Box 219579
Kansas City, MO 64121-9579
800-225-5478
www.ixisadvisorfunds.com
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Goals, Strategies & Risks
Loomis Sayles Core Plus Bond Fund..................... 2
Loomis Sayles High Income Fund........................ 5
Loomis Sayles Investment Grade Bond Fund.............. 8
Loomis Sayles Limited Term Government and Agency Fund 11
Loomis Sayles Massachusetts Tax Free Income Fund..... 14
Loomis Sayles Municipal Income Fund.................. 17
Loomis Sayles Strategic Income Fund.................. 20
Fund Fees & Expenses
Fund Fees & Expenses................................. 23
More About Risk
More About Risk...................................... 26
Management Team
Meet the Funds' Investment Adviser................... 28
Meet the Funds' Portfolio Managers................... 30
Fund Services
Investing in the Funds............................... 31
How Sales Charges Are Calculated..................... 32
It's Easy to Open an Account......................... 35
Buying Shares........................................ 37
Selling Shares....................................... 38
Selling Shares in Writing............................ 40
Exchanging Shares.................................... 41
Restrictions on Buying, Selling and Exchanging Shares 41
How Fund Shares Are Priced........................... 44
Dividends and Distributions.......................... 45
Tax Consequences..................................... 46
Compensation to Securities Dealers................... 47
Additional Investor Services ........................ 48
Financial Performance
Financial Performance................................ 50
Glossary of Terms
Glossary of Terms.................................... 62
</TABLE>
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 "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.
Please see the back cover of this Prospectus for
important privacy policy information.
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles Core Plus Bond Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: Peter W. Palfrey and Richard G. Raczkowski
Category: Corporate Income
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ticker Symbol: Class A Class B Class C
-----------------------
NEFRX NERBX NECRX
</TABLE>
Investment Goal
The 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.
Principal Investment Strategies
Under normal market conditions, the Fund will invest primarily in U.S.
corporate and U.S. government bonds. It will adjust to changes in the relative
strengths of the U.S. corporate or U.S. government bond markets by shifting the
relative balance between the two. The Fund will invest at least 80% of its net
assets in bond investments. The term "bond investments" includes debt
securities of any maturity. In accordance with applicable Securities and
Exchange Commission requirements, the Fund will notify shareholders prior to
any change to such policy taking effect. In addition, the Fund normally will
invest at least 80% of its assets in investment-grade securities (those rated
BBB or higher by Standard & Poor's Ratings Group ("S&P"), Baa or higher by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable
quality as determined by Loomis Sayles), including cash and cash equivalent
securities and will generally maintain an average effective maturity of ten
years or less. The Fund may also invest up to 20% of its assets, at the time of
purchase, in bonds (rated below BBB by S&P and below Baa by Moody's, also known
as "junk bonds"), or if unrated, of comparable quality by Loomis Sayles.
Loomis Sayles follows a 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, such as:
. Fixed charge coverage
. The relationship between cash flows and debt service obligations
. The experience and perceived strength of management
. Price responsiveness of the security to interest rate changes
. Earnings prospects
. Debt as a percentage of assets
. Borrowing requirements, debt maturity schedules and liquidation value
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 high quality bond
market. This value analysis uses quantitative tools such as internal and
external computer systems and software.
. Loomis Sayles continuously monitors an issuer's creditworthiness to assess
whether the obligation remains an appropriate investment for the Fund. It may
relax its emphasis on quality with respect to a given security if it believes
that the issuer's financial outlook is solid. This may create an opportunity
for higher returns.
. Loomis Sayles seeks to balance opportunities for yield and price performance
by combining macroeconomic analysis with individual security selection. Fund
holdings are diversified across industry groups such as utilities or
telecommunications, which tend to move independently of the ebbs and flows in
economic growth.
The Fund may also:
. Invest in Rule 144A securities.
. Invest in foreign securities, including those in emerging markets, and
related currency hedging transactions.
. Invest in futures.
. Invest in mortgage-related securities, including mortgage dollar rolls.
. Invest substantially all of its assets in U.S. government securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Fund from achieving
its investment goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
--------------------------------------------------------------------------------
2
<PAGE>
Principal Investment Risks
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the
use of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives may
give rise to leverage risk, and can have a significant impact on the Fund's
exposure to stock market values, interest rates or the currency exchange rate.
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 known as "junk 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. Rule 144A securities may be more
illiquid than other fixed-income securities.
Foreign securities: Subject to foreign currency fluctuations, higher volatility
than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. Investments in
emerging markets may be subject to these risks to a greater extent than those
in more developed markets.
Mortgage-related securities: Subject to prepayment risk. With prepayment, the
Fund may reinvest the prepaid amounts in securities with lower yields than
the prepaid obligations. The Fund may also incur a loss when there is a
prepayment of securities that were purchased at a premium. A dollar roll
involves potential risks of loss that are different from those related to
securities underlying the transactions. The Fund may be required to purchase
securities at a higher price than may otherwise be available on the open
market. There is no assurance that the Fund's use of cash that it receives
from a dollar roll will provide a return that exceeds borrowing costs.
For additional information see the section "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 (or since inception if shorter) 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 subadviser to the Fund, a
function it assumed in June 2001. This chart and table reflect results achieved
by the previous subadviser under different investment policies for periods
prior to June 2001. The Fund's performance may have been different under its
current advisory arrangements and investment policies.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for other classes of shares offered by
this Prospectus differs 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.
<TABLE>
<C> <S>
[CHART]
(up triangle) Highest Quarterly Return: Second
(total return)/+/ Quarter 1995, up 2.41%
(down triangle) Lowest Quarterly Return: Second
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Quarter 2004, down 2.85%
------ ----- ------ ----- ------ ----- ----- ----- ----- ------
20.77% 4.61% 11.05% 8.01% -0.34% 7.39% 7.24% 2.84% 8.49% 5.10%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
-1.16%.
--------------------------------------------------------------------------------
3
<PAGE>
Evaluating the Fund's Past Performance - continued
The table below shows how the average annual total returns for each class of
the Fund (before and after taxes for Class A) for the one-year, five-year and
ten-year periods (or since inception if shorter) compare to those of the Lehman
Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to
ten-year maturities issued by the U.S. government, its agencies and U.S.
corporations. They are also compared to the Lehman U.S. Credit Index, an
unmanaged index that includes all publicly issued, fixed-rate, nonconvertible,
dollar-denominated, SEC-registered, U.S. investment-grade corporate debt and
foreign debentures that meet specified maturity, liquidity and quality
requirements. 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 Aggregate Bond Index and Lehman U.S. Credit Index
returns have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
<TABLE>
<CAPTION>
Average Annual Total Returns
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years
<S> <C> <C> <C>
Class A - Return Before Taxes 0.37% 5.23% 6.89%
Return After Taxes on Distributions* -1.33% 2.98% 4.27%
Return After Taxes on Distributions & Sales of Fund Shares* 0.21% 3.06% 4.25%
Class B - Return Before Taxes -0.58% 5.11% 6.60%
Class C - Return Before Taxes 3.33% 5.41% 6.45%
Lehman Aggregate Bond Index** 4.34% 7.71% 7.72%
Lehman U.S. Credit Index** 5.24% 8.63% 8.41%
</TABLE>
*After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The returns are shown for only one class of the
Fund. After-tax returns for the other classes of the Fund will vary. In some
cases the after-tax returns may exceed the return before taxes due to an
assumed tax benefit from any losses on a sale of fund shares at the end of the
measurement period.
** The returns of each Index do not reflect the effect of taxes. The returns of
each Index are calculated from 12/31/95 for Class C shares. Class A commenced
operations 11/7/73 and Class B commenced operations 9/13/93.
For information about the Fund's expenses, see the section "Fund Fees &
Expenses."
--------------------------------------------------------------------------------
4
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles High Income Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: Matthew J. Eagan and Kathleen C. Gaffney
Category: Corporate Income
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ticker Symbol: Class A Class B Class C
-----------------------
NEFHX NEHBX NEHCX
</TABLE>
Investment Goal
The Fund seeks high current income plus the opportunity for capital
appreciation to produce a high total return. The Fund's investment goal may be
changed without shareholder approval.
Principal Investment Strategies
Under normal market conditions, the Fund will invest at least 65% of its assets
in lower-quality fixed-income securities, commonly known as "junk bonds." Junk
bonds are generally rated below BBB by Standard & Poor's Ratings Group ("S&P")
and below Baa by Moody's Investors Service, Inc. ("Moody's"). The Fund will
normally invest at least 80% of its assets in U.S. corporate or U.S.
dollar-denominated foreign fixed-income securities. The Fund may also invest up
to 20% of its assets in foreign currency-denominated fixed-income securities,
including those in emerging markets.
Loomis Sayles performs its own extensive credit analyses to determine the
creditworthiness and potential for capital appreciation of a security. The
Fund's management minimizes both market timing and interest rate forecasting.
Instead, it uses a strategy based on gaining a thorough understanding of
industry and company dynamics as well as individual security characteristics
such as the following:
. Issuer debt and debt maturity schedules
. Earnings prospects
. Responsiveness to changes in interest rates
. Experience and perceived strength of management
. Borrowing requirements and liquidation value
. Market price in relation to cash flow, interest and dividends
In selecting investments for the Fund, Loomis Sayles employs the following
strategies:
. Loomis Sayles utilizes the skills of its in-house team of more than 40
research analysts to cover a broad universe of industries, companies and
markets. The Fund's portfolio managers take advantage of these extensive
resources to identify securities that meet the Fund's investment criteria.
. Loomis Sayles employs a selection strategy that focuses on a value-driven,
bottom-up approach to identify securities that provide an opportunity for
both generous yields and capital appreciation. Loomis Sayles analyzes an
individual company's potential for positive financial news to determine if it
has growth potential. Examples of positive financial news include an upward
turn in the business cycle, improvement in cash flows, rising profits or the
awarding of new contracts.
. Loomis Sayles emphasizes in-depth credit analysis, appreciation potential and
diversification in its bond selection. Each bond is evaluated to assess the
ability of its issuer to pay interest and, ultimately, principal (which helps
the Fund generate an ongoing flow of income). Loomis Sayles also assesses a
bond's relation to market conditions within its industry and favors bonds
whose prices may benefit from positive business developments.
. Loomis Sayles seeks to diversify the Fund's holdings to reduce the inherent
risk in lower-quality fixed-income securities.
The Fund may also:
. Invest in zero-coupon, pay-in-kind and Rule 144A securities.
. Invest in derivative securities, including futures.
. Purchase higher quality debt securities (such as U.S. government securities
and obligations of U.S. banks with at least $2 billion of deposits) for
temporary defensive purposes in response to adverse market, economic or
political conditions, such as a rising trend in interest rates. These
investments may prevent the Fund from achieving its investment goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
Principal Investment Risks
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the
use of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives may
give rise to leverage risk, and can have a significant impact on the Fund's
exposure to
--------------------------------------------------------------------------------
5
<PAGE>
Principal Investment Risks - continued
stock market values, interest rates or the currency exchange rate.
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. Rule 144A
securities may be more illiquid than other fixed-income securities.
Foreign securities: Subject to foreign currency fluctuations, higher volatility
than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. Investments in
emerging markets may be subject to these risks to a greater extent than those
in more developed markets.
For additional information see the section "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 (or since inception if shorter) 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 subadviser to the Fund, a
function it assumed on July 1, 1996. This chart and table reflect results
achieved by the previous subadviser using different investment policies for
periods prior to July 1, 1996. The Fund's performance may have been
different under its current advisory arrangements and investment policies.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years.+ The returns for other classes of shares offered by
this Prospectus differs 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.
<TABLE>
<C> <S>
[CHART]
(up triangle) Highest Quarterly
(total return)/+/ Return: Second Quarter 2003,
up 9.95%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 (down triangle) Lowest Quarterly
------ ------ ------ ------ ----- ------- ------- ------ ------ ------ Return: Fourth Quarter 2000,
11.78% 14.88% 15.37% -1.70% 4.00% -16.09% -10.65% -8.86% 27.91% 10.35% down 11.32%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
-0.98%.
+ The returns shown for the periods prior to September 15, 2003 reflect the
results of the CDC Nvest High Income Fund, whose assets and liabilities were
reorganized into the Fund on September 12, 2003.
--------------------------------------------------------------------------------
6
<PAGE>
Evaluating the Fund's Past Performance - continued
The table below shows how annual total returns for each class of the Fund
(before and after taxes for Class A) for the one-year, five-year and ten-year
periods (or since inception if shorter) compare to those of the Lehman High
Yield Composite Index, a market-weighted unmanaged index of fixed-rate,
non-investment grade debt. 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 High Yield Composite Index returns have not
been adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
<TABLE>
<CAPTION>
Since Class C
Average Annual Total Returns+ Inception
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years (3/2/98)
<S> <C> <C> <C> <C>
Class A - Return Before Taxes 5.39% -1.63% 3.58% --
Return After Taxes on Distributions* 2.39% -5.00% -0.33% --
Return After Taxes on Distributions & Sales of Fund Shares* 3.41% -3.45% 0.60% --
Class B - Return Before Taxes 4.31% -1.72% 3.12% --
Class C - Return Before Taxes 8.30% -1.46% -- -1.18%
Lehman High Yield Composite Index** 11.13% 6.97% 8.13% 5.26%
</TABLE>
* After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The returns are shown for only one class of the
Fund. After-tax returns for the other classes of the Fund will vary. In some
cases the after-tax returns may exceed the return before taxes due to an
assumed tax benefit from any losses on a sale of fund shares at the end of the
measurement period.
** The returns of the Index do not reflect the effect of taxes. The returns for
the Index are calculated from 3/31/98 for Class C shares. Class A commenced
operations 2/22/84 and Class B commenced operations 9/20/93.
+ The returns shown for the periods prior to September 15, 2003 reflect the
results of the CDC Nvest High Income Fund, whose assets and liabilities were
reorganized into the Fund on September 12, 2003.
For information about the Fund's expenses, see the section "Fund Fees &
Expenses."
--------------------------------------------------------------------------------
7
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles Investment Grade Bond Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: Daniel J. Fuss and Steven Kaseta
Category: Corporate Income
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ticker Symbol: Class A Class B Class C
-----------------------
LIGRX LGBBX LGBCX
</TABLE>
Investment Goal
The Fund seeks high total investment return through a combination of current
income and capital appreciation.
Principal Investment Strategies
Under normal market conditions, the Fund will invest at least 80% of its assets
in investment grade fixed income securities (those rated BBB or higher by
Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Services Inc. ("Moody's") or, if unrated, of comparable quality as determined
by Loomis Sayles). In accordance with applicable Securities and Exchange
Commission requirements, the Fund will notify shareholders prior to any change
to such policy taking effect. Although the Fund invests primarily in investment
grade fixed income securities, it may invest up to 10% of its assets in lower
rated fixed income securities ("junk bonds"). The Fund may invest in fixed
income securities of any maturity. The Fund will not invest in equity
securities of any kind or make any equity investment.
In deciding which securities to buy and sell, the Fund will consider, among
other things, the financial strength of the issuer, current interest rates,
Loomis Sayles' expectations regarding future changes in interest rates, and
comparisons of the level of risk associated with particular investments with
Loomis Sayles' expectations concerning the potential return of those
investments.
Three themes typically drive the Fund's investment approach. First, Loomis
Sayles generally seeks fixed-income securities of issuers whose credit profiles
it believes are improving. Second, the Fund makes significant use of non-market
related securities, which are securities that may not have a direct correlation
with changes in interest rates. Loomis Sayles believes that the Fund may
generate positive returns by having a portion of the Fund's assets invested in
non-market related securities, rather than by relying primarily on changes in
interest rates to produce returns for the Fund. Third, Loomis Sayles analyzes
different sectors of the economy and differences in the yields ("spreads") of
various fixed income securities in an effort to find securities that it
believes may produce attractive returns for the Fund in comparison to their
risk. Loomis Sayles generally prefers securities that are protected against
calls (early redemption by the issuer).
The Fund may also:
. Invest any portion of its assets in securities of Canadian issuers and up to
20% of its assets in securities of other foreign issuers, including emerging
markets securities. The Fund may invest without limit in obligations of
supranational entities (e.g., the World Bank).
. Invest in corporate securities, U.S. Government securities, and commercial
paper.
. Invest in zero coupon securities, mortgage-backed securities, stripped
mortgage-backed securities, collateralized mortgage obligations, asset-backed
securities, when-issued securities, and convertible securities.
. Engage in foreign currency hedging transactions, repurchase agreements, swap
transactions and securities lending.
. Invest in Rule 144A securities.
. For temporary defensive purposes, invest any portion of its assets in cash or
in any securities Loomis Sayles deems appropriate. The Fund may miss certain
investment opportunities if it uses defensive strategies and thus may not
achieve its investment goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
Principal Investment Risks
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the
use of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives (which
include options, futures, swap contracts and other transactions) may give
rise to leverage risk, and can have a significant impact on the Fund's
exposure to stock market values, interest rates or the currency exchange rate.
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
--------------------------------------------------------------------------------
8
<PAGE>
Principal Investment Risks - continued
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 known as "junk
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. Rule 144A securities may be more illiquid than other
fixed-income securities.
Foreign securities: Subject to foreign currency fluctuations, higher volatility
than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. Investments in
emerging markets may be subject to these risks to a greater extent than those
in more developed markets.
Foreign Shareholders: A significant majority of Class J shares are held by
customers of a limited number of Japanese brokerage firms. Economic,
regulatory, political or other developments affecting Japanese investors or
brokerage firms, including decisions to invest in investment products other
than the Fund, could result in a substantial number of redemptions within a
relatively limited period of time. If such redemptions were to occur, the
Fund would likely be required to dispose of securities that the Fund's
adviser would otherwise prefer to hold, which would result in costs to the
Fund and its shareholders such as increased brokerage commissions and other
transaction costs, market impact costs and taxes on realized gains. In
addition, the decreased size of the Fund would likely cause its total expense
ratio to increase.
Mortgage-related securities: Subject to prepayment risk. With prepayment, the
Fund may reinvest the prepaid amounts in securities with lower yields than
the prepaid obligations. The Fund may also incur a loss when there is a
prepayment of securities that were purchased at a premium.
For additional information see the section "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 since inception period 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 bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations.+ The returns for other
classes of shares offered by this Prospectus differs 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.
<TABLE>
<C> <S>
[CHART]
(total return)/+/ (up triangle) Highest Quarterly Return: Second
Quarter 2003, up 9.08%
1997 1998 1999 2000 2001 2002 2003 2004 (down triangle) Lowest Quarterly Return: Second
------ ----- ----- ------ ----- ------ ------ ------ Quarter 2004, down 3.99%
14.29% 2.96% 3.65% 10.97% 5.65% 10.60% 19.33% 9.45%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
-1.12%.
+ The returns shown for the period prior to September 15, 2003 in the bar chart
above reflect the results of Retail Class shares of the Fund, which were
converted to Class A shares on September 12, 2003. The prior Retail Class
performance has been restated to reflect expenses of Class A shares. For
periods before the inception of Retail Class shares (December 31, 1996) and
during the period from December 18, 2000 to January 31, 2002 (during which time
Retail Class shares were not outstanding), performance shown for Class A shares
is based on the performance of the Fund's Institutional Class shares, adjusted
to reflect the higher expenses paid by Class A shares. The restatement of the
Fund's performance to reflect Class A expenses is based on the net expenses of
the Classes after taking into effect the Fund's current expense cap
arrangements.
--------------------------------------------------------------------------------
9
<PAGE>
Evaluating the Fund's Past Performance - continued
The table below shows how average annual total returns for each class of the
Fund (before and after taxes for Class A) for the one-year, five-year and since
inception compare to those of the Lehman Government/Credit Index, an index that
tracks the performance of a broad range of government and corporate fixed
income securities. You may not invest directly in an index. The Fund's total
returns reflect, on a class by class basis, expenses and the maximum sales
charge that you may be required to pay when you buy or redeem the Fund's
shares. Class A total returns have also been calculated to reflect return after
taxes on distributions only and return after taxes on distributions and sales
of Fund shares. The Lehman Government/Credit Index returns have not been
adjusted for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.+
<TABLE>
<CAPTION>
Since Fund
Average Annual Total Returns+ Inception
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years (12/31/96)
<S> <C> <C> <C>
Class A - Return Before Taxes 4.54% 10.10% 8.86%
Return After Taxes on Distributions* 1.95% 7.51% 6.14%
Return After Taxes on Distributions & Sales of Fund Shares* 3.16% 7.10% 5.92%
Class B - Returns Before Taxes 3.61% 9.83% 8.50%
Class C - Returns Before Taxes 7.73% 10.11% 8.51%
Lehman Government/Credit Index** 4.19% 8.00% 7.08%
</TABLE>
* After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The returns are shown for only one class of the
Fund. After-tax returns for the other classes of the Fund will vary. In some
cases the after-tax returns may exceed the return before taxes due to an
assumed tax benefit from any losses on a sale of fund shares at the end of the
measurement period.
** The returns of the Index do not reflect the effect of taxes.
+ The returns shown for the periods prior to September 15, 2003 in the table
above reflect the results of Retail Class shares of the Fund, which were
converted to Class A shares on September 12, 2003. The prior Retail Class
performance has been restated to reflect expenses and sales loads of Class A
shares. For periods before the inception of Retail Class shares (December 31,
1996) and during the period from December 18, 2000 to January 31, 2002 (during
which time Retail Class shares were not outstanding), performance shown for
Class A shares is based on the performance of the Fund's Institutional Class
shares, adjusted to reflect the higher expenses and sales loads paid by Class A
shares. Class B and Class C shares has been based on prior Institutional Class
performance, restated to reflect the expenses and sales loads of the Fund's
Class B and Class C shares, respectively. The restatement of the Fund's
performance to reflect Classes A, B, and C expenses is based on the net
expenses of these Classes after taking into effect the Fund's current expense
cap arrangements.
For information about the Fund's expenses, see the section "Fund Fees &
Expenses."
--------------------------------------------------------------------------------
10
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles Limited Term Government and Agency Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: John Hyll and Clifton V. Rowe
Category: Government Income
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ticker Symbol: Class A Class B Class C
-----------------------
NEFLX NELBX NECLX
</TABLE>
Investment Goal
The Fund seeks a high current return consistent with preservation of capital.
The Fund's investment goal may be changed without shareholder approval.
Principal Investment Strategies
The Fund will, under normal market conditions, invest at least 80% of its net
assets in investments issued or guaranteed by the U.S. government, its agencies
or instrumentalities. In accordance with applicable Securities and Exchange
Commission requirements, the Fund will notify shareholders prior to any change
to such policy taking effect.
Loomis Sayles follows a total return oriented investment approach in selecting
securities for the Fund. It seeks securities that give the Fund's portfolio the
following characteristics, although not all securities selected will have these
characteristics and Loomis Sayles may look for other characteristics if market
conditions change:
. Average credit rating of "AAA" by Standard & Poor's Ratings Group ("S&P") or
"Aaa" by Moody's Investors Service, Inc. ("Moody's")
. Effective duration range of two to four years
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 on the economy from research produced by various Wall
Street firms and specific forecasting services or from economic data released
by the 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 U.S. government security
marketplace. This value analysis uses quantitative tools such as internal and
external computer systems and software.
. Loomis Sayles continuously monitors an issuer's creditworthiness to assess
whether the obligation remains an appropriate investment to the Fund.
. It seeks to balance opportunities for yield and price performance by
combining macroeconomic analysis with individual security selection. It
emphasizes securities that tend to perform particularly well in response to
interest rate changes, such as U.S. Treasury securities in a declining
interest rate environment and mortgage-backed or U.S. government agency
securities in a steady or rising interest rate environment.
. Loomis Sayles seeks to increase the opportunity for higher yields while
maintaining the greater price stability that intermediate-term bonds have
compared to bonds with longer maturities.
The Fund may also:
. Invest in investment-grade corporate notes and bonds (those rated BBB or
higher by S&P and Baa or higher by Moody's).
. Invest in zero-coupon bonds.
. Invest in foreign bonds denominated in U.S. dollars.
. Invest in asset-backed securities (if rated AAA by S&P or Aaa by Moody's).
. Invest in mortgage-related securities, including mortgage dollar rolls.
. Invest in futures.
. Engage in active and frequent trading of securities. Frequent trading may
product high trading cost which may lower the Fund's return.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
Principal Investment Risks
Agency securities: Subject to security risk. Agencies of the U.S. government
are guaranteed as to the payment of principal and interest of the relevant
entity 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. Please see the Statement of Additional Information
(the "SAI") for details.
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are
--------------------------------------------------------------------------------
11
<PAGE>
Principal Investment Risks - continued
based. There is no guarantee that the use of derivatives for hedging purposes
will be effective or that suitable transactions will be available. Even a
small investment in derivatives may give rise to leverage risk, and can have
a significant impact on the Fund's exposure to stock market values, interest
rates or the currency exchange rate.
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. Zero-coupon bonds may be subject to
these risks to a greater extent than other fixed-income securities.
Foreign securities: Foreign bonds denominated in U.S. dollars may be more
volatile than U.S. securities and carry political, economic and information
risks that are associated with foreign securities.
Mortgage-related and asset-backed securities: Subject to prepayment risk. With
prepayment, the Fund may reinvest the prepaid amounts in securities with
lower yields than the prepaid obligations. The Fund may also incur a loss
when there is a prepayment of securities that were purchased at a premium.
For additional information see the section "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 subadviser to the Fund, a role is assumed on June 2001. This chart
and table reflect results achieved by the previous subadviser under different
investment policies for periods prior to June 2001. The Fund's performance may
have been different under its current advisory arrangements and investment
policies.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years.+ The returns for other classes of shares offered by
this Prospectus differs 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.
<TABLE>
<C> <S>
[CHART]
(total return)/+/ (up triangle) Highest Quarterly Return: Third
Quarter 1998, up 4.63%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 (down triangle) Lowest Quarterly Return: Second
------ ----- ----- ----- ------ ----- ----- ----- ----- ------ Quarter 2004, down 1.70%
13.02% 2.38% 7.27% 6.46% -0.67% 8.34% 6.86% 8.18% 1.50% 2.00%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
-0.55%.
+ The returns shown for periods prior to September 15, 2003 reflect the results
of the CDC Nvest Limited Term U.S. Government Fund, whose assets and
liabilities were reorganized into the Fund on September 12, 2003.
--------------------------------------------------------------------------------
12
<PAGE>
Evaluating the Fund's Past Performance - continued
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 Intermediate Government Bond
Index ("Lehman Int. Gov't Bond Index"), an unmanaged index of bonds issued by
the U.S. Government and its agencies having maturities between one and ten
years.+ They are also compared to those of the Lehman 1-5 year Government Bond
Index ("Lehman 1-5 Gov't Bond Index"), a market-weighted index of bonds issued
by the U.S. government and its agencies with maturities between one and five
years. You may not invest directly in an index. The Fund's total returns
reflect, on a class by class basis, its expenses and the maximum sales charges
that you may be required to pay when you buy or redeem the Fund's shares. Class
A total returns have also been calculated to reflect return after taxes on
distributions only and also return after taxes on distributions and sales of
Fund shares. The Lehman Int. Gov't Bond Index and Lehman 1-5 Gov't Bond Index
returns have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
<TABLE>
<CAPTION>
Average Annual Total Returns+
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years
<S> <C> <C> <C>
Class A - Return Before Taxes -1.03% 4.69% 5.13%
Return After Taxes on Distributions* -2.20% 2.86% 2.91%
Return After Taxes on Distributions & Sales of Fund Shares* -0.68% 2.87% 2.97%
Class B - Return Before Taxes -3.73% 4.29% 4.76%
Class C - Return Before Taxes 0.30% 4.64% 4.68%
Lehman Int. Gov't Bond Index** 2.33% 6.57% 6.75%
Lehman 1-5 Gov't Bond Index**++ 1.54% 5.78% 6.26%
</TABLE>
* After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The returns are shown for only one class of the
Fund. After-tax returns for the other classes of the Fund will vary. In some
cases the after-tax returns may exceed the return before taxes due to an
assumed tax benefit from any losses on a sale of fund shares at the end of the
measurement period.
** The returns of the Index do not reflect the effect of taxes. The returns of
the Index are calculated from 12/31/95 for Class C shares. Class A commenced
operations 1/3/89 and Class B commenced operations 9/27/93.
+ The returns shown for periods prior to September 15, 2003 reflect the results
of the CDC Nvest Limited Term U.S. Government Fund, whose assets and
liabilities were reorganized into the Fund on September 12, 2003.
++ The Lehman 1-5 Gov't Bond Index replaces the Lehman Int. Gov't Bond Index as
the Fund's comparative index because the Fund's adviser believes it is more
representative of the types of securities in which the Fund invests.
For information about Fund expenses, see the section "Fund Fees & Expenses."
--------------------------------------------------------------------------------
13
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles Massachusetts Tax Free Income Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: Robert Payne and Martha A. Strom
Category: Tax Free Income
</TABLE>
<TABLE>
<S> <C> <C>
Ticker Symbol: Class A Class B
---------------
NEFMX NEMBX
</TABLE>
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 futures.
. Invest in zero-coupon bonds.
. For temporary defensive purposes, invest any portion of its assets in cash or
in any security Loomis Sayles deems appropriate. The Fund may miss certain
investment opportunities if it uses defensive strategies and thus may not
achieve its investment objective.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
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
--------------------------------------------------------------------------------
14
<PAGE>
Principal Investment Risks - continued
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.
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the
use of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives may
give rise to leverage risk, and can have a significant impact on the Fund's
exposure to stock market values, interest rates or the currency exchange rate.
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.
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 "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 (or since inception if shorter) 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 the other class of shares offered by
this Prospectus differs from the Class A returns shown in the bar chart to the
extent its 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.
<TABLE>
<C> <S>
[CHART]
(total return)
(up triangle) Highest Quarterly Return: Fourth
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Quarter 1995, up 9.97%
------ ----- ----- ----- ------ ----- ----- ----- ----- ------ (down triangle) Lowest Quarterly Return: Second
17.83% 3.24% 9.32% 4.92% -4.12% 9.27% 3.21% 8.12% 5.04% 4.16% Quarter 2004, down 3.00%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
0.10%.
--------------------------------------------------------------------------------
15
<PAGE>
Evaluating the Fund's Past Performance - continued
The table below shows how the average annual total returns for each class of
the Fund (before and after taxes for Class A) for the one-year, five-year and
ten-year periods (or since inception if shorter) compare to those of the Lehman
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 Municipal Bond Index returns have not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
<TABLE>
<CAPTION>
Average Annual Total Returns
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years
<S> <C> <C> <C>
Class A - Return Before Taxes -3.00% 5.01% 5.50%
Return After Taxes on Distributions* -0.30% 5.01% 5.47%
Return After Taxes on Distributions & Sales of Fund Shares* 1.04% 4.92% 5.41%
Class B - Return Before Taxes -1.57% 4.90% 5.27%
Lehman Municipal Bond Index** 4.48% 7.20% 7.06%
</TABLE>
* After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The after-tax returns are shown for only one
class of the Fund. After-tax returns for the other classes of the Fund will
vary.
** The returns of the Index do not reflect the effect of taxes.
Class A commenced operations 3/23/84. Class B commenced operations 9/13/93.
For information about the Fund's expenses, see the section "Fund Fees &
Expenses."
--------------------------------------------------------------------------------
16
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles Municipal Income Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: Robert Payne and Martha A. Strom
Category: Tax Free Income
</TABLE>
<TABLE>
<S> <C> <C>
Ticker Symbol: Class A Class B
---------------
NEFTX NETBX
</TABLE>
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 futures.
. Invest in zero-coupon bonds.
. For temporary defensive purposes, invest any portion of its assets in cash or
in any security Loomis Sayles deems appropriate. The Fund may miss certain
investment opportunities if it uses defensive strategies and thus may not
achieve its investment objective.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
--------------------------------------------------------------------------------
17
<PAGE>
Principal Investment Risks
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the
use of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives may
give rise to leverage risk, and can have a significant impact on the Fund's
exposure to stock market values, interest rates or the currency exchange rate.
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.
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 "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 (or since inception if shorter) 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 the other class of shares offered by
this Prospectus differs from the Class A returns shown in the bar chart to the
extent its 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.
<TABLE>
<C> <S>
[CHART]
(total return)/+/ (up triangle) Highest Quarterly Return: Fourth
Quarter 1995, up 3.87%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 (down triangle) Lowest Quarterly Return: Second
------ ----- ----- ----- ------ ----- ----- ----- ----- ------ Quarter 2004, down 2.62%
17.22% 4.63% 8.58% 5.33% -2.76% 8.76% 3.00% 7.31% 4.63% 4.35%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
-0.04%.
+ 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.
--------------------------------------------------------------------------------
18
<PAGE>
Evaluating the Fund's Past Performance - continued
The table below shows how the average annual total returns for each Class of
the Fund (before and after taxes for Class A) for the one-year, five-year and
ten-year periods (or since inception if shorter) compare to those of the Lehman
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 Municipal Bond Index returns have not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
<TABLE>
<CAPTION>
Average Annual Total Returns+
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years Past 10 Years
<S> <C> <C> <C>
Class A - Before Taxes -0.33% 4.61% 5.51%
Return After Taxes on Distributions* -0.34% 4.59% 5.49%
Return After Taxes on Distributions & Sales of Fund Shares* 1.09% 4.59% 5.45%
Class B - Return Before Taxes -1.29% 4.50% 5.22%
Lehman Municipal Bond Index** 4.48% 7.20% 7.06%
</TABLE>
+ 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. The after-tax returns are shown for only one
class of the Fund. After-tax returns for the other classes of the Fund will
vary.
** The returns of the Index do not reflect the effect of taxes.
Class A commenced operations 5/9/77. Class B commenced operations 9/13/93.
For information about the Fund's expenses, see the section "Fund Fees &
Expenses."
--------------------------------------------------------------------------------
19
<PAGE>
[GRAPHIC]
Goals, Strategies & Risks
Loomis Sayles Strategic Income Fund
<TABLE>
<C> <S>
Adviser: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
Managers: Daniel J. Fuss and Kathleen C. Gaffney
Category: Corporate Income
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ticker Symbol: Class A Class B Class C
-----------------------
NEFZX NEZBX NECZX
</TABLE>
Investment Goal
The Fund seeks high current income with a secondary objective of capital
growth. The Fund's investment goal may be changed without shareholder approval.
Principal Investment Strategies
Under normal market conditions, the Fund will invest substantially all of its
assets in income producing securities (including lower-quality securities, or
"junk bonds") with a focus on U.S. corporate bonds, convertible securities,
foreign debt instruments, including those in emerging markets and U.S.
government securities. The Fund may invest up to 35% of its assets in preferred
stocks and dividend-paying common stocks. The portfolio managers shift the
Fund's assets among various types of income-producing securities based upon
changing market conditions.
Loomis Sayles performs its own extensive credit analyses to determine the
creditworthiness and potential for capital appreciation of a security. The
Fund's management uses a flexible approach to identify securities in the global
marketplace with the following characteristics, although not all of the
securities selected will have these attributes:
. Discounted share price compared to economic value
. Undervalued credit ratings with strong or improving credit profiles
. Yield premium relative to its benchmark
In selecting investments for the Fund, Loomis Sayles generally employs the
following strategies:
. Loomis Sayles utilizes the skills of its in-house team of more than 40
research analysts to cover a broad universe of industries, companies and
markets. The Fund's portfolio managers take advantage of these extensive
resources to identify securities that meet the Fund's investment criteria.
