N-CSR 1 dncsr.txt IXIS ADVISOR FUNDS TRUST II UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-242 IXIS Advisor Funds Trust II ---------------------------------------------------- (Exact name of Registrant as specified in charter) 399 Boylston Street, Boston, Massachusetts 02116 ---------------------------------------------------- (Address of principal executive offices) (Zip code) Coleen Downs Dinneen, Esq. IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 ---------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (617) 449-2810 Date of fiscal year end: September 30 Date of reporting period: September 30, 2005 Item 1. Reports to Stockholders. The Registrant's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: [LOGO] Income Funds Annual Report September 30, 2005 [LOGO] Loomis Sayles Core Plus Bond Fund Loomis Sayles High Income 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 TABLE OF CONTENTS Management Discussion and Performance.........Page 1 Schedule of InvestmentsPage 19 Financial Statements....Page 43 LOOMIS SAYLES CORE PLUS BOND FUND PORTFOLIO PROFILE Objective: Seeks a high level of current income consistent with what the fund considers reasonable risk. It invests primarily in U.S. corporate and U.S. government bonds. -------------------------------------------------------------------------------- Strategy: Invests primarily in U.S. corporate and U.S. government bonds -------------------------------------------------------------------------------- Fund Inception: November 7, 1973 -------------------------------------------------------------------------------- Managers: Peter W. Palfrey Richard G. Raczkowski Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFRX Class B NERBX Class C NECRX Class Y NERYX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. This fund may invest in lower-rated bonds with higher yields and increased risks; securities subject to prepayment risk; and foreign market securities with special risks. Management Discussion -------------------------------------------------------------------------------- The economic expansion continued to support corporate bonds, extending their long stretch of solid performance. Shorter- and intermediate-term issues came under pressure as the Federal Reserve Board continued to hike interest rates, in an effort to contain inflation. International bonds rose at first, then fell back late in the period when the U.S. dollar strengthened. For the fiscal year ended September 30, 2005, the total return on Class A shares of Loomis Sayles Core Plus Bond Fund was 2.43% at net asset value, including $0.56 in dividends reinvested during the period. This was slightly below the fund's broad-based, domestic benchmark, the Lehman Aggregate Bond Index, which returned 2.80% for the same period, and in line with Morningstar's Intermediate-Term Bond category, which averaged a 2.43% return. At the end of September 2005, the fund's 30-day SEC yield was 3.85%. CORPORATE AND INTERNATIONAL HOLDINGS PUSHED RETURNS HIGHER The fund's high-yield and investment-grade corporate bonds performed well during the period. As the economy expanded, investors grew less concerned about default risks and were drawn to corporate bonds because of their comparatively generous yields. Higher-grade corporate issues also contributed because they offer higher yields than Treasury securities. Although returns in many foreign markets were bolstered by the weak U.S. dollar during the first half of the fiscal year, the dollar's rally in the second half erased some of the fund's gains. We also trimmed the fund's duration during the period, making it less sensitive to changes in bond prices as interest rates moved higher. Toward the end of the period we edged longer, such that the fund's duration was essentially the same as the benchmark by the end of September - a neutral stance. MEDIA, TELECOM, AND FOOD COMPANIES ADDED TO RETURNS Strength in the Canadian dollar and revitalized operations aided the bonds of Alberta-based Shaw Communications, Canada's second-largest cable operator. In the United States, operational improvement and healthier finances helped the securities of Qwest, which provides telecommunications services in several western states. In addition, AT&T bonds moved up sharply on news of SBC's proposed acquisition of the former telephone giant. Good operating results energized the high-yield bonds of Dean Foods, a dairy