. Loomis Sayles seeks to buy bonds at a discount-bonds that offer a positive
yield advantage over the market and, in its view, have room to go up in
price. It may also invest to take advantage of what the portfolio managers
believe are temporary disparities in the yield of different segments of the
market for U.S. government securities.
. Loomis Sayles provides the portfolio managers with maximum flexibility to
find investment opportunities in a wide range of markets, both domestic and
foreign. This flexible approach provides the Fund with access to a wide array
of investment opportunities. The three key sectors that the portfolio
managers focus upon are U.S. corporate issues, foreign bonds and U.S.
government securities.
. The Fund's portfolio managers maintain a core of the Fund's investments in
corporate bond issues and shift its assets among other income-producing
securities as opportunities develop. The Fund maintains a high level of
diversification as a form of risk management.
The Fund may also:
. Invest in zero-coupon or pay-in-kind bonds.
. Invest in mortgage-related securities and stripped securities.
. Invest in futures.
. Invest substantially all of its assets in U.S. government securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Fund from achieving
its investment goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report. In addition, a list of the Fund's portfolio holdings, which
is updated monthly after an aging period of at least 30 days, is available on
the Fund's website at www.ixisadvisorfunds.com. Please see the back cover of
this prospectus for more information on obtaining a copy of the Fund's annual
or semiannual report.
Principal Investment Risks
Derivative securities: Subject to changes in the underlying securities or
indices on which such transactions are based. There is no guarantee that the
use of derivatives for hedging purposes will be effective or that suitable
transactions will be available. Even a small investment in derivatives may
give rise to leverage risk, and can have a significant impact on the Fund's
exposure to stock market values, interest rates or the currency exchange rate.
Equity securities: You may lose money on your investment due to unpredictable
drops in a stock's value or periods of below-average performance in a given
stock or in the stock market as a whole.
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
--------------------------------------------------------------------------------
20
<PAGE>
Principal Investment Risks - continued
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.
Foreign securities: Subject to foreign currency fluctuations, higher volatility
than U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. Investments in
emerging markets may be subject to these risks to a greater extent than those
in more developed markets.
Mortgage-related securities: Subject to prepayment risk. With prepayment, the
Fund may reinvest the prepaid amounts in securities with lower yields than
the prepaid obligations. The Fund may also incur a loss when there is a
prepayment of securities that were purchased at a premium. Stripped
securities are more sensitive to changes in the prevailing interest rates and
the rate of principal payments on the underlying assets than regular
mortgage-related securities.
For additional information see the section "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 since inception 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 bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations.+ The returns for other
classes of shares offered by this Prospectus differs 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.
<TABLE>
<C> <S>
[CHART]
(total return)/+/
(up triangle) Highest Quarterly Return: Second
1996 1997 1998 1999 2000 2001 2002 2003 2004 Quarter 2003, up 12.43%
------ ----- ------ ------ ----- ------ ------ ------ ------ (down triangle) Lowest Quarterly Return: Third
14.49% 9.33% -1.73% 12.17% 0.68% -0.14% 15.47% 34.84% 12.93% Quarter 1998, down 10.57%
</TABLE>
The Fund's Class A shares total return year-to-date as of March 31, 2005 was
-1.08%.
+ The returns shown for periods prior to September 15, 2003 reflect the results
of the CDC Nvest Strategic Income Fund, whose assets and liabilities were
reorganized into the Fund on September 12, 2003.
--------------------------------------------------------------------------------
21
<PAGE>
Evaluating the Fund's Past Performance - continued
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
since inception compare to those of the Lehman Aggregate Bond Index, an
unmanaged index of investment-grade bonds with one- to ten- year maturities
issued by the U.S. government, its agencies and U.S. corporations. They are
also compared to the Lehman U.S. Universal Bond Index, an unmanaged index
representing a blend of the Lehman Aggregate, High Yield and Emerging Market
indices. You may not invest directly in an index. The Fund's total returns
reflect, on a class by class basis, its expenses and the maximum sales charges
that you may be required to pay when you buy or redeem the Fund's shares. Class
A total returns have also been calculated to reflect return after taxes on
distributions only and also return after taxes on distributions and sales of
Fund shares. The Lehman Aggregate Bond Index and the Lehman U.S. Universal Bond
Index returns have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
<TABLE>
<CAPTION>
Since
Average Annual Total Returns+ Inception
(for the periods ended December 31, 2004) Past 1 Year Past 5 Years (5/1/95)
<S> <C> <C> <C>
Class A - Return Before Taxes 7.87% 11.04% 10.26%
Return After Taxes on Distributions* 5.67% 8.03% 6.71%
Return After Taxes on Distributions & Sales of Fund Shares* 5.06% 7.52% 6.51%
Class B - Return Before Taxes 7.08% 10.96% 9.94%
Class C - Return Before Taxes 11.08% 11.23% 9.92%
Lehman Aggregate Bond Index** 4.34% 7.71% 6.94%
Lehman U.S. Universal Bond Index** 4.97% 7.89% 7.11%
</TABLE>
* After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown. After-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans, qualified plans, education savings accounts such as 529 plans or
individual retirement accounts. The returns are shown for only one class of the
Fund. After-tax returns for the other classes of the Fund will vary. In some
cases the after-tax returns may exceed the return before taxes due to an
assumed tax benefit from any losses on a sale of fund shares at the end of the
measurement period.
** The returns of each Index do not reflect the effect of taxes. The returns of
each Index are calculated from 5/31/95 for Classes A, B and C shares.
+ The returns shown for period prior to September 15, 2003 reflect the results
of the CDC Nvest Strategic Income Fund, whose assets and liabilities were
reorganized into the Fund on September 12, 2003.
For information about the Fund's expenses, see the section "Fund Fees &
Expenses."
--------------------------------------------------------------------------------
22
<PAGE>
[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)
<TABLE>
<CAPTION>
All Funds except
Limited Term Government and Agency Fund Limited Term Government
and Massachusetts Tax Free Income Fund and Agency Fund
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price)(1)(2) 4.50% None None 3.00% None None
Maximum deferred sales charge (load) (as a
percentage of original purchase price or
redemption proceeds, as applicable)(2) (3) 5.00% 1.00% (3) 5.00% 1.00%
Redemption fees (Loomis Sayles Strategic Income 2% of redemption
Fund, Loomis Sayles High Income Fund and proceeds on shares held
Loomis Sayles Core Plus Bond Fund only) for 60 days or less+* None* None* None* None* None*
Redemption fees (all other Funds in the
Prospectus) None* None* None* None* None* None*
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Tax
Free Income Fund
Class A Class B
<S> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price)(1)(2) 4.25% None
Maximum deferred sales charge (load) (as a
percentage of original purchase price or
redemption proceeds, as applicable)(2) (3) 5.00%
Redemption fees None* None*
</TABLE>
+ Will be charged on redemptions and exchanges of shares held for 60 days or
less. For more information, see the section "Redemption Fees".
(1) A reduced sales charge on Class A shares applies in some cases. See the
section "How Sales Charges Are Calculated" within the section "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 "How Sales Charges Are Calculated" within
the section "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)
<TABLE>
<CAPTION>
Core Plus Bond Fund/(1)/ High Income Fund
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Management fees 0.42% 0.42% 0.42% 0.60% 0.60% 0.60%
Distribution and/or service (12b-1) fees** 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses+ 0.55% 0.55% 0.55% 0.78% 0.78% 0.78%
Total annual fund operating expenses 1.22% 1.97% 1.97% 1.63% 2.38% 2.38%
Fee Waiver and/or expense reimbursement 0.07% 0.07% 0.07% 0.00% 0.00% 0.00%
Net Expenses 1.15% 1.90% 1.90% 1.63% 2.38% 2.38%
</TABLE>
--------------------------------------------------------------------------------
23
<PAGE>
[GRAPHIC]
Fund Fees & Expenses (continued)
Annual Fund Operating Expenses - continued
<TABLE>
<CAPTION>
Limited Term Government Massachusetts Tax Free
Investment Grade Bond Fund/(2)/ and Agency Fund Income Fund/(3)/
Class A Class B Class C Class A Class B Class C Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.40% 0.40% 0.40% 0.57% 0.57% 0.57% 0.60% 0.60%
Distribution and/or service (12b-1) fees** 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* 0.25% 1.00%
Other expenses+ 1.08% 1.08% 1.08% 0.40% 0.40% 0.40% 0.34% 0.34%
Total annual fund operating expenses 1.73% 2.48% 2.48% 1.22% 1.97% 1.97% 1.19% 1.94%
Fee Waiver and/or expense reimbursement 0.78% 0.78% 0.78% 0.00% 0.00% 0.00% 0.00% 0.00%
Net Expenses 0.95% 1.70% 1.70% 1.22% 1.97% 1.97% 1.19% 1.94%
</TABLE>
<TABLE>
<CAPTION>
Municipal Income Fund Strategic Income Fund/(4)/
Class A Class B Class A Class B Class C
<S> <C> <C> <C> <C> <C>
Management fees 0.47% 0.47% 0.61% 0.61% 0.61%
Distribution and/or service (12b-1) fees** 0.25% 1.00% 0.25% 1.00%* 1.00%*
Other expenses+ 0.31% 0.31% 0.39% 0.39% 0.39%
Total annual fund operating expenses 1.03% 1.78% 1.25% 2.00% 2.00%
Fee Waiver and/or expense reimbursement 0.00% 0.00% 0.00% 0.00% 0.00%
Net Expenses 1.03% 1.78% 1.25% 2.00% 2.00%
</TABLE>
+ Other expenses have been restated to reflect contractual changes to transfer
agency fees for the Funds effective January 1, 2005.
* 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.
** Each class of Fund shares pays an annual service fee of 0.25% of its average
daily net assets.
(1) Loomis Sayles has given a binding undertaking to this Fund to limit the
amount of the Fund's total annual fund operating expenses, exclusive of
brokerage expenses, interest expenses, taxes and organizational and
extraordinary expenses, to 1.15%, 1.90%, and 1.90% of the Fund's average
daily net assets for Classes A, B and C shares, respectively. This
undertaking is in effect through January 31, 2006 and is reevaluated on an
annual basis. Without this undertaking, expenses would have been higher.
(2) Loomis Sayles has given a binding undertaking to this Fund to limit the
amount of the Fund's total annual fund operating expenses, exclusive of
brokerage expenses, interest expenses, taxes and organizational and
extraordinary expenses, to 0.95%, 1.70%, and 1.70% of the Fund's average
daily net assets for Classes A, B and C shares, respectively. This
undertaking is in effect through January 31, 2006 and is reevaluated on an
annual basis. Without this undertaking, expenses would have been higher.
(3) 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, 2006, and is reevaluated on an annual basis.
(4) Loomis Sayles has given a binding undertaking to this Fund to limit the
amount of the Fund's total annual fund operating expenses, exclusive of
brokerage expenses, interest expenses, taxes and organizational and
extraordinary expenses, to 1.25%, 2.00%, and 2.00% of the Fund's average
daily net assets for Classes A, B and C shares, respectively. This
undertaking is in effect through January 31, 2006 and is reevaluated on an
annual basis.
--------------------------------------------------------------------------------
24
<PAGE>
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:
<TABLE>
<CAPTION>
Core Plus High Income
Bond Fund Fund
Class A Class B Class C Class A Class B Class C
(1) (2) (1) (2) (1) (2) (1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 562 $ 693 $ 193 $ 293 $ 193 $ 608 $ 741 $ 241 $ 341 $ 241
3 years $ 799 $ 897 $ 597 $ 597 $ 597 $ 941 $1,042 $ 742 $ 742 $ 742
5 years $1,054 $1,226 $1,026 $1,026 $1,026 $1,297 $1,470 $1,270 $1,270 $1,270
10 years** $1,785 $2,027 $2,027 $2,222 $2,320 $2,296 $2,530 $2,530 $2,716 $2,716
</TABLE>
<TABLE>
<CAPTION>
Investment Grade Limited Term Government
Bond Fund+ and Agency Fund
Class A Class B Class C Class A Class B Class C
(1) (2) (1) (2) (1) (2) (1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 543 $ 673 $ 173 $ 273 $ 173 $ 421 $ 700 $ 200 $ 300 $ 200
3 years $ 898 $ 998 $ 698 $ 698 $ 698 $ 676 $ 918 $ 618 $ 618 $ 618
5 years $1,276 $1,450 $1,250 $1,250 $1,250 $ 950 $1,262 $1,062 $1,062 $1,062
10 years** $2,337 $2,571 $2,571 $2,757 $2,757 $1,733 $2,102 $2,102 $2,296 $2,296
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Tax Free Municipal Strategic Income
Income Fund Income Fund Fund
Class A Class B Class A Class B Class A Class B Class C
(1) (2) (1) (2) (1) (2) (1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 541 $ 697 $ 197 $ 550 $ 681 $ 181 $ 572 $ 703 $ 203 $ 303 $ 203
3 years $ 787 $ 909 $ 609 $ 763 $ 860 $ 560 $ 829 $ 927 $ 627 $ 627 $ 627
5 years $1,052 $1,247 $1,047 $ 993 $1,164 $ 964 $1,105 $1,278 $1,078 $1,078 $1,078
10 years** $1,807 $2,264 $2,264 $1,653 $2,095 $2,095 $1,893 $2,134 $2,134 $2,327 $2,327
</TABLE>
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
* The example is based on the net expenses shown above for the Core Plus Bond
Fund, Investment Grade Bond Fund, Massachusetts Tax Free Income Fund and
Strategic Income Fund for the 1-year period illustrated in the Example and
on the total annual fund operating expenses for the remaining years. The
Example is based on the total annual fund operating expenses for all other
Funds for all periods.
** Class B shares automatically convert to Class A shares after 8 years;
therefore, in years 9 and 10 Class B amounts are calculated using Class A
expenses.
+ Retail Class shares converted into Class A shares on September 12, 2003.
Expenses for Class A shares are based on the former Retail Class expenses,
adjusted to take into account Class A's current fees and expenses, including
the agreement to limit operating expenses.
--------------------------------------------------------------------------------
25
<PAGE>
[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 (All Funds) The risk that changes in the value of a hedging
instrument will not match those of the asset being hedged.
Credit Risk (All Funds) The risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise become unable to honor a
financial obligation. Funds that invest in securities rated below investment
grade quality (i.e., below a rating of Baa or BBB by Moody's or S&P,
respectively), or that are unrated but judged to be of comparable quality by
the Fund's adviser are subject to greater credit risk than funds that do not
invest in such securities.
Currency Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic
Income Funds) The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment.
Emerging Markets Risk (Core Plus Bond, High Income and Strategic Income Funds)
The risk associated with investing in companies traded in developing securities
markets, which may be smaller and have shorter operating histories than
companies in developed markets. Emerging markets involve risks in addition to
and greater than those generally associated with investing in developed foreign
markets. The extent of economic development, political stability, market depth,
infrastructure and capitalization, and regulatory oversight in emerging market
economies is generally less than in more developed markets.
Extension Risk (All Funds except Massachusetts Tax Free Income Fund and
Municipal Income Fund) The risk that an unexpected rise in interest rates will
extend the life of a mortgage- or asset-backed security beyond the expected
prepayment time, typically reducing the security's value.
Foreign Risk (All Funds except Massachusetts Tax Free Income and Municipal
Income) The risk associated with investments in issuers located in foreign
countries. A Fund's investments in foreign securities may experience more rapid
and extreme changes in value than investments in securities of U.S. companies.
In the event of a nationalization, expropriation or other confiscation, a Fund
that invests in foreign securities could lose its entire investment. When a
Fund invests in securities from issuers located in countries with emerging
markets, it may face greater foreign risk since emerging market countries may
be more likely to experience political and economic instability.
High Yield Risk (Core Plus Bond, High Income, Investment Grade Bond and
Strategic Income Funds) The risk associated with investing in high yield
securities and unrated securities of similar quality (commonly known as "junk
bonds"), which may be subject to greater levels of interest rate, credit and
liquidity risk than other securities. These securities are considered
predominantly speculative with respect to the issuer's continuing ability to
make principal and interest payments. In addition, an economic downturn or
period of rising interest rates could adversely affect the market of these
securities and reduce a Fund's ability to sell them.
Information Risk (All Funds) The risk that key information about a security is
inaccurate or unavailable.
Interest Rate Risk (All Funds) The risk of market losses attributable to
changes in interest rates. In general, the prices of fixed-income securities
rise when interest rates fall, and prices fall when interest rates rise.
Leverage Risk (All Funds) The risk associated with securities or practices
(e.g., borrowing) that multiply small index or market movements into larger
changes in value. When a derivative security (a security whose value is based
on another security or index) is used as a hedge against an offsetting position
that a Fund also holds, any loss generated by the derivative security should be
substantially offset by gains on the hedged instrument, and vice versa. To the
extent that a Fund uses a derivative security for purposes other than as a
hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the
risks of that derivative security and any loss generated by the derivative
security will not be offset by a gain.
Liquidity Risk (All Funds) The risk that certain securities may be difficult or
impossible to sell at the time and at the price that the seller would like.
This may result in a loss or may otherwise be costly to a Fund. These types of
risks may also apply to restricted securities, Section 4(2) Commercial Paper,
and Rule 144A Securities.
Management Risk (All Funds) The risk that a strategy used by a Fund's portfolio
management may fail to produce the intended result.
Market Risk (All Funds) The risk that the market value of a security may move
up and down, sometimes rapidly and unpredictably, based upon a change in an
issuer's financial condition as well as overall market and economic conditions.
Opportunity Risk (All Funds) The risk of missing out on an investment
opportunity because the assets necessary to take advantage of it are invested
in less profitable investments.
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Options, Futures, Swap Contracts and Other Derivatives Risks (All Funds except
Investment Grade Bond Fund for options and futures) 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.
Political Risk (All Funds) The risk of losses directly attributable to
government or political actions.
Prepayment Risk (All Funds except Massachusetts Tax Free Income Fund and
Municipal Income Fund) The risk that unanticipated prepayments may occur,
reducing the return from mortgage- or asset-backed securities, or real estate
investment trusts.
Small Capitalization Companies Risk (Core Plus Bond, High Income and Strategic
Income Funds) These companies carry special risks, including narrower markets,
more limited financial and management resources, less liquidity and greater
volatility than large company stocks.
Valuation Risk (All Funds) The risk that a Fund has valued certain securities
at a higher price than the price at which they can be sold.
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[GRAPHIC]
Management Team
Meet the Funds' Investment Adviser
The IXIS Advisor Funds family (as defined below) currently includes 23 mutual
funds. The IXIS Advisor Funds family had combined assets of $5.8 billion as of
December 31, 2004. IXIS Advisor Funds are distributed through IXIS Asset
Management Distributors, L.P. (the "Distributor"). This Prospectus covers the
IXIS Advisor Income and Tax Free Income Funds (the "Funds" or each a "Fund"),
which, along with the IXIS Advisor Equity Funds, IXIS Advisor Diversified
Portfolios, Loomis Sayles Research Fund and Loomis Sayles Growth Fund,
constitute the "IXIS Advisor Funds." IXIS Cash Management Trust -- Money Market
Series is the "Money Market Fund."
Adviser
Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111,
serves as adviser to the Funds. Loomis Sayles is a subsidiary of IXIS Asset
Management North America, L.P. ("IXIS Asset Management North America"), which
is a subsidiary of IXIS Asset Management, a French asset manager. Founded in
1926, Loomis Sayles is one of America's oldest investment advisory firms with
over $58 billion in assets under management as of September 30, 2004. 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
these Funds.
The aggregate advisory fees paid by the Funds during the fiscal year ended
September 30, 2004, as a percentage of each Fund's average daily net assets,
were 0.39% for Loomis Sayles Core Plus Bond Fund (after waiver or
reimbursement)/1/, 0.68% for Loomis Sayles High Income Fund, 0% for Loomis
Sayles Investment Grade Bond Fund (after waiver or reimbursement), 0.57% for
Loomis Sayles Limited Term Government and Agency Fund, 0.60% for Loomis Sayles
Massachusetts Tax Free Income Fund/2/, 0.47% for Loomis Sayles Municipal Income
Fund, and 0.62% for Loomis Sayles Strategic Income Fund.
/1/ The advisory fee for the Loomis Sayles Core Plus Bond Fund consisted of a
fee of 0.208% payable to Loomis Sayles, as investment adviser to the Fund
and an advisory administration fee of 0.208% payable to IXIS Asset
Management Advisors, L.P., ("IXIS Advisors") as advisory administrator to
the Fund.
/2/ The advisory fee for the Loomis Sayles Massachusetts Tax Free Income Fund
consisted of a fee of 0.300% payable to Loomis Sayles, as investment
adviser to the Fund and an advisory administration fee of 0.300% payable
to IXIS Advisors, as advisory administrator to the Fund.
Portfolio Trades
In placing portfolio trades, Loomis Sayles may use brokerage firms that market
the Fund's shares or are affiliated with 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.
Pursuant to exemptive relief that may in the future be granted by the SEC, each
Fund may be permitted to invest its daily cash balances in shares of money
market and short-term bond funds advised by IXIS Advisors or its affiliates
("Central Funds"). The Central Funds currently include the IXIS Cash Management
Trust-Money Market Series; Institutional Daily Income Fund; Cortland Trust,
Inc.; and Short Term Income Fund, Inc. Each Central Fund is advised by Reich &
Tang Asset Management, LLC ("Reich & Tang"), except for IXIS Cash Management
Trust-Money Market Series, which is advised by IXIS Advisors and sub-advised by
Reich & Tang. Because IXIS Advisors and Reich & Tang are both subsidiaries of
IXIS Asset Management North America, the Funds and the Central Funds may be
considered to be related companies comprising a "group of investment companies"
under the 1940 Act.
Pursuant to such exemptive relief, the Funds may also borrow and lend money for
temporary or emergency purposes directly to and from each other through an
interfund credit facility. In addition to the Funds and the Central Funds,
series of the following mutual fund groups may also be able to participate in
the facility: IXIS Advisor Funds Trust I (except the CGM Advisor Targeted
Equity Fund series), IXIS Advisor Funds Trust II, IXIS Advisor Funds Trust III,
IXIS Advisor Funds Trust IV, AEW Real Estate Income Fund, Harris Associates
Investment Trust, Loomis Sayles Funds I and Loomis Sayles Funds II. The
advisers and sub-advisers to these mutual funds currently include IXIS
Advisors, Reich & Tang, Loomis Sayles, AEW Management and Advisors, L.P.,
Harris Associates L.P. and Westpeak Global Advisors, L.P. Each of these
advisers and sub-advisers are subsidiaries of IXIS Asset Management North
America and are thus "affiliated persons" under the 1940 Act by reason of being
under common control by IXIS Asset Management North America. In addition,
because the Funds are advised by firms that are affiliated with one another,
they may be considered to be related companies comprising a "group of
investment companies" under the 1940 Act. The Central Funds and AEW Real Estate
Income Fund will participate in the Credit Facility only as lenders.
Participation in such an interfund lending program would be voluntary for both
borrowing and lending funds, and a Fund would participate in an
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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 the advisers or an affiliate.
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[GRAPHIC]
Management Team
Meet the Funds' Portfolio Managers
Matthew J. Eagan
Matthew Eagan has served as co-portfolio manager of the High Income Fund since
May 2002. Mr. Eagan, Portfolio Manager and Vice President of Loomis Sayles,
began his investment career in 1990 and joined Loomis Sayles in 1997. Mr. Eagan
received a B.A. from Northeastern University and an M.B.A. from Boston
University. He holds the designation of Chartered Financial Analyst. Mr. Eagan
has over 14 years of investment experience.
Daniel J. Fuss
Daniel Fuss has served as portfolio manager of the Strategic Income Fund since
May 1995 and has served as co-portfolio manager of the Investment Grade Bond
Fund since its inception in December 1996 Mr. Fuss is Vice Chairman, Director
and Managing Partner of Loomis Sayles. He began his investment career in 1968
and has been at Loomis Sayles since 1976. Mr. Fuss holds the designation of
Chartered Financial Analyst. He received a B.S. and an M.B.A. from Marquette
University and has over 37 years of investment experience.
Kathleen C. Gaffney
Kathleen Gaffney has been assisting Daniel Fuss as a portfolio manager of the
Strategic Income Fund since April 1996 and has served as co-portfolio manager
of the High Income Fund since May 2002. Ms. Gaffney, Vice President of Loomis
Sayles, joined the company in 1984. Ms. Gaffney holds the designation of
Chartered Financial Analyst. She received a B.A. from the University of
Massachusetts at Amherst and has over 20 years of investment experience.
John Hyll
John Hyll has served as co-portfolio manager of the Limited Term Government and
Agency Fund since April 2003. Mr. Hyll, Portfolio Manager and Vice President of
Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in
1989. Mr. Hyll received a B.A. and an M.B.A. from Baldwin-Wallace College. He
has over 21 years of investment experience.
Steven Kaseta
Steven Kaseta has served as co-portfolio manager of the Investment Grade Bond
Fund since February 2002. Mr. Kaseta, Vice President of Loomis Sayles, joined
the firm in 1994. He received a A.B. from Harvard University and an M.B.A. from
the Wharton School at the University of Pennsylvania. Mr. Kaseta has over 22
years of investment experience.
Peter W. Palfrey
Peter Palfrey has served as co-portfolio manager of the Core Plus Bond Fund
since May 1999, including service until May 2001 with Back Bay Advisors, the
former subadviser of the Core Plus Bond Fund. Mr. Palfrey, Portfolio Manager
and Vice President of Loomis Sayles, joined the company in 2001. Prior to that
he was Senior Vice President of Back Bay Advisors from 1993 until 2001. Mr.
Palfrey holds the designation of Chartered Financial Analyst. He received his
B.A. from Colgate University and has over 22 years of investment experience.
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 37 years of investment experience.
Richard G. Raczkowski
Richard Raczkowski has served as a co-portfolio manager of the Core Plus Bond
Fund since May 1999 (including service until May 2001 with Back Bay Advisors,
the former subadviser of the Core Plus Bond Fund). Mr. Raczkowski, Portfolio
Manager and Vice President of Loomis Sayles, joined the company in 2001. Prior
to that he was Vice President of Back Bay Advisors from 1998 until 2001. He
received a B.A. from the University of Massachusetts and an M.B.A. from
Northeastern University and has over 20 years of investment experience.
Clifton V. Rowe
Cliff Rowe has served as co-portfolio manager of the Limited Term Government
and Agency Fund since June 2001. Mr. Rowe, Portfolio Manager and Vice President
of Loomis Sayles, joined the company in 1992. Prior to becoming a Portfolio
Manager, he served Loomis Sayles as a Trader from 1999 until 2001. He holds the
designation of Chartered Financial Analyst. Mr. Rowe received a B.B.A. from
James Madison University and an MBA from the University of Chicago, and has
over 13 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 17 years of
investment management experience.
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[GRAPHIC]
Fund Services
Investing in the Funds
Choosing a Share Class
Each Fund offers Classes A, B and C shares to the public, except Loomis Sayles
Massachusetts Tax Free Income Fund and Loomis Sayles Municipal Income Fund
offer only Class A and Class B shares. Each class has different costs
associated with buying, selling and holding Fund shares, which allows you to
choose the class that best meets your needs. Which class is best for you
depends upon the size of your investment and how long you intend to hold your
shares. Class B shares, Class C shares and certain shareholder features may not
be available to you if you hold your shares in a street name account. Your
financial representative can help you decide which class of shares is most
appropriate for you.
Class A Shares
. You pay a sales charge when you buy Fund shares. There are several ways to
reduce this charge. See the section "How Sales Charges Are Calculated."
. You pay lower annual expenses than Class B and Class C 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 redemptions if you redeem these shares within one 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 six years
of purchase, as described in the section "How Sales Charges Are Calculated."
. Your Class B shares will automatically convert into Class A shares after
eight 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 redemptions if you redeem Class A shares
within one year of purchase.
Class C Shares
. You pay higher annual expenses than Class A shares.
. You may pay a charge on redemptions if you sell your shares within one year
of purchase.
. Your Class C shares will not automatically convert into Class A shares. If
you hold your shares for longer than eight years, you'll pay higher expenses
than shareholders of other classes.
. Investors will not be permitted to purchase $1 million or more of Class C
shares as a single investment per account. There may be certain exceptions to
this restriction for omnibus 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 redemptions if you redeem Class A shares within one
year of purchase.
For information about the Fund's expenses, see the section "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.
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[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:
<TABLE>
<CAPTION>
Class A Sales Charges**
All Funds Except Limited Term
Government and Agency Fund,
Massachusetts Tax Free Income
Fund and Municipal Income Fund
As a % of As a % of
Your Investment offering price your investment
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$ 100,000 - $249,999 3.50% 3.63%
$ 250,000 - $499,999 2.50% 2.56%
$ 500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
Class A Sales Charges**
Limited Term
Government and
Agency Fund
As a % of As a % of
Your Investment offering price your investment
<S> <C> <C>
Less than $100,000 3.00% 3.09%
$ 100,000 - $249,999 2.50% 2.56%
$ 250,000 - $499,999 2.00% 2.04%
$ 500,000 - $999,999 1.25% 1.27%
$1,000,000 or more* 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
Class A Sales Charges**
Massachusetts Tax Free Income Fund
As a % of As a % of
Your Investment offering price your investment
<S> <C> <C>
Less than $50,000 4.25% 4.44%
$ 50,000 - $ 99,000 4.00% 4.17%
$ 100,000 - $249,999 3.50% 3.63%
$ 250,000 - $499,999 2.50% 2.56%
$ 500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
Class A Sales Charges**
Municipal Income Fund
As a % of As a % of
Your Investment offering price your investment
<S> <C> <C>
Less than $50,000 4.50% 4.71%
$ 50,000 - $ 99,000 4.50% 4.71%
$ 100,000 - $249,999 3.50% 3.63%
$ 250,000 - $499,999 2.50% 2.56%
$ 500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0.00% 0.00%
</TABLE>
* For purchases of Class A shares of the Fund of $1 million or more, there is
no front-end sales charge, but a CDSC of 1.00% may apply to redemptions of
your shares within one year of the date of purchase. See the section "How
the CDSC is Applied to Your Shares."
** Not imposed on shares that are purchased with reinvested dividends or other
distributions.
If you invest in Class A shares through a financial intermediary, it is the
responsibility of the financial intermediary to ensure that you obtain the
proper "breakpoint" discount. It will be necessary at the time of purchase to
inform the Distributor and the financial intermediary of the existence of other
accounts in which there are holdings eligible to be aggregated to meet sales
load breakpoints. You may be required to provide certain records and
information, such as account statements, with respect to all of your accounts
which hold shares, including accounts with other financial intermediaries and
your family members' and other related party accounts, in order to verify your
eligibility for a reduced sales charge. If the Distributor is not notified that
you are eligible for a reduced sales charge, the Distributor will be unable to
ensure that the reduction is applied to your account. Additional information
concerning sales load breakpoints is available from your financial
intermediary, by visiting the Funds' website at www.ixisadvisorfunds.com (click
on "sales charges" at the bottom of the home page) or in the Funds' statement
of additional information.
Reducing Front-End Sales Charges
There are several ways you can lower your sales charge for Class A shares,
including:
. Letter of Intent -- By signing a Letter of Intent, you may purchase Class A
shares of any IXIS Advisor 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 $100,000 or more over 13 months. Purchases of Class B
and Class C shares may be used toward meeting the letter of intent.
. Cumulative Purchase Discount -- You may be to a reduced sales charge if your
"total investment" reaches
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<PAGE>
a breakpoint for a reduced sales charge. The total investment is determined
by adding the amount of your current purchase in the Fund, including the
applicable sales charge, to the current public offering price of all series
and classes of shares of the IXIS Advisor Funds held by you in one or more
accounts. If your total investment exceeds a sales charge breakpoint in the
table above, the lower sales charge applies to entire amount of your current
purchase in the Fund.
. Combining Accounts -- allows you to combine shares of multiple IXIS Advisor
Funds and classes for purposes of calculating your sales charge.
Individual Accounts: You may elect to combine your purchase(s) and your
total investment, as defined above, with the purchases and total investment
of your spouse, parents, children, siblings, in-laws, grandparents,
grandchildren, individual fiduciary accounts, sole proprietorships, single
trust estates and any other individuals acceptable to the Distributor.
Certain Retirement Plan Accounts: The Distributor may, in its discretion,
combine the purchase(s) and total investment of all qualified participants
in the same retirement plan for purposes of determining the availability of
a reduced sales charge.
In most instances, individual accounts may not be linked with certain
retirement plan accounts for the purposes of calculating sales charges. SIMPLE
IRA contributions will automatically be linked with those of other participants
in the same SIMPLE IRA Plan (Class A shares only). SIMPLE IRA accounts may not
be linked with any other IXIS Advisor Fund account for rights of accumulation.
Please refer to the SAI for more detailed information on combining accounts.
The above-listed ways to reduce front-end sales chares may not apply to the
Money Market Fund unless shares are purchased through an exchange from another
IXIS Advisor Fund.
Eliminating Front-End 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 IXIS Advisor
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 $1 million or more in
total plan assets or 100 eligible employees;
. Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities;
. Investments of $5 million or more in Limited Term Government and Agency Fund
by corporations purchasing shares for their own account, credit unions, or
bank trust departments and trust companies with discretionary accounts which
they hold in a fiduciary capacity
. Investments of $25,000 or more in IXIS Advisor Funds or the Money Market Fund
by clients of an adviser or subadviser to any IXIS Advisor 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 IXIS
Advisor Fund. To qualify, you must reinvest some or all of the proceeds within
120 days after your redemption and notify IXIS Advisor Funds or your financial
representative in writing 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.
Eliminating the CDSC
As long as the Distributor is notified at the time you sell, the CDSC for Class
A shares will be generally be eliminated in the following cases: (1) to make
distributions from a Retirement Plan (a plan termination or total plan
redemption may incur a CDSC); (2) to make payments through a systematic
withdrawal plan; or (3) due to shareholder death or disability.
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[GRAPHIC]
Fund Services
How Sales Charges Are Calculated (continued)
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
six years of buying them. The amount of the CDSC, if any, declines each year
that you own your shares (except in the 3/rd/ and 4/th/ 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 IXIS Advisor Fund. The CDSC equals the following
percentages of the dollar amounts subject to the charge:
<TABLE>
<CAPTION>
Class B Contingent Deferred Sales Charges
Year Since Purchase CDSC on Shares Being Sold
<S> <C>
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
Thereafter 0.00%
</TABLE>
Eliminating the CDSC
As long as the Distributor is notified at the time you sell, the CDSC for Class
B shares will be generally be eliminated in the following cases: (1) to make
distributions from a Retirement Plan (a plan termination or total plan
redemption may incur a CDSC); (2) to make payments through a systematic
withdrawal plan; or (3) due to shareholder death or disability.