products company. We sold these bonds when we felt their market price had risen to levels that fully reflected their value. Bonds of another high-yield holding, Ambev Cia De Bebidas, a Brazilian beverage company, moved higher when a Dutch firm with a higher credit rating acquired the company. TREASURY WEIGHTINGS AND SOME COMPANY-SPECIFIC ISSUES HINDERED RESULTS Early this year we were underweight in long-term Treasury securities in anticipation of upward pressure on interest rates. That position hurt the fund's comparative return when yields on longer-term Treasuries fell and prices moved higher. However, we recently began increasing holdings in longer-term Treasuries because rising short-term rates are likely to have less impact on the prices of these bonds. The downgrades to junk-bond status of Ford and General Motors undercut the fund's performance, although these positions were relatively small. Moreover, our remaining exposure to these companies is primarily to their credit subsidiaries, which were less affected than their automotive divisions. Operational issues and high fuel costs pressured the bonds of Allied Waste and we sold it. EASING BACK ON CORPORATES High energy prices are all but certain to take a toll on consumers, as sharp increases in energy prices inflate home heating bills and transportation costs. In addition, home equity lending has decelerated as housing markets cooled. High debt and low savings are burdening many households. All this suggests that consumers, who make up the bulk of U.S. economic activity, may cut back on spending. For now, we believe corporate issues should continue to perform well, and the economy will draw strength in the short-term from the massive rebuilding efforts slated for the Gulf Coast region. Nevertheless, we are positioning the portfolio more defensively against the possibility of shrinking economic growth. For example, we have been gradually raising overall quality by decreasing exposure to corporate issues in favor of government obligations and mortgage- and asset-backed securities. We are also investing in Treasury Inflation-Protected Securities, which are adjusted to offset the effects of inflation. 1 LOOMIS SAYLES CORE PLUS BOND FUND Investment Results through September 30, 2005 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/7/ [CHART] September 30, 1995 through September 30, 2005 Net Asset Maximum Sales Lehman Aggregte Lehman U.S. Value /1/ Charge /2/ Bond Index /3/ Credit Index /4/ ---------- ------------- --------------- ---------------- 9/30/1995 $10,000 $ 9,550 $10,000 $10,000 10/31/1995 10,133 9,677 10,130 10,130 11/30/1995 10,291 9,828 10,282 10,324 12/31/1995 10,440 9,970 10,426 10,494 1/31/1996 10,484 10,012 10,495 10,562 2/29/1996 10,257 9,795 10,313 10,311 3/31/1996 10,205 9,746 10,241 10,223 4/30/1996 10,120 9,664 10,184 10,138 5/31/1996 10,111 9,656 10,163 10,121 6/30/1996 10,258 9,797 10,299 10,269 7/31/1996 10,284 9,821 10,328 10,289 8/31/1996 10,284 9,821 10,310 10,257 9/30/1996 10,522 10,049 10,490 10,475 10/31/1996 10,790 10,304 10,722 10,761 11/30/1996 11,050 10,552 10,906 10,991 12/31/1996 10,921 10,430 10,805 10,839 1/31/1997 10,983 10,488 10,838 10,854 2/28/1997 11,052 10,555 10,865 10,900 3/31/1997 10,887 10,397 10,744 10,730 4/30/1997 11,007 10,512 10,905 10,892 5/31/1997 11,156 10,654 11,008 11,016 6/30/1997 11,352 10,841 11,139 11,172 7/31/1997 11,808 11,277 11,439 11,581 8/31/1997 11,607 11,085 11,342 11,410 9/30/1997 11,838 11,306 11,509 11,609 10/31/1997 11,951 11,413 11,676 11,756 11/30/1997 12,006 11,466 11,730 11,823 12/31/1997 12,130 11,584 11,848 11,948 1/31/1998 12,291 11,738 12,000 12,090 2/28/1998 12,330 11,775 11,991 12,086 3/31/1998 12,407 11,848 12,032 12,130 4/30/1998 12,464 11,903 12,095 12,207 5/31/1998 12,591 12,024 12,210 12,352 6/30/1998 12,637 12,069 12,313 12,443 7/31/1998 12,605 12,037 12,339 12,432 8/31/1998 12,480 11,918 12,540 12,490 9/30/1998 12,962 12,378 12,834 12,894 10/31/1998 12,825 12,248 12,766 12,696 11/30/1998 13,081 12,492 12,838 12,935 12/31/1998 13,102 12,512 12,877 12,972 1/31/1999 13,243 12,647 12,969 13,101 2/28/1999 12,976 12,392 12,742 12,790 3/31/1999 13,155 12,563 12,813 12,880 4/30/1999 13,259 12,662 12,854 12,918 5/31/1999 12,971 12,387 12,741 12,745 6/30/1999 12,888 12,308 12,701 12,679 7/31/1999 12,838 12,260 12,646 12,608 8/31/1999 12,786 12,211 12,640 12,578 9/30/1999 13,002 12,417 12,787 12,714 10/31/1999 13,032 12,446 