Class C Shares
The offering price of Class C shares is their net asset value, without a
front-end sales charge. Class C shares are subject to a CDSC of 1.00% on
redemptions made within one year of the date of purchase. The holding period
for determining the CDSC will continue to run after an exchange to Class C
shares of another IXIS Advisor Fund.
<TABLE>
<CAPTION>
Class C Contingent Deferred Sales Charges
Year Since Purchase CDSC on Shares Being Sold
<S> <C>
1st 1.00%
Thereafter 0.00%
</TABLE>
Eliminating the CDSC
As long as the Distributor is notified at the time you sell, the CDSC for Class
C shares will be generally be eliminated in the following cases: (1) to make
distributions from a Retirement Plan (a plan termination or total plan
redemption may incur a CDSC); (2) to make payments through a systematic
withdrawal plan; or (3) due to shareholder death or disability.
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 IXIS Advisor Fund.
If you choose to redeem those Money Market Fund shares, a CDSC may apply.
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[GRAPHIC]
Fund Services
It's Easy to Open an Account
To Open an Account with IXIS Advisor 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:
<TABLE>
<CAPTION>
Minimum Minimum
Type of Account Initial Purchase Subsequent Purchase
<S> <C> <C>
Any account other than those listed below $2,500 $100
For shareholders participating in IXIS Advisor Funds' Investment Builder Program $1,000 $50*
For Traditional IRA, Roth IRA, Rollover IRA, SEP-IRA and Keogh plans using the IXIS
Advisor Funds' prototype document $1,000 $100
Coverdell Education Savings Accounts $500 $100
For SIMPLE IRA** and 403(b)(7) plans using IXIS Advisor Funds' prototype document $0 $0
</TABLE>
* Shareholders with accounts participating in IXIS Advisor Funds' Investment
Builder Program prior to May 1, 2005 may continue to make subsequent
purchases of $25 into those accounts.
** 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 are subject to the same minimums
as SIMPLE IRAs, may remain active and continue to add new employees.
The Distributor, in its sole discretion, may lower investment minimums for
accounts associated with wrap-fee programs sponsored by certain broker-dealers
and investment advisers and for accounts associated with certain other defined
contribution plans not using the IXIS Advisor Funds' prototype document. Such
wrap-fee and defined contribution accounts will be subject to the minimum
balance policy, as discussed below.
3.Complete the appropriate parts of the account application, carefully
following the instructions. If you have any questions, please call your
financial representative or IXIS Advisor Funds at 800-225-5478. For more
information on IXIS Advisor Funds' investment programs, refer to the section
"Additional Investor Services" in this Prospectus.
4.Use the following sections as your guide for purchasing shares.
Minimum Balance Policy
Each Fund, on an annual basis, may deduct a minimum balance fee of $20 for
accounts that fall below the minimum amount required to establish an account,
as described above. The minimum balance fee is assessed by the automatic
redemption of shares in the account in an amount sufficient to pay the fee. The
valuation of account balances and the deduction of the fee generally occurs
during the third week in September of each calendar year, although they may
occur at another date in the year. The fee will not be deducted from Fund
positions opened after June 30th of the calendar year in which the fee is
assessed. Certain accounts, such as accounts that fall below the minimum as a
result of the automatic conversion from Class B shares to Class A shares and
accounts using the IXIS Advisor Funds' prototype document (including IRAs,
Keogh plans, 403(b)(7) plans and Coverdell Education Savings Accounts), are
excepted from the minimum balance fee.
In its discretion, each Fund may also close an account and send the account
holder the proceeds if the account falls below the minimum amount required to
establish an account. It is expected that accounts maintained by intermediaries
through the National Securities Clearing Corporation ("NSCC") may be liquidated
rather than assessed a fee, if the account balance falls below such minimum.
The valuation of account balances and the liquidation itself generally occur
during October of each calendar year, although they may occur at another date
in the year. Any account opened after June 30th of a calendar year will not be
subject to the liquidation for that calendar year.
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35
<PAGE>
[GRAPHIC]
Fund Services
It's Easy to Open an Account (continued)
Self-Servicing Your Account
Buying or selling shares is easy with the services described below:
IXIS Advisor Funds Personal Access Line(R)
800-225-5478, press 1
IXIS Advisor Funds Web Site
www.ixisadvisorfunds.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.
--------------------------------------------------------------------------------
36
<PAGE>
[GRAPHIC]
Fund Services
Buying Shares
<TABLE>
<CAPTION>
Opening an Account Adding to an Account
<S> <C> <C>
Through Your Investment Dealer
. Call your investment dealer for information about opening or adding to an account. Dealers
may also 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 "IXIS investment amount, payable to "IXIS Advisor
[GRAPHIC] Advisor Funds." Third party checks and Funds." Third party checks and "starter"
"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 IXIS Advisor Funds, statement or include a letter specifying the
P.O. Box 219579, Kansas City, MO Fund name, your class of shares, your account
64121-9579. number and the registered account name(s).
By Exchange (See the section "Exchanging Shares" for more
details.)
. Obtain a current prospectus for the Fund . Call your investment dealer or IXIS Advisor
into which you are exchanging by calling Funds at 800-225-5478 or visit
[GRAPHIC] your investment dealer or IXIS Advisor www.ixisadvisorfunds.com to request an
Funds at 800-225-5478. exchange.
. Call your investment dealer or IXIS Advisor
Funds or visit www.ixisadvisorfunds.com
to request an exchange.
By Wire
. Opening an account by wire is not . Visit www.ixisadvisorfunds.com to add shares
available. to your account by wire. Instruct your bank to
[GRAPHIC] transfer funds to State 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")
. Although you cannot open an account . Call IXIS Advisor Funds at 800-225-5478 or
through ACH, you may add this feature by visit www.ixisadvisorfunds.com to add shares
[GRAPHIC] selecting it on your account application. to your account through ACH.
. Ask your bank or credit union whether it is . If you have not signed up for the ACH
a member of the ACH system. system, please call IXIS Advisor Funds or visit
www.ixisadvisorfunds.com for a Service
Options Form. A signature guarantee may be
required to add this privilege.
Automatic Investing Through Investment Builder
. Indicate on your application that you . Please call IXIS Advisor Funds at 800-225-
would like to begin an automatic 5478 or visit www.ixisadvisorfunds.com for a
[GRAPHIC] investment plan through Investment Builder Service Options Form. A signature guarantee
and the amount of the monthly investment may be required to add this privilege.
($50 minimum). . See the section "Additional Investor Services."
. Include a check marked "Void" or a
deposit slip from your bank account.
</TABLE>
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37
<PAGE>
[GRAPHIC]
Fund Services
Selling Shares
To Sell Some or All of Your Shares
Certain restrictions may apply. See the section "Restrictions on Buying,
Selling and Exchanging Shares."
<TABLE>
<S> <C>
Through Your Investment Dealer
. Call your investment dealer for information. Dealers may also 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 registered account name(s), the number of shares or the dollar amount to be
[GRAPHIC] redeemed and the method by which you wish to receive your proceeds. Additional materials may
be required. See the section "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 IXIS Advisor Funds, P.O. Box 219579, Kansas City, MO
64121-9579 or by registered, express or certified mail to IXIS Advisor 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 "Exchanging Shares" for more details.)
. Obtain a current prospectus for the Fund into which you are exchanging by calling your
investment dealer or IXIS Advisor Funds at 800-225-5478.
[GRAPHIC] . Call IXIS Advisor Funds or visit www.ixisadvisorfunds.com to request an exchange.
By Wire
. Complete the "Bank Information" section on your account application.
. Call IXIS Advisor Funds at 800-225-5478 or visit www.ixisadvisorfunds.com or indicate in your
[GRAPHIC] 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.
. Complete the "Bank Information" section on your account application.
[GRAPHIC] . If you have not signed up for the ACH system on your application, please call IXIS Advisor
Funds at 800-225-5478 or visit www.ixisadvisorfunds.com for a Service Options Form.
. Call IXIS Advisor Funds or visit www.ixisadvisorfunds.com to request an ACH redemption.
. Proceeds (less any applicable CDSC) will generally arrive at your bank within three business
days.
By Telephone
. Call IXIS Advisor Funds at 800-225-5478 to choose the method you wish to use to redeem your
shares. You may receive your proceeds by mail, by wire or through ACH (see above).
[GRAPHIC]
</TABLE>
--------------------------------------------------------------------------------
38
<PAGE>
<TABLE>
<S> <C>
By Systematic Withdrawal Plan (See the section "Additional Investor Services" for more details.)
. Call IXIS Advisor Funds at 800-225-5478 or your financial representative for more information.
. Because withdrawal payments may have tax consequences, you should consult your tax adviser
[GRAPHIC] before establishing such a plan.
By Check (for Class A shares of Limited Term Government and Agency Fund and Massachusetts Tax Free Income Fund only)
. Select the checkwriting option on your application and complete the signature card.
. To add this privilege to an existing account, call IXIS Advisor Funds at 800-225-5478 for a
[GRAPHIC] 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
IXIS Advisor Funds to close an account.
</TABLE>
--------------------------------------------------------------------------------
39
<PAGE>
[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 medallion
signature guarantee or additional documentation.
A medallion 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 whose owner(s) do not match the owner(s) of the fund account.
A notary public cannot provide a medallion signature guarantee. The Funds will
only accept medallion signature guarantees bearing the STAMP2000 Medallion
imprint. A medallion 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 IXIS Advisor Funds
regarding requirements for other account types.
<TABLE>
<CAPTION>
Seller (Account Type) Requirements for Written Requests
<C> <S>
Qualified retirement benefit plans . The request must include the signatures of all those authorized to sign, including title.
(except IXIS Advisor Funds . Medallion signature guarantee, if applicable (see above).
prototype documents) . Additional documentation and distribution forms may be required.
Individual Retirement Accounts . Additional documentation and distribution forms may be required.
Individual, joint, sole . The request must include the signatures of all persons authorized to sign, including
proprietorship, UGMA/UTMA title, if applicable.
(minor accounts) . Medallion signature guarantee, if applicable (see above).
. Additional documentation may be required.
Corporate or association accounts . The request must include the signatures of all persons authorized to sign, including
title.
. Certified copy of corporate resolution or similar documents.
Owners or trustees of trust . The request must include the signatures of all trustees authorized to sign, including
accounts 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.
. Medallion signature guarantee, if applicable (see above).
Joint tenancy whose co-tenants . The request must include the signatures of all surviving tenants of the account.
are deceased . Certified copy of the death certificate.
. Medallion signature guarantee if proceeds check is issued to other than the surviving
tenants.
Power of Attorney (POA) . The request must include the signatures of the attorney-in-fact, indicating such title.
. A medallion signature guarantee.
. Certified copy of the POA document stating it is still in full force and effect, specifying
that the grantor is alive, the exact Fund and account number, and certified within 30
days of receipt of instructions.*
Executors of estates, . The request must include the signatures of all those authorized to sign, including
administrators, guardians, capacity.
conservators . A medallion signature guarantee.
. Certified copy of court document where signer derives authority, e.g., Letters of
Administration, Conservatorship and Letters Testamentary.*
</TABLE>
<TABLE>
<CAPTION>
Requirements for Written Requests
<S> <C>
. The request must include the signatures of all those authorized to sign, including title.
. Medallion signature guarantee, if applicable (see above).
. Additional documentation and distribution forms may be required.
. Additional documentation and distribution forms may be required.
. The request must include the signatures of all persons authorized to sign, including
title, if applicable.
. Medallion signature guarantee, if applicable (see above).
. Additional documentation may be required.
. The request must include the signatures of all persons authorized to sign, including
title.
. Certified copy of corporate resolution or similar documents.
. The request must include the signatures of all trustees authorized to sign, including
title.
. If the names of the trustees are not registered on the account, please provide a copy of
the trust document certified within the past 60 days.
. Medallion signature guarantee, if applicable (see above).
. The request must include the signatures of all surviving tenants of the account.
. Certified copy of the death certificate.
. Medallion signature guarantee if proceeds check is issued to other than the surviving
tenants.
. The request must include the signatures of the attorney-in-fact, indicating such title.
. A medallion signature guarantee.
. Certified copy of the POA document stating it is still in full force and effect, specifying
that the grantor is alive, the exact Fund and account number, and certified within 30
days of receipt of instructions.*
. The request must include the signatures of all those authorized to sign, including
capacity.
. A medallion signature guarantee.
. Certified copy of court document where signer derives authority, e.g., Letters of
Administration, Conservatorship and Letters Testamentary.*
</TABLE>
* 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.
--------------------------------------------------------------------------------
40
<PAGE>
[GRAPHIC]
Fund Services
Exchanging Shares
In general, you may exchange shares of your Fund for shares of the same class
of another Fund that offers such class of shares, without paying a sales charge
or a CDSC (see the sections "Buying Shares" and "Selling Shares"). For
exchanges into the Money Market Fund, the holding period for determining the
CDSC, if applicable, will stop and will resume only when an exchange into an
applicable Fund occurs. 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, their directors, senior officers, agents
or general agents may be exchanged, with the consent of NELICO, for Class Y
shares of the same Fund or any other Fund that offers Class Y 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 "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
Frequent purchases and redemptions of Fund shares by shareholders may present
certain risks for other shareholders in a Fund. This includes the risk of
diluting the value of Fund shares held by long-term shareholders, interfering
with the efficient management of a Fund's portfolio, and increasing brokerage
and administrative costs. Funds investing in securities that require special
valuation processes (such as foreign securities, high yield securities, or
small cap securities) may also have increased exposure to these risks. Each
Fund discourages excessive, short-term trading that may be detrimental to the
Fund and its shareholders. The Funds' Board of Trustees has adopted the
following policies with respect to frequent purchases and redemptions of Fund
shares.
The Funds reserve the right to suspend or change the terms of purchasing or
exchanging shares. The Funds and the Distributor reserve the right to refuse or
limit any purchase or exchange order 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 the Fund and the
Distributor to refuse any purchase or exchange order, the 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 Fund 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 the
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, the Fund or the Distributor may restrict or
prohibit transactions by such identified shareholders or intermediaries. In
making such judgments, the Fund and the Distributor seek to act in a manner
that they believe is consistent with the best interests of all shareholders.
The Fund and the Distributor also reserve the right to notify financial
intermediaries of your trading activity. Because the Fund and the Distributor
will not always be able to detect market timing activity, investors should not
assume the Fund will be able to detect or prevent all market timing or other
trading practices that may disadvantage the Fund . For example, the ability of
the Fund 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.
--------------------------------------------------------------------------------
41
<PAGE>
[GRAPHIC]
Fund Services
Restrictions on Buying, Selling and Exchanging Shares (continued)
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. A
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.
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.
Although most redemptions are made in cash, as described in the SAI, each Fund
reserves the right to redeem shares in kind.
Redemption Fees
For Class A shares of Core Plus Bond Fund, High Income Fund and Strategic
Income Fund
Shareholders will be charged a 2% redemption fee if they redeem, including
redeeming by exchange, Class A shares of the Fund within 60 days of their
acquisition (including acquisition by exchange). The redemption fee is intended
to offset the costs to the Fund of short-term trading, such as portfolio
transaction and market impact costs associated with redemption activity and
administrative costs associated with processing redemptions. The redemption fee
is deducted from the shareholder's redemption or exchange proceeds and is paid
to the Fund, although there may be a delay between the time the fee is deducted
from such proceeds and when it is paid to the Fund.
The "first-in, first-out" (FIFO) method is used to determine the holding period
of redeemed or exchange shares, which means that if you acquired shares on
different days, the shares acquired first will be redeemed or exchanged first
for purposes of determining whether the redemption fee applies. A new holding
period begins with each purchase or exchange.
The Funds currently do not impose a redemption fee on a redemption of:
. shares acquired by reinvestment of dividends or distributions of a Fund; or
. shares held in an account of certain retirement plans or profit sharing plans
or purchased through certain intermediaries; or
. shares redeemed as part of a systematic withdrawal plan.
--------------------------------------------------------------------------------
42
<PAGE>
The Funds may modify or eliminate these waivers at any time. In addition, the
Funds may modify the way the redemption fee is applied, including the amount of
the redemption fee and/or the length of time shares must be held before the
redemption fee is no longer applied, for certain categories of investors or for
shareholders investing through financial intermediaries which apply the
redemption fee in a manner different from that described above.
The ability of a Fund to assess a redemption fee on transactions by underlying
shareholders of omnibus and other accounts maintained by brokers, retirement
plan accounts and fee-based program accounts may be limited.
--------------------------------------------------------------------------------
43
<PAGE>
[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:
<TABLE>
<C> <S>
Net Asset Value = Total market value of securities + Cash and other
assets - Liabilities
-------------------------------------------------
Number of outstanding shares
</TABLE>
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's
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 "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.
. A Fund significantly invested in foreign securities may have net asset value
changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into 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 "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 that
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.
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44
<PAGE>
. All other securities -- fair market value as determined by the adviser of the
Fund pursuant to procedures approved by the Board of Trustees.
Because of fair value pricing, as described above for "Securities traded on
foreign exchanges" and "All other securities," 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 (which is the amount
that a Fund might reasonably expect to receive from a current sale of the
security in the ordinary course of business). A Fund 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. This may include situations relating to a single issuer (such as a
declaration of bankruptcy or a delisting of the issuer's security from the
primary market on which it has traded) as well as events affecting the
securities markets in general (such as market disruptions or closings and
significant fluctuations in U.S. and/or foreign markets).
Dividends and Distributions
The Funds generally distribute most or all of their net investment income
(other than 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. The Funds
expect 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 IXIS Advisor Fund
registered in your name. Certain investment minimums and restrictions
may apply. For more information about this program, see the section
"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 IXIS Advisor
Fund.
. Receive all distributions in cash.
For more information or to change your distribution option, contact IXIS
Advisor Funds in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a IXIS Advisor 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. This information will also be reported to the Internal Revenue Service.
Be sure to keep this Form 1099 as a permanent record. A fee may be charged for
any duplicate information requested.
--------------------------------------------------------------------------------
45
<PAGE>
[GRAPHIC]
Fund Services
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. Massachusetts Tax Free
Income Fund and Municipal Income Fund also intend to meet all the requirements
of the Code necessary to ensure that they are qualified to pay "exempt interest
dividends." Fund distributions designated as exempt-interest dividends are not
generally subject to federal income 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
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 Massachusetts Tax Free Income Fund and Municipal Income
Fund may, however, invest a portion of their assets in securities that generate
income that is not exempt from federal or state taxes.
Distributions from the Funds. 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 reduced long-term capital gain
rates described below. "Qualified dividend income" generally includes dividends
from domestic and some foreign corporations. It does not include income from
fixed-income securities. In addition, the Fund must meet holding period and
other requirements with respect to the dividend paying stocks in its portfolio
and the shareholder must meet holding period and other requirements with
respect to the Fund's shares for such distributions to be eligible for
treatment as qualified dividend income.
For taxable years beginning on or before December 31, 2008, long-term capital
gain rates applicable to individuals have been temporarily reduced. For more
information, see the SAI under "Income Dividends, Capital Gain Distributions
and Tax Status."
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.
A Fund's investments in foreign securities may be subject to foreign
withholding and other taxes. In that case, the Fund's yield on those securities
would be decreased. We do not expect shareholders to be to claim a credit or
deduction with respect to foreign taxes if the Fund invests more than 50% of
its assets in foreign securities. In addition, a Fund's investments in foreign
securities or foreign currencies may increase or accelerate a Fund's
recognition of ordinary income and may affect the timing or amount of the
Fund's distributions. Because the Funds invest in foreign securities,
shareholders should consult their tax advisers about consequences of their
investments under foreign laws.
Dividends derived from interest on securities issued by the U.S. government or
its agencies or instrumentalities may be exempt from state and local income
taxes. Each Fund advises shareholders of the proportion of the Fund's dividends
that are derived from such interest.
A Fund's investments in certain debt obligations may cause that Fund to
recognize taxable income in excess of the cash generated by such obligations.
Thus, the Fund could be required at times to liquidate other investments in
order to satisfy its distribution requirements. Income generated by investments
in fixed-income securities is not eligible for treatment as qualified dividend
income.
Sales or Exchanges of Fund Shares. The redemption, sale or exchange of Fund
shares (including an exchange of Fund shares for shares of another IXIS Advisor
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.
In general, dividends (other than capital gain dividends) paid to a shareholder
that is not a "U.S. person" within the meaning of the Code (such shareholder, a
"foreign person") are subject to withholding of U.S. federal income tax at a
rate of 30% (or lower applicable treaty rate). However, under the American Jobs
Creation Act of 2004 (the "2004 Act"), effective for taxable years of the Fund
beginning after December 31, 2004 and before January 1, 2008, the Fund
--------------------------------------------------------------------------------
46
<PAGE>
generally will not be required to withhold any amounts with respect to
distributions of (i) U.S.-source interest income that would not be subject to
U.S. federal income tax if earned directly by an individual foreign person, and
(ii) net short-term capital gains in excess of net long-term capital losses, in
each case to the extent such distributions are properly designated by the Fund.
The provision will first apply to the Fund in its taxable year beginning
October 1, 2005.
You should consult your tax adviser for more information on your own situation,
including possible foreign, state or local taxes.
Special tax considerations for Massachusetts Tax Free Income Fund
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to Massachusetts corporate excise tax.
For state tax purposes, gains realized by the Fund on the sale of certain
tax-exempt securities that are designated by the Fund as tax-exempt retain
their tax-exempt character when distributed to shareholders.
The Massachusetts personal income tax statute taxes gains from the sale or
exchange of capital assets held for more than one year at a rate of 5.3%.
Shareholders should consult their tax advisors with respect to the
Massachusetts personal income tax treatment of capital gain distributions from
the Fund.
Special tax considerations for Municipal Income Fund
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.
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 "How Sales Charges Are
Calculated." Each class of Fund shares pays an annual service fee of 0.25% of
its average daily net assets. In addition to a service fee, each Fund's Class B
shares pay an annual distribution fee of 0.75% of their average daily net
assets for 8 years (at which time they automatically convert into Class A
shares). Class C shares are subject to an annual distribution fee of 0.75% of
their average daily net assets. Generally, the 12b-1 fees are paid to
securities dealers on a quarterly basis. The Distributor retains the first year
of such fees for Class B and Class C shares some or all of such fees may also
be paid to financial institutions that finance the payment of commissions or
similar charges on 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 and
Class C shares will increase the cost of your investment and may cost you more
than paying the front-end sales charge on Class A shares.
The Distributor and its affiliates may, out of their own resources, make
payments in addition to the payments described above to dealers which satisfy
certain criteria established from time to time by the Distributor. Payments may
vary based on net sales, the length of time assets of a dealer's clients have
remained invested in the Funds, and other factors. See the SAI for more details.
--------------------------------------------------------------------------------
47
<PAGE>
[GRAPHIC]
Fund Services
Additional Investor Services
Retirement Plans
IXIS Advisor 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 "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 IXIS Advisor Funds' automatic investment plan. You may authorize
automatic monthly transfers of $50 or more from your bank checking or savings
account to purchase shares of one or more IXIS Advisor Funds. To join the
Investment Builder Program, please refer to the section "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 IXIS Advisor 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 IXIS Advisor Fund or Money Market Fund, please read its
prospectus carefully.
Automatic Exchange Plan
IXIS Advisor Funds have an automatic exchange plan under which shares of a
class of a IXIS Advisor Fund are automatically exchanged each month for shares
of the same class of another IXIS Advisor 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 "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 "Selling Shares."
IXIS Advisor 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.
IXIS Advisor Funds Web Site
Visit us at www.ixisadvisorfunds.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.
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48
<PAGE>
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49
<PAGE>
[GRAPHIC]
Financial Performance
The financial highlights table is 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, an independent registered public
accounting firm, whose report, along with each Fund's financial statements, is
included in the Fund's annual report to shareholders. The annual report is
incorporated by reference into the SAI, both of which are available free of
charge upon request from the Distributor. Retail Class shares were converted to
Class A shares on September 12, 2003. Class B and C shares began operations on
September 12, 2003.
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Income (loss) from investment operations: Less distributions:
---------------------------------------- --------------------------------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of investment gain (loss) on investments net investment realized Total Redemption
the period income investment operations income capital gains distributions fee
---------- ---------- -------------- ----------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOOMIS SAYLES CORE PLUS BOND FUND
Class A
9/30/2004 $11.63 $0.47(c) $ 0.13 $ 0.60 $(0.54) $ -- $(0.54) $0.00(f)
9/30/2003(e) 11.28 0.37(c) 0.34 0.71 (0.36) -- (0.36) --
12/31/2002 11.59 0.63(c) (0.32) 0.31 (0.62) -- (0.62) --
12/31/2001(d) 11.52 0.73 0.10 0.83 (0.76) -- (0.76) --
12/31/2000 11.51 0.78 0.03 0.81 (0.80) -- (0.80) --
12/31/1999 12.36 0.81 (0.86) (0.05) (0.79) (0.01) (0.80) --
Class B
9/30/2004 11.62 0.38(c) 0.14 0.52 (0.44) -- (0.44) 0.00(f)
9/30/2003(e) 11.28 0.30(c) 0.34 0.64 (0.30) -- (0.30) --
12/31/2002 11.59 0.55(c) (0.32) 0.23 (0.54) -- (0.54) --
12/31/2001(d) 11.51 0.64 0.10 0.74 (0.66) -- (0.66) --
12/31/2000 11.51 0.70 0.02 0.72 (0.72) -- (0.72) --
12/31/1999 12.36 0.72 (0.86) (0.14) (0.70) (0.01) (0.71) --
Class C
9/30/2004 11.63 0.38(c) 0.14 0.52 (0.44) -- (0.44) 0.00(f)
9/30/2003(e) 11.29 0.30(c) 0.34 0.64 (0.30) -- (0.30) --
12/31/2002 11.60 0.55(c) (0.32) 0.23 (0.54) -- (0.54) --
12/31/2001(d) 11.52 0.65 0.09 0.74 (0.66) -- (0.66) --
12/31/2000 11.52 0.70 0.02 0.72 (0.72) -- (0.72) --
12/31/1999 12.37 0.72 (0.86) (0.14) (0.70) (0.01) (0.71) --
</TABLE>
(a)A sales charge for Class A shares and a contingent deferred sales charge for
Class B and Class C shares are not reflected in total return calculations.
Periods less than one year are not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income (loss) has been calculated using the average
shares outstanding during the period.
(d)As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. The effect of this change for the
year ended December 31, 2001 for Core Plus Bond Fund was to decrease net
investment income per share by $.01 for Class A, $.02 for Class B, and $.01
for Class C and to decrease the ratio of net investment income to average
net assets from 6.34% to 6.26% for Class A, 5.57% to 5.49% for Class B and
5.59% to 5.52% for Class C. 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)Amount rounds to less than $0.01.
(g)Had certain expenses not been reduced during the period, total returns would
have been lower.
(h)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.
--------------------------------------------------------------------------------
50
<PAGE>
<TABLE>
<CAPTION>
Ratios to average net assets:
------------------------------
Net asset Net assets, Net
value, Total end of investment Portfolio
end of return the period Expenses income turnover
the period (%)(a) (000) (%)(b) (%)(b) rate (%)
---------- ------ ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$11.69 5.3(g) $120,009 1.19(h) 4.05 69
11.63 6.4 133,887 1.28 4.31 61
11.28 2.8 147,647 1.18 5.65 65
11.59 7.2 173,836 1.09 6.26 84
11.52 7.4 174,969 1.04 7.03 83
11.51 (0.3) 213,769 0.97 6.87 63
11.70 4.6(g) 148,556 1.94(h) 3.29 69
11.62 5.8 161,317 2.03 3.55 61
11.28 2.1 141,188 1.93 4.90 65
11.59 6.5 127,520 1.84 5.49 84
11.51 6.5 100,353 1.79 6.28 83
11.51 (1.1) 89,213 1.72 6.12 63
11.71 4.6(g) 6,162 1.94(h) 3.30 69
11.63 5.8 7,612 2.03 3.55 61
11.29 2.1 9,024 1.93 4.90 65
11.60 6.5 11,470 1.84 5.52 84
11.52 6.5 12,541 1.79 6.28 83
11.52 (1.1) 14,872 1.72 6.12 63
</TABLE>
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51
<PAGE>
[GRAPHIC]
Financial Performance
<TABLE>
<CAPTION>
Income (loss) from investment operations: Less distributions:
---------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distribution
beginning Net and unrealized Total from from from net
of investment gain (loss) on investment net investment realized Total Redemption
the period income investments operations income capital gains distributions fee
---------- ---------- -------------- ---------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOOMIS SAYLES HIGH INCOME FUND*
Class A
9/30/2004 $4.65 $0.33(c) $ 0.17 $ 0.50 $(0.33) $-- $(0.33) $0.00(f)
9/30/2003(e) 4.12 0.25(c) 0.53 0.78 (0.25) -- (0.25) --
12/31/2002 4.94 0.39(c) (0.82) (0.43) (0.39) -- (0.39) --
12/31/2001(d) 6.21 0.66 (1.25) (0.59) (0.68) -- (0.68) --
12/31/2000 8.30 0.86 (2.11) (1.25) (0.84) -- (0.84) --
12/31/1999 8.86 0.89 (0.54) 0.35 (0.91) -- (0.91) --
Class B
9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) -- (0.30) 0.00(f)
9/30/2003(e) 4.12 0.23(c) 0.53 0.76 (0.23) -- (0.23) --
12/31/2002 4.95 0.36(c) (0.83) (0.47) (0.36) -- (0.36) --
12/31/2001(d) 6.22 0.62 (1.26) (0.64) (0.63) -- (0.63) --
12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) -- (0.78) --
12/31/1999 8.85 0.82 (0.53) 0.29 (0.84) -- (0.84) --
Class C
9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) -- (0.30) 0.00(f)
9/30/2003(e) 4.12 0.23(c) 0.53 0.76 (0.23) -- (0.23) --
12/31/2002 4.94 0.36(c) (0.82) (0.46) (0.36) -- (0.36) --
12/31/2001(d) 6.22 0.61 (1.26) (0.65) (0.63) -- (0.63) --
12/31/2000 8.30 0.81 (2.11) (1.30) (0.78) -- (0.78) --
12/31/1999 8.85 0.82 (0.53) 0.29 (0.84) -- (0.84) --
</TABLE>
(a)A sales charge for Class A shares and a contingent deferred sales charge for
Class B and Class C shares are not reflected in total return calculations.
Periods less than one year are not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income (loss) has been calculated using the average
shares outstanding during the period.
(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 amortizing premium on debt securities. The effect of this change
for the year ended December 31, 2001 for the High Income Fund was to
decrease net investment income per share by $.01 for Class A, Class B and
Class C and to decrease the ratio of net investment income to average net
assets from 11.39% to 11.31% for Class A, 10.64% to 10.56% for Class B and
10.63% to 10.54% for Class C. 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)Amount rounds to less than $0.01.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for the CDC Nvest High Income Fund's Class A,
Class B and Class C shares, which were reorganized into Class A, Class B and
Class C shares, respectively, of the Loomis Sayles High Income Fund,
effective September 12, 2003. Prior to September 1, 2003, the predecessor
Fund was advised by CDC IXIS Asset Management Advisers, L.P. and subadvised
by Loomis, Sayles & Company, L.P. (the Fund's current adviser) and, prior to
September 12, 2003, had a December 31 fiscal year end. The Fund's current
fiscal year end is September 30.
--------------------------------------------------------------------------------
52
<PAGE>
<TABLE>
<CAPTION>
Ratios to average net assets:
-----------------------------
Net asset Net assets, Net
value, Total end of investment Portfolio
end of return the period Expenses income turnover
the period (%)(a) (000) (%)(b) (%)(b) rate (%)
---------- ------ ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$4.82 11.1 $24,641 1.65 6.97 51
4.65 19.5 23,809 1.71 7.62 41
4.12 (8.9) 22,454 1.58 8.85 114
4.94 (10.7) 33,471 1.47 11.31 65
6.21 (16.1) 46,960 1.36 11.47 60
8.30 4.0 74,589 1.28 10.22 89
4.83 10.5 17,967 2.40 6.22 51
4.65 18.8 23,405 2.46 6.89 41
4.12 (9.7) 23,031 2.33 8.10 114
4.95 (11.3) 34,713 2.22 10.56 65
6.22 (16.6) 47,793 2.11 10.72 60
8.30 3.3 70,218 2.03 9.47 89
4.83 10.5 2,608 2.40 6.22 51
4.65 18.8 2,858 2.46 6.89 41
4.12 (9.5) 2,605 2.33 8.10 114
4.94 (11.5) 4,153 2.22 10.54 65
6.22 (16.6) 5,369 2.11 10.72 60
8.30 3.3 9,138 2.03 9.47 89
</TABLE>
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53
<PAGE>
[GRAPHIC]
Financial Performance
<TABLE>
<CAPTION>
Income (loss) from investment operations: Less distributions:
---------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of investment gain (loss) on investment net investment realized Total
the period income investments operations income capital gains distributions
---------- ---------- -------------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
Class A
9/30/2004 $11.54 $0.52(d) $ 0.45 $ 0.97 $(0.60) $(0.07) $(0.67)
9/30/2003 10.23 0.58(d) 1.46 2.04 (0.59) (0.14) (0.73)
9/30/2002(f)(h) 10.18 0.39(d) 0.04 0.43 (0.38) -- (0.38)
12/18/2000(i) 9.91 0.13(d) 0.24 0.37 (0.14) -- (0.14)
9/30/2000 9.95 0.71(d) (0.05) 0.66 (0.70) -- (0.70)
9/30/1999 10.27 0.64 (0.03) 0.61 (0.67) (0.26) (0.93)
9/30/1998(j) 10.59 0.48 (0.49) (0.01) (0.31) -- (0.31)
Class B
9/30/2004 11.53 0.43(d) 0.45 0.88 (0.52) (0.07) (0.59)
9/30/2003(g) 11.21 0.02(d) 0.30 0.32 -- -- --
Class C
9/30/2004 11.53 0.43(d) 0.45 0.88 (0.53) (0.07) (0.60)
9/30/2003(g) 11.21 0.02(d) 0.30 0.32 -- -- --
</TABLE>
(a)Total returns would have been lower had the adviser not reduced its advisory
fees and/or borne other operating expenses. Periods of less than one year
are not annualized.
(b)The adviser has agreed to reimburse a portion of the Fund's expenses during
the period. Without this reimbursement the Fund's ratio of operating
expenses would have been higher.
(c)Annualized for periods less than one year.
(d)Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(e)A sales charge for Class A and Class C shares and a contingent deferred
sales charge for Class B and Class C shares are not reflected in total
return calculations.
(f)As required effective October 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities for financial statement purposes only.
For the year ended September 30, 2002, the effect of this change per share
for Class A net investment income and net realized and unrealized gain
(loss) was less than $0.01. The ratio of net investment income to average
net assets for Class A decreased from 5.88% to 5.85%, on an annualized
basis. Per share ratios and supplemental data for periods prior to October
1, 2001, have not been restated to reflect this change in presentation.
(g)From commencement of Class operations on September 12, 2003 through
September 30, 2003.
(h)From commencement of Class operations on January 31, 2002 through September
30, 2002.