12,834 12,773 11/30/1999 13,052 12,464 12,833 12,786 12/31/1999 13,058 12,471 12,771 12,719 1/31/2000 13,003 12,418 12,729 12,674 2/29/2000 13,150 12,559 12,883 12,791 3/31/2000 13,331 12,731 13,053 12,900 4/30/2000 13,085 12,496 13,016 12,787 5/31/2000 12,988 12,404 13,010 12,739 6/30/2000 13,382 12,780 13,280 13,059 7/31/2000 13,461 12,855 13,401 13,218 8/31/2000 13,635 13,021 13,595 13,390 9/30/2000 13,655 13,041 13,681 13,460 10/31/2000 13,577 12,966 13,771 13,473 11/30/2000 13,706 13,089 13,996 13,648 12/31/2000 14,024 13,393 14,256 13,913 1/31/2001 14,372 13,725 14,489 14,293 2/28/2001 14,514 13,861 14,615 14,418 3/31/2001 14,532 13,878 14,689 14,507 4/30/2001 14,449 13,799 14,628 14,455 5/31/2001 14,541 13,887 14,716 14,588 6/30/2001 14,546 13,891 14,771 14,662 7/31/2001 14,914 14,243 15,102 15,044 8/31/2001 15,079 14,401 15,275 15,246 9/30/2001 15,016 14,340 15,453 15,224 10/31/2001 15,312 14,623 15,776 15,601 11/30/2001 15,211 14,526 15,558 15,466 12/31/2001 15,040 14,363 15,460 15,360 1/31/2002 15,006 14,330 15,585 15,490 2/28/2002 14,947 14,275 15,736 15,607 3/31/2002 14,784 14,119 15,474 15,318 4/30/2002 14,923 14,252 15,774 15,532 5/31/2002 15,049 14,371 15,908 15,737 6/30/2002 14,686 14,025 16,046 15,763 7/31/2002 14,516 13,862 16,239 15,755 8/31/2002 14,846 14,178 16,514 16,163 9/30/2002 14,895 14,225 16,781 16,470 10/31/2002 14,812 14,146 16,705 16,279 11/30/2002 15,093 14,414 16,700 16,490 12/31/2002 15,468 14,772 17,045 16,976 1/31/2003 15,554 14,854 17,060 17,032 2/28/2003 15,778 15,068 17,296 17,372 3/31/2003 15,824 15,112 17,282 17,385 4/30/2003 16,062 15,339 17,425 17,706 5/31/2003 16,381 15,644 17,750 18,265 6/30/2003 16,407 15,669 17,715 18,220 7/31/2003 15,845 15,132 17,119 17,443 8/31/2003 15,997 15,277 17,233 17,580 9/30/2003 16,457 15,717 17,689 18,194 10/31/2003 16,416 15,678 17,524 18,000 11/30/2003 16,516 15,773 17,566 18,082 12/31/2003 16,784 16,029 17,745 18,284 1/31/2004 16,928 16,167 17,887 18,469 2/29/2004 17,059 16,291 18,081 18,701 3/31/2004 17,187 16,413 18,216 18,882 4/30/2004 16,748 15,995 17,742 18,287 5/31/2004 16,601 15,854 17,671 18,158 6/30/2004 16,702 15,951 17,771 18,235 7/31/2004 16,891 16,131 17,947 18,460 8/31/2004 17,229 16,453 18,290 18,896 9/30/2004 17,327 16,547 18,339 19,002 10/31/2004 17,516 16,728 18,493 19,186 11/30/2004 17,481 16,694 18,346 18,993 12/31/2004 17,640 16,846 18,514 19,241 1/31/2005 17,682 16,887 18,631 19,394 2/28/2005 17,665 16,870 18,521 19,280 3/31/2005 17,435 16,650 18,426 19,040 4/30/2005 17,508 16,720 18,675 19,295 5/31/2005 17,671 16,876 18,877 19,565 6/30/2005 17,788 16,987 18,980 19,720 7/31/2005 17,738 16,940 18,807 19,523 8/31/2005 17,919 17,112 19,048 19,819 9/30/2005 17,740 16,939 18,852 19,523 Average Annual Total Returns -- September 30, 2005
1 YEAR/7/ 5 YEARS/7/ 10 YEARS/7/ CLASS A (Inception 11/7/73) Net Asset Value/1/ 2.43% 5.38% 5.90% With Maximum Sales Charge/2/ -2.17 4.41 5.41 CLASS B (Inception 9/13/93) Net Asset Value/1/ 1.58 4.60 5.11 With CDSC/5/ -3.29 4.26 5.11 CLASS C (Inception 12/30/94) Net Asset Value/1/ 1.59 4.59 5.11 With CDSC/5/ 0.61 4.59 5.11 CLASS Y (Inception 12/30/94) Net Asset Value/1/ 2.68 5.80 6.25 ------------------------------------------------------------------------ COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Aggregate Bond Index/3/ 2.80% 6.62% 6.55% Lehman U.S. Credit Index/4/ 2.74 7.72 6.92 Morningstar Int.-Term Bond Fund Avg./6/ 2.43 5.98 5.78
All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of any dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.ixisadvisorfunds.com. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 3/31/05 9/30/05 ---------------------------------------- Aaa 46.7 51.4 ---------------------------------------- Aa 0.3 0.3 ---------------------------------------- A 4.8 3.3 ---------------------------------------- Baa 26.7 22.5 ---------------------------------------- Ba 15.9 15.8 ---------------------------------------- B 2.6 2.7 ---------------------------------------- Not rated* 1.1 2.2 ---------------------------------------- Short-term & other 1.9 1.8 ----------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 3/31/05 9/30/05 -------------------------------------------------- 1 year or less 2.8 6.0 -------------------------------------------------- 1-5 years 51.7 46.1 -------------------------------------------------- 5-10 years 34.6 31.8 -------------------------------------------------- 10+ years 10.9 16.1 -------------------------------------------------- Average Effective Maturity 6.2 years 6.8 years --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes the maximum sales charge of 4.50%. /3/Lehman Aggregate Bond Index is 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. /4/Lehman U.S. Credit Index is an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, U.S. investment-grade corporate debt, and foreign debt that meets specific maturity, liquidity and quality requirements. /5/Performance for Class B shares assumes a maximum 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C share performance assumes a 1.00% CDSC applied when you sell shares within one year of purchase. /6/Morningstar Intermediate-Term Bond Fund Average is the average performance without sales charges of funds with similar investment objectives, as calculated by Morningstar, Inc. /7/Fund performance has been increased by expense waivers, without which performance would have been lower. 2 LOOMIS SAYLES HIGH INCOME FUND PORTFOLIO PROFILE Objective: Seeks high current income plus the opportunity for capital appreciation to produce a high total return -------------------------------------------------------------------------------- Strategy: Invests primarily in lower-quality fixed-income securities -------------------------------------------------------------------------------- Fund Inception: February 22, 1984 -------------------------------------------------------------------------------- Managers: Kathleen C. Gaffney Matthew J. Eagan Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFHX Class B NEHBX Class C NEHCX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest-rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. This fund emphasizes lower-rated, high-yield bonds that may involve extra risks. It also invests in foreign securities which have special risks, including political, economic, regulatory and currency risks. Management Discussion -------------------------------------------------------------------------------- Emerging market issues and bonds denominated in strong currencies were the fund's best-performing sectors over the fiscal year ended September 30, 2005. Good security selection was another factor driving the fund's results. For the fiscal year, the total return on Class A shares of Loomis Sayles High Income Fund was 10.34% at net asset value, including $0.33 in reinvested dividends. The fund's benchmark, the Lehman High Yield Composite Index, returned 6.71% for the same period, while Morningstar's High Yield Bond category averaged 6.13%. As of September 30, 2005, the fund's 30-day SEC yield was 6.25%. EMERGING MARKETS, STRONG CURRENCIES, AND CONVERTIBLES WERE POSITIVES Investor interest in emerging market bonds was strong during the period, as credit conditions improved and investors went in search of higher yields than were available in more developed nations. In particular, the fund benefited from holdings in the Cayman Islands and Latin America, where strengthening currencies fueled performance. Issues of the Inter-American Development Bank were the fund's best performers. The value of these bonds reflects movements in Brazil's real, which rose sharply this year. Strength in Mexico's peso helped Mexican bonos - bonds issued by the United Mexican States. A climb in the value of Colombia's peso boosted holdings in that country. Convertible bonds, which can be converted into the issuer's common stock under certain conditions, aided performance in the energy and pharmaceutical sectors. TELECOM, CYCLICALS, AND ENERGY LED INDUSTRY SECTORS Communications companies benefited from rising demand across the industry. Bonds of Qwest, which offers telecommunications services in several western states, were among the fund's best-performing issues over this period. Good selection among consumer cyclical companies was also a positive. Holdings of retailer Woolworth Corporation did well, as the economic expansion continued. And steep rises in energy prices boosted the bonds of Williams Companies, a natural gas exploration company. The fund experienced good results from most industry allocations. However, weakness in the baht, Thailand's currency, led to underperformance by banks in that country. In finance, GMAC's bonds suffered when bonds of its parent company, General Motors, sank to junk status. We eliminated the fund's Northwest Airlines holdings prior to the company's bankruptcy filing. Soaring fuel costs and other pressures have put severe financial strain on the airline industry, and pushed several carriers into bankruptcy. Bonds of auto-parts giant, Delphi Corporation, also fell as financial and operating problems battered the automobile sector, as did the fund's holdings in Lear Corporation, another automotive parts supplier. Strength in several consumer cyclical areas, including drug stores, department stores, and food and travel companies offset the negative impact of the auto sector. HIGHER RATES MAY SLOW ECONOMIC GROWTH We think interest rates will continue to rise, taking some of the steam out of the economic expansion and putting pressure on bond prices. Energy prices may also become economic hurdles. With those concerns in mind, we are reducing the portfolio's duration, or its sensitivity to changes in rates. In the United States, we do not believe corporate credit quality will deteriorate, but prices of corporate bonds have risen for several quarters, reflecting the economy's vigor as yields declined. That has left prices high and credit spreads - the difference in yields between corporate and Treasury issues - very narrow. This leaves little room for further price gains. As the global economy continues to strengthen, we have sought to take advantage of opportunities among sovereign issues (bonds issued by foreign governments) in Latin America and elsewhere. We continue to favor some emerging markets and other non-U.S. sectors where the currency outlook appears attractive at this time. We are also looking for opportunities among selected convertible issues. 3 LOOMIS SAYLES HIGH INCOME FUND Investment Results through September 30, 2005 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/6/ [CHART] September 30, 1995 through September 30, 2005 Net Asset Maximum Sales Lehman High Yield Value /1/ Charge /2/ Composite Index/3/ --------- ------------- ----------------- 9/30/1995 $10,000 $ 9,550 $10,000 10/31/1995 10,040 9,588 10,062 11/30/1995 10,058 9,605 10,150 12/31/1995 10,126 9,671 10,310 1/31/1996 10,312 9,848 10,491 2/29/1996 10,383 9,916 10,500 3/31/1996 10,363 9,897 10,493 4/30/1996 10,488 10,016 10,516 5/31/1996 10,601 10,124 10,579 6/30/1996 10,669 10,189 10,666 7/31/1996 10,772 10,287 10,716 8/31/1996 10,900 10,410 10,832 9/30/1996 11,236 10,730 11,093 10/31/1996 11,211 10,707 11,178 11/30/1996 11,442 10,927 11,401 12/31/1996 11,636 11,112 11,480 1/31/1997 11,645 11,121 11,585 2/28/1997 12,053 11,510 11,779 3/31/1997 11,892 11,357 11,609 4/30/1997 11,959 11,421 11,722 5/31/1997 12,356 11,800 11,982 6/30/1997 12,436 11,877 12,148 7/31/1997 12,776 12,201 12,482 8/31/1997 12,857 12,279 12,453 9/30/1997 13,241 12,645 12,700 10/31/1997 13,125 12,535 12,712 11/30/1997 13,301 12,703 12,833 12/31/1997 13,425 12,821 12,946 1/31/1998 13,626 13,013 13,179 2/28/1998 13,607 12,995 13,256 3/31/1998 13,747 13,129 13,380 4/30/1998 13,822 13,200 13,433 5/31/1998 13,800 13,179 13,480 6/30/1998 13,847 13,223 13,528 7/31/1998 13,826 13,204 13,605 8/31/1998 12,866 12,287 12,854 9/30/1998 12,744 12,171 12,913 10/31/1998 12,476 11,915 12,648 11/30/1998 13,372 12,770 13,173 12/31/1998 13,194 12,601 13,187 1/31/1999 13,491 12,884 13,383 2/28/1999 13,576 12,965 13,304 3/31/1999 13,796 13,175 13,431 4/30/1999 14,093 13,459 13,691 5/31/1999 13,748 13,129 13,506 6/30/1999 13,709 13,092 13,477 7/31/1999 13,654 13,040 13,531 8/31/1999 13,441 12,836 13,382 9/30/1999 13,354 12,753 13,286 10/31/1999 13,474 12,868 13,197 11/30/1999 13,563 12,953 13,351 12/31/1999 13,722 13,104 13,503 1/31/2000 13,569 12,959 13,444 2/29/2000 13,630 13,017 13,470 3/31/2000 13,219 12,624 13,187 4/30/2000 13,211 12,616 13,208 5/31/2000 12,842 12,264 13,073 6/30/2000 13,231 12,636 13,339 7/31/2000 13,309 12,710 13,441 8/31/2000 13,256 12,660 13,533 9/30/2000 12,982 12,398 13,415 10/31/2000 12,334 11,779 12,985 11/30/2000 11,309 10,800 12,471 12/31/2000 11,511 10,993 12,712 1/31/2001 12,848 12,270 13,664 2/28/2001 12,784 12,208 13,846 3/31/2001 12,130 11,585 13,520 4/30/2001 11,758 11,229 13,351 5/31/2001 11,790 11,259 13,592 6/30/2001 11,113 10,613 13,211 7/31/2001 11,332 10,822 13,405 8/31/2001 11,245 10,739 13,563 9/30/2001 10,221 9,761 12,652 10/31/2001 10,109 9,654 12,965 11/30/2001 10,437 9,967 13,437 12/31/2001 10,285 9,822 13,383 1/31/2002 10,349 9,883 13,476 2/28/2002 10,034 9,583 13,288 3/31/2002 10,304 9,841 13,608 4/30/2002 10,220 9,760 