(i)For the period from October 1, 2000 through December 18, 2000. Class A,
formerly Retail Class shares, of the Fund were converted into Class Y,
formerly Institutional Class shares, on December 18, 2000.
(j)For the nine months ended September 30, 1998.
(k)A sales charge for Class A and Class J shares and a contingent deferred
sales charge for Class B and Class C shares are not reflected in total
return calculations.
--------------------------------------------------------------------------------
54
<PAGE>
<TABLE>
<CAPTION>
Ratios to average net assets:
-----------------------------
Net asset Net assets, Net
value, Total end of Net Gross investment Portfolio
end of return the period expenses expenses Income turnover
the period (%)(a) (000) (%)(b)(c) (%)(c) (%)(c) rate (%)
---------- ------ ----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$11.84 8.8(k) $9,506 0.93 1.67 4.52 29
11.54 20.6(e) 1,128 0.80 4.67 5.21 34
10.23 4.3 11 0.80 191.59 5.85 39
10.14 3.8 2,426 0.80 1.91 6.31 1
9.91 6.9 2,250 0.80 3.01 7.16 23
9.95 6.2 2,561 0.80 3.20 6.60 42
10.27 (0.2) 1,743 0.80 5.25 6.43 48
11.82 7.9(k) 1,797 1.70 2.42 3.77 29
11.53 2.85(e) 160 1.70 7.81 5.83 34
11.81 7.9(k) 9,191 1.70 2.42 3.74 29
11.53 2.85(e) 3 1.70 7.81 4.35 34
</TABLE>
--------------------------------------------------------------------------------
55
<PAGE>
[GRAPHIC]
Financial Performance
<TABLE>
<CAPTION>
Income (loss) from investment operations: Less distributions:
---------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of investment gain (loss) on Investments net investment realized Total Redemption
the period income investments operations income capital gains distributions fee
---------- ---------- -------------- ----------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND*
Class A
9/30/2004 $11.51 $0.30(c) $(0.09) $ 0.21 $(0.42) $ -- $(0.42) $--
9/30/2003(e) 11.73 0.21(c) (0.07) 0.14 (0.36) -- (0.36) --
12/31/2002 11.36 0.42(c) 0.49 0.91 (0.54) -- (0.54) --
12/31/2001(d) 11.16 0.51 0.25 0.76 (0.56) -- (0.56) --
12/31/2000 10.97 0.69 0.20 0.89 (0.70) -- (0.70) --
12/31/1999 11.70 0.66 (0.74) (0.08) (0.65) -- (0.65) --
Class B
9/30/2004 11.49 0.22(c) (0.09) 0.13 (0.34) -- (0.34) --
9/30/2003(g) 11.71 0.15(c) (0.06) 0.09 (0.31) -- (0.31) --
12/31/2002 11.34 0.35(c) 0.48 0.83 (0.46) -- (0.46) --
12/31/2001(d) 11.14 0.44 0.24 0.68 (0.48) -- (0.48) --
12/31/2000 10.95 0.62 0.20 0.82 (0.63) -- (0.63) --
12/31/1999 11.69 0.59 (0.75) (0.16) (0.58) -- (0.58) --
Class C
9/30/2004 11.50 0.22(c) (0.08) 0.14 (0.34) -- (0.34) --
9/30/2003(g) 11.72 0.15(c) (0.06) 0.09 (0.31) -- (0.31) --
12/31/2002 11.35 0.35(c) 0.48 0.83 (0.46) -- (0.46) --
12/31/2001(d) 11.15 0.44 0.24 0.68 (0.48) -- (0.48) --
12/31/2000 10.96 0.62 0.20 0.82 (0.63) -- (0.63) --
12/31/1999 11.70 0.59 (0.75) (0.16) (0.58) -- (0.58) --
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
Class A
9/30/2004 $16.41 $0.61 $ 0.17 $ 0.78 $(0.61) $ -- $(0.61) $--
9/30/2003(g) 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) --
Class B
9/30/2004 16.37 0.49 0.18 0.67 (0.50) -- (0.50) --
9/30/2003(g) 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) --
</TABLE>
(a)A sales charge for Class A shares and a contingent deferred sales charge for
Class B and Class C shares are not reflected in total return calculations.
Periods less than one year are not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income (loss) has been calculated using the average
shares outstanding during the period.
(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 amortizing premium and accreting discount on debt securities. The
effect of this change for the year ended December 31, 2001, for Limited Term
Government and Agency Fund, was to decrease net investment income per share
by $.04 for Class B and C to decrease the ratio of net investment income to
average net assets from 4.22% to 3.85% for Class B and 4.25% to 3.89% for
Class C. For Massachusetts Tax Free Income Fund, the effect of this change
was to increase the ratio of net investment income to average net assets
from 4.66% to 4.67% for Class A and from 4.02% to 4.03% 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.
--------------------------------------------------------------------------------
56
<PAGE>
<TABLE>
<CAPTION>
Ratios to average net assets:
----------------------------
Net asset Net assets, Net
value, Total end of investment Portfolio
end of return the period Expenses income turnover
the period (%)(a) (000) (%)(b) (%)(b) rate (%)
---------- ------ ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$11.30 1.9 $106,701 1.32 2.60 80
11.51 1.2 117,225 1.37 2.41 53
11.73 8.2 106,013 1.35 3.66 88
11.36 6.9 109,189 1.42 4.52 275
11.16 8.3 118,833 1.40 6.18 384
10.97 (0.7) 149,756 1.33 5.91 400
11.28 1.2 10,107 2.00 1.95 80
11.49 0.7 14,637 2.02 1.77 53
11.71 7.5 16,263 2.00 3.01 88
11.34 6.2 14,317 2.07 3.85 275
11.14 7.7 11,884 2.05 5.53 384
10.95 (1.4) 14,601 1.98 5.26 400
11.30 1.3 6,949 2.00 1.94 80
11.50 0.7 8,704 2.02 1.77 53
11.72 7.5 8,079 2.00 3.01 88
11.35 6.2 5,851 2.07 3.89 275
11.15 7.7 6,617 2.05 5.53 384
10.96 (1.4) 9,054 1.98 5.26 400
$16.58 4.9 $ 81,427 1.33 3.74 21
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(e) 89,376 1.35(f) 4.67 60
16.06 9.3(e) 91,785 1.13(f) 5.24 68
15.48 (4.1)(e) 97,270 1.00(f) 5.02 73
16.54 4.2 4,435 2.00 3.08 21
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(e) 8,313 2.00(f) 4.03 60
16.03 8.6(e) 8,715 1.78(f) 4.59 68
15.45 (4.7)(e) 8,874 1.65(f) 4.37 73
</TABLE>
(e)Had certain expenses not been reduced during the period, total returns would
have been lower.
(f)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.
(g)For the nine months ended September 30, 2003.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for the CDC Nvest Limited Term U.S. Government
Fund's Class B and Class C shares, which were reorganized into Class B and
Class C shares, respectively, of the Loomis Sayles Limited Term Government
and Agency Fund, effective September 12, 2003. Prior to September 1, 2003,
the predecessor Fund was advised by CDC IXIS Asset Management Advisers, L.P.
and subadvised by Loomis, Sayles & Company, L.P. (the Fund's current
adviser) and, prior to September 12, 2003, had a December 31 fiscal year
end. The Fund's current fiscal year end is September 30.
--------------------------------------------------------------------------------
57
<PAGE>
[GRAPHIC]
Financial Performance
<TABLE>
<CAPTION>
Income (loss) from investment operations: Less distributions:
---------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of investment gain (loss) on investment net investment realized Total Redemption
the period income investments operations income capital gains distributions fee
---------- ---------- -------------- ---------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOOMIS SAYLES MUNICIPAL INCOME FUND
Class A
9/30/2004 $ 7.41 $0.29 $ 0.06 $ 0.35 $(0.29) $ -- $(0.29) $ --
9/30/2003(g) 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) --
12/31/2000 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) --
Class B
9/30/2004 7.41 0.24 0.07 0.31 (0.24) -- (0.24) --
9/30/2003(g) 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) --
LOOMIS SAYLES STRATEGIC INCOME FUND*
Class A
9/30/2004 $12.57 $0.75(c) $ 1.11 $ 1.86 $(0.86) $ -- $(0.86) 0.00(h)
9/30/2003(g) 10.72 0.57(c) 1.93 2.50 (0.65) -- (0.65) --
12/31/2002 9.88 0.75(c) 0.72 1.47 (0.63) -- (0.63) --
12/31/2001(d) 10.80 0.91(c) (0.92) (0.01) (0.91) -- (0.91) --
12/31/2000 11.65 0.99(c) (0.91) 0.08 (0.93) -- (0.93) --
12/31/1999 11.37 1.03 0.31 1.34 (1.02) (0.04) (1.06) --
Class B
9/30/2004 12.59 0.65(c) 1.10 1.75 (0.74) -- (0.74) 0.00(h)
9/30/2003(g) 10.71 0.51(c) 1.92 2.43 (0.55) -- (0.55) --
12/31/2002 9.88 0.67(c) 0.73 1.40 (0.57) -- (0.57) --
12/31/2001(d) 10.79 0.83(c) (0.90) (0.07) (0.84) -- (0.84) --
12/31/2000 11.65 0.90(c) (0.91) (0.01) (0.85) -- (0.85) --
12/31/1999 11.37 0.94 0.31 1.25 (0.93) (0.04) (0.97) --
</TABLE>
(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. Periods of
less than one year are not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income has been calculated using the average shares
outstanding during the period.
(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 and amortizing premium on debt securities. The
effect of this change for the year ended December 31, 2001, for Municipal
Income Fund, 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 to 4.14% for Class B shares. For Strategic Income Fund, there was
no effect on net investment income per share, however, the effect of this
change was to decrease the ratio of net investment income to average net
assets from 8.78% to 8.77% for Class A and 8.03% and 8.02% for Class B. Per
share, ratios and supplemental data for periods prior to January 1, 2001
have not been restated to reflect this change in presentation.
(e)Had certain expenses not been reduced during the period, total returns would
have been lower.
(f)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.
--------------------------------------------------------------------------------
58
<PAGE>
<TABLE>
<CAPTION>
Ratios to average net assets:
----------------------------
Net asset Net assets, Net
value, Total end of investment Portfolio
end of return the period Expenses income turnover
the period (%)(a) (000) (%)(b) (%)(b) rate (%)
---------- ------ ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$ 7.47 4.9 $111,801 1.11 4.00 35
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
7.48 4.2 9,087 1.86 3.25 35
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
$13.57 15.2 $343,586 1.23 5.66 28
12.57 23.7(e) 140,576 1.28(f) 6.49 27
10.72 15.5 92,303 1.33 7.38 30
9.88 (0.1) 94,156 1.31 8.77 10
10.80 0.7 116,986 1.24 8.73 13
11.65 12.2 124,869 1.21 9.09 19
13.60 14.3 128,714 1.98 4.91 28
12.59 23.0(e) 118,217 2.03(f) 5.73 27
10.71 14.6 98,501 2.08 6.63 30
9.88 (0.8) 102,159 2.06 8.02 10
10.79 (0.2) 120,200 1.99 7.98 13
11.65 11.3 127,723 1.96 8.34 19
</TABLE>
(g)For the nine months ended September 30, 2003.
(h)Amount rounds to less than $0.01.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for CDC Nvest Strategic Income Fund's Class A and
Class B shares, which were reorganized into Class A and Class B shares,
respectively, of Loomis Sayles Strategic Income Fund, effective September
12, 2003. Prior to September 1, 2003, the predecessor Fund was advised by
CDC IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles &
Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003,
had a December 31 fiscal year end. The Fund's current fiscal year end is
September 30.
--------------------------------------------------------------------------------
59
<PAGE>
[GRAPHIC]
Financial Performance
<TABLE>
<CAPTION>
Income (loss) from investment operations: Less distributions:
---------------------------------------- -----------------------------------------
Net asset
value, Net realized Dividends Distributions
beginning Net and unrealized Total from from from net
of investment gain (loss) on investment net investment realized Total Redemption
the period income investments operations income capital gains distributions fee
---------- ---------- -------------- ---------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOOMIS SAYLES STRATEGIC INCOME FUND* (CONTINUED)
Class C
9/30/2004 $12.58 $0.64(c) $ 1.11 $ 1.75 $(0.73) $ -- $(0.73) $0.00(h)
9/30/2003(g) 10.70 0.50(c) 1.93 2.43 (0.55) -- (0.55) --
12/31/2002 9.87 0.67(c) 0.73 1.40 (0.57) -- (0.57) --
12/31/2001(d) 10.78 0.83(c) (0.91) (0.08) (0.83) -- (0.83) --
12/31/2000 11.64 0.90(c) (0.91) (0.01) (0.85) -- (0.85) --
12/31/1999 11.36 0.94 0.31 1.25 (0.93) (0.04) (0.97) --
</TABLE>
(a)A contingent deferred sales charge for Class C shares is not reflected in
total return calculations. Periods of less than one year are not annualized.
(b)Computed on an annualized basis for periods less than one year.
(c)Per share net investment income has been calculated using the average shares
outstanding during the period.
(d)As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. For the year ended December 31, 2001,
there was no effect on net investment income per share, however, the effect
of this change was to decrease the ratio of net investment income to average
net assets from 8.04% to 8.02% for Class C. Per share, ratios and
supplemental data for periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(e)Had certain expenses not been reduced during the period, total returns would
have been lower.
(f)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.
(g)For the nine months ended September 30, 2003.
(h)Amount rounds to less than $0.01.
* The financial information for periods prior to September 30, 2004 reflects
the financial information for CDC Nvest Strategic Income Fund's Class C
shares, which were reorganized into Class C shares of Loomis Sayles
Strategic Income Fund, effective September 12, 2003. Prior to September 1,
2003, the predecessor Fund was advised by CDC IXIS Asset Management
Advisers, L.P. and subadvised by Loomis, Sayles & Company, L.P. (the Fund's
current adviser) and, prior to September 12, 2003, had a December 31 fiscal
year end. The Fund's current fiscal year end is September 30.
--------------------------------------------------------------------------------
60
<PAGE>
<TABLE>
<CAPTION>
Ratios to average net assets:
----------------------------
Net asset Net assets, Net
value, Total end of investment Portfolio
end of return the period Expenses income turnover
the period (%)(a) (000) (%)(b) (%)(b) rate(%)
---------- ------ ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$13.60 14.3 $255,705 1.98 4.87 28
12.58 23.0(e) 66,394 2.03(f) 5.73 27
10.70 14.7 27,727 2.08 6.63 30
9.87 (0.8) 28,925 2.06 8.02 10
10.78 (0.2) 37,208 1.99 7.98 13
11.64 11.3 40,265 1.96 8.34 19
</TABLE>
--------------------------------------------------------------------------------
61
<PAGE>
Glossary of Terms
Bid price -- The price a prospective buyer is ready to pay. This term is used
by traders who maintain firm bid and offer prices in a given security by
standing ready to buy or sell security units at publicly quoted prices.
Bottom-up analysis -- The analysis of potential performance of individual
stocks before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
Capital gain distributions -- Payments to a Fund's shareholders of net profits
earned from selling securities in a Fund's portfolio. Capital gain
distributions are usually paid once a year.
Credit rating -- Independent evaluation of a bond's creditworthiness. This
measurement is usually calculated through an index compiled by companies such
as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a
credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's,
are generally considered investment grade.
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.
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.
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.
--------------------------------------------------------------------------------
62
<PAGE>
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.
--------------------------------------------------------------------------------
63
<PAGE>
If you would like more information about the Funds, the following documents are
available free upon request:
Annual and Semiannual Reports -- Provide additional information about each
Fund's investments. Each report includes a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
Statement of Additional Information (SAI) -- Provides more detailed information
about the Funds and their investment limitations and policies, has been filed
with the SEC and is incorporated into this Prospectus by reference.
To order a free copy of the Funds' annual or semiannual report or their SAI,
contact your financial representative, or the Funds at:
IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116
Telephone: 800-225-5478 Internet: www.ixisadvisorfunds.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 will 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 IXIS Advisor Funds will also be happy to
answer your questions or to provide any additional information that you may
require.
Information about the Funds, including their reports and SAI, can be reviewed
and copied at the Public Reference Room of the SEC in Washington, D.C.
Text-only copies of the Funds' reports and SAI are available free from the
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.
Portfolio Holdings -- A description of Funds' policies and procedures with
respect to the disclosure of the Fund's portfolio securities is available in
the SAI.
IXIS Asset Management Distributors, L.P. (IXIS Distributors), and other firms
selling shares of IXIS Advisor 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.
IXIS Distributors distributes the IXIS Advisor Funds and Loomis Sayles Funds.
If you have a complaint concerning IXIS Distributors or any of its
representatives or associated persons, please direct it to 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.
(Investment Company Act File No. 811-04323)
(Investment Company Act File No. 811-00242)
(Investment Company Act File No. 811-06241)
--------------------------------------------------------------------------------
The following information is not part of the prospectus:
Notice of Privacy Policies and Practices
We /(1)/ consider shareholder relationships to be the hallmark of our business
and are dedicated to protecting the confidentiality of any nonpublic personal
information provided by our customers/ (2)/. We understand the trust that our
customers place in us and are committed to earning that trust well into the
future.
Types of Information Gathered
We collect personal information on applications, forms, documents, transaction
histories and correspondence (electronic, written and telephonic) with
customers. Through our Web sites we gather information about visitors and their
needs submitted through answers to surveys, data input to calculators and
information entered onto forms. This information includes but is not limited to
name, postal address, e-mail address and social security number. Much of the
data collected is statistical in nature and is not generally attributable to
any specific customer.
How we Use the Information
We use the information gathered to service your account and to provide you with
additional information about products and services. We do not disclose any
nonpublic information about current or former customers to any unaffiliated
third party except as permitted by law, or at the specific request of the
customer. The information we collect, as described above, may be shared with
our corporate affiliates in the financial services industry in order to enhance
and improve customer communications, services, and products designed to meet
our customers' needs. We may disclose some or all of the above information to
affiliated and unaffiliated companies that perform marketing and other services
(such as preparing and mailing prospectuses, reports and account statements,
conducting research on client satisfaction, and gathering votes for shareholder
proxies) on our or the Funds' behalf or to other financial institutions with
whom we have joint marketing agreements. These parties that are not affiliated
with us have agreed not to use this information for any other purpose.
Policies and Practices to Protect Confidential Information
Only those employees that have a business need for personally identifiable data
about our customers are given access to that information. We maintain physical,
electronic and procedural safeguards that comply with federal standards to
protect your nonpublic personal information. For example, we take precautions
to help keep our information systems secure, including the use of firewalls for
our Internet-based systems. We also use, when appropriate, encryption
technologies, user authentication systems and access control mechanisms.
/(1)/ For purposes of this notice the term "we" includes IXIS Advisor Funds,
Loomis Sayles Funds, IXIS Asset Management Distributors, L.P., IXIS Asset
Management Services Company, and their advisory affiliates which include IXIS
Asset Management Advisors, L.P, Loomis, Sayles & Company, L.P. and all of their
successors.
/(2)/ For purposes of this notice, the terms customer or customers include both
shareholders of mutual funds in the IXIS Advisor Funds, Loomis Sayles Funds and
individuals who provide nonpublic personal information, but do not invest in
the Funds.
XB51-0505
<PAGE>
[GRAPHIC APPEARS HERE]
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Statement of Additional Information - PART I
February 1, 2005, as revised May 1, 2005
LOOMIS SAYLES CORE PLUS BOND FUND
LOOMIS SAYLES HIGH INCOME FUND
LOOMIS SAYLES INVESTMENT GRADE BOND FUND
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND
LOOMIS SAYLES MUNICIPAL INCOME FUND
LOOMIS SAYLES STRATEGIC INCOME FUND
This Statement of Additional Information (the "Statement") contains
information which may be useful to investors but which is not included in the
Prospectuses of the IXIS Advisor 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 dated February 1, 2005, as
revised May 1, 2005 for Class A, Class B or Class C shares of the Funds, or the
Prospectus dated February 1, 2005 for Class Y shares of the Funds (the
"Prospectus" or "Prospectuses"), as from time to time revised or supplemented.
This Statement should be read together with the Prospectuses. Investors may
obtain the Prospectuses without charge from IXIS Asset Management Distributors,
L.P. (the "Distributor"), Prospectus Fulfillment Desk, 399 Boylston Street,
Boston, Massachusetts 02116, by calling IXIS Advisor Funds at 800-225-5478 or by
placing an order online at www.ixisadvisorfunds.com.
Part I of this Statement contains specific information about the Funds.
Part II includes information about the Funds as well as other IXIS Advisor
Funds.
Loomis Sayles Core Plus Bond Fund is a diversified fund and a series of
IXIS Advisor Funds Trust I (formerly named CDC Nvest Funds Trust I), a
registered open-end management investment company that offers shares of a total
of seven funds. The Loomis Sayles Massachusetts Tax Free Income Fund is a
diversified fund and a series of IXIS Advisor Funds Trust II (formerly named CDC
Nvest Funds Trust II), a registered open-end management investment company that
offers shares of a total of two separate series. Loomis Sayles High Income Fund,
Loomis Sayles Investment Grade Bond Fund, Loomis Sayles Limited Term Government
and Agency Fund and Loomis Sayles Strategic Income Fund are each a diversified
fund and a series of Loomis Sayles Funds II, a registered open-end management
investment company that offers shares of a total of twelve separate series. IXIS
Advisor Funds Trust I, IXIS Advisor 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."
The Funds' financial statements and accompanying notes that appear in
the Funds' annual and semiannual reports are incorporated by reference into Part
I of this Statement. Each Fund's annual and semiannual reports contain
additional performance information and are available upon request and without
charge by calling 800-225-5478.
<PAGE>
Table of Contents
PAGE
----
PART I
INVESTMENT RESTRICTIONS..................................................... iii
FUND CHARGES AND EXPENSES................................................... xii
OWNERSHIP OF FUND SHARES.................................................... xx
PART II
MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS....................... 3
MANAGEMENT OF THE TRUSTS.................................................... 25
PORTFOLIO MANAGEMENT INFORMATION............................................ 45
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 48
DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES........................... 51
PORTFOLIO TURNOVER.......................................................... 55
PORTFOLIO HOLDINGS INFORMATION.............................................. 56
HOW TO BUY SHARES........................................................... 57
NET ASSET VALUE AND PUBLIC OFFERING PRICE................................... 57
REDUCED SALES CHARGES....................................................... 59
SHAREHOLDER SERVICES........................................................ 61
REDEMPTIONS................................................................. 67
PERFORMANCE INFORMATION..................................................... 69
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ................ 70
FINANCIAL STATEMENTS ....................................................... 76
APPENDIX A ................................................................. A-1
ii
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
The following is a description of restrictions on the investments to be
made by the Funds. The restrictions marked with an asterisk (*) are fundamental
policies that 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 relevant
Trust's 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 Prospectuses apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of a purchase of such security.
Loomis Sayles Core Plus Bond Fund (the "Core Plus Bond Fund") will not:
*(1) 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, (i) 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, (ii) bank
obligations are considered to be one industry, and asset-backed
securities are not considered to be bank obligations and (iii) a
foreign national government and its political subdivisions are
considered as being in a separate industry from any other foreign
national government and that government's political subdivisions.
*(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) 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.
*(4) Borrow money except for temporary or emergency purposes; provided,
however, that the Fund may loan securities, engage in reverse
repurchase agreements and dollar rolls, in an amount not exceeding 33
1/3% of its total assets taken at cost.
*(5) Make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; provided,
however, that this restriction does not apply to repurchase agreements
or loans of portfolio securities.
*(6) Purchase or sell 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.
*(7) 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.
*(8) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
iii
<PAGE>
(9) Write, purchase or sell options or warrants, except that the Fund may
(a) acquire warrants or rights to subscribe to securities of companies
issuing such warrants or rights or of parents or subsidiaries of such
companies, provided that such warrants or other rights to subscribe are
attached to, or part of a unit offering, other securities, and (b)
write, purchase or sell put or call options on securities, securities
indexes or futures contracts.
*(10) Issue senior securities, except for permitted borrowings or as
otherwise permitted under the 1940 Act.
+ (11) 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).
(12) Invest less than 80% of its net assets (plus borrowings made for
investment purposes) in bond investments. The term "bond investments"
includes debt securities of any maturity. Prior to any change to such
policy adopted by the Board of Trustees of the Fund, the Fund will
provide notice to shareholders as required by Rule 35d-1 under the 1940
Act, as such Rule may be interpreted from time to time by the staff of
the Securities and Exchange Commission ("SEC").
(13) Invest less than 80% of its assets in investment-grade securities
(those rated BBB or higher by Standard and Poor's Rating Group ("S&P"),
or Baa or higher by Moody's Investor Services, Inc. ("Moody's") or, if
unrated, of comparable quality as determined by Loomis Sayles.
(14) Invest more than 20% of its assets, at the time of purchase, in bonds
rated below BBB by S&P and below Baa by Moody's (also known as "junk
bonds") or, if unrated, of comparable quality as determined by Loomis
Sayles.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid and thus subject to
restriction (11) above.
In restriction (12), 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.
Loomis Sayles High Income Fund (the "High Income Fund") will not:
*(1) Buy more than 10% of the voting securities or more than 10% of all of
the securities of any issuer, or invest to control or manage any
company.
*(2) Purchase securities on "margin," except for short-term credits as
needed to clear securities purchases.
*(3) Invest in securities issued by other investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer
commission or profit, other than a customary brokerage commission, is
involved and only if immediately thereafter not more than 10% of the
value of its total assets would be invested in such securities.
*(4) Purchase securities, other than shares of the Fund, from or sell
portfolio securities to its directors or officers, or firms they are
affiliated with as principals, except as permitted by the regulations
of the SEC.
*(5) Purchase or sell commodities or commodity contracts, or write, purchase
or sell options, except that the Fund may (a) buy or sell futures
contracts on securities or on securities indices and (b) write,
purchase or sell put or call options on securities, on securities
indices or on futures contracts of the type referred to in clause (a)
of this restriction.
iv
<PAGE>
*(6) Make loans, except loans of portfolio securities and except to the
extent that the purchase of notes, repurchase agreements, bonds, or
other evidences of indebtedness or deposits with banks or other
financial institutions may be considered loans.
*(7) Make short sales of securities or maintain a short position.
*(8) Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or in securities
issued by companies that invest in real estate or interests therein.
*(9) Purchase or sell interests in oil and gas or other mineral exploration
or development programs, provided that the Fund may invest in
securities issued by companies which do invest in or sponsor such
programs.
*(10) Underwrite the securities of other issuers.
*(11) Invest more than 10% of the value of its total assets, in the
aggregate, in repurchase agreements maturing in more than seven days
and restricted securities.
*(12) Purchase any security (other than U.S. government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current
value) would be invested in any one industry (in the utilities
category, gas, electric, water, and telephone companies will be
considered as being in separate industries). For purposes of this
restriction, a foreign national government and its political
subdivisions are considered as being in a separate industry from any
other foreign national government and that government's political
subdivisions.
*(13) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, up to an amount not in excess of 33 1/3% of its
total assets.
*(14) Issue senior securities. For the purpose of this restriction, none of
the following is deemed to be a senior security: any borrowing
permitted by restriction (13) above; any collateral arrangements with
respect to options, forward contracts, futures contracts, swap
contracts and other similar contracts and options on futures contracts
and with respect to initial and variation margin; the purchase or sale
of options, forward contracts, futures contracts, swap contracts or
similar contracts or options on futures contracts; and the issuance of
shares of beneficial interest permitted from time to time by the
provisions of Loomis Sayles Funds II's Agreement and Declaration of
Trust and by the 1940 Act, the rules thereunder, or any exemption
therefrom.
+ (15) Invest more than 15% of the Fund's total net assets in illiquid
securities (excluding Rule 144A securities and certain Section 4(2)
commercial paper deemed to be liquid under guidelines established by
the Trust's trustees).
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid and thus subject to
restriction (15) above.
Loomis Sayles Investment Grade Bond Fund (the "Investment Grade Bond Fund") will
not:
(1) Invest in companies for the purpose of exercising control or
management.
*(2) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
*(3) Invest in oil, gas or other mineral leases, rights or royalty contracts
or in real estate, commodities or commodity contracts. (This
restriction does not prevent the Fund from engaging in transactions in
futures contracts relating to securities indices, interest rates or
financial instruments or options, or from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
v
<PAGE>
*(4) Make loans, except that the Fund may lend its portfolio securities to
the extent permitted under the 1940 Act. (For purposes of this
investment restriction, neither (i) entering into repurchase agreements
nor (ii) purchasing debt obligations in which the Fund may invest
consistent with its investment policies is considered the making of a
loan.)
(5) With respect to 75% of its assets, purchase any security (other than
U.S. government securities) if, as a result, more than 5% of the Fund's
assets (taken at current value) would then be invested in securities of
a single issuer.
(6) With respect to 75% of its assets, acquire more than 10% of the
outstanding voting securities of an issuer.
(7) Pledge, mortgage, hypothecate or otherwise encumber any of its assets,
except that the Fund may pledge assets having a value not exceeding 10%
of its assets to secure borrowings permitted by restrictions (9) and
(10) below. (For purposes of this restriction, collateral arrangements
with respect to options, futures contracts, and options on futures
contracts and with respect to initial and variation margin are not
deemed to be a pledge or other encumbrance of assets.)
*(8) Purchase any security (other than U.S. government securities) if, as a
result, more than 25% of the Fund's assets (taken at current value)
would be invested in any one industry (in the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries). For purposes of this restriction, a foreign
national government and its political subdivisions are considered as
being in a separate industry from any other foreign national government
and that government's political subdivisions.
*(9) Borrow in excess of 10% of its assets (taken at cost) or 5% of its
assets (taken at current value) whichever is lower, nor borrow any
money except as a temporary measure for extraordinary or emergency
purposes.
(10) Purchase securities on margin (except such short term credits as are
necessary for clearance of transactions) or make short sales (except
where, by virtue of ownership of other securities, it has the right to
obtain, without payment of additional consideration, securities
equivalent in kind and amount to those sold).
(11) Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase or
sale of portfolio securities with Loomis, Sayles & Company, L.P.
("Loomis Sayles") or accounts under its management to reduce brokerage
commissions, to average prices among them or to facilitate such
transactions is not considered a trading account in securities for
purposes of this restriction.)
(12) Purchase any illiquid security, including any security that is not
readily marketable, if, as a result, more than 15% of the Fund's net
assets (based on current value) would then be invested in such
securities.
(13) Write or purchase puts, calls, or combinations of both, except that the
Fund may (1) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or rights, or of parents or
subsidiaries of such companies, (2) purchase and sell put and call
options on securities, and (3) write, purchase and sell put and call
options on currencies and enter into currency forward contracts.
*(14) Issue senior securities. (For purposes of this restriction, none of the
following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (7) above; any borrowing
permitted by restriction (9) above; any collateral arrangements with
respect to options, futures contracts, and options on futures contracts
and with respect to initial and variation margin; and the purchase or
sale of options, forward contracts, futures contracts, or options on
futures contracts.)
(15) Invest less than 80% of its net assets (plus borrowings made for
investment purposes) in investment grade fixed income securities. Prior
to any change to such policy adopted by the Board of Trustees of the
Fund, the Fund will provide notice to shareholders as required by Rule
35d-1 under the 1940 Act, as such Rule may be interpreted from time to
time by the staff of the SEC.
(16) Invest in equity stocks or make any other equity investments.
vi
<PAGE>
The Fund intends, based on the views of the Securities and Exchange
Commission, to restrict its investments in repurchase agreements maturing in
more than seven days, together with other investments in illiquid securities, to
the percentage permitted by restriction (12) above.
In restriction (15), 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.
For the purposes of the foregoing restrictions, the Fund does not
consider a swap contract on one or more securities, indices, currencies or
interest rates to be a commodity or a commodity contract, nor, consistent with
the position of the staff of the SEC, does the Fund consider such swap contracts
to involve the issuance of a senior security, provided the Fund segregates with
its custodian liquid assets (marked to market on a daily basis) sufficient to
meet its obligations under such contracts.
In connection with the offering of its shares in Japan, the Fund has
undertaken to the Japanese Securities Dealers Association: (1) that the Fund
will not invest more than 15% of the Fund's net assets in securities that are
not traded on a recognized exchange; (2) portfolio securities of the Fund may
not be purchased from or sold or loaned to any Trustee of the Trust, Loomis
Sayles, acting as investment adviser of the Fund, or any affiliate thereof or
any of their directors, officers or employees, or any major shareholder thereof
(meaning a shareholder who holds to the actual knowledge of Loomis Sayles, on
his/her own account whether in his/her own or other name (as well as a nominee's
name, 15% or more of the total issued outstanding shares of such a company),
acting as principal or for their own account unless the transaction is made
within the investment restrictions set forth in the Fund's Prospectus and
Statement of Additional Information and either (i) at a price determined by
current publicly available quotations (including a dealer quotation) or (ii) at
competitive prices or interest rates prevailing from time to time on
internationally recognized securities markets or internationally recognized
money markets (including a dealer quotation); and (3) that the Fund will not,
together with other registered investment companies managed by Loomis Sayles,
acquire more than 50% of the voting shares of any issuer.
If the undertaking is violated, the Fund will, promptly after
discovery, take such action as may be necessary to cause the violation to cease,
which shall be the only obligation of the Fund and the only remedy in respect of
the violation. This undertaking will remain in effect as long as shares of the
Fund are qualified for offer or sale in Japan and such undertaking is required
by the Japanese Securities Dealers Association as a condition of such
qualification.
Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term
Government and Agency Fund") will not:
*(1) 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.
*(2) Issue senior securities, except for permitted borrowings or as
otherwise permitted under the 1940 Act.
*(3) 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.
*(4) 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, (i) 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, (ii) bank
obligations are considered to be one industry, and asset-backed
securities are not considered to be bank obligations and (iii) a
foreign national government and its
vii
<PAGE>
political subdivisions are considered as being in a separate industry
from any other foreign national government and that government's
political subdivisions.
*(5) Make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; provided,
however, that this restriction does not apply to repurchase agreements
or loans of portfolio securities.
*(6) Purchase or sell 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.
*(7) 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.
*(8) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(9) Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may write, purchase and sell puts, calls or combinations
thereof with respect to financial instruments or indices thereof and
currencies and with respect to futures contracts on financial
instruments or indices thereof.
+ (10) Invest more than 15% of the Fund's total net assets in illiquid
securities (excluding Rule 144A securities and certain Section 4(2)
commercial paper deemed to be liquid under guidelines established by
the Trust's trustees).
(11) Invest less than 80% of the Fund's net assets (plus borrowings made for
investment purposes) in investments issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Prior to any change to
such policy adopted by the Board of Trustees of the Fund, the Fund will
provide notice to shareholders as required by Rule 35d-1 under the 1940
Act, as such Rule may be interpreted from time to time by the staff of
the SEC.
Although the Fund may from time to time make short sales, issue senior
securities, borrow money or pledge its assets to the extent permitted by the
investment restrictions set forth above, the Fund has no current intention of
engaging in such investment techniques.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid and thus subject to
restriction (10) above.
In restriction (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.