13,825 5/31/2002 10,071 9,617 13,748 6/30/2002 9,351 8,930 12,735 7/31/2002 8,720 8,328 12,178 8/31/2002 9,026 8,620 12,526 9/30/2002 8,692 8,300 12,361 10/31/2002 8,687 8,296 12,253 11/30/2002 9,265 8,848 13,012 12/31/2002 9,375 8,953 13,194 1/31/2003 9,574 9,143 13,634 2/28/2003 9,708 9,271 13,802 3/31/2003 9,958 9,510 14,199 4/30/2003 10,534 10,060 15,041 5/31/2003 10,718 10,236 15,197 6/30/2003 10,950 10,457 15,634 7/31/2003 10,732 10,249 15,462 8/31/2003 10,846 10,358 15,639 9/30/2003 11,201 10,697 16,067 10/31/2003 11,440 10,925 16,391 11/30/2003 11,679 11,154 16,640 12/31/2003 11,991 11,451 17,017 1/31/2004 12,177 11,629 17,342 2/29/2004 12,123 11,578 17,298 3/31/2004 12,192 11,644 17,416 4/30/2004 11,913 11,377 17,297 5/31/2004 11,605 11,082 17,004 6/30/2004 11,855 11,322 17,248 7/31/2004 11,951 11,413 17,482 8/31/2004 12,278 11,725 17,825 9/30/2004 12,448 11,888 18,084 10/31/2004 12,723 12,151 18,411 11/30/2004 12,924 12,343 18,633 12/31/2004 13,232 12,636 18,911 1/31/2005 13,276 12,678 18,886 2/28/2005 13,584 12,972 19,164 3/31/2005 13,103 12,513 18,606 4/30/2005 12,835 12,258 18,425 5/31/2005 13,169 12,577 18,752 6/30/2005 13,483 12,876 19,120 7/31/2005 13,694 13,078 19,455 8/31/2005 13,767 13,147 19,492 9/30/2005 13,736 13,116 19,297 Average Annual Total Returns -- September 30, 2005
SINCE 1 YEAR/6/ 5 YEARS/6/ 10 YEARS/6/ INCEPTION/6/ CLASS A (Inception 2/22/84) Net Asset Value/1/ 10.34% 1.13% 3.23% -- With Maximum Sales Charge/2/ 5.31 0.21 2.75 -- CLASS B (Inception 9/20/93) Net Asset Value/1/ 9.29 0.35 2.48 -- With CDSC/4/ 4.29 0.08 2.48 -- CLASS C (Inception 3/2/98) Net Asset Value/1/ 9.29 0.35 -- -0.65% With CDSC/4/ 8.29 0.35 -- -0.65 -------------------------------------------------------------------------------------- SINCE CLASS C COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/7/ Lehman High Yield Composite Index/3/ 6.71% 7.54% 6.79% 5.00% Morningstar High Yield Bond Fund Avg./5/ 6.13 5.81 5.64 3.24
All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.ixisadvisorfunds.com. Performance history includes periods from a predecessor fund. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 3/31/05 9/30/05 ------------------------------------------ Aaa 2.8 -- ------------------------------------------ Aa 1.0 0.9 ------------------------------------------ Baa 3.0 6.6 ------------------------------------------ Ba 34.2 29.7 ------------------------------------------ B 26.7 23.6 ------------------------------------------ Caa 15.7 16.3 ------------------------------------------ Ca 1.2 0.5 ------------------------------------------ Not rated* 13.8 21.0 ------------------------------------------ Short-term & other 1.6 1.4 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 3/31/05 9/30/05 ---------------------------------------------------- 1 year or less 1.5 1.8 ---------------------------------------------------- 1-5 years 22.3 24.4 ---------------------------------------------------- 5-10 years 34.4 31.2 ---------------------------------------------------- 10+ years 41.8 42.6 ---------------------------------------------------- Average Effective Maturity 12.2 years 12.3 years ----------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes the maximum sales charge of 4.50%. /3/Lehman High Yield Composite Index is a market-weighted, unmanaged index of fixed-rate, non-investment grade debt. /4/Performance for Class B shares assumes a maximum 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C share performance assumes a 1.00% CDSC applied when you sell shares within one year of purchase. /5/Morningstar High Yield Bond Fund Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. /6/Fund performance has been increased by expense waivers, without which performance would have been lower. /7/The since-inception comparative performance figures shown for Class C shares are calculated from 3/31/98. 4 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND PORTFOLIO PROFILE Objective: Seeks a high current return consistent with preservation of capital -------------------------------------------------------------------------------- Strategy: Invests primarily in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities -------------------------------------------------------------------------------- Fund Inception: January 3, 1989 -------------------------------------------------------------------------------- Managers: John Hyll Clifton V. Rowe Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFLX Class B NELBX Class C NECLX Class Y NELYX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. Securities issued by the U.S. government are guaranteed by the U.S. government if held to maturity; mutual funds that invest in these securities are not guaranteed. Securities issued by U.S. government agencies may not be government guaranteed. Management Discussion -------------------------------------------------------------------------------- Short-term interest rates rose in response to a series of moves by the Federal Reserve Board during the 12 months ended September 30, 2005, but long-term rates declined, apparently in response to the Fed's commitment to fighting inflation. Investors seeking higher yields bid up prices of long-term bonds, but prices of high-quality intermediate bonds slumped, influenced by gradually rising rates and sluggish demand. Loomis Sayles Limited Term Government and Agency Fund's total return for the fiscal year ended September 30, 2005 was 1.05% based on the net asset value of Class A shares and $0.33 in dividends reinvested. The fund outperformed its benchmark, the Lehman 1-5 Year Government Bond Index, which had a total return of 0.93% for the 12-month period, but it was slightly behind the 1.09% average return on the funds in Morningstar's Short Government category. The fund's 30-day SEC yield was 2.78% at the end of September 2005. MORTGAGE-BACKED SECURITIES GAVE THE FUND AN EDGE Within the fund's universe of intermediate government-related sectors, mortgage-backed securities were among the best performers, primarily because of their yield advantage over other government securities with comparable maturities, and modest price appreciation. Investor demand for mortgage securities increased during the fiscal year, as prepayment concerns eased. The fund's emphasis on these securities was primarily responsible for its strong performance relative to its benchmark. Government agency bonds, such as those issued by Fannie Mae and Freddie Mac, also performed well due to their yield advantage, although the fund had a relatively modest position in these issues, which limited its advance during the period. At the beginning of the fiscal year, we trimmed the fund's position in mortgage-backed securities because valuations seemed high to us. However, in the latter part of the year, we increased mortgage securities again as their yield advantage increased. The net result was that the fund had a larger mortgage position at the end of fiscal 2005 than it did at the beginning of the year. BONDS IN THE LONGER AND SHORTER RANGE WERE THE BEST PERFORMERS Portfolio holdings scheduled to mature in seven or more years were the fund's best performers during the period because of their longer maturity. Securities with very short maturities (less than two years) also did well, as their prices tend to be less volatile, but securities maturing in the three- to seven-year range were more sensitive to increases in interest rates. During the past 12 months, the fund's duration (its price sensitivity to changes in interest rates) remained fairly stable and was modestly shorter than that of its peer group, which meant that its income was slightly lower. Although we expect interest rates on short- and intermediate-term bonds to continue to rise, we believe most of the increases are behind us. At this point in the cycle, the yield curve is fairly flat - that is, the difference between long- and short-term interest rates is narrow. It is possible for the curve to flatten even more, but right now our expectation for further increases in interest rates is modest. Consequently, we will keep the fund's duration close to that of its benchmark, which is essentially a neutral stance. If the yield curve becomes significantly steeper, we will look for opportunities at the longer end of the fund's universe. OUTLOOK IS FOR FURTHER FED TIGHTENING For the balance of 2005, if not beyond, we expect the Fed to continue its program of gradually raising short-term interest rates in an effort to keep economic growth in check and reduce inflationary pressures. However, we also believe that much of the rise in short-term rates is behind us, and we look for rates to move within a fairly narrow range. Although past performance cannot assure future results, mortgage-backed securities historically have performed well in this type of environment. 