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.
viii
<PAGE>
*(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 (i) 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, (ii) bank
obligations are considered to be one industry, and asset-backed
securities are not considered to be bank obligations and (iii) a
foreign national government and its political subdivisions are
considered as being in a separate industry from any other foreign
national government and that government's political subdivisions.
*(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 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 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. 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 Fund that
distributions from interest income on such private activity bonds, together with
distributions of interest income
ix
<PAGE>
on investments other than Tax Exempt Securities (as described under
"Miscellaneous Investment Strategies and Related Risks" in Part II of this
Statement), will normally not exceed 10% of the total amount of the Fund's
income distributions.
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 adviser.
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 (i) 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, (ii) bank
obligations are considered to be one industry, and asset-backed
securities are not considered to be bank obligations and (iii) a
foreign national government and its political subdivisions are
considered as being in a separate industry from any other foreign
national government and that government's political subdivisions.
(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.
x
<PAGE>
(10) Write, purchase, or sell puts, calls or combinations thereof, except
that the Fund may write, purchase and sell puts, 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.
Loomis Sayles Strategic Income Fund (the "Strategic Income Fund") will not:
*(1) Purchase any security (other than U.S. government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current
value) would be invested in any one industry (in the utilities
category, gas, electric, water and telephone companies will be
considered as being in separate industries, and each foreign country's
government (together with subdivisions thereof) will be considered to
be a separate industry).
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership
of other securities, it has the right to obtain, without payment of
further consideration, securities equivalent in kind and amount to
those sold, and the Fund will not deposit or pledge more than 10% of
its total assets (taken at current value) as collateral for such sales.
(For this purpose, the deposit or payment by the Fund of initial or
variation margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin).
(3) Acquire more than 10% of any class of securities of an issuer (other
than U.S. government securities and taking all preferred stock issues
of an issuer as a single class and all debt issues of an issuer as a
single class) or acquire more than 10% of the outstanding voting
securities of an issuer (such percentage limitations apply to
closed-end management investment companies as well).
*(4) Borrow money in excess of 25% of its total assets, and then only as a
temporary measure for extraordinary or emergency purposes.
(5) Pledge more than 25% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and with
respect to initial and variation margin are not deemed to be a pledge
of assets).
*(6) Make loans, except by entering into repurchase agreements or by
purchase of bonds, debentures, commercial paper, corporate notes and
similar evidences of indebtedness, which are a part of an issue to the
public or to financial institutions, or through the lending of the
Fund's portfolio securities.
xi
<PAGE>
*(7) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except
that the Fund may buy and sell futures contracts and related options.
(This restriction does not prevent the Fund from purchasing securities
of companies investing in the foregoing).
*(8) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
(9) Except to the extent permitted by rule or order of the SEC, participate
on a joint or joint and several basis in any trading account in
securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with any investment adviser of the Fund or
accounts under any such investment adviser's management to reduce
brokerage commissions, to average prices among them or to facilitate
such transactions is not considered a trading account in securities for
purposes of this restriction).
(10) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities, securities
indices, currencies, futures contracts, swap contracts and other
similar instruments and (b) enter into currency forward contracts.
+ (11) Invest more than 15% of its net assets (taken at current value) in
illiquid securities (excluding Rule 144A securities and certain Section
4(2) commercial paper deemed to be liquid under guidelines established
by the Trust's trustees).
*(12) Issue senior securities. (For the purpose of this restriction none of
the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restrictions (2) or (5) above; any
borrowing permitted by restriction (4) above; any collateral
arrangements with respect to forward contracts, options, futures
contracts, swap contracts or other similar contracts and options on
futures contracts, swap contracts or other similar contracts and with
respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts, swap contracts or other
similar contracts or options on futures contracts, swap contracts or
other similar contracts; and the issuance of shares of beneficial
interest permitted from time to time by the provisions of the Trust's
Agreement and Declaration of Trust and by the 1940 Act, the rules
thereunder, or any exemption therefrom.)
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are illiquid and thus subject to
restriction (11) above.
--------------------------------------------------------------------------------
FUND CHARGES AND EXPENSES
--------------------------------------------------------------------------------
ADVISORY FEES
Pursuant to separate advisory agreements, Loomis Sayles has agreed,
subject to the supervision of the Board of Trustees of the relevant Trust, to
manage the investment and reinvestment of the assets of each Fund and to provide
a range of administrative services to each Fund except the Core Plus Bond Fund.
xii
<PAGE>
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:
<TABLE>
<CAPTION>
Advisory Fee Payable by Fund to Loomis Sayles
Fund Date of Agreement (as a % of average daily net assets of the Fund)
--------------------------- --------------------------- -------------------------------------------------
<S> <C> <C>
Core Plus Bond Fund September 1, 2003 0.2500% of the first $100 million
0.1875% of amounts in excess of $100 million
High Income Fund September 12, 2003 0.600%
amended July 1, 2004*
Investment Grade Bond Fund October 30, 2000 0.400%
Limited Term Government and September 12, 2003 0.500%
Agency Fund as amended March 21, 2005**
Massachusetts Fund September 1, 2003 0.300% of the first $100 million
0.250% of amounts in excess of $100 million
Municipal Income Fund September 12, 2003 0.500% of the first $100 million
0.375% of amounts in excess of $100 million
Strategic Income Fund September 12, 2003 0.650% of the first $200 million
0.600% of amounts in excess of $200 million
</TABLE>
* Prior to July 1, 2004, the advisory fee rate was 0.70% of the first $200
million of average daily net assets and 0.65% of average daily net assets
in excess of $200 million.
** Prior to March 21, 2005, the advisory fee rate was 0.57% of the first $200
million of average daily net assets, 0.545% of the next $300 million, and
0.520% of average daily net assets in excess of $500 million.
For the current fiscal year, the following table shows the total
advisory fees paid by the Funds to Loomis Sayles, the Funds' current adviser.
For fiscal years 2002 and 2003, the following table shows the total advisory
fees (including subadvisory fees) paid to IXIS Asset Management Advisors, L.P.
("IXIS Advisors", formerly named CDC IXIS Asset Management Advisers, L.P.), the
former adviser to all Funds except Investment Grade Bond Fund, and Loomis
Sayles, the former subadviser to all Funds except Investment Grade Bond Fund:
Advisory Fees/1,2/
---------------------------------------
Core Plus Bond Fund
---------------------------------------
1/1/02- 1/01/03 - 10/01/03 -
12/31/02 9/30/03 9/30/04
----------- ----------- -----------
Total Advisory Fee $ 1,317,903 $ 941,859 $ 630,219
IXIS Advisors
Total Paid $ 658,951 $ 443,986 -
Loomis Sayles
Total Paid $ 658,952 $ 497,873 $ 630,219
xiii
<PAGE>
High Income Fund
---------------------------------------
1/1/02- 1/01/03 - 10/01/03 -
12/31/02 9/30/03 9/30/04
----------- ----------- -----------
Total Advisory Fee $ 407,408 $ 260,331 $ 330,146
IXIS Advisors
Total Paid $ 203,704 $ 115,794 -
Loomis Sayles
Total Paid $ 203,704 $ 144,537 $ 330,146
Investment Grade Bond Fund
---------------------------------------
10/01/02 - 10/01/03 - 10/01/03 -
9/30/02 9/30/03 9/30/04
----------- ----------- -----------
Total Advisory Fee $ 1,506,744
Loomis Sayles
Fee Earned $ 624,862 $ 1,092,528 $ 1,506,744
Amount Waived $ 440,118 $ 6,771 $ 43,823
Total Paid $ 184,774 $ 1,085,757 $ 1,462,921
Limited Term Government and Agency Fund
---------------------------------------
1/1/02- 1/01/03 - 10/01/03 -
12/31/02 9/30/03 9/30/04
----------- ----------- -----------
Total Advisory Fee $ 774,861 $ 628,035 $ 773,694
IXIS Advisors
Total Paid $ 387,430 $ 279,606 -
Loomis Sayles
Total Paid $ 387,431 $ 348,429 $ 773,694
Massachusetts Fund
---------------------------------------
1/1/02- 1/1/03 - 10/1/03 -
12/31/02 9/30/03 9/30/04
----------- ----------- -----------
Total Advisory Fee $ 590,987 $ 402,028 $ 265,074
IXIS Advisors
Fee Earned $ 295,493 $ 189,740 --
Amount Waived -- -- --
Total Paid $ 295,493 $ 189,740 --
Loomis Sayles
Fee Earned -- $ 212,288
Amount Waived -- --
Total Paid $ 295,494 $ 212,288 $ 265,074
Municipal Income Fund
---------------------------------------
1/1/02- 1/1/03- 10/1/03 -
12/31/02 9/30/03/2,3/ 9/30/04
----------- ------------ -----------
Total Advisory Fee $ 686,999 $ 488,937 $ 606,254
IXIS Advisors --
Total Paid $ 343,500 $ 218,301 --
Loomis Sayles
Total Paid $ 343,499 $ 270,636 $ 606,254
xiv
<PAGE>
Strategic Income Fund
---------------------------------------
1/1/02- 1/01/03 - 10/01/03 -
12/31/02 9/30/03 9/30/04
----------- ------------ -----------
Total Advisory Fee $ 1,404,810 $ 1,282,724 $ 3,264,555
IXIS Advisors
Total Paid $ 652,405 $ 526,736 -
Loomis Sayles
Total Paid $ 752,405 $ 755,988 $ 3,264,555
----------
1 This table does not reflect any fees paid under the Advisory Administration
agreements described later in this Statement.
2 On September 12, 2003, the High Income Fund and Limited Term Government and
Agency Fund, formerly series of IXIS Advisor Funds Trust II, and Strategic
Income Fund, formerly a series of IXIS Advisor Funds Trust I, were reorganized
as series of Loomis Sayles Funds II (these funds, as series of the former
trusts, are referred to in this paragraph as Predecessor Funds and, as series of
Loomis Sayles Funds II, are referred to in this paragraph as Successor Funds).
As a result, each Successor Fund assumed the financial and accounting
information of its respective Predecessor Fund. The table therefore includes
fees under previous investment advisory and subadvisory arrangements applicable
to the Predecessor Funds. The advisory fees reported for fiscal year 2002 and
part of the fiscal year 2003 reflect these arrangements. In addition, effective
September 1, 2003, the investment advisory agreements among the Core Plus Bond
Fund and IXIS Advisors and among Massachusetts Tax Free Income Fund and IXIS
Advisors were amended to replace IXIS Advisors with Loomis Sayles as investment
adviser to the Funds. Prior to September 1, 2003, Loomis Sayles managed the
assets of these Funds as subadviser under an investment subadvisory agreement
that terminated on September 1, 2003. IXIS Advisors continues to provide certain
administrative and oversight services to the Core Plus Bond Fund and
Massachusetts Tax Free Income Fund under Advisory Administration Agreements.
Loomis Sayles and IXIS Advisors (in the case of the Core Plus Bond Fund
and Massachusetts Tax Free Income Fund) have given a binding undertaking (for
all classes of the Funds in the table below) to reduce the advisory fees, and if
necessary, to bear certain expenses, exclusive of brokerage expenses, interest
expense, taxes and organizational and extraordinary expense, associated with the
Funds, to the extent necessary to limit the Funds' expenses to the annual rates
indicated below. The undertaking will be binding on Loomis Sayles and IXIS
Advisors (in the case of the Core Plus Bond Fund and Massachusetts Tax Free
Income Fund) for a period of one-year from the date shown, and will be
reevaluated on an annual basis thereafter, subject to the obligation of each
Fund to pay such deferred fees or expense reimbursement in later periods to the
extent that each Fund's expenses fall below the expense limit; provided,
however, that each Fund is not obligated to pay such deferred fees or expense
reimbursement more than one year after the end of the fiscal year in which the
fee was deferred.
Fund Expense Limit Date of Undertaking
---------------------------- ------------- -------------------
Core Plus Bond Fund February 1, 2005
Class A 1.15%
Class B 1.90%
Class C 1.90%
Class Y 0.90%
Investment Grade Bond Fund February 1, 2005
Class A 0.95%
Class B 1.70%
Class C 1.70%
Class Y 0.55%
Massachusetts Fund February 1, 2005
Class A 1.40%
Class B 2.05%
Strategic Income Fund February 1, 2005
Class A 1.25%
Class B 2.00%
Class C 2.00%
Class Y 1.00%
xv
<PAGE>
ADVISORY ADMINISTRATION AGREEMENT
Pursuant to separate advisory administration agreements, Core Plus Bond
Fund and Massachusetts Fund have retained IXIS Advisors to provide certain
administrative and oversight services to these Funds. For the services described
in the advisory administration agreements, IXIS Advisors receives fees at the
annual rates set forth in the following table:
<TABLE>
<CAPTION>
Advisory Administration Fee Payable by Fund to IXIS
Advisors
Fund Date of Agreement (as a % of average daily net assets of the Fund)
------------------- ----------------- ---------------------------------------------------
<S> <C> <C>
Core Plus Bond Fund September 1, 2003 0.2500% of the first $100 million
0.1875% of amounts in excess of $100 million
Massachusetts Fund September 1, 2003 0.300% of the first $100 million
0.250% of amounts in excess of $100 million
</TABLE>
For the period September 1, 2003 to September 30, 2003 and for the
fiscal year ended September 30, 2004, the following table shows the advisory
administration fees paid by Core Plus Bond Fund and Massachusetts Fund to IXIS
Advisors:
9/1/03 - 10/1/03 -
Fund 9/30/03 9/30/04
------------------- -------- ---------
Core Plus Bond Fund $ 53,887 $ 603,219
Massachusetts Fund $ 22,549 $ 265,074
BROKERAGE COMMISSIONS
None of the Funds or any of their Predecessor Funds paid any brokerage
commissions in 2002. In 2003 High Income Fund, Investment Grade Bond Fund and
Strategic Income Fund paid $250, $8,655 and $30,629, respectively, in brokerage
commissions. In 2004 High Income Fund, Investment Grade Bond Fund, and Strategic
Income Fund paid $611, $5, and $33,464, respectively.
For a description of how transactions in portfolio securities are
effected and how the Funds' adviser selects brokers, see the section entitled
"Portfolio Transactions and Brokerage" in Part II of this Statement.
Regular Broker-Dealers
The table below contains the aggregate value of securities of each
Fund's regular broker-dealers+? (or the parent of the regular broker-dealers)
held by each Fund, if any, as of the fiscal year ending September 30, 2004.
<TABLE>
<CAPTION>
Aggregate Value of
Securities of each Regular
Broker or Dealer (or its
Fund Regular Broker-Dealer Parent) held by Fund
-------------------------- ----------------------------------- --------------------------
<S> <C> <C>
Core Plus Bond Fund Citigroup, Inc. $ 3,677,862
JP Morgan Chase and Co. $ 761,313
Goldman Sachs Group, Inc. $ 753,817
Investment Grade Bond Fund J.P. Morgan Chase and Co. $ 252,794
Morgan Stanley $ 1,002,106
Bank of America Commercial Mortgage $ 3,192,932
</TABLE>
xvi
<PAGE>
+ "Regular Broker-Dealers" are defined by the SEC as: (a) one of the 10 brokers
or dealers that received the greatest dollar amount of brokerage commissions by
virtue of direct or indirect participation in the company's portfolio
transactions during the company's most recent fiscal year; (b) one of the 10
brokers or dealers that engaged as principal in the largest dollar amount of
portfolio transactions of the investment company during the company's most
recent fiscal year; or (c) one of the 10 brokers or dealers that sold the
largest dollar amount of securities of the investment company during the
company's most recent fiscal year.
SALES CHARGES AND 12B-1 FEES
As explained in Part II of this Statement, the Class A, Class B and
Class C shares (except in the case of the Massachusetts Fund and Municipal
Income Fund, which do not offer Class C shares) of each Fund pay the Distributor
fees under 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
(including their Predecessor Funds) under the Plans during the past three fiscal
years. 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.
1/1/02 - 1/1/03 - 10/1/03 -
Fund 12/31/02 9/30/03 9/30/04
--------------------------------------- ----------- ----------- -----------
Core Plus Bond Fund
Class A $ 397,181 $ 263,615 $ 312,845
Class B $ 1,314,367 $ 1,147,439 $ 1,547,638
Class C $ 103,081 $ 62,083 $ 68,011
High Income Fund
Class A $ 67,018 $ 44,308 $ 62,823
Class B $ 282,083 $ 174,650 $ 208,830
Class C $ 31,502 $ 20,020 $ 27,615
Limited Term Government and Agency Fund
Class A $ 373,753 $ 301,134 $ 361,411
Class B $ 144,101 $ 119,150 $ 116,983
Class C $ 68,615 $ 65,626 $ 76,233
Massachusetts Fund
Class A $ 318,340 $ 230,730 $ 271,068
Class B $ 75,554 $ 48,402 $ 51,109
Municipal Income Fund
Class A $ 341,958 $ 242,276 $ 295,653
Class B $ 130,927 $ 85,415 $ 100,731
Strategic Income Fund
Class A $ 226,621 $ 212,541 $ 590,762
Class B $ 984,230 $ 825,818 $ 1,251,818
Class C $ 277,462 $ 325,425 $ 1,593,979
10/1/01 - 10/1/02 - 10/1/03 -
Fund 9/30/02 9/30/03 9/30/04
--------------------------------------- ----------- ----------- -----------
Investment Grade Bond Fund
Class A $ 0 $ 743 $ 14,567
Class B $ 0 $ 20 $ 10,253
Class C $ 0 $ 1 $ 44,550
xvii
<PAGE>
During the fiscal year ended September 30, 2004, the Distributor's
expenses relating to the Fund's 12b-1 plans were as follows (Class B
compensation to investment dealers excludes advanced commissions sold to a third
party):
<TABLE>
<CAPTION>
<S> <C>
Core Plus Bond Fund
(Class A shares)
Compensation to Investment Dealers $ 303,889
Compensation to Distributor's Sales Personnel and Other Related Costs $ 207,492
-----------
TOTAL $ 511,382
(Class B shares)
Compensation to Investment Dealers $ 923,774
Compensation to Distributor's Sales Personnel and Other Related Costs $ 655,353
-----------
TOTAL $ 1,579,127
(Class C shares)
Compensation to Investment Dealers $ 70,100
Compensation to Distributor's Sales Personnel and Other Related Costs $ 16,187
-----------
TOTAL $ 86,287
High Income Fund
(Class A shares)
Compensation to Investment Dealers $ 53,113
Compensation to Distributor's Sales Personnel and Other Related Costs $ 69,597
-----------
TOTAL $ 122,710
(Class B shares)
Compensation to Investment Dealers $ 50,176
Compensation to Distributor's Sales Personnel and Other Related Costs $ 7,031
-----------
TOTAL $ 57,207
(Class C shares)
Compensation to Investment Dealers $ 26,967
Compensation to Distributor's Sales Personnel and Other Related Costs $ 5,903
-----------
TOTAL $ 32,871
Investment Grade Bond Fund
(Class A shares)
Compensation to Investment Dealers $ 14,134
Compensation to Distributor's Sales Personnel and Other Related Costs $ 137,493
-----------
TOTAL $ 151,627
(Class B shares)
Compensation to Investment Dealers $ 783
Compensation to Distributor's Sales Personnel and Other Related Costs $ 16,199
-----------
TOTAL $ 16,982
(Class C shares)
Compensation to Investment Dealers $ 98,010
Compensation to Distributor's Sales Personnel and Other Related Costs $ 151,597
-----------
TOTAL $ 249,607
</TABLE>
xviii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Limited Term Government and Agency Fund
(Class A shares)
Compensation to Investment Dealers $ 272,709
Compensation to Distributor's Sales Personnel and Other Related Costs $ 161,069
-----------
TOTAL $ 433,778
(Class B shares)
Compensation to Investment Dealers $ 26,561
Compensation to Distributor's Sales Personnel and Other Related Costs $ 8,316
-----------
TOTAL $ 34,877
(Class C shares)
Compensation to Investment Dealers $ 67,513
Compensation to Distributor's Sales Personnel and Other Related Costs $ 16,129
-----------
TOTAL $ 83,642
Massachusetts Fund
(Class A shares)
Compensation to Investment Dealers $ 192,604
Compensation to Distributor's Sales Personnel and Other Related Costs $ 16,061
-----------
TOTAL $ 208,665
(Class B shares)
Compensation to Investment Dealers $ 11,789
Compensation to Distributor's Sales Personnel and Other Related Costs $ 1,635
-----------
TOTAL $ 13,424
Municipal Income Fund
(Class A shares)
Compensation to Investment Dealers $ 276,199
Compensation to Distributor's Sales Personnel and Other Related Costs $ 32,572
-----------
TOTAL $ 308,771
(Class B shares)
Compensation to Investment Dealers $ 22,007
Compensation to Distributor's Sales Personnel and Other Related Costs $ 14,808
-----------
TOTAL $ 36,815
Strategic Income Fund
(Class A shares)
Compensation to Investment Dealers $ 511,035
Compensation to Distributor's Sales Personnel and Other Related Costs $ 3,554,533
-----------
TOTAL $ 4,065,568
(Class B shares)
Compensation to Investment Dealers $ 247,056
Compensation to Distributor's Sales Personnel and Other Related Costs $ 438,208
-----------
TOTAL $ 685,264
(Class C shares)
Compensation to Investment Dealers $ 2,288,548
Compensation to Distributor's Sales Personnel and Other Related Costs $ 3,018,992
-----------
TOTAL $ 5,307,539
</TABLE>
xix
<PAGE>
--------------------------------------------------------------------------------
OWNERSHIP OF FUND SHARES
--------------------------------------------------------------------------------
As of January 13, 2005, to the Trusts' knowledge, the following persons
owned of record or beneficially 5% or more of the outstanding shares of the
indicated classes of the Funds set forth below.*
Ownership
Fund Shareholder and Address Percentage
----------------------- ---------------------------------- ----------
Core Plus Bond Fund/1/
(Class A) MLPF&S FOR THE SOLE BENEFIT 10.93%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#98484
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6284
(Class B) MLPF&S FOR THE SOLE BENEFIT 66.78%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#97CJ0
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6484
(Class C) MLPF&S FOR THE SOLE BENEFIT 23.49%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#97UD1
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6284
CITIGROUP GLOBAL MARKETS INC. 6.08%
333 WEST 34TH STREET - 3RD FLOOR
NEW YORK NY 10001-2402
(Class Y) METLIFE INSURANCE COMPANY 48.21%
ATTN ADRIENNE LAVIS
2 MONTGOMERY ST FL 3
JERSEY CITY NJ 07302-3899
CHARLES SCHWAB & CO INC 29.80%
SPECIAL CUSTODY ACCOUNT
FOR BNFT CUST
ATTN MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
xx
<PAGE>
MLPF&S FOR THE SOLE BENEFIT 19.35%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#97PN8
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6284
High Income Fund
(Class B) MLPF&S FOR THE SOLE BENEFIT 8.61%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#97CJ3
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6284
(Class C) MLPF&S FOR THE SOLE BENEFIT 9.02%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#97UA1
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6284
SAMUEL B FOARD JR TRUSTEE 5.37%
PARKER J BESHORE TRUST
4425 FAWN GROVE RD
STREET MD 21154-1009
Investment Grade Bond
Fund/2/
(Class A) UBS FINANCIAL SERVICES INC. FBO 39.23%
ADVENTIST HEALTHCARE, INC
INTERMEDIATE SEGMENT ACCOUNT
1801 RESEARCH BLVD STE 400
ROCKVILLE MD 20850-3184
UBS FINANCIAL SERVICES INC. FBO 9.10%
SIDNEY V SMITH TTEE
U/W SMITH MARITAL TRUST #2
4718 HALLMARK DRIVE #352
HOUSTON TX 77056-3909
MERRILL LYNCH PIERCE 8.99%
FENNER & SMITH INC
MERRILL LYNCH FINANCIAL DATA SVCS
ATTN: SERVICE TEAM
4800 DEER LAKE DR EAST 3RD FLR
JACKSONVILLE FL 32246-6484
AIG FEDERAL SAVINGS BANK CUST 5.13%
FBO HAMOT HEALTH FOUNDATION
EMPLOYEE TAX DEFERRED SAVINGS PLAN
2929 ALLEN PKWY
HOUSTON TX 77019-7100
xxi
<PAGE>
(Class B) MERRILL LYNCH PIERCE 21.50%
FENNER & SMITH INC
MERRILL LYNCH FINANCIAL DATA SVCS
ATTN: SERVICE TEAM
4800 DEER LAKE DR EAST 3RD FLR
JACKSONVILLE FL 32246-6484
UBS FINANCIAL SERVICES INC. FBO 7.27%
PATRICIA K. WERNER TRUSTEE
PATRICIA K. WERNER 1991 TRUST
U/A DTD 2/22/91
54 E ALTARINDA DR
ORINDA CA 94563-2416
(Class C) MERRILL LYNCH PIERCE 70.88%
FENNER & SMITH INC
MERRILL LYNCH FINANCIAL DATA SVCS
ATTN: SERVICE TEAM
4800 DEER LAKE DR EAST 3RD FLR
JACKSONVILLE FL 32246-6484
(Class Y) CHARLES SCHWAB & CO INC 24.93%
ATTN MUTUAL FUND DEPT
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
ASBESTOS WORKERS LOCAL #84 18.43%
PENSION PLAN
ATTN LEE Q BARNES ADMINISTRATOR
36 E WARNER RD
AKRON OH 44319-1864
JEFFREY L MEADE 10.00%
PHYLLIS M MEADE JT TEN
16 SAMUEL PARLIN DR
ACTON MA 01720-3207
MORGAN KEEGAN & COMPANY, INC. 7.57%
FBO LARRY J. BINGHAM, TTEE FBO
WILLIAM L. CASSELL REVOCABLE TRUST
DTD 8/31/81
2800 COMMERCE TOWER
KANSAS CITY MO 64105-2007
MICHIGAN PEER REVIEW ORGANIZATION 7.28%
22670 HAGGERTY RD STE 100
FARMINGTON HLS MI 48335-2631
xxii
<PAGE>
(Class J)* MARUSAN SECURITIES, CO. LTD. 58.59%
2-5-2 NIHONBASHI
CHUO-KU, TOKYO 103-8258
JAPAN
MITSUBISHI SECURITIES, CO. LTD. 36.78%
5-2 MARUNOUCHI 2-CHOME
CHIYODA-KU, TOKYO 100-105
JAPAN
Limited Term Government
and Agency Fund
(Class A) FIRST CLEARING LLC 12.31%
COMMUNITY FIRST TRUST CO
135 SECTION LINE RD
3RD FLOOR C 1
HOT SPRINGS AR 71913-6431
TREASURER COUNTY OF LAKE 5.58%
255 NO FORBES STREET RM 215
LAKEPORT CA 95453
(Class B) MLPF&S FOR THE SOLE BENEFIT 14.17%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97CH9
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6484
(Class C) MLPF&S FOR THE SOLE BENEFIT 21.96%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97UA3
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6484
THE BANK OF NEW YORK AS FUNDS 9.17%
CUSTODIAN FOR THE CITY OF
FORSYTH GEORGIA
100 ASHFORD CTR N STE 520
ATLANTA GA 30338-4865
(Class Y) NEW ENGLAND MUTUAL LIFE INS CO 85.54%
SEPARATE INVESTMENT ACCOUNTING
ATTN LARRY HOISINGTON
501 BOYLSTON STREET - 6TH FL
BOSTON MA 02116-3769
MLPF&S FOR THE SOLE BENEFIT 9.64%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97RA7
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6484
*Loomis Sayles Investment Grade Bond Fund Class J shares are offered through a
separate prospectus.
xxiii
<PAGE>
Massachusetts Tax Free
Income Fund
(Class B) WEXFORD SECURITIES LLC FBO 7.33%
MRS BARBARA W RUBIN TTEE
BARBARA W RUBIN LIVING TRUST
UA DTD 10/21/92
24 PEARL ST
E BRIDGEWTR MA 02333-1742
MLPF&S FOR THE SOLE BENEFIT 5.98%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97CJ1
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-
Municipal Income Fund
(Class B) MLPF&S FOR THE SOLE BENEFIT 6.24%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97CH7
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246
Strategic Income Fund
(Class A) MLPF&S FOR THE SOLE BENEFIT 18.94%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97GM7
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-
CHARLES SCHWAB & CO INC 5.66%
SPECIAL CUSTODY ACCOUNT FOR
THE EXCLUSIVE BEENFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104-4122
(Class B) MLPF&S FOR THE SOLE BENEFIT 18.71%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97GM8
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6484
(Class C) MLPF&S FOR THE SOLE BENEFIT 59.51%
OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION ML#97UB1
4800 DEER LAKE DR EAST - 2ND FL
JACKSONVILLE FL 32246-6484
xxiv
<PAGE>
(Class Y) MLPF & S FOR THE SOLE BENEFIT 71.17%
OF IT'S CUSTOMERS
ATTN FUND ADMINISTRATION ML#97UR8
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
METLIFE INSURANCE COMPANY 9.12%
ATTN ADRIENNE LAVIS
2 MONTGOMERY ST FL 3
JERSEY CITY NJ 07302-3899
ROBERTY J BLANDING 5.61%
GAYLYNN BLANDING JT TEN
2006 WASHINGTON ST APT 5
SAN FRANCISO CA 94109-2844
* 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.
/1/ As of January 13, 2005, Merrill Lynch Pierce Fenner &Smith Inc. ("MLPF&S")
for the Sole Benefit of its Customers, Attn: Fund Administration ML#97CJO8, 4800
Deer Lake Drive East 2nd FL, Jacksonville, FL 32246-6484 owned 34.60% of the
Loomis Sayles Core Plus Bond Fund and therefore may be presumed to "control" the
Fund, as that term is defined in the Investment Company Act of 1940. However,
such ownership may be beneficially held by individuals or entities other than
MLPF&S. MLPF&S is organized under the laws of Delaware. The parent of MLPF&S is
Merrill Lynch & Co., Inc.
/2/ As of January 13, 2005, Marusan Securities and Mitsubishi Securities, Co.,
Ltd. owned 58.59% and 36.78%, respectively, of the Fund and therefore may be
presumed to "control" the Fund, as that term is defined in the Investment
Company Act of 1940. However, such ownership may be beneficially held by
individuals or entities other than Marusan Securities and Mitsubishi Securities,
Co. Ltd. Marusan Securities and Mitsubishi Securities Co., Ltd. are organized
under the laws of Japan.
xxv
<PAGE>
[LOGO APPEARS HERE]
Statement of Additional Information -- PART II
February 1, 2005 as revised May 1, 2005
IXIS ADVISOR FUNDS TRUST I (formerly named CDC Nvest Funds Trust I)
IXIS ADVISOR FUNDS TRUST II (formerly named 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 "IXIS Advisor Funds"). The Funds
constitute certain series of IXIS Advisor Funds Trust I, IXIS Advisor 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 information 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, 2005, 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Series of IXIS Advisor Funds Trust I Series of IXIS Advisor Funds Trust II Series of Loomis Sayles Funds II
------------------------------------ ------------------------------------- --------------------------------
Loomis Sayles Core Plus Bond Fund ("Core Loomis Sayles Massachusetts Tax Free Loomis Sayles Growth Fund
Plus Bond Fund") Income Fund ("Massachusetts Fund") ("Growth Fund")
Loomis Sayles High Income Fund
("High Income 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")
Loomis Sayles Municipal Income Fund
("Municipal Income Fund")
Loomis Sayles Research Fund
("Research Fund")
Loomis Sayles Strategic Income Fund
("Strategic Income Fund")
</TABLE>
<PAGE>
Table of Contents
Part II
MISCELLANEOUS INVESTMENT STRATEGIES AND RELATED RISKS................ 3
MANAGEMENT OF THE TRUSTS............................................. 25
PORTFOLIO MANAGEMENT INFORMATION..................................... 45
PORTFOLIO TRANSACTIONS AND BROKERAGE................................. 48
DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES.................... 51
PORTFOLIO TURNOVER................................................... 55
PORTFOLIO HOLDINGS INFORMATION....................................... 56
HOW TO BUY SHARES.................................................... 57
NET ASSET VALUE AND PUBLIC OFFERING PRICE............................ 57
REDUCED SALES CHARGES................................................ 59
SHAREHOLDER SERVICES................................................. 61
REDEMPTIONS.......................................................... 67
PERFORMANCE INFORMATION.............................................. 69
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS ......... 70
FINANCIAL STATEMENTS ................................................ 76
APPENDIX A .......................................................... A-1
2
<PAGE>
--------------------------------------------------------------------------------
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 be used by an
adviser of a Fund in managing the Fund. 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
categories listed below or 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.
<TABLE>
<CAPTION>
Fund Securities Practices
------------------------------------ ------------------------------------------ ---------------------------------
<S> <C> <C>
Core Plus Bond Fund Debt Securities (Asset-backed When-issued Securities
Securities, Collateralized Mortgage Futures Contracts
Obligations, Mortgage Dollar Rolls, Illiquid Securities
Structured Notes, Stripped Securities, Options
Zero-coupon Securities, Pay-in-kind Swap Contracts
Securities, Convertible Securities)
Foreign Securities (Depositary Receipts)
Growth Fund Equity Securities (Growth Stocks, Value When-issued Securities
Stocks, Small Capitalization Companies, Futures Contracts
REITs) Options
Debt Securities (Zero-coupon Securities, Swap Contracts
U.S. Government Securities) Private Placements
Foreign Securities (Foreign Currency
Hedging)
High Income Fund Debt Securities (Asset-backed Securities, When-issued Securities
Collateralized Mortgage Obligations, Illiquid Securities
Stripped Securities, Convertible
Securities, Structured Notes, Step
Coupon Securities, U.S. Government
Securities)
Foreign Securities (Currency Hedging)
Investment Grade Bond Fund Debt Securities (Asset-backed Options
securities, stripped mortgage securities)
Limited Term Government and Agency Debt Securities (Collateralized Mortgage When-issued Securities
Fund Obligations, Mortgage Dollar Rolls, Futures Contracts
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. Options
Government Securities) Illiquid Securities
Reverse Repurchase Agreements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Fund Securities Practices
------------------------------------ ------------------------------------------ ---------------------------------
<S> <C> <C>
Municipal Income Fund Debt Securities (Tax Exempt Securities, Insurance on Portfolio Holdings
Stripped Securities, U.S. Government When-issued Securities
Securities) Options
Illiquid Securities
Research Fund Equity Securities (Small Capitalization When-Issued Securities
Companies, Mid Capitalization Companies) Private Placements
Debt Securities (U.S. Government
Securities, Zero-coupon Securities,
Collateralized Mortgage Obligations)
Strategic Income Fund Debt Securities (Asset-backed Initial Public Offerings
securities, Collateralized Mortgage Futures Contracts
Obligations, Step Coupon Securities) When-issued Securities
Equity Securities (Investment Options
Companies) Swap Contracts
Foreign Securities (Currency Hedging) Illiquid Securities
Short Sales
Reverse Repurchase Agreements
</TABLE>
4
<PAGE>
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"). Certain Funds may invest in ARMs. An
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. (Mortgage-backed securities are a type
of asset-backed security.) 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
5
<PAGE>
principal prior to maturity. When the obligations are prepaid, a Fund will
ordinarily reinvest the prepaid amounts in securities the yields of which
reflect interest rates prevailing at the time. Therefore, a 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 a 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. Certain Funds may invest in investment grade
debt securities, which 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 mortgage loans generally may
be prepaid at any time. As a result, if a Fund purchases these assets at a
premium, a
6
<PAGE>
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 a 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 a Fund's portfolio securities.
Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A
dollar roll involves the sale of a security by the Fund and its agreement to
repurchase the instrument at a specified time and price, and may be considered a
form of borrowing for some purposes. A Fund will segregate assets determined to
be liquid in an amount sufficient to meet its obligations under the
transactions. A dollar roll involves potential risks of loss that are different
from those related to the securities underlying the transactions. A Fund may be
required to purchase securities at a higher price than may otherwise be
available on the open market. Since the counterparty in the transaction is
required to deliver a similar, but not identical, security to the Fund, the
security that the Fund is required to buy under the dollar roll may be worth
less than an identical security. There is no assurance that a Fund's use of the
cash that it receives from a dollar roll will provide a return that exceeds
borrowing costs.
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 a 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
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payment obligations are reduced). In some cases, the issuer's obligations may be
determined by some multiple of the change in an external factor or factors (for
example, three times the change in the U.S. Treasury bill rate). In some cases,
the issuer's obligations remain fixed (as with a traditional debt instrument) so
long as an external factor or factors do not change by more than the specified
amount (for example, if the value of a stock index does not exceed some
specified maximum), but if the external factor or factors change by more than
the specified amount, the issuer's obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of a mutual
fund. For example, they can be used to increase a 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 a 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 a 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 a 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 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.
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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 obligation
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 encountered financial difficulties that have
adversely affected their respective credit standings and borrowing
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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.
. "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.
It is generally understood that a guarantee by GNMA is backed by the full
faith and credit of the United States. 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.
o "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders
that purchases residential mortgages from a list of approved
seller/servicers. Fannie Maes are pass-through securities issued by FNMA
that are guaranteed as to timely payment of principal and interest by FNMA
but are not backed by the full faith and credit of the U.S. government.
o "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the U.S. government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but
Freddie Macs are not backed by the full faith and credit of the U.S.
government.
Risks. U.S. government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other debt securities, however, the values of U.S. government securities change
as interest rates fluctuate. Fluctuations in the value of portfolio securities
will not affect interest income on existing portfolio securities but will be
reflected in a Fund's net asset value. Since the magnitude of these fluctuations
will generally be greater at times when a 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 Fannie Maes and Freddie
Macs are guaranteed as to the payment of principal and interest by the relevant
entity (e.g., FNMA 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. FNMA and FHLMC have each been the subject of
investigations by federal regulators over certain accounting matters. Such
investigations, and any resulting restatements of financial statements, may
adversely affect the guaranteeing
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entity and, as a result, the payment of principal or interest on these types of
securities.
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 rise rates rise 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.
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 a 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 a 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 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
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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. REITs involve certain unique risks in addition to
those risks associated with investing in the real estate industry in general
(such as possible declines in the value of real estate, lack of availability of
mortgage funds, or extended vacancies of property). Equity REITs may be affected
by changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, are not diversified, and are subject to heavy
cash flow dependency, risks of default by borrowers, and self-liquidation. REITs
are also subject to the possibilities of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended, and
failing to maintain their exemptions from registration under the Investment
Company Act of 1940.
REITs may have limited financial resources, may trade less frequently and in a
limited volume, and may be subject to more abrupt or erratic price movements
than more widely held securities.
A Fund's investment in a REIT may require the Fund to accrue and distribute
income not yet received or may result in the Fund making distributions that
constitute a return of capital to Fund shareholders for federal income tax
purposes. In addition, distributions by a Fund from REITs will not qualify for
the corporate dividends-received deduction, or, generally, for treatment as
qualified dividend income.
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, a 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.
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Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because a Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution.
In addition, although a Fund's income may be received or realized in foreign
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar
declines after a Fund's income has been earned in that currency, translated into
U.S. dollars and declared as a dividend, but before payment of such dividend,
the Fund could be required to liquidate portfolio securities to pay such
dividend. Similarly, if the value of a currency relative to the U.S. dollar
declines between the time a Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater
than the equivalent amount in such currency of such expenses at the time they
were incurred.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
Emerging Markets. Certain Funds may invest in securities of 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 a Fund may consider the likely effects of foreign taxes on the net yield
available to a Fund and its shareholders. Compliance with foreign tax laws may
reduce the Fund's net income available for distribution to shareholders.
Depositary Receipts. Certain Funds may invest in foreign equity securities by
purchasing "depositary receipts." Depositary receipts are instruments issued by
a bank that represent an interest in equity securities held by arrangement with
the bank. Depositary receipts can be either "sponsored" or "unsponsored."
Sponsored depositary receipts are issued by banks in cooperation with the issuer
of the underlying equity securities. Unsponsored depositary 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 Depositary Receipts ("ADRs") are depositary
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 Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs") are depositary 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
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below under "Foreign Currency."
Foreign Currency. Most foreign securities in a 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 a Fund in foreign currencies. The value of these
foreign currencies relative to the U.S. dollar varies continually, causing
changes in the dollar value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and changes in the dollar
value of the Fund's income available for distribution to its shareholders. The
effect of changes in the dollar value of a foreign currency on the dollar value
of a 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. Certain Funds may engage in 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. A Fund's use of currency
hedging transactions may be limited by tax considerations. An adviser may decide
not to engage in currency hedging transactions and there is no assurance that
any currency hedging strategy used by a Fund will succeed. In addition, suitable
currency hedging transactions may not be available in all circumstances and
there can be no assurance that a Fund will engage in these transactions when
they would be beneficial. A 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 Contracts", "Options" and "Swap Contracts" below.
MONEY MARKET INSTRUMENTS (All Funds)
Each 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, each 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). Each Fund may enter into repurchase
agreements, by which the 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, a Fund
would attempt to exercise rights with respect to the underlying security,
including possible disposition in the market. However, a 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.
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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.
. Dollar Rolls. Dollar rolls are a special type of reverse repurchase
agreement in which the portfolio instrument transferred by a Fund is a
mortgage related security. The Fund gives up the cash flows during the
transaction period but has use of the cash proceeds. See "Mortgage Dollar
Rolls" above.
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. Certain Funds may purchase 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 (the "Securities Act").
Certain Funds may also purchase commercial paper issued under Section 4(2) of
the Securities Act. 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 offering ("IPO"). An IPO is a
company's first offering of stock to the public in the primary market, typically
to raise additional capital. A Fund 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. A Funds' investment in IPO securities may
have a significant impact on the 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.
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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, 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 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. Certain Funds may participate in 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. Certain Funds may enter into 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 a 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, a 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.
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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. Certain Funds may purchase options. An option on a futures contract
obligates the writer, in return for the premium received, to assume a position
in a futures contract (a short position if the option is a call and a long
position if the option is a put), at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the futures position by the writer of the option to the holder of the option
generally will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option. The
premium paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying contract, the remaining term of the option, supply and demand and
interest rates. Options on futures contracts traded in the United States may
only be traded on a U.S. board of trade licensed by the Commodity Futures
Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the case of a call
option) or to sell (in the case of a put option) a particular security at a
specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by a Fund is considered by the Fund
to be covered if the Fund owns the security subject to the underlying futures
contract or other securities whose values are expected to move in tandem 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 a 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 a 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 a 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
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be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be enhanced. Likewise, the
profit or loss from writing put options may or may not be offset in whole or in
part by changes in the market value of securities acquired by the Fund when the
put options are closed.
As an alternative to purchasing call and put options on index futures, a Fund
may purchase or sell call or put options on the underlying indices themselves.
Such options would be used in a manner identical to the use of options on index
futures.
Certain Funds may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities indices
("index warrants"). Index warrants are generally issued by banks or other
financial institutions and give the holder the right, at any time during the
term of the warrant, to receive upon exercise of the warrant a cash payment from
the issuer based on the value of the underlying index at the time of exercise.
In general, if the value of the underlying index rises above the exercise price
of the index warrant, the holder of a call warrant will be entitled to receive a
cash payment from the issuer upon exercise based on the difference between the
value of the index and the exercise price of the warrant; if the value of the
underlying index falls, the holder of a put warrant will be entitled to receive
a cash payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments 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 a 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 a 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, a 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, a 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
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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 a Fund
to hedge the increased cost up to the amount of the premium. If exchange rates
do not move in the expected direction, the option may be exercised and the Fund
would be required to buy or sell the underlying currency at a loss, which may
not be fully offset by the amount of the premium. Through the writing of options
on foreign currencies, the Fund also may lose all or a portion of the benefits
that might otherwise have been obtained from favorable movements in exchange
rates.
All call options written by a Fund on foreign currencies will be covered. A call
option written on a foreign currency by the Fund is covered if the Fund owns the
foreign currency underlying the call or has an absolute and immediate right to
acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currencies held in its portfolio. A
call option is also covered if the Fund has a call on the same foreign currency
in the same principal amount as the call written if the exercise price of the
call held is (i) equal to or less than the exercise price of the call written or
(ii) greater than the exercise price of the call written, if the difference is
maintained by the Fund in cash or liquid securities eligible to be purchased by
the Fund in a segregated account with the Fund's custodian. For this purpose, a
call option is also considered covered if the Fund owns securities denominated
in (or which trade principally in markets where settlement occurs in) the same
currency, which securities are readily marketable, and the Fund maintains in a
segregated account with its custodian cash or liquid securities eligible to be
purchased by the Fund in an amount that at 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. The 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 a 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
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distortions. One such distortion stems from the fact that all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the index and futures markets. Another market
distortion results from the deposit requirements in the futures market being
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than does the securities market.
A third distortion is caused by the fact that trading hours for foreign stock
index futures may not correspond perfectly to hours of trading on the foreign
exchange to which a particular foreign stock index future relates. This may
result in a disparity between the price of index futures and the value of the
relevant index due to the lack of continuous arbitrage between the index futures
price and the value of the underlying index. Finally, hedging transactions using
stock indices involve the risk that movements in the price of the index may not
correlate with price movements of the particular portfolio securities being
hedged.
Price movement correlation also may be distorted by the illiquidity of the
futures and options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users may
not deal in futures contracts or options because they do not want to assume the
risk that they may not be able to close 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, a 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 a 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
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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 a 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, a Fund's total return for such period may
be less than if it had not engaged in the hedging transaction.
Options trading involves price movement correlation risks similar to those
inherent in futures trading. Additionally, price movements in options on futures
may not correlate with price movements 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. An adviser may decide not to
employ any of these strategies and there is no assurance that any derivatives
strategy used by a Fund will succeed. In addition, suitable derivative
transactions may not be available in all circumstances and there can be no
assurance that a Fund will engage in these transactions to reduce exposure to
other risks when that would be beneficial. Examples of derivative instruments
that the Fund 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.
Investment Pools of Credit-Linked, Credit-Default, Interest Rate,
Currency-Exchange and Equity-Linked Swap Contracts. The 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 a 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, a 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 a 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
21
<PAGE>
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 a
Fund's 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 a Fund, and the Fund has the absolute right to repurchase the option from the
dealer at a formula price established in a contract with the dealer, the SEC
staff has agreed that the Fund only needs to treat as illiquid that amount of
the "cover" assets equal to the amount at which the formula price exceeds any
amount by which the market value of the securities subject to the options
exceeds the exercise price of the option (the amount by which the option is
"in-the-money").
Loomis, Sayles and Company, L.P. ("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
22
<PAGE>
broker-dealer the securities sold short, the Fund must deposit and continuously
maintain in a separate account with the Fund's custodian an equivalent amount of
the securities sold short or securities convertible into or exchangeable for
such securities without the payment of additional consideration. A Fund is said
to have a short position in the securities sold until it delivers to the
broker-dealer the securities sold, at which time the Fund receives the proceeds
of the sale. A Fund may close out a short position by purchasing on the open
market and delivering to the broker-dealer an equal amount of the securities
sold short, rather than by delivering portfolio securities.
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. The 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
23
<PAGE>
insure. Such standards may be more or less strict than standards that would be
applied for purchase of a security for the Funds. To the extent nationally
recognized private insurers apply stricter standards, the Tax Free Income Funds
will be restricted by such standards in the purchase and retention of municipal
securities. The Internal Revenue Service (the "IRS") has issued revenue rulings
indicating that (i) the fact that municipal obligations are insured will not
affect their tax-exempt status and (ii) insurance proceeds representing maturing
interest on defaulted municipal obligations paid to certain municipal bond funds
will be excludable from federal gross income under Section 103(a) of the Code.
While operation of the Tax Free Income Funds and the terms of the insurance
policies on such Funds' portfolio of securities may differ somewhat from those
addressed by the revenue rulings, the Funds do not anticipate that any
differences will be material or change the result with respect to the Funds.
Insurers of the Tax Free Income Funds' municipal securities are subject to
regulation by the department of insurance in each state in which they are
qualified to do business. Such regulation, however, is no guarantee that an
insurer will be willing or able to perform on its contract of insurance in the
event a claim should be made thereunder at some time in the future. The Tax Free
Income Funds' 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 a 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, if possible, 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). Each 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). Pursuant to exemptive relief that may in the
future be granted by the SEC, the Funds may be permitted to invest their daily
cash balances in shares of money market and short-term bond funds advised by
IXIS Advisors or its affiliates ("Central Funds"). The Central Funds currently
include the IXIS Cash Management Trust-Money Market Series; Institutional Daily
Income Fund; Cortland Trust, Inc.; and Short Term Income Fund, Inc. Each Central
Fund is advised by Reich & Tang Asset Management, LLC ("Reich & Tang"), except
for IXIS Cash Management Trust-Money Market Series, which is advised by IXIS
Advisors and subadvised by Reich & Tang. Because IXIS Advisors and Reich & Tang
are both subsidiaries of IXIS Asset Management
24
<PAGE>
North America, the Funds and the Central Funds may be considered to be related
companies comprising a "group of investment companies" under the 1940 Act.
Pursuant to such exemptive relief, the Funds may also borrow and lend
money for temporary or emergency purposes directly to and from each other
through an interfund credit facility. In addition to the Funds and the Central
Funds, series of the following mutual fund groups may also be able to
participate in the facility: IXIS Advisor Funds Trust I (except the CGM Advisor
Targeted Equity Fund series), IXIS Advisor Funds Trust II, IXIS Advisor Funds
Trust III, IXIS Advisor Funds Trust IV, AEW Real Estate Income Fund, Harris
Associates Investment Trust, Loomis Sayles Funds I and Loomis Sayles Funds II.
The advisers and subadvisers to these mutual funds currently include IXIS
Advisors, Reich & Tang, Loomis Sayles, AEW Management and Advisors, L.P., Harris
Associates L.P. and Westpeak Global Advisors, L.P. Each of these advisers and
subadvisers are subsidiaries of IXIS Asset Management North America and are thus
"affiliated persons" under the 1940 Act by reason of being under common control
by IXIS Asset Management North America. In addition, because the Funds and the
series of mutual fund groups listed above are advised by firms that are
affiliated with one another, they may be considered to be related companies
comprising a "group of investment companies" under the 1940 Act. The Central
Funds and AEW Real Estate Income Fund will participate in the Credit Facility
only as lenders. Participation in such an interfund lending program would be
voluntary for both borrowing and lending funds, and the Funds would participate
in an interfund lending program only if the Board of Trustees determined that
doing so would benefit the Funds. Should the Funds participate in such an
interfund lending program, the Board of Trustees would establish procedures for
the operation of the program by the advisers 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 Loomis Sayles Funds I, and June 10, 2003, for
Loomis Sayles Funds II, shareholders voted to elect each Trustee listed below to
serve on each Trust's Board. Effective June 1, 2003, the Board of Trustees of
IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS Advisor Funds
Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust and
AEW Real Estate Income Fund (the "IXIS Advisor Funds Trusts" and together with
Loomis Sayles Funds I and Loomis Sayles Funds II, the "IXIS Advisor and Loomis
Sayles Trusts") approved certain new trustees for the IXIS Advisor Funds Trusts.
These approvals resulted in a combined Board of Trustees for the IXIS Advisor
and Loomis Sayles Funds Trusts.
The table below provides certain information regarding the trustees and
officers of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II and Loomis
Sayles Funds II. 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. In certain circumstances, Trustees are also
required to have no direct or indirect financial interest in the approval of a
matter being voted on in order to be considered "independent" for the purposes
of the requisite approval. For purposes of this Statement, the term "Interested
Trustee" means those trustees who are "interested persons" of the relevant
trust.
25
<PAGE>
Unless otherwise indicated, the address of all persons below is 399 Boylston
Street, Boston, MA 02116.
<TABLE>
<CAPTION>
Number of
Portfolios
in Fund Complex
Position(s) Held with the Overseen*** and
Trusts, Length of Time Served Principal Occupation(s) During Past 5 Other Directorships
Name and Date of Birth and Term of Office* Years** Held
----------------------------- -------------------------------- ---------------------------------------------- -------------------
<S> <C> <C> <C>
INDEPENDENT TRUSTEES
Graham T. Allison, Jr. Trustee Douglas Dillon Professor and Director of the 38
(3/23/40) Belfer Center of Science for International
Contract Review and Governance Affairs, John F. Kennedy School of Government, Director, Taubman
Committee Member Harvard University Centers, Inc.;
Since 1984 for IXIS Advisor Advisory Board
Funds Trust I; 1995 for IXIS Member, USEC Inc.
Advisor Funds Trust II; 2003
for Loomis Sayles Funds II
Edward A. Benjamin (5/30/38) Trustee Retired 38
Audit Committee Member Director, Coal,
Energy Investments
Since 2003 for IXIS Advisor & Management, LLC;
Funds Trust I and IXIS Advisor Director, Precision
Funds Trust II; 2002 for Optics Corporation
Loomis Sayles Funds II (optics
manufacturer)
Daniel M. Cain (2/24/45) Trustee President and Chief Executive Officer, Cain 38
Brothers & Company, Incorporated (investment
Chairman of the Audit Committee banking) Trustee, Universal
Health Realty
Since 1996 for IXIS Advisor Income Trust;
Funds I and IXIS Advisor Funds
II; 2003 for Loomis Sayles Director, Sheridan
Funds II Healthcorp
(physician practice
Co-Chairman of the Board since management)
2004
Paul G. Chenault (9/12/33) Trustee Retired; Trustee, First Variable Life (variable 38
life insurance)
Contract Review and Governance Director, Mailco
Committee Member Office Products,
Inc. (mailing
Since 2003 for IXIS Advisor equipment)
Funds Trust I and IXIS Advisor
Funds Trust II; 2000 for
Loomis Sayles Funds II
Kenneth J. Cowan (4/5/32) Trustee Retired 38
Chairman of the Contract None
Review and Governance
Committee
Since 1993 for IXIS Advisor
Funds Trust I, 1975 for IXIS
Advisor Funds Trust II; 2003
for Loomis Sayles Funds II
Co-Chairman of the Board since
2004
Richard Darman (5/10/43) Trustee Partner, The Carlyle Group (investments); 38
formerly, Professor, John F. Kennedy School of
Contract Review and Governance Government, Harvard University Director and
Committee Member Chairman of Board
of Directors,
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Number of
Portfolios
in Fund Complex
Position(s) Held with the Overseen*** and
Trusts, Length of Time Served Principal Occupation(s) During Past 5 Other Directorships
Name and Date of Birth and Term of Office* Years** Held
----------------------------- -------------------------------- ---------------------------------------------- -------------------
<S> <C> <C> <C>
Since 1996 for IXIS Advisor AES Corporation
Funds Trust I and IXIS Advisor (international
Funds Trust II; 2003 for power company)
Loomis Sayles Funds II
President, Strategic Advisory Services
Sandra O. Moose (2/17/42) Trustee (management consulting); formerly, Senior Vice 38
President and Director, The Boston Consulting
Audit Committee Member Group, Inc. (management consulting) Director, Verizon
Communications;
Since 1984 for IXIS Advisor
Funds Trust I; 1995 for IXIS Director, Rohm and
Advisor Funds Trust II; 2003 Haas Company
Loomis Sayles Funds II (specialty
chemicals);
Director, AES
Corporation
John A. Shane (2/22/33) Trustee President and Director, Palmer Service 38
Corporation (venture capital organization)
Contract Review and Governance Director, Gensym
Committee Member Corporation
(software and
Since 1982 for IXIS Advisor technology service
Funds Trust I; 1995 for IXIS provider);
Advisor Funds Trust II; 2003 Director, Abt
for Loomis Sayles Funds II Associates Inc.
(research and
consulting firm)
INTERESTED TRUSTEES
Robert J. Blanding/1/ Trustee President, Chairman, Director, and Chief 38
(4/17/47) 555 California Executive Officer, Loomis Sayles; President
Street San Francisco, Chief Executive Officer for and Chief Executive Officer - Loomis Sayles None
CA 94104 Loomis Sayles Trust II Funds I
Since 2003 for IXIS Advisor
Funds Trust I and IXIS Advisor
Funds Trust II; 2002 for
Loomis Sayles Funds II
John T. Hailer/2/ (11/23/60) President and Trustee President and Chief Executive Officer, IXIS 38
Asset Management Distributors, L.P.; Executive
Chief Executive Officer of Vice President, Loomis Sayles Funds I; None
IXIS Advisor Funds Trust I and President and Chief Executive Officer - IXIS
IXIS Advisor Funds Trust II Advisor Funds III, IXIS Advisor Funds Trust
IV, IXIS Advisor Cash Management Trust and AEW
Real Estate Income Fund
Since 2000 for IXIS Advisor
Funds Trust I and IXIS Advisor
Funds Trust II; 2003 for
Loomis Sayles Funds II
</TABLE>
* Each Trustee serves until retirement, resignation or removal from the Board of
Trustees. The current retirement age is 72. At a meeting held on November 19,
2004, the Trustees voted to suspend the retirement policy until 2006.
** Each person listed above, except as noted, holds the same position(s) with
the Trusts. Previous positions during the past five years with IXIS Asset
Management Distributors, L.P. (the "Distributor"), IXIS Asset Management
Advisors, L.P. ("IXIS Advisors") or Loomis Sayles are omitted if not materially
different from a trustee's or officer's current position with such entity. As
indicated, each Trustee is also a trustee of certain other investment companies
for which the Distributor acts as principal underwriter.
*** The Trustees of the Trust serve as Trustees of a fund complex that includes
all series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS
Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash
Management Trust, AEW Real Estate Income Fund, Loomis Sayles Funds I and Loomis
Sayles Funds II.
27
<PAGE>
/1/ Mr. Blanding is deemed an "interested person" of the Trusts because he holds
the following positions with affiliated persons of the Trusts: President,
Chairman, Director and Chief Executive Officer of Loomis Sayles.
/2/ Mr. Hailer is deemed an "interested person" of the Trusts because he holds
the following positions with affiliated persons of the Trusts: Director and
Executive Vice President of IXIS Asset Management Distribution Corporation
("IXIS Distribution Corporation"); and President and Chief Executive Officer of
IXIS Advisors.
In addition to the Trustees listed above, two individuals have been
nominated for election as Trustees, subject to shareholder approval. Each of the
nominees listed below is expected to qualify as an "Independent Trustee." A
special meeting of shareholders of each Trust is scheduled for June 2, 2005.
Should either Mr. Baker or Ms. Walker not be elected, this Statement will be
supplemented.
<TABLE>
<CAPTION>
Name, Date of Birth Position Held Principal Occupation(s)
and Address with Trusts During Past 5 Years Other Directorships Held
------------------------------- ------------------------------- -------------------------------------- -----------------------------
<S> <C> <C> <C>
Charles D. Baker Nominee for Trustee President and Chief Executive None
93 Worcester Street Officer, Harvard Pilgrim Health Care
Wellesley, MA 02481 (health plan)
Cynthia L. Walker Nominee for Trustee Dean for Finance and CFO (formerly, None
Associate Dean for Finance & CFO),
Harvard Medical School
</TABLE>
Officers of the Trusts
<TABLE>
<CAPTION>
Term of Office*
Position(s) Held and Length of Principal Occupation(s)
Name and Date of Birth With the Trusts Time Served During Past 5 Years**
------------------------ ---------------- --------------- --------------------------------------------------------------------
<S> <C> <C> <C>
John E. Pelletier Chief Operating Since September
(6/24/64) Officer 2004 Executive Vice President and Chief Operating Officer (formerly,
General Counsel, Secretary and Clerk), IXIS Asset Management
Distributors, L.P. and IXIS Asset Management Advisors, L.P.;
Executive Vice President (formerly, Senior Vice President, General
Counsel, Secretary and Clerk), IXIS Asset Management Distribution
Corporation; Director (formerly, President, Chief Executive Officer,
General Counsel, Secretary and Clerk), IXIS Asset Management
Services Company
Coleen Downs Dinneen Secretary, Clerk
(12/16/60) and Chief Legal Since September Senior Vice President, General Counsel, Secretary and Clerk
Officer 2004 (formerly, Deputy General Counsel, Assistant Secretary and Assistant
Clerk), IXIS Asset Management Distribution Corporation, IXIS Asset
Management Distributors, L.P., IXIS Asset Management Advisors, L.P.
and IXIS Asset Management Services Company; Chief Compliance
Officer, IXIS Asset Management Advisors, L.P.
Michael Kardok (7/17/59) Treasurer, Since October
Principal 2004 Senior Vice President, IXIS Asset Management Advisors, L.P. and IXIS
Financial and Asset Management Distributors, L.P.; formerly, Senior Vice
Accounting President, IXIS Asset Management Services Company; formerly, Senior
Officer Director, PFPC Inc; formerly, Vice President - Division Manager,
First Data Investor Services, Inc.
Kristin Vigneaux Chief Compliance Since August
(9/25/69) Officer 2004 Chief Compliance Officer for Mutual Funds, IXIS Asset Management
Distributors, L.P., IXIS Asset Management Advisors, L.P. and IXIS
Asset Management Services Company; formerly, Vice President, IXIS
Asset Management Services Company
Daniel J. Fuss (9/27/33) Executive Vice Since June 2003 Vice Chairman and Director, Loomis, Sayles & Company, L.P.;
One Financial Center President - Executive Vice President - Loomis Sayles Funds I; Prior to 2002,
Boston, MA 02111 Loomis Sayles President and Trustee of Loomis Sayles Funds II
Funds II
Frank LoPiccolo (4/1/53) Anti-Money Since June 2003 President, Chief Executive Officer and Director (formerly, Executive
Laundering Vice President), IXIS Asset Management Services Company
Officer
</TABLE>
28
<PAGE>
* Each officer of the Trust serves for an indefinite term in accordance with its
current By-laws until the date his or her successor is elected and qualified, or
until he or she sooner dies, retires, is removed or becomes disqualified.
** Each person listed above, except as noted, holds the same position(s) with
the IXIS Advisor and Loomis Sayles Funds Trusts. Previous positions during the
past five years with IXIS Asset Management Distributors, L.P. (the
"Distributor"), IXIS Advisors or Loomis Sayles are omitted, if not materially
different from a trustee's or officer's current position with such entity.
Standing Board Committees
The Trustees have delegated certain authority to the two standing
committees of the Trusts, the Audit Committee and Contract Review and Governance
Committee.
The Contract Review and Governance Committee of the Trusts consists
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 fiscal year ended September 30, 2004, this Committee held
five meetings.
The Contract Review and Governance Committee also makes nominations for
independent trustee membership on the Board of Trustees when necessary and
considers recommendations from shareholders of the Funds that are submitted in
accordance with the procedures by which shareholders may communicate with the
Board of Trustees. Pursuant to those procedures, shareholders must submit a
recommendation for nomination in a signed writing addressed to the attention of
the Board of Trustees, c/o Secretary of the Funds, IXIS Asset Management
Advisors, L.P., 399 Boylston Street, Boston, MA 02116. This written
communication must identify (i) be signed by the shareholder, (ii) include the
name and address of the shareholder, (iii) identify the Fund(s) to which the
communication relates, and (iv) identify the account number, class and number of
shares held by the shareholder as of a recent date or the intermediary through
which the shares are held. The recommendation must contain sufficient background
information concerning the recommended trustee candidate to enable a proper
judgment to be made as to the candidate's qualifications, which may include (i)
the recommended candidate's knowledge of the mutual fund industry; (ii) any
experience possessed by the recommended candidate as a director or senior
officer of other public companies; (iii) the recommended candidate's educational
background; (iv) the recommended candidate's reputation for high ethical
standards and personal and professional integrity; (v) any specific financial,
technical or other expertise possessed by the recommended candidate, and the
extent to which such expertise would complement the Board's existing mix of
skills and qualifications; (vi) the recommended candidate's perceived ability to
contribute to the ongoing functions of the Board, including the recommended
candidate's ability and commitment to attend meetings regularly and work
collaboratively with other members of the Board; (vii) the recommended
candidate's ability to qualify as an Independent Trustee for purposes of
applicable regulations; and (viii) such other factors as the appropriate Board
Committee may request in light of the existing composition of the Board and any
anticipated vacancies or other transitions. The recommendation must be received
in a timely manner (and in any event no later than the date specified for
receipt of shareholder proposals in any applicable proxy statement with respect
to a Fund). A recommendation for trustee nomination shall be kept on file and
considered by the Board for six (6) months from the date of receipt, after which
the recommendation shall be considered stale and discarded.
The Audit Committee of the Trusts consists 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 registered public
accountants can raise any issues or problems identified in the audit with the
Board of Trustees. This Committee also reviews and monitors compliance with
stated investment objectives and policies, SEC and Treasury regulations as well
as operational issues relating to the transfer agent and custodian. During the
fiscal year ended September 30, 2004, this Committee held five 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
29
<PAGE>
The Committee on which Mr. Baker or Ms. Walker will serve if they are
elected as Trustees of the Trusts has not been determined.
Trustee Fees
The Trusts pay no compensation to its officers or its trustees who are
Interested Trustees thereof.
Each Independent Trustee receives, in the aggregate, a retainer fee at
the annual rate of $50,000 and meeting attendance fees of $5,000 for each
meeting of the Board of Trustees that he or she attends. The Co-Chairmen of the
Board each receive an additional annual retainer fee of $25,000. Each committee
chairman receives an additional retainer fee at the annual rate of $7,000. Each
Committee member is compensated $3,750 per Committee meeting that he or she
attends. These fees are allocated among the mutual fund portfolios in the IXIS
Advisor 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 for the AEW Real Estate Income Fund 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.
Prior to July 1, 2004, each Independent Trustee received, 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
attended. Each committee member received an additional retainer fee at the
annual rate of $7,000. Furthermore, each committee chairman received an
additional retainer fee (beyond the $7,000 fee) at the annual rate of $5,000.
The retainer fees assumed four Committee meetings per year. Each Trustee was
compensated $1,750 per Committee meeting that he or she attended in excess of
four per year.
During the fiscal year ended September 30, 2004 for IXIS Advisor Funds
Trust I, IXIS Advisor Funds Trust 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 also for serving as trustees of IXIS Advisor Funds
Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust,
Loomis Sayles Funds I and AEW Real Estate Income Fund. 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 IXIS Advisor Funds Trusts and Loomis Sayles
Funds Trusts:
30
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Aggregate Aggregate Benefits Estimated Total
Compensation Compensation from Compensation from Accrued as Annual Compensation
from IXIS IXIS Advisor Loomis Sayles Part of Fund Benefits from the
Advisor Funds Funds Trust II* Funds II* Expenses Upon Fund Complex+*
Trust I* Retirement
------------- ----------------- ----------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
INDEPENDENT TRUSTEES
Joseph Alaimo $0 $0 $3,810 $0 $0 $10,000
Graham T. Allison, Jr. $19,849 $3,870 $17,532 $0 $0 $86,075
Edward A. Benjamin** $20,818 $4,045 $18,182 $0 $0 $89,975
Daniel M. Cain** $22,182 $4,311 $19,385 $0 $0 $96,475
Kenneth J. Cowan** $21,213 $4,136 $18,735 $0 $0 $92,575
Paul G. Chenault** $19,849 $3,870 $17,532 $0 $0 $86,075
Richard Darman** $18,714 $3,655 $16,632 $0 $0 $81,200
Sandra O. Moose $20,818 $4,045 $18,182 $0 $0 $89,975
John A. Shane $19,849 $3,870 $17,532 $0 $0 $86,075
Pendleton P. White $4,750 $878 $3,533 $0 $0 $17,500
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
</TABLE>
*Amounts include payments deferred by trustees for the fiscal year ended
September 30, 2004, with respect to the Trusts. The total amount of deferred
compensation accrued for Loomis Sayles Funds II as of September 30, 2004 for the
Trustees is as follows: Allison ($14,000), Benjamin ($18,182), Cain ($14,893),
Cowan ($5,429) and Darman ($16,632). The total amount of deferred compensation
accrued for IXIS Advisor Funds Trust I as of September 30, 2004 for the Trustees
is as follows: Allison ($15,099), Benjamin ($20,818), Cain ($16,142), Cowan
($6,238) and Darman ($18,714). The total amount of deferred compensation accrued
for IXIS Advisor Funds Trust II as of September 30, 2004 for the Trustees is as
follows: Allison ($2,993), Benjamin ($4,045), Cain ($3,195), Cowan ($1,211) and
Darman ($3,655).
**Amounts include amounts held through the deferred compensation plan.
+ Total Compensation represents amounts paid during 2004 to a trustee for
serving on the board of trustees of eight (8) trusts with a total of forty-one
(41) funds as of September 30, 2004 # Peter S. Voss resigned as a Trustee of the
Trusts on August 20, 2004.
The Funds do not provide 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 14, 2005, the officers and trustees of the Trusts
collectively owned less than 1% of the then outstanding shares of each Fund and
each Trust. 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").
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, John Russell and Kurt Wagner. Except for Timothy Hunt, John DeBeer
and
31
<PAGE>
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, 2004, the trustees had the following ownership in
the Funds:
*A. None
B. $1 - 10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. over $100,000
<TABLE>
<CAPTION>
Dollar Range of Fund Shares Graham T. Edward A. Daniel Paul G. Kenneth Richard Sandra O. John A.
Allison, Benjamin** M. Cain** Chenault** J. Darman** Moose** Shane**
Jr.** Cowan**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core Plus Bond Fund A A A A B A A A
Massachusetts Fund A A A A A A A A
Growth Fund A A A A B A A A
High Income Fund A A A A B A A A
Investment Grade Bond Fund A A A A B A A A
Limited Term Government and Agency Fund A A A A B A A A
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 C C A A C
Aggregate Dollar Range of Fund Shares E E E E E E E E
in Funds Overseen by Trustee in the
Trusts
</TABLE>
**Amounts include notional investment amounts made under the deferred
compensation plan.
Interested Trustees
*A. None
B. $1 - 10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. over $100,000
<TABLE>
<CAPTION>
Dollar Range of Fund Shares* Robert J. Blanding John T. Hailer
<S> <C> <C>
Core Plus Bond Fund A A
Massachusetts Fund A A
Growth Fund E A
High Income Fund A A
Investment Grade Bond Fund A A
Limited Term Government and Agency Fund A A
Municipal Income Fund A A
Research Fund E A
Strategic Income Fund E A
Aggregate Dollar Range of Fund Shares in Funds E E
Overseen by Trustee in the Trusts
</TABLE>
Advisory Agreements - All Funds Each Fund's advisory agreement with
Loomis, Sayles & Company, L.P. ("Loomis Sayles") provides that Loomis Sayles
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. Loomis Sayles 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 Loomis Sayles including, but
not limited to, the charges and expenses of the Fund's custodian and transfer
agent, independent registered public accountants 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
32
<PAGE>
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 Trusts 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.
IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II and IXIS Advisor Funds
Trust III have received an exemptive order from the SEC that permits IXIS
Advisors to amend existing subadvisory agreements, where applicable, when
approved by the relevant Fund's Board of Trustees, without shareholder approval.
The exemption also permits IXIS Advisors to enter into new subadvisory
agreements with subadvisers that are not affiliated with IXIS Advisors without
obtaining shareholder approval, if approved by the relevant Trust's Board of
Trustees. Before any IXIS Advisor Fund can begin to rely on the exemptions
described above, a majority of the shareholders of the Fund must approve the
ability of the Fund to rely on the exemptive order. Certain IXIS Advisor Funds
have already received shareholder approval to rely on the exemptive order.
Shareholders will be notified of any subadviser changes
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 Loomis Sayles 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 Loomis Sayles 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, 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 separate Advisory Administration Agreements dated September 1,
2003, IXIS Advisors oversees the portfolio management services provided by
Loomis Sayles to the Core Plus Bond Fund and Massachusetts Fund and provides
certain administrative services. Subject to the review of the Board of Trustees,
IXIS Advisors monitors Loomis Sayles to assure that Loomis Sayles 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, IXIS Advisors also provides the Funds with
administrative services which include, among other things, day-to-day
administration of matters related to the Funds' existence, maintenance of its
records, preparation of reports and assistance in the preparation of the Funds'
registration statements under federal and state laws. IXIS Advisers does not
determine what investments will be purchased or sold for any of these Funds.
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.
33
<PAGE>
As described in the Prospectuses, Loomis Sayles has agreed to certain
additional contractual arrangements to limit certain Funds' expenses.
Board Approval of the Existing Advisory and Subadvisory Agreements
The Board of Trustees, including the Independent Trustees, considers
matters bearing on each Fund's advisory 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 and
subadvisory agreements of the Funds are reviewed each year by the Board of
Trustees to determine whether the agreements should be renewed for an additional
one-year period. Renewal of the agreements requires the majority vote of the
Board of Trustees, including a majority of the Independent Trustees. The Board
of Trustees consists of a majority of Independent Trustees.
In connection with their meetings, the trustees receive materials
specifically relating to the existing advisory and subadvisory agreements. These
materials generally include, among other items (i) information on the investment
performance of the Funds, a peer group of funds and an appropriate index or
combination of indices, (ii) sales and redemption data in respect of the Funds,
and (iii) the economic outlook and the general investment outlook in the markets
in which the Funds invest. The Board of Trustees, including the Independent
Trustees, may also consider other material facts such as (1) the adviser's
(and/or subadviser's) results and financial condition, (2) each Fund's
investment objective and strategies and the size, education and experience of
the advisers' and subadviser's 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/subadviser and the use of "soft" commission dollars to pay Fund expenses
and to pay for research and other similar services, (6) the resources devoted
to, and the record of compliance with, the Funds' investment policies and
restrictions and policies on personal securities transactions, and (7) when
applicable, the contractual fee waivers and expense reimbursements agreed to by
the advisers.
All Funds
The Board of Trustees most recently approved the renewal of the Trusts'
advisory agreements at their meeting held in June 2004. 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.
. 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
34
<PAGE>
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 June 30, 2005.
Information About the Organization and Ownership of the Advisers and Subadvisers
of the Funds
IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), formed in 1995,
is a limited partnership whose sole general partner, IXIS Asset Management
Distribution Corporation ("IXIS Distribution Corporation"), is a wholly-owned
subsidiary of IXIS Asset Management Holdings, LLC ("IXIS Holdings"), which in
turn is a wholly-owned subsidiary of IXIS Asset Management North America, L.P.
("IXIS Asset Management North America"). IXIS Distribution Corporation is also
the sole general partner of the Distributor and the sole shareholder of IXIS
Services, the transfer and dividend disbursing agent of the Funds. IXIS Asset
Management North America owns the entire limited partnership interest in each of
IXIS Advisors and the Distributor. IXIS Services has subcontracted certain of
its obligations as the transfer and dividend disbursing agent of the Funds to
third parties.
IXIS Asset Management North America is part of IXIS Asset Management
Group, an international asset management group based in Paris, France. IXIS
Asset Management Group is ultimately owned principally, directly or indirectly,
by three large affiliated French financial services entities: the Caisse des
Depots et Consignations ("CDC"), a public sector financial institution created
by the French government in 1816; the Caisse Nationale des Caisses d'Epargne, a
financial institution owned by CDC and by French regional savings banks known as
the Caisses d'Epargne; and by CNP Assurances, a large French life insurance
company. The registered address of CNP Assurances is 4, place Raoul Dautry,
75015 Paris, France. The registered address 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 15 principal subsidiary or affiliated asset management firms of
IXIS Asset Management North America, collectively had approximately $167 billion
in assets under management or administration as of September 30, 2004.
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
IXIS Holdings. IXIS Asset Management North America owns the entire limited
partnership interest in Loomis Sayles.
Hansberger Global Investors, Inc. ("Hansberger") was formed in 1994 and
is a wholly-owned subsidiary of Hansberger Group, Inc., which is controlled by
Mr. Thomas L. Hansberger. IXIS Asset Management North America also holds an
equity interest in Hansberger Group, Inc. Hansberger specializes in global
investing, managing separate portfolios and institutional mutual funds.
Hansberger is an affiliated money manager of IXIS Asset Management North
America.
Allocation of Investment Opportunity Among Funds and Other Investors Managed by
Advisers; Cross Relationships of Officers and Trustees
35
<PAGE>
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.
Hansberger Hansberger places portfolio transactions for other advisory
accounts, including other mutual funds managed by Hansberger. Research services
furnished by firms through which its subadvised Funds effect their securities
transactions may be used by Hansberger in servicing all of its accounts; not all
of such services may be used by Hansberger in connection with its subadvised
Funds. In the opinion of Hansberger, it is not possible to measure separately
the benefits from research services to each of the accounts (including its
subadvised Funds) managed by Hansberger. Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage and
research services will vary. However, in the opinion of Hansberger, such costs
to its subadvised Funds will not be disproportionate to the benefits received by
it on a continuing basis. If purchase or sale of securities consistent with the
investment policies of the subadvised Funds and one or more of these other
clients served by Hansberger is considered at or about the same time,
transactions in such securities will be allocated among its subadvised Funds and
such other clients pursuant to guidelines deemed fair and reasonable by
Hansberger. Generally, under those guidelines, its subadvised Funds and other
participating clients will be allocated securities on a prorated basis.
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. For the Growth
Fund, Research Fund and Investment Grade Bond Fund, the Distributor began
serving as the principal distributor of each class of shares of these funds on
July 1, 2003. Prior to July 1, 2003, Loomis Sayles Distributors, L.P. served as
the principal distributor for these 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
36
<PAGE>
0.25% of the amount invested. In the case of Class C shares, the Distributor
retains the first year's service fee of 0.25% assessed against such shares. For
Class A and, after the first year, for Class B and Class C shares, the
Distributor may pay up to the entire amount of this fee to securities dealers
who are dealers of record with respect to the Fund's shares, on a quarterly
basis, unless other arrangements are made between the Distributor and the
securities dealer, for providing personal services to investors in shares of the
Fund and/or the maintenance of shareholder accounts. This service fee will
accrue to securities dealers of record immediately with respect to reinvested
income dividends and capital gain distributions of the Fund's Class A and Class
B shares.
The service fee 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.
Each Fund's Class B and Class C shares also pay the Distributor a
monthly distribution fee at an annual rate of 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. As stated in the prospectuses, investors
will not be permitted to purchase $100,000 or more of Class B shares as a single
investment per account. There is an exception to this restriction with respect
to the omnibus account in Class B shares of Merrill, Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). With respect to this exception, Merrill
Lynch has represented that it has policies in place that prohibit individual
purchases in Class B shares by Merrill Lynch's clients of $100,000 or more and
that Merrill Lynch has processes in place to monitor and enforce this limitation
with respect to its clients. In addition, Merrill Lynch has represented that it
will only accept purchases of Class B shares by Merrill Lynch clients whose
households' total Class B share assets (including the purchase) within the IXIS
Advisor Funds family total less than $100,000. As stated in the prospectus,
investors will not be permitted to purchase $1,000,000 or more of Class C shares
as a single investment per account.
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 IXIS Advisor 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.
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 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.)
37
<PAGE>
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 "IXIS Advisor" in the names of the
IXIS Advisor Funds Trusts and if it should cease to be the principal distributor
of such Funds' shares, the Trusts may be required to change their names and
delete these words or letters. The Distributor also acts as principal
distributor for IXIS Advisor Cash Management Trust and Loomis Sayles Funds I and
Loomis Sayles Funds II (except for class J shares of the Investment Grade Bond
Fund.) 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:
<TABLE>
<CAPTION>
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 (% of offering
investment) price)
-------------------------- --------------------- --------------------- ------------ --------------
<S> <C> <C> <C> <C>
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)
</TABLE>
38
<PAGE>
Limited Term Government and Agency Fund
<TABLE>
<CAPTION>
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 (% of offering
investment) price)
-------------------------- --------------------- --------------------- ------------- --------------
<S> <C> <C> <C> <C>
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)
</TABLE>
+Prior to September 12, 2003, Investment Grade Bond Fund offered Institutional
and Retail a 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 "How Sales Charges Are Calculated." 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 Investment Grade Bond Funds
<TABLE>
<CAPTION>
Maximum
Front -End Sales Maximum Maximum Maximum
Charge Paid by Reallowance or First Year First Year
Investors Commission Service Fee Compensation
Investment (% of offering (% of offering price) (% of net (% of offering
price) investment) price)
----------------------------- ---------------- --------------------- ------------- ----------------
<S> <C> <C> <C> <C>
All amounts for Class B none 3.75% 0.25% 4.00%
All amounts for Class C none 1.00% 0.00% 1.00%
</TABLE>
Limited Term Government and Agency Fund
<TABLE>
<CAPTION>
Maximum
Front -End Sales Maximum Maximum Maximum
Charge Paid by Reallowance or First Year First Year
Investors Commission Service Fee Compensation
Investment (% of offering (% of offering price) (% of net (% of offering
price) investment) price)
----------------------------- ---------------- --------------------- ------------- --------------
<S> <C> <C> <C> <C>
All amounts for Class B none 2.75% 0.25% 3.00%
All amounts for Class C none 1.00% 0.00% 1.00%
</TABLE>
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:
39
<PAGE>
Municipal Income Fund
<TABLE>
<CAPTION>
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 (% of offering
investment) price)
------------------------ --------------------- --------------------- ------------- --------------
<S> <C> <C> <C> <C>
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)
</TABLE>
(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 "How Sales Charges Are Calculated."
The Class B shares service fees are payable regardless of the amount of
the Distributor's related expenses. The portion of the various fees and expenses
for Class B shares of the Municipal Income Fund that are paid to securities
dealers are shown below:
Municipal Income Fund
<TABLE>
<CAPTION>
Maximum
Front -End Sales Maximum Maximum Maximum
Charge Paid by Reallowance or First Year First Year
Investors Commission Service Fee Compensation
Investment (% of offering (% of offering price) (% of net (% of offering
price) investment) price)
------------------------------ ----------------- --------------------- ------------- --------------
<S> <C> <C> <C>
All amounts for Class B none 3.75% 0.25% 4.00%
</TABLE>
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:
<TABLE>
<CAPTION>
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 (% of offering
investment) price)
------------------------- --------------------- --------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Less than $50,000 4.25% 3.75% 0.25% 4.00%
$50,000 - $99,999 4.00% 3.50% 0.25% 3.75%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
Investments of $1 million or more
First $3 million none 1.00%(1) 0.25% 1.25%
Excess over $3 million none 0.50%(1) 0.25% 0.75%
Investments with no none 0.00% 0.25% 0.25%
Sales Charge (2)
</TABLE>
(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 "How
Sales Charges Are Calculated."
40
<PAGE>
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:
<TABLE>
<CAPTION>
Maximum Maximum
Maximum Reallowance First Year First Year
or Commission Service Fee Compensation
Investment (% of offering price) (% of net investment) (% of offering period)
------------------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
All amounts for Class B 3.75% 0.25% 4.00%
</TABLE>
Equity Funds+
For Class A shares of the Research Fund and Growth 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 Loomis Sayles Funds that are paid to securities dealers are shown
below:
<TABLE>
<CAPTION>
Maximum Maximum Maximum Maximum
Sales Charge Paid Reallowance or First Year First Year
by Investors Commission Service Fee Compensation
Investment (% of offering (% of offering (% of net (% of offering
price) price) investment) price)
------------------------ ------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 5.00% 0.25% 5.25%
$50,000 - $99,999 4.50% 4.00% 0.25% 4.25%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
Investments of $1 million or more
First $3 million None 1.00%(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)
</TABLE>
+Prior to September 12, 2003, the Growth Fund and Research Fund offered
Institutional and Retail 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 "How Sales Charges Are Calculated."
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:
<TABLE>
<CAPTION>
Maximum
Front -End Sales Maximum Maximum Maximum
Charge Paid by Reallowance or First Year First Year
Investors Commission Service Fee Compensation
Investment (% of offering (% of offering price) (% of net (% of offering
price) investment) price)
----------------------------- ---------------- --------------------- -------------- ----------------
<S> <C> <C> <C>
All amounts for Class B none 3.75% 0.25% 4.00%
All amounts for Class C none 1.00% 0.00% 1.00%
</TABLE>
(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 and Loomis Sayles Research Fund under the section "How Sales Charges
Are Calculated."
41
<PAGE>
All Funds
Each transaction receives the net asset value next determined after an
order is received on sales of each class of shares. The sales charge is
allocated between the investment dealer and the Distributor. The Distributor
receives the Contingent Deferred Sales Charge (the "CDSC"). Proceeds from the
CDSC on Class A and C shares are paid to the Distributor and are used by the
Distributor to defray the expenses for services the Distributor provides the
Trusts. Proceeds from the CDSC on Class B shares are paid to the Distributor and
are remitted to SG Constellation LLC to compensate SG Constellation LLC for
financing the sale of Class B shares pursuant to certain Class B financing and
servicing agreements between the Distributor and SG Constellation LLC. The
Distributor may, at its discretion, pay (reallow) the entire sales charge
imposed on the sale of Class A shares to investment dealers from time to time.
For Funds subject to a redemption fee, such fees are paid to the Fund.
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
IXIS Advisor Fund or if the account is registered in street name.
The Distributor, the advisers, the subadviser 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: 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:
IXIS ADVISOR FUNDS TRUST I*
<TABLE>
<CAPTION>
12/31/02 09/30/03/1/ 09/30/04
---------- ----------- ---------
<S> <C> <C> <C>
Total commissions on sales of Class A shares $2,020,945 $189,617 $130,978
Amount reallowed to other securities dealers $1,771,806 $169,080 $115,007
Amount retained by Distributor $249,139 $20,537 $15,971
Total CDSCs on redemptions of Classes A, B and C shares $2,994,886 $373,136 $237,298
Amount paid to S.G. Constellation $2,925,808 $347,801 $235,561
Amount retained by Distributor* $69,078 $25,335 $1,737
</TABLE>
*See "Other Arrangements" for information about amounts received by the
Distributor from IXIS Advisor Funds Trust I's investment advisers or the Funds
directly for providing certain administrative services relating to IXIS Advisor
Funds Trust I.
/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.
42
<PAGE>
IXIS ADVISOR FUNDS TRUST II*
<TABLE>
<CAPTION>
12/31/02 9/30/03/1/ 9/30/04
-------- ---------- ---------
<S> <C> <C> <C>
Total commissions on sales of Class A shares $342,644 $27,141 $32,428
Amount reallowed to other securities dealers $302,974 $23,608 $28,205
Amount retained by Distributor $39,670 $3,533 $4,223
Total CDSCs on redemptions of Classes A, B and C shares $580,262 $20,590 $19,660
Amount paid to S.G. Constellation $546,418 $20,590 $19,660
Amount retained by Distributor* $33,844 $0 $0
</TABLE>
*See "Other Arrangements" for information about amounts received by the
Distributor from IXIS Advisor Funds Trust II's investment advisers or the Funds
directly for providing certain administrative services relating to IXIS Advisor
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*
<TABLE>
<CAPTION>
12/31/02 9/30/03/1/ 9/30/04
---------- ----------- ----------
<S> <C> <C> <C>
Total commissions on sales of Class A shares $0 $648,831 $1,880,862
Amount reallowed to other securities dealers $0 $581,586 $1,683,746
Amount retained by Distributor $0 $67,245 $197,116
Total CDSCs on redemptions of Classes A, B and C shares $0 $401,639 $531,962
Amount paid to FEP Capital, L.P. $0 $374,111 $425,043
Amount retained by Distributor* $0 $27,528 $106,919
</TABLE>
*Prior to July 1, 2003 Loomis Sayles Distributors, L.P. served as the
distributor to Loomis Sayles Funds II. From July 1, 2003 through September 30,
2004, IXIS Asset Management Distributors, L.P. served as the distributor to
Loomis Sayles Funds 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.
Custodial Arrangements. Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, Massachusetts 02116, serves as the custodian for Funds within
the IXIS Advisor Funds Trusts and for the High Income Fund, Strategic Income
Fund, Limited Term Government and Agency Fund and 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 Funds within the Loomis Sayles Funds
Trusts (other than the High Income Fund, Strategic Income Fund, Limited Term
Government and Agency Fund and 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 Registered Public Accounting Firm. The Trusts' independent
registered public accounting firm is PricewaterhouseCoopers LLP, 125 High
Street, Boston, Massachusetts 02110. The independent registered public
accounting firm conducts an annual audit of each Fund's financial statements,
assists in the review of federal and state income tax returns and consults 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, 2004 and incorporated by reference into this statement,
43
<PAGE>
have been so included in reliance on the reports of the Trusts' independent
registered public accounting firm, 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
Transfer Agency Services
Pursuant to contracts between the Trusts and IXIS Services, IXIS
Services, whose principal business address is 399 Boylston Street, Boston,
Massachusetts, 02116, acts as shareholder servicing and transfer agent for the
Funds and is responsible for services in connection with the establishment,
maintenance and recording of shareholder accounts, including all related tax and
other reporting requirements, and the implementation of investment and
redemption arrangements offered in connection with the sale of the Funds'
shares.
For these services, IXIS Services received the following fees from the
Funds for the fiscal year ended December 31, 2002, the period January 1, 2003 to
September 30, 2003 and the fiscal year ended September 30, 2004:
<TABLE>
<CAPTION>
Fiscal Year Ended
Fund 1/01/02 - 12/01/02 1/01/03 - 9/30/03/1/ 9/30/04
---- ------------------ -------------------- -----------------
<S> <C> <C> <C>
Core Plus Bond $425,926 $250,569 $283,969
High Income $103,655 $61,539 $79,510
Limited Term Government and $156,896 $207,827
Agency $224,651
Massachusetts $167,287 $107,952 $134,784
Municipal Income $242,523 $151,736 $184,026
Strategic Income $348,358 $273,373 $597,529
Fiscal Year Ended
2/03/03 - 9/30/03/2/ 9/30/04
-------------------- ---------------------
Growth $16,334 $131,875
Investment Grade Bond $7,425 $69,000
Research $13,244 $69,000
</TABLE>
/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/ IXIS Services 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.
IXIS Services 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, IXIS Services 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.
Administrative Services
In addition, during the fiscal year ended September 30, 2004, IXIS
Services performed certain accounting and administrative services for the Funds,
pursuant to an Administrative Services Agreement (the "Administrative
Agreement"). Under the Administrative Agreement, IXIS Services provided the
following services to the Funds: (i) personnel that performed bookkeeping,
accounting, and financial reporting functions and clerical functions relating to
the Funds, (ii) services required in connection with the preparation of
registration statements and prospectuses,
44
<PAGE>
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
handled the various registrations and filings required by various regulatory
authorities. Effective January 1, 2005, IXIS Advisors replaced IXIS Services as
the administrator of the Funds. IXIS Advisors now performs all of the
above-mentioned services pursuant to a new Administrative Services Agreement
with the Trusts.
For the fiscal year ended December 31, 2002, the period January 1, 2003
through September 30, 2003 and the fiscal year ended September 30, 2004, IXIS
Services received the following fees from the Funds:
<TABLE>
<CAPTION>
Fiscal Year Period Fiscal Year
Ended 1/01/03 - Ended
Fund 12/31/02 9/30/03/1/ 9/30/04
---- ----------- ----------- -------------
<S> <C> <C> <C>
Core Plus Bond $181,783 $195,955 $198,429
High Income $32,625 $31,130 $31,916
Limited Term Government and Agency $78,121 $89,877 $88,981
Massachusetts $56,477 $57,360 $57,745
Municipal Income $85,701 $85,899 $84,045
Strategic Income $124,140 $162,160 $337,400
</TABLE>
/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.
<TABLE>
<CAPTION>
Fiscal Year Period Period Fiscal Year
Ended 10/01/02 - 7/01/03 - Ended
Fund 9/30/02* 6/30/03* 9/30/03 9/30/04
---- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Growth Fund $10,070 $6,374 $2,537 $41,894
Investment Grade Bond Fund $61,782 $67,850 $27,744 $247,170
Research Fund $6,720 $4,735 $1,883 $14,934
</TABLE>
* For the fiscal year-ended September 30, 2002 and the period October 1, 2002
through June 30, 2003, the table reflects the fees paid to Loomis Sayles. Prior
to July 1, 2003, Loomis Sayles performed certain accounting and administrative
services for Growth 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.
--------------------------------------------------------------------------------
PORTFOLIO MANaGEMENT INFORMATION
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS' MANAGEMENT OF OTHER ACCOUNTS
As of September 30, 2004, many of the Portfolio Manager(s) of the Funds managed
other accounts in addition to managing one or more of the Funds. The following
table provides information on the other accounts managed by each Portfolio
Manager.
45
<PAGE>
<TABLE>
<CAPTION>
Registered Investment Companies Other Pooled Investment Vehicles Other Accounts
--------------------------------- -------------------------------- --------------------------------
Advisory fee is Advisory fee Advisory fee
Other Accounts based on Other Accounts is based on Other Accounts is based on
Managed performance Managed performance Managed performance
--------------- ---------------- --------------- -------------- ---------------- ---------------
Name of Portfolio Manager # of Total # of Total # of Total # of Total # of Total # of Total
(Firm) Accts Assets Accts Assets Accts Assets Accts Assets Accts Assets Accts Assets
-------------------------- ------ ------- ------- ------ ------ ------ ----- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Peter W. Palfrey (Loomis) 1 $289 0 0 0 0 0 0 31 $2,058 0 0
mil mil
Richard G. Raczkowski 1 $283 0 0 2 $35 mil 0 0 28 $1,046 1 $208
(Loomis) mil mil mil
Mark B. Baribeau (Loomis) 6 $694 0 0 1 $248 0 0 138 $4,213 0 0
mil mil mil
Pamela N. Czekanski 4 $684 0 0 1 $248 0 0 117 $4,213 0 0
(Loomis) mil mil mil
Richard D. Skaggs (Loomis) 4 $684 0 0 1 $248 0 0 89 $2,709 0 0
mil mil mil
Kathleen C. Gaffney 4 $3,413 0 0 0 0 0 0 40 $3,655 0 0
(Loomis) mil mil
Matthew J. Eagan (Loomis) 2 $53 mil 0 0 0 0 0 0 19 $599 0 0
mil
Steven J. Kaseta (Loomis) 3 $575 0 0 8 $1,589 0 0 44 $3,840 0 0
mil mil mil
Daniel J. Fuss (Loomis) 12 $5,040 0 0 4 $194 0 0 85 $9,111 0 0
mil mil mil
John Hyll (Loomis) 5 $218 0 0 0 0 0 0 48 $6,134 0 0
mil mil
Clifton V. Rowe (Loomis) 5 $222 0 0 0 0 0 0 49 $1,356 0 0
mil mil
Robert Payne (Loomis) 2 $204 0 0 0 0 0 0 12 $305 0 0
mil mil
Martha A. Strom (Loomis) 2 $204 0 0 0 0 0 0 6 $56 mil 0 0
mil
Lauriann Kloppenburg 1 $21 mil 0 0 3 $176 2 $67 mil 14 $1,624 0 0
(Loomis) mil mil
</TABLE>
Material Conflicts of Interest
Conflicts of interest may arise in the allocation of investment opportunities
and the allocation of aggregated orders among the Funds and other accounts
managed by the portfolio managers. A portfolio manager potentially could give
favorable treatment to some accounts for a variety of reasons, including
favoring larger accounts, accounts that pay higher fees, accounts that pay
performance-based fees, accounts of affiliated companies and accounts in which
the portfolio manager has an interest. Such favorable treatment could lead to
more favorable investment opportunities or allocations for some accounts. Each
of the advisers and subadvisers has adopted policies and procedures to mitigate
the effects of these conflicts. For more information on how each of the advisers
and subadvisers allocates investment opportunities between the Funds and their
other clients, see the section "Allocation of Investment Opportunity Among Funds
and Other Investors Managed by Advisers and Subadvisers" in this SAI. Conflicts
of interest also may arise to the extent a portfolio manager short sells a stock
in one client account but holds that stock long in other accounts, including the
Funds, and through the use of "soft dollar arrangements", which are discussed in
the section "Portfolio Transactions and Brokerage".
PORTFOLIO MANAGERS' COMPENSATION
The following describes the structure of, and the method used to determine, the
compensation of each of the above-listed portfolio managers as of September 30,
2004:
Loomis Sayles. Loomis Sayles believes that portfolio manager compensation should
be driven primarily by the delivery of consistent and superior long-term
performance for its clients. Portfolio manager compensation is made up primarily
of two components - base salary and variable compensation. Base salary is a
fixed amount based on a combination of factors including industry experience,
firm experience, job performance and market considerations. Variable
compensation is an incentive-based component, and generally represents a
significant multiple of base salary. Variable compensation is based on four
factors - investment performance, profit growth of the firm, profit growth of
the manager's business unit and team commitment. Investment performance is the
primary component of total variable compensation, and generally represents at
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<PAGE>
least 60% of the total for fixed income managers and 70% for equity managers.
The other three factors are used to determine the remainder of variable
compensation, subject to the discretion of the department's Chief Investment
Officer (CIO) and senior management. The CIO and senior management evaluate
these other factors annually and may decrease or eliminate their contribution to
variable compensation.
Fixed income managers. Investment performance for fixed income managers is
measured by comparing the performance of the firm's institutional composite
(pre-tax and net of fees) in the manager's style to the performance of an
external benchmark and a customized peer group. The customized peer group is
created by the firm and is made up of institutional managers in the particular
investment style. A manager's relative performance for the past five years is
used to calculate the amount of variable compensation payable due to
performance. To ensure consistency, the firm analyzes the 5 year performance on
a rolling three year basis. If a manager is responsible for more than one
product, the rankings of each product are weighted based on relative asset size
of accounts represented in each product. The benchmark(s) used for the different
investment styles utilized by the Funds are listed in the table below:
<TABLE>
<CAPTION>
FUND MANAGER BENCHMARK
---- -----------------
<S> <C>
Loomis Sayles Core Plus Bond Fund Lehman Aggregate Index
Loomis Sayles High Income Lehman High Yield Index
Loomis Sayles Investment Grade Bond Lehman Aggregate Index
Loomis Sayles Limited Term Government and Agency Lehman Intermediate Government Index
Loomis Sayles Massachusetts Tax Free Income Lehman Government/Credit Index
Loomis Sayles Municipal Income Lehman Municipal Bond 5 Year Index
Loomis Sayles Strategic Income Lehman Aggregate Bond Index
</TABLE>
Loomis Sayles uses both an external benchmark and a customized peer group as
measuring sticks for fixed income manager performance because it believes they
represent an appropriate combination of the competitive fixed income product
universe and the investment styles offered by the firm.
Mr. Fuss's compensation is also based on his overall contributions to the firm
in his various roles as Senior Portfolio Manager, Vice Chairman and Director. As
a result of these factors, the contribution of investment performance to Mr.
Fuss' total variable compensation may be significantly lower the percentage
reflected above. Mr. Fuss also received fixed payments related to his continued
service with the firm. These payments were made by the parent company of Loomis
Sayles pursuant to an agreement entered into at the time of the parent company's
acquisition of Loomis Sayles' previous parent company.
Equity managers. Investment performance for equity managers is measured by
comparing the performance of the firm's institutional composite (pre-tax and net
of fees) in the manager's style to the performance of a peer group of
institutional managers in that style. A manager's performance relative to the
peer group for the 1, 3 and 5 year periods is used to calculate the amount of
variable compensation payable due to performance. Longer-term performance (3 and
5 years) combined is weighted more than shorter-term performance (1 year). If a
manager is responsible for more than one product, the rankings of each product
are weighted based on relative asset size of accounts represented in each
product. An external benchmark is used as a secondary comparison. The
benchmark(s) used for the different investment styles utilized by the Funds are
listed in the table below:
FUND MANAGER BENCHMARK
---- -----------------
Loomis Sayles Growth Russell 1000 Growth Index
Loomis Sayles Research S&P 500 Index
Loomis Sayles uses the institutional peer groups as the primary measuring stick
for equity manager performance because it believes they represent the most
competitive product universe while closely matching the investment styles
offered by the firm. Loomis Sayles considers the institutional composite an
accurate proxy for the performance of each investment style.
General. Mutual funds are not included in the firm's composites, so unlike other
managed accounts, fund performance and asset size do not directly contribute to
this calculation. However, each fund managed by the firm employs strategies
endorsed by the firm and fits into the product category for the relevant
investment style. Loomis Sayles may adjust
47
<PAGE>
compensation if there is significant dispersion among the returns of the
composite and accounts not included in the composite.
Although portfolio manager compensation is not directly tied to assets under
management, a portfolio manager's base salary and/or variable compensation
potential may reflect the amount of assets for which the manager is responsible
relative to other portfolio managers.
Portfolio managers also participate in the Loomis Sayles profit sharing plan, in
which Loomis Sayles makes a contribution to the retirement plan of each employee
based on a percentage of base salary (up to a maximum amount). The portfolio
managers also participate in the Loomis Sayles defined benefit pension plan,
which applies to all Loomis Sayles employees who joined the firm prior to April
1, 2003. The defined benefit is based on years of service and base compensation
(up to a maximum amount).
PORTFOLIO MANAGERS' OWNERSHIP OF FUND SHARES
The following table sets forth the dollar range* of equity securities of the
Funds beneficially owned by each Portfolio Manager as of September 30, 2004:
<TABLE>
<CAPTION>
Name of Portfolio Manager Fund(s) Managed Dollar Range of Equity Securities
Invested
<S> <C> <C>
Peter W. Palfrey Loomis Sayles Core Plus Bond Fund D
Richard G. Raczkowski Loomis Sayles Core Plus Bond Fund A
Mark B. Baribeau Loomis Sayles Growth Fund E
Pamela N. Czekanski Loomis Sayles Growth Fund E
Richard D. Skaggs Loomis Sayles Growth Fund E
Kathleen C. Gaffney Loomis Sayles High Income Fund D
Loomis Sayles Strategic Income Fund C
Matthew J. Eagan Loomis Sayles High Income Fund D
Steven J. Kaseta Loomis Sayles Investment Grade Bond Fund A
Daniel J. Fuss Loomis Sayles Investment Grade Bond Fund E
Loomis Sayles Strategic Income Fund G
John Hyll Loomis Sayles Limited Term Government and A
Agency Fund
Clifton V. Rowe Loomis Sayles Limited Term Government and A
Agency Fund
Robert Payne Loomis Sayles Massachusetts Tax Free Income A
Fund
Martha A. Strom Loomis Sayles Massachusetts Tax Free Income A
Fund
Lauriann Kloppenburg Loomis Sayles Research Fund E
</TABLE>
* A. None E. $100,001 - $500,000
B. $1 - 10,000 F. $500,001 - $1,000,000
C. $10,001 - $50,000 G. over $1,000,000
D. $50,001 - $100,000
There are various reasons why a Portfolio Manager may not own shares of the Fund
he or she manages. One reason is that the Fund's investment objectives and
strategies may not match those of the Portfolio Manager. Administrative reasons
(such as facilitating compliance with an adviser's or subadviser's code of
ethics) also may explain why a Portfolio Manager has chosen not to invest in the
IXIS Advisor Funds.
--------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
--------------------------------------------------------------------------------
All Income Funds. In placing orders for the purchase and sale of portfolio
securities for each Income Fund, Loomis Sayles always seeks the best price and
execution. Some of each Income Fund's portfolio transactions are placed with
brokers and dealers that provide Loomis Sayles with supplementary investment and
statistical information or furnish market quotations to that Fund, the other
Funds or other investment companies advised by Loomis Sayles. The business would
not be so placed if the Funds would not thereby obtain the best price and
execution. Although it is not possible to assign an exact dollar value to these
services, they may, to the extent used, tend to reduce the expenses of Loomis
Sayles. The services may also be used by Loomis Sayles in connection with their
other advisory accounts and in some cases may not be used with respect to the
Funds.
All Equity Funds. In placing orders for the purchase and sale of equity
securities, each Equity Fund's adviser or
48
<PAGE>
subadviser selects only brokers that it believes are financially responsible,
will provide efficient and effective services in executing, clearing and
settling an order and will charge commission rates that, when combined with the
quality of the foregoing services, will produce the best price and execution for
the transaction. This does not necessarily mean that the lowest available
brokerage commission will be paid. However, the commissions are believed to be
competitive with generally prevailing rates. Each Fund's adviser or subadviser
will use its best efforts to obtain information as to the general level of
commission rates being charged by the brokerage community from time to time and
will evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
Subject to the overriding objective of obtaining the best possible
execution of orders, each Fund's adviser and subadviser may allocate brokerage
transactions to affiliated brokers. Any such transactions will comply with Rule
17e-1 under the 1940 Act. In order for the affiliated broker to effect portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by the affiliated broker must be reasonable and fair compared to the
commissions, fees and other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period. Furthermore, each
Trust's Board of Trustees, including a majority of the Independent Trustees,
have adopted procedures that are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker are
consistent with the foregoing standard.
Funds 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 best 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 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
49
<PAGE>
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 IXIS Asset Management North America or the Funds' advisers. 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. However, the Trusts have obtained exemptive
relief from the SEC permitting segments of the certain funds to enter into
principal transactions with affiliates of the subadvisers to other segments of
the same fund (but not affiliates of the subadviser to such segment or of IXIS
Advisors and its affiliates).
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 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
50
<PAGE>
Fund toward the reduction of that Fund's expenses.
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
--------------------------------------------------------------------------------
IXIS Advisor Funds Trust I is registered with the SEC as an open-end
management investment company and 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. Each series of the
Trust is diversified. 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 8
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."
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.
IXIS Advisor Funds Trust II is registered with the SEC as an open-end
management investment company and 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. Each series of the Trust is diversified. 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 an 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. Each series of the Trust is
diversified. The Trust has 13 portfolios. On September 12, 2003, the following
Funds were reorganized from the IXIS Advisor 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 the Loomis Sayles Funds converted to the multi-class structure
offered by the IXIS Advisor Funds Trusts: Loomis Sayles Growth Fund; Loomis
Sayles Research Fund; and Loomis Sayles Investment Grade Bond Fund.
The Declarations of Trust of IXIS Advisor Funds Trust I, IXIS Advisor
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
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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 class specific expenses such as 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. Each Trust's Board of Trustees may also,
without shareholder approval, establish one or more additional series or classes
or with shareholder approval, 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
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
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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. However, a shareholder meeting for
the purposes of electing trustees and to vote on changes to each Declaration of
Trust is currently scheduled for June 2005. Trustees may also 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 ten or more holders of shares who have been
such for at least six months and who hold shares having a net asset value of 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 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 Fund's or 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
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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 permit
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 or subadviser. Under the
Guidelines, decisions regarding the voting of proxies are to be made solely in
the interest of the Fund and its shareholders. 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. The
adviser shall make available to the Fund and the Fund's administrator, the
records and information maintained by the adviser under the Guidelines.
Loomis Sayles
Loomis Sayles uses the services of third parties ("Proxy Voting
Service(s)"), to research and administer the vote on proxies for those accounts
and funds for which Loomis Sayles has voting authority. Each Proxy Voting
Service has a copy of Loomis Sayles' proxy voting procedures ("Procedures") and
provides vote recommendations and/or analysis to Loomis Sayles based on Loomis
Sayles' Procedures and the Proxy Voting Service's own research. Loomis Sayles
will generally follow its express policy with input from the Proxy Voting
Services unless the Proxy Committee determines that the client's best interests
are served by voting otherwise.
All issues presented for shareholder vote will be considered under the
oversight of the Proxy Committee. All non-routine issues will be directly
considered by the Proxy Committee and, when necessary, the equity analyst
following the company and/or the portfolio manager of an account holding the
security, and will be voted in the best investment interests of the client. All
routine for and against issues will be voted according to Loomis Sayles' policy
approved by the Proxy Committee unless special factors require that they be
considered by the Proxy Committee and, when necessary, the equity analyst
following the company and/or the portfolio manager of an account holding the
security. Loomis Sayles' Proxy Committee has established these routine policies
in what it believes are the best investment interests of Loomis Sayles' clients.
The specific responsibilities of the Proxy Committee, include, (1)
developing, authorizing, implementing and updating the Procedures, including an
annual review of the Procedures, existing voting guidelines and the proxy voting
process in general, (2) oversight of the proxy voting process including
oversight of the vote on proposals according to the predetermined policies in
the voting guidelines, directing the vote on proposals where there is reason not
to vote according to the predetermined policies in the voting guidelines or
where proposals require special consideration, and consultation with the
portfolio managers and analysts for the accounts holding the security when
necessary or appropriate and, (3) engagement and oversight of third-party
vendors, including Proxy Voting Services.
Loomis Sayles has established several policies to ensure that proxy
votes are voted in its clients' best interest and are not affected by any
possible conflicts of interest. First, except in certain limited instances,
Loomis Sayles votes in accordance with its pre-determined policies set forth in
the Procedures. Second, where these Procedures allow for discretion, Loomis
Sayles will generally consider the recommendations of the Proxy Voting Services
in making its voting decisions. However, if the Proxy Committee determines that
the Proxy Voting Services' recommendation is not in the best interest of its
clients, then the Proxy Committee may use its discretion to vote against the
Proxy Voting Services' recommendation, but only after taking the following
steps: (1)
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conducting a review for any material conflict of interest Loomis Sayles may have
and, (2) if any material conflict is found to exist, excluding anyone at Loomis
Sayles who is subject to that conflict of interest from participating in the
voting decision in any way. However, if deemed necessary or appropriate by the
Proxy Committee after full prior disclosure of any conflict, that person may
provide information, opinions or recommendations on any proposal to the Proxy
Committee. In such event the Proxy Committee will make reasonable efforts to
obtain and consider, prior to directing any vote information, opinions or
recommendations from or about the opposing position on any proposal.
Information regarding how the Funds voted proxies related to their
prospective portfolio securities during the 12-month period ended June 30, 2004
is available (i) through the Funds' website at www.loomissayles.com and (ii) on
the SEC's website at www.sec.gov.
Hansberger
Hansberger utilizes the services of a third party proxy service
provider ("Proxy Service Provider") to assist in voting proxies. The Proxy
Service Provider is a premier proxy research, advisory, voting and
vote-reporting service that specializes in global proxy voting. The Proxy
Service Provider's primary function with respect to Hansberger is to apprise
Hansberger of shareholder meeting dates of all securities holdings, translate
proxy materials received from companies, provide associated research and provide
considerations and recommendations for voting on particular proxy proposals.
Although Hansberger may consider the Proxy Service Provider's and others'
recommendations on proxy issues, Hansberger bears ultimate responsibility for
proxy voting decisions.
Hansberger takes reasonable steps under the circumstances to ensure
that proxies are received and voted in the best interest of its clients, which
generally means voting proxies with a view to enhancing the value of the shares
of stock held in client accounts. The financial interest of the clients is the
primary consideration in determining how proxies should be voted. In the case of
social and political responsibility issues that in Hansberger's view do not
primarily involve financial considerations, it is not possible to represent
fairly the diverse views of our clients and, thus, unless a client has provided
other instructions, Hansberger generally votes in accordance with the
recommendations of Proxy Service Provider on these issues, although, on occasion
Hansberger abstains from voting on these issues. When making proxy-voting
decisions, Hansberger generally adheres to its Proxy Voting Guidelines (the
"Guidelines"), as revised from time to time. The Guidelines, which have been
developed with reference to the positions of the Proxy Service Provider, set
forth Hansberger's positions on recurring issues and criteria for addressing
non-recurring issues and incorporates many of the Proxy Service Provider's
standard operating policies.
From time to time, proxy voting proposals may raise conflicts between
the interests of Hansberger's clients and the interests of Hansberger and its
employees. Hansberger takes certain steps designed to ensure a decision to vote
the proxies that was based on the clients' best interest and was not the product
of the conflict. Hansberger's Proxy Voting Committee is primarily responsible
for monitoring and resolving possible material conflicts with respect to proxy
voting. Any portfolio manager or research analyst with knowledge of a personal
conflict of interest relating to a particular matter is required to disclose
that conflict to the Chief Compliance Officer and may be required to recuse him
or herself from the proxy voting process. Issues raising possible conflicts of
interest are referred to the Proxy Voting Committee for resolution. Application
of the Guidelines or voting in accordance with the Proxy Service Provider's vote
recommendation should, in most cases, adequately address any possible conflicts
of interest.
Information regarding how the Funds voted proxies related to their
prospective portfolio securities during the 12-month period ended June 30, 2004
is available (i) through the Funds' website at www.ixisadvisorfunds.com and (ii)
on the SEC's website at www.sec.gov.
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PORTFOLIO TURNOVER
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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
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year ended September 30, 2004 was significantly higher for the Loomis Sayles
Limited Term Government and Agency Fund compared to the prior fiscal period
because, among other things, mortgage holdings were reduced significantly. The
portfolio turnover rate for the fiscal year ended September 30, 2004 was
significantly higher for the Loomis Sayles Massachusetts Tax Free Income Fund
compared to the prior fiscal period because, among other things, holdings were
reevaluated in preparation for a rising interest rate environment. 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.
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PORTFOLIO HOLDINGS INFORMATION
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The Funds have adopted policies to limit the disclosure of confidential
portfolio holdings information and to ensure equal access to such information,
except in certain circumstances as approved by the Board of Trustees. Generally,
portfolio holdings information will not be disclosed until it is first posted on
the Funds' website at www.ixisadvisorfunds.com. Generally, portfolio holdings
information will not be posted until it is aged for at least 30 days. Any
holdings information that is released must clearly indicate the date of the
information, and must state that due to active management, the Fund may or may
not still invest in the securities listed. Portfolio characteristics, such as
industry/sector breakdown, current yield, quality breakdown, duration, average
price-earnings ratio and other similar information may be provided on a current
basis. However, portfolio characteristics do not include references to specific
portfolio holdings.
The Board of Trustees has approved exceptions to the general policy on
the sharing of portfolio holdings information as in the best interests of the
Funds:
(1) Disclosure of portfolio holdings posted on the Funds' website provided
that information is shared no sooner than the next day following the
day on which the information is posted.
(2) Disclosure to firms offering industry-wide services, provided that the
firm has entered into a confidentiality agreement with the Funds,
their principal underwriter or an affiliate of the Funds' principal
underwriter. Entities that receive information pursuant to this
exception include Lipper (quarterly disclosure of full portfolio
holdings, provided 5 days after calendar quarter-end); and Vestek
(daily disclosure of full portfolio holdings, provided next business
day);
(3) Disclosure to SG Constellation, as part of the Class B share financing
program and subject to an agreement to protect the confidentiality and
limit the use of the information except for the purposes provided
(full portfolio holdings provided weekly);
(4) Disclosure to ADP Investor Communication Services, Inc. as part of the
proxy voting recordkeeping services provided to the Funds, and to
vendors that provide proxy services, including proxy voting
administration and research services, to advisers and subadvisers of
the Funds (portfolio holdings of issuers as of record date for
shareholder meetings);
(5) Disclosure to employees of the Funds' advisers, subadvisers, principal
underwriter, administrator, custodian and fund accounting agent, as
well as to broker dealers executing portfolio transactions for the
Funds, provided that such disclosure is made for bona fide business
purposes; and
(6) Other disclosures made for non-investment purposes, but only if
approved in writing in advance by an officer of the Funds. Such
exceptions will be reported to the Board of Trustees.
With respect to (6) above, approval will be granted only when the
officer determines that the Fund has a legitimate business reason for sharing
the portfolio holdings information and the recipients are subject to a duty of
confidentiality, including a duty not to trade on the information. The Funds'
Board of Trustees exercises oversight of the disclosure of the Funds' portfolio
holdings by reviewing, on a quarterly basis, persons or entities receiving such
disclosure. Notwithstanding the above, there is no assurance that the Funds'
policies on the sharing of portfolio holdings information will protect the Funds
from the potential misuse of holdings by individuals or firms in possession of
that information.
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The Funds' policies expressly prohibit the sharing of portfolio
holdings information if the Fund, its adviser and/or subadviser, or any other
affiliated party receives compensation or other consideration in connection with
such arrangement. The term "consideration" includes any agreement to maintain
assets in a Fund or in other funds or accounts managed by the Fund's adviser
and/or subadviser or by any affiliated person of the adviser and/or subadviser.
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HOW TO BUY SHARES
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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 IXIS Advisor Funds.
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 IXIS Advisor Funds Personal Access Line(R) (800-225-5478, press 1)
or IXIS Advisor Funds Web site (www.ixisadvisorfunds.com) to purchase Fund
shares (except for Class Y shares). For more information, see the section
"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.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset
value per share is summarized in the Prospectus.
The 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 the adviser's/subadviser's discretion, a Fund's shares
may be priced on a day the Exchange is closed for trading if the
adviser/subadviser, 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)
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whether in the advisers'/subadvisers' view sufficient information (e.g., prices
reported by pricing services) is available for the Fund's shares to be priced.
For example, the Funds may price their shares on days on which the Exchange is
closed but the NASDAQ stock market or 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. 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 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.
Because of fair value pricing, as described in the prospectus under for
"Securities traded on foreign exchanges" and "All other securities," 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
(which is the amount that a fund might reasonable expect to receive from a
current sale of the security in the ordinary course of business). 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. This may include situations relating to a single
issues (such as a declaration of bankruptcy or a delisting of the issuer's
security from the primary market on which it has traded) as well as events
affecting the securities markets in general (such as market disruptions or
closings and significant fluctuations in U.S. and / or foreign markets.)
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.
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 of a
Fund is the net asset value per share next-determined after a properly completed
purchase order is accepted by IXIS Services or State Street Bank, plus a sales
charge as set forth in the Fund's Prospectus. The public offering price of a
Class B, C or Y share of a Fund is the next-determined net asset value.
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REDUCED SALES CHARGES
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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.
If you invest in Class A shares through a financial intermediary, it is
the responsibility of the financial intermediary to ensure you obtain the proper
"breakpoint" discount. In order to reduce your sales charge, it will be
necessary at the time of purchase to inform the Fund and your financial
intermediary of the existence of other accounts in which there are holdings
eligible to be aggregated to meet sales load breakpoints. If the Distributor is
not notified that the investor is eligible for these reductions, the Distributor
will be unable to ensure that the reduction is applied to the investor's
account.
You may be required to provide certain records and information, such
as account statements, with respect to all of your accounts which hold Fund
shares, including accounts with other financial intermediaries, and your family
members' accounts, in order to verify your eligibility for the reduced sales
charge.
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 IXIS Advisor
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 IXIS
Advisor 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, IXIS
Advisor 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., $25,000, $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.
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State Street Bank will hold in escrow shares with a value at the
current public offering price of 5% of the aggregate amount of the intended
investment. The amount in escrow will be released when the commitment stated in
the Letter is completed. If the shareholder does not purchase shares in the
amount indicated in the Letter, the shareholder agrees to remit to State Street
Bank the difference between the sales charge actually paid and that which would
have been paid had the Letter not been in effect, and authorizes State Street
Bank to redeem escrowed shares in the amount necessary to make up the difference
in sales charges. Reinvested dividends and distributions are not included in
determining whether the Letter has been completed.
Combining Accounts. Purchases of all series and classes of the IXIS
Advisor Funds (excluding the IXIS Cash Management Trust - Money Market Series
(the "Money Market Fund") unless the shares were purchased through an exchange
with another IXIS Advisor 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 IXIS Advisor 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 IXIS Advisor 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 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 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 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
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 IXIS Advisors, 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.
Certain Retirement Plans. Class A shares of the Funds are available at
net asset value for investments by participant-directed 401(a) and 401(k) plans
that have $1 million or more in total plan assets or 100 or more eligible
employees or by retirement plans whose third party administrator or dealer has
entered into a service agreement with
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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 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.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by IXIS Services. 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, IXIS Services 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. IXIS Services 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 and are forwarded to IXIS Services for
investment in the Fund. A plan may be opened with an initial investment of
$1,000 or more and thereafter regular monthly checks of $50 or more will be
drawn on the investor's account. (Shareholders with accounts participating in
the IXIS Advisor Funds' Investment Builder program prior to May 1, 2005 may
continue to make subsequent purchases of $25 into those accounts.) The reduced
minimum initial investment pursuant to an automatic investment plan is referred
to in the Prospectus. An Investment Builder application must be completed to
open an automatic investment plan and may be obtained by calling the Distributor
at 800-225-5478 or your investment dealer or by visiting our Website at
www.ixisadvisorfunds.com.
This program is voluntary and may be terminated at any time by IXIS
Services upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by
the investor by written notice to IXIS Services, 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.
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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 $1,000 for IRAs and
Keogh plans using the IXIS Advisor Funds' prototype, at least $500 for IRAs and
Coverdell Education Savings Accounts and at least $100 for any subsequent
investments. 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 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 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 shares by a shareholder who has a withdrawal plan in
effect and who would be subject to a sales load on such additional investments.
IXIS Advisor 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)
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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 IXIS Advisor 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 IXIS
Advisor 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 IXIS Advisor 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 of
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 IXIS Advisor
Fund listed below, subject to those funds' eligibility requirements and sales
charges. Class C shares in accounts of IXIS Cash Management Trust - Money Market
Series may exchange into Class C shares of a IXIS Advisor Fund subject to its
CDSC schedule. 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 IXIS Services at 800-225-5478 or (2) a written exchange request to
the Fund or IXIS 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.
Before requesting an exchange into any other IXIS Advisor 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.
As indicated in the Prospectuses, certain Funds are subject to a
redemption fee on exchanges.
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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 Research Fund seeks to provide long-term growth of
capital.
Income Funds:
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 December 31, 2004, the net assets of the IXIS Advisor Funds family totaled
approximately $5.4 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 IXIS
Services is notified in writing to terminate the plan. Exchanges may be made in
amounts of $100 or more. The Service Options Form may be used to establish an
Automatic Exchange Plan and is available from IXIS Services or your financial
representative.
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.
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Self-Servicing Your Account with IXIS Advisor Funds Personal Access Line(R) and
Web Site
IXIS Advisor Funds shareholders may access account information,
including share balances and recent account activity online, by visiting our Web
site at www.ixisadvisorfunds.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. IXIS Advisor 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 IXIS Advisor 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.ixisadvisorfunds.com.
Investor activities through these mediums are subject to the terms and
conditions outlined in the following IXIS Advisor Funds Online and Telephonic
Customer Agreement. This agreement is also posted on our Web site. The
initiation of any activity through the IXIS Advisor Funds Personal Access
Line(R) or Web site at www.ixisadvisorfunds.com by an investor shall indicate
agreement with the following terms and conditions:
IXIS Advisor Funds Online and Telephonic Customer Agreement
NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS
SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS
AND CONDITIONS.
The accuracy, completeness and timeliness of all mutual fund
information provided is the sole responsibility of the mutual fund company that
provides the information. No party that provides a connection between this Web
site and a mutual fund or its transfer agency system can verify or ensure the
receipt of any information transmitted to or from a mutual fund or its transfer
agent, or the acceptance by, or completion of any transaction with, a mutual
fund.
The online acknowledgments or other messages that appear on your screen
for transactions entered do not mean that the transactions have been received,
accepted or rejected by the mutual fund. These acknowledgments are only an
indication that the transactional information entered by you has either been
transmitted to the mutual fund, or that it cannot be transmitted. It is the
responsibility of the mutual fund to confirm to you that it has received the
information and accepted or rejected a transaction. It is the responsibility of
the mutual fund to deliver to you a current prospectus, confirmation statement
and any other documents or information required by applicable law.
NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION
FROM THE FUND COMPANY.
You are responsible for reviewing all mutual fund account statements
received by you in the mail in order to verify the accuracy of all mutual fund
account information provided in the statement and transactions entered through
this site. You are also responsible for promptly notifying the mutual fund of
any errors or inaccuracies relating to information contained in, or omitted
from, your mutual fund account statements, including errors or inaccuracies
arising from the transactions conducted through this site.
TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH
IN THE PROSPECTUS OF THE SELECTED FUND.
THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS
TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH
THE IXIS ADVISOR 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 IXIS Advisor Funds does not have the responsibility to
inquire as to the legitimacy or
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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.
IXIS Advisor 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 IXIS Advisor Funds makes no warranty as to the correctness,
completeness, or the accuracy of any transmission. Similarly IXIS Advisor 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 IXIS Advisor 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 IXIS Advisor Funds if any of the following
occurs:
1. You do not receive confirmation of a transaction submitted via the
Internet or telephonically within five (5) business days.
2. You receive confirmation of a transaction of which you have no
knowledge and was not initiated or authorized by you.
3. You transmit a transaction for which you do not receive a confirmation
number.
4. You have reason to believe that others may have gained access to your
personal identification number (PIN) or other personal data.
5. You notice an unexplained discrepancy in account balances or other
changes to your account, including address changes, and banking instructions on
any confirmations or statements.
Any costs incurred in connection with the use of the IXIS Advisor Funds
Personal Access Line(R) or the IXIS Advisor Funds Internet site including
telephone line costs and Internet service provider costs are solely your
responsibility. Similarly IXIS Advisor Funds makes no warranties concerning the
availability of Internet services or network availability.
IXIS Advisor 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 IXIS ADVISOR FUNDS OF YOUR DESIRE TO DO SO.
Written notifications to IXIS Advisor Funds should be sent to:
IXIS Advisor Funds
P. O. Box 219579
Kansas City, MO 64121-9579
Notification may also be made by calling 800-225-5478 during normal business
hours.
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REDEMPTIONS
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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, and a redemption fee may
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be charged on redemptions and exchanges of certain of the Funds. 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).
The Funds will only accept medallion signature guarantees bearing the
STAMP 2000 Medallion imprint. However, a medallion 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.ixisadvisorfunds.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 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 IXIS Services 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, although they
will apply established verification procedures. IXIS Services, 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
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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 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% of the value of the account, and redemptions
made from the account to pay custodial fees. The CDSC may also be waived on
redemptions within one year following the death of (i) the sole shareholder of
an individual account, (ii) a joint tenant where the surviving joint tenant is
the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors
Act, Uniform Transfer to Minors Act or other custodial account. If the account
is transferred to an account registered in the name of the deceased's estate,
the CDSC will be waived on any redemption occurring within one year of death. If
the account is transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged. If shares are not redeemed
within one year of the death, they will remain subject to the applicable CDSC
when redeemed from the transferee's account.
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
IXIS Advisor Funds, including IRA and 403(b)(7) participant-directed transfers
of assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
In order to redeem shares electronically through the ACH system, a
shareholder's bank or credit union must be a member of the ACH system and the
shareholder must have a completed, approved ACH application on file. In
addition, the telephone request must be received no later than 4:00 p.m.
(Eastern time). Upon receipt of the required 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
Trust's Board of Trustees determines it to be advisable and in the
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interest of the remaining shareholders of a Fund. The redemptions in kind
generally will represent a pro rata distribution of each security held in the
Fund's portfolio (though the Funds' procedures allow for adjustments to prevent
distributions of restricted shares, fractional shares and odd-lot numbers of
shares). 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. Certain Funds may impose a
redemption fee, as disclosed in the Prospectus. 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.
Minimum Balance Policy
Each Fund, on an annual basis, may deduct a minimum balance fee of $20
for accounts that fall below the minimum amount required to establish an
account, as described in the Fund's prospectus. The fee is subject to change.
The minimum balance fee is assessed by the automatic redemption of shares in the
account in an amount sufficient to pay the fee. The valuation of account
balances and the deduction of the fee generally occur during the third week in
September of each calendar year, although they may occur at a later date in the
year. The fee will not be deducted from Fund positions opened after June 30th of
that calendar year. Certain accounts, such as accounts that fall below the
minimum as a result of the automatic conversion from Class B shares to Class A
shares and accounts using an IXIS Advisors Funds' prototype document (including
IRAs, Keogh plans, 403(b)(7) plans and Coverdell Education Savings Accounts),
are excepted from the minimum balance fee.
In its discretion, each Fund may also close an account and send the
account holder the proceeds if the account falls below the minimum amount. It is
expected that accounts maintained by intermediaries through the National
Securities Clearing Corporation will be liquidated, rather than assessed a fee,
if the account balance falls below the minimum required to open an account. The
valuation of account balances and the liquidations generally occur in October of
each calendar year, although they may occur at a later date in the year. Any
account opened after June 30th of a calendar year will not be subject to the
liquidation for that calendar year.
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 or the Funds within 120 days after the date of the
redemption. The reinstatement or exchange will be made at net asset value next
determined after receipt of the notice and the investment check and will be
limited to the amount of the redemption proceeds or to the nearest full share if
fractional shares are not purchased.
Even though an account is reinstated, the redemption will constitute a
sale for federal income tax purposes. Investors who reinstate their accounts by
purchasing shares of the Funds should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
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PERFORMANCE Information
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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
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value of the Fund's shares and to the relative risks associated with the
investment objectives and policies of the Fund. Yields do not take into account
any applicable sales charges or CDSC. Yield may be stated with or without giving
effect to any expense limitations in effect for a Fund. 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 Income 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.
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INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
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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 IXIS Advisor Funds. In order for a change to be in effect
for any dividend or distribution, it must be received by IXIS Advisor 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.
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
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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.
A nondeductible 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 to the extent of
the Fund's earnings and profits. 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
("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.
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.
For taxable years beginning on or before December 31, 2008, "qualified
dividend income" received by an individual will be taxed at the rates applicable
to long-term capital gain. 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) (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
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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. Income derived from investments
in fixed-income securities is not eligible for treatment as qualified dividend
income.
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 a shareholder's tax basis in his or her shares, thus
reducing any loss or increasing any gain on a subsequent taxable disposition by
the shareholder 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 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
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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. Income from
investments in passive foreign investment companies generally will not qualify
for treatment as qualified dividend income.
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 loans may or may not be structured in a manner to preserve
qualified dividend income treatment on dividends paid with respect to the
securities lent. A Fund may receive substitute payments (instead of the
dividend) that will not be eligible for treatment as qualified dividend income,
taxed at the rate applicable to long-term capital gains.
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.
Tax Exempt Shareholders. Under current law, the Funds serve to "block"
(that is, prevent the attribution
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to shareholders of) unrelated business taxable income ("UBTI") from being
realized by its tax-exempt shareholders. Notwithstanding the foregoing, a
tax-exempt shareholder could realize UBTI by virtue of its investment in 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.
Non-U.S. Shareholders. In general, dividends (other than Capital Gain
Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within
the meaning of the Code (such shareholder, a "foreign person") are subject to
withholding of U.S. federal income tax at a rate of 30% (or lower applicable
treaty rate) even if they are funded by income or gains (such as portfolio
interest, short-term capital gains, or foreign-source dividend and interest
income) that, if paid to a foreign person directly, would not be subject to
withholding. However, under the 2004 Act, effective for taxable years of the
Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will
not be required to withhold any amounts (i) with respect to distributions (other
than distributions to a foreign person (w) that has not provided a satisfactory
statement that the beneficial owner is not a U.S. person, (x) to the extent that
the dividend is attributable to certain interest on an obligation of the foreign
person is the issuer or is a 10% shareholder of the issuer, (y) that is within
certain foreign countries that have inadequate information exchange with the
United States, or (z) to the extent the dividend is attributable to interest
paid by a person that is a related person of the foreign person and the foreign
person is a controlled corporation) from U.S.-source interest income that would
not be subject to U.S. federal income tax if earned directly by an individual
foreign person, to the extent such distributions are properly designated by the
Fund, and (ii) with respect to distributions (other than distributions to an
individual foreign person who is present in the United States for a period or
periods aggregating 183 days or more during the year of the distribution) of net
short-term capital gains in excess of net long-term
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<PAGE>
capital losses, to the extent such distributions are properly designated by the
Fund. This provision will first apply to the Funds in their taxable years
beginning October 1, 2005.
If a beneficial holder who is a foreign person has a trade or business
in the United States, and the dividends are effectively connected with the
conduct by the beneficial holder of a trade or business in the United States,
the dividend will be subject to U.S. federal net income taxation at regular
income tax rates.
The 2004 Act modifies the tax treatment of distributions from the Fund
that are paid to a foreign person and are attributable to gain from "U.S. real
property interests" ("USRPIs"), which the Code defines to include direct
holdings of U.S. real property and interests (other than solely as a creditor)
in "U.S. real property holding corporations" such as REITs. The Code deems any
corporation that holds (or held during the previous five-year period) USRPIs
with a fair market value equal to 50% or more of the fair market value of the
corporation's U.S. and foreign real property assets and other assets used or
held for use in a trade or business to be a U.S. real property holding
corporation; however, if any class or stock of a corporation is traded on an
established securities market, stock of such class shall be treated as a USRPI
only in the case of a person who holds more than 5% of such class of stock at
any time during the previous five-year period. Under the 2004 Act, which is
generally effective for taxable years of RICs beginning after December 31, 2004
and which applies to dividends paid or deemed paid on or before December 31,
2007, distributions to foreign persons attributable to gains from the sale or
exchange of USRPIs will give rise to an obligation for those foreign persons to
file a U.S. tax return and pay tax, and may well be subject to withholding under
future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a
foreign person is not, in general, subject to U.S. federal income tax on gains
(and is not allowed a deduction for losses) realized on the sale of shares of
the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain
Dividend is effectively connected with the conduct of a trade or business
carried on by such holder within the United States, (ii) in the case of an
individual holder, the holder is present in the United States for a period or
periods aggregating 183 days or more during the year of the sale or Capital
Gains Dividend and certain other conditions are met or (iii) the shares
constitute USRPIs or (effective for taxable years of funds beginning September
1, 2005) the capital gains are paid or deemed paid on or before December 31,
2007 and are attributable to gains from the sale or exchange of USRPIs.
Effective after December 31, 2004 and before January 31, 2008, if the Fund is a
U.S. real property holdings corporation (as described above) the Fund's shares
will nevertheless not constitute USRPIs if the Fund is a "domestically
controlled qualified investment entity," which is defined to include a RIC that,
at all times during the shorter of the 5-year period ending on the date of the
disposition or the period during which the RIC was in existence, had less than
50 percent in value of its stock held directly or indirectly by foreign persons.
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.
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--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The financial statements of the Funds and the related reports of the
independent registered public accounting firm included in the Funds' Annual
Reports for the year ended September 30, 2004 are incorporated herein by
reference. The financial statements and financial highlights for these Funds
included in their 2004 Annual Reports for the year ended September 30, 2004 are
incorporated by reference to such reports. The Fund's annual and semiannual
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: IXIS Asset Management Distributors, L.P., 399 Boylston Street,
Boston, Massachusetts 02116. The annual reports, semi-annual reports and SAIs
are available online at the Funds' website at www.ixisadvisorfunds.com. The
annual and semi-annual reports are also available on-line at the SEC's website,
at www.sec.gov.
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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
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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
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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
<PAGE>
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
<PAGE>
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
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CDC NVEST INCOME FUNDS
Supplement dated April 29, 2005 to CDC Nvest Income Funds
Classes A, B, C and Y Prospectuses, each dated February 1, 2005,
each as may be supplemented from time to time
Effective May 1, 2005, the name of the fund family will change from CDC Nvest
Funds to IXIS Advisor Funds. Thus, all references to CDC Nvest Funds and
www.cdcnvestfunds.com are replaced with IXIS Advisor Funds and
www.ixisadvisorfunds.com, respectively.
CDC NVEST INCOME CLASSES A, B AND C PROSPECTUS
Effective May 1, 2005, the fourth bullet under "Class C Shares" within the
section "Investing in the Funds - Choosing a Share Class" is replaced in its
entirety with the following:
. Investors will not be permitted to purchase $1 million or more of
Class C shares as a single investment per account. There may be
certain exceptions to this restriction for omnibus 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
redemptions if you redeem Class A shares within one year of purchase.
Effective May 1, 2005, number 2 in the section "It's Easy to Open an Account -
To Open an Account with CDC Nvest Funds" is replaced in its entirety with the
following:
2. Determine how much you wish to invest. The following chart shows the
investment minimums for various types of accounts:
<TABLE>
<CAPTION>
Minimum Minimum
Initial Subsequent
Type of Account Purchase Purchase
--------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Any account other than those listed below $ 2,500 $ 100
For shareholders participating in IXIS Advisor Funds' $ 1,000 $ 50*
Investment Builder Program
For Traditional IRA, Roth IRA, Rollover IRA, SEP-IRA and $ 1,000 $ 100
Keogh plans using the IXIS Advisor Funds' prototype document
Coverdell Education Savings Accounts $ 500 $ 100
For SIMPLE IRA** and 403(b)(7) plans using IXIS Advisor $ 0 $ 0
</TABLE>
Funds' prototype document
* Shareholders with accounts participating in IXIS Advisor Funds'
Investment Builder Program prior to May 1, 2005 may continue to make
subsequent purchases of $25 into those accounts.
**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 are
subject to the same minimums as SIMPLE IRAs, may remain active and
continue to add new employees.
The Distributor, in its sole discretion, may lower investment minimums
for accounts associated with wrap-fee programs sponsored by certain
broker-dealers and investment advisers and for accounts associated with
certain other defined contribution plans not using the IXIS Advisor
Funds' prototype document. Such wrap-fee and defined contribution
accounts will be subject to the minimum balance policy, as discussed
below.
1
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Effective May 1, 2005, the section "Restriction on Buying, Selling and
Exchanging Shares - Small Account Policy" is renamed "Minimum Balance Policy"
and is replaced in its entirety with the following:
Minimum Balance Policy
Each Fund, on an annual basis, may deduct a minimum balance fee of $20 for
accounts that fall below the minimum amount required to establish an
account, as described above. The minimum balance fee is assessed by the
automatic redemption of shares in the account in an amount sufficient to
pay the fee. The valuation of account balances and the deduction of the fee
generally occur during the third week in September of each calendar year,
although they may occur at another date in the year. The fee will not be
deducted from Fund positions opened after June 30th of the calendar year in
which the fee is assessed. Certain accounts, such as accounts that fall
below the minimum as a result of the automatic conversion from Class B
shares to Class A shares and accounts using the IXIS Advisor Funds'
prototype document (including IRAs, Keogh plans, 403(b)(7) plans and
Coverdell Education Savings Accounts), are excepted from the minimum
balance fee.
In its discretion, each Fund may also close an account and send the account
holder the proceeds if the account falls below the minimum amount required
to establish an account. It is expected that accounts maintained by
intermediaries through the National Securities Clearing Corporation
("NSCC") may be liquidated rather than assessed a fee, if the account
balance falls below such minimum. The valuation of account balances and the
liquidation itself generally occur during October of each calendar year,
although they may occur at another date in the year. Any account opened
after June 30th of a calendar year will not be subject to the liquidation
for that calendar year.
Loomis Sayles Core Plus Bond Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -1.16%.
Loomis Sayles High Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -0.98%.
Loomis Sayles Investment Grade Bond Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -1.12%.
Loomis Sayles Limited Term Government and Agency Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -0.55%.
Loomis Sayles Massachusetts Tax Free Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was 0.10%.
Loomis Sayles Municipal Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -0.04%.
Loomis Sayles Strategic Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -1.08%.
2
<PAGE>
CDC NVEST INCOME FUNDS CLASS Y PROSPECTUS
Loomis Sayles Core Plus Bond Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -1.10%.
Loomis Sayles High Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -0.98%.
Loomis Sayles Investment Grade Bond Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -1.14%.
Loomis Sayles Limited Term Government and Agency Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -0.53%.
Loomis Sayles Strategic Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -1.09%.
3
<PAGE>
CDC NVEST INCOME FUNDS
CDC NVEST EQUITY FUNDS
Supplement dated April 29, 2005 to CDC Nvest Income Funds
Class Y Prospectus and CDC Nvest Equity Funds
Class Y Prospectus, each dated February 1, 2005,
each as may be supplemented from time to time
Effective May 1, 2005, the name of the fund family will change from CDC Nvest
Funds to IXIS Advisor Funds. Thus, all references to CDC Nvest Funds and
www.cdcnvestfunds.com are replaced with IXIS Advisor Funds and
www.ixisadvisorfunds.com, respectively.
Loomis Sayles Core Plus Bond Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -1.10%.
Loomis Sayles High Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class A shares total return year-to-date as of March 31, 2005
was -0.98%.
Loomis Sayles Investment Grade Bond Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -1.14%.
Loomis Sayles Limited Term Government and Agency Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -0.53%.
Loomis Sayles Strategic Income Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -1.09%.
Loomis Sayles Growth Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was -5.42%.
Loomis Sayles Research Fund
The following information is added to the section "Evaluating the Fund's Past
Performance":
The Fund's Class Y shares total return year-to-date as of March 31, 2005
was 0.35%.
SP256-0405
</TEXT>
</DOCUMENT>