5 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND Investment Results through September 30, 2005 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares [CHART] September 30, 1995 through September 30, 2005 Lehman Int. Lehman 1-5 Year Net Asset Maximum Sales Government Bond Government Bond Value /1/ Charge /2/ Index /3/ Index/4/ --------- ------------- --------------- --------------- 9/30/1995 $10,000 $ 9,700 $10,000 $10,000 10/31/1995 10,138 9,834 10,110 10,096 11/30/1995 10,260 9,952 10,233 10,201 12/31/1995 10,367 10,056 10,334 10,288 1/31/1996 10,424 10,112 10,421 10,380 2/29/1996 10,299 9,990 10,311 10,310 3/31/1996 10,234 9,927 10,264 10,279 4/30/1996 10,208 9,902 10,234 10,271 5/31/1996 10,173 9,868 10,229 10,278 6/30/1996 10,252 9,945 10,332 10,367 7/31/1996 10,275 9,967 10,364 10,404 8/31/1996 10,271 9,963 10,376 10,430 9/30/1996 10,401 10,089 10,510 10,543 10/31/1996 10,569 10,252 10,683 10,688 11/30/1996 10,701 10,380 10,812 10,788 12/31/1996 10,615 10,297 10,753 10,761 1/31/1997 10,660 10,340 10,795 10,810 2/28/1997 10,674 10,354 10,812 10,830 3/31/1997 10,618 10,300 10,751 10,798 4/30/1997 10,712 10,390 10,872 10,902 5/31/1997 10,777 10,454 10,957 10,980 6/30/1997 10,880 10,554 11,051 11,065 7/31/1997 11,060 10,728 11,254 11,224 8/31/1997 11,041 10,710 11,211 11,211 9/30/1997 11,156 10,821 11,333 11,313 10/31/1997 11,281 10,943 11,465 11,419 11/30/1997 11,300 10,961 11,490 11,442 12/31/1997 11,386 11,044 11,584 11,527 1/31/1998 11,551 11,205 11,735 11,659 2/28/1998 11,525 11,179 11,723 11,657 3/31/1998 11,505 11,160 11,759 11,697 4/30/1998 11,550 11,203 11,815 11,753 5/31/1998 11,625 11,276 11,897 11,823 6/30/1998 11,710 11,359 11,977 11,890 7/31/1998 11,725 11,373 12,023 11,941 8/31/1998 11,913 11,555 12,250 12,125 9/30/1998 12,253 11,886 12,536 12,345 10/31/1998 12,134 11,770 12,557 12,394 11/30/1998 12,097 11,734 12,518 12,366 12/31/1998 12,122 11,759 12,567 12,409 1/31/1999 12,188 11,822 12,623 12,462 2/28/1999 12,048 11,686 12,450 12,357 3/31/1999 12,104 11,741 12,532 12,443 4/30/1999 12,139 11,775 12,566 12,479 5/31/1999 12,048 11,687 12,489 12,438 6/30/1999 11,970 11,611 12,507 12,473 7/31/1999 11,912 11,555 12,509 12,493 8/31/1999 11,908 11,550 12,527 12,524 9/30/1999 12,043 11,682 12,634 12,618 10/31/1999 12,066 11,704 12,659 12,647 11/30/1999 12,078 11,716 12,668 12,663 12/31/1999 12,040 11,679 12,628 12,652 1/31/2000 11,988 11,628 12,586 12,626 2/29/2000 12,095 11,732 12,690 12,722 3/31/2000 12,245 11,877 12,835 12,823 4/30/2000 12,205 11,839 12,830 12,839 5/31/2000 12,212 11,845 12,864 12,882 6/30/2000 12,386 12,015 13,068 13,051 7/31/2000 12,448 12,075 13,155 13,136 8/31/2000 12,579 12,201 13,303 13,255 9/30/2000 12,676 12,295 13,419 13,370 10/31/2000 12,721 12,340 13,511 13,449 11/30/2000 12,894 12,507 13,709 13,604 12/31/2000 13,045 12,654 13,951 13,802 1/31/2001 13,211 12,815 14,136 13,991 2/28/2001 13,310 12,911 14,266 14,097 3/31/2001 13,394 12,992 14,370 14,208 4/30/2001 13,367 12,966 14,324 14,218 5/31/2001 13,434 13,031 14,384 14,288 6/30/2001 13,443 13,040 14,429 14,336 7/31/2001 13,693 13,282 14,699 14,546 8/31/2001 13,784 13,370 14,829 14,654 9/30/2001 14,000 13,580 15,146 14,940 10/31/2001 14,210 13,784 15,382 15,119 11/30/2001 14,025 13,605 15,198 15,020 12/31/2001 13,940 13,522 15,125 14,995 1/31/2002 14,014 13,593 15,190 15,043 2/28/2002 14,152 13,728 15,316 15,141 3/31/2002 13,949 13,530 15,085 14,983 4/30/2002 14,204 13,778 15,367 15,208 5/31/2002 14,300 13,871 15,475 15,293 6/30/2002 14,443 14,010 15,668 15,454 7/31/2002 14,650 14,210 15,963 15,694 8/31/2002 14,794 14,350 16,146 15,805 9/30/2002 14,927 14,479 16,423 15,996 10/31/2002 14,960 14,511 16,412 16,022 11/30/2002 14,891 14,444 16,282 15,935 12/31/2002 15,077 14,625 16,583 16,149 1/31/2003 15,069 14,617 16,546 16,134 2/28/2003 15,200 14,744 16,733 16,251 3/31/2003 15,190 14,734 16,736 16,275 4/30/2003 15,216 14,759 16,784 16,313 5/31/2003 15,308 14,849 17,047 16,456 6/30/2003 15,281 14,822 17,019 16,463 7/31/2003 14,963 14,514 16,606 16,245 8/31/2003 15,012 14,562 16,636 16,253 9/30/2003 15,262 14,804 16,997 16,499 10/31/2003 15,155 14,700 16,830 16,390 11/30/2003 15,196 14,740 16,831 16,382 12/31/2003 15,302 14,843 16,962 16,498 1/31/2004 15,368 14,907 17,054 16,557 2/29/2004 15,486 15,022 17,217 16,679 3/31/2004 15,545 15,079 17,337 16,764 4/30/2004 15,265 14,807 16,949 16,497 5/31/2004 15,215 14,758 16,895 16,462 6/30/2004 15,273 14,814 16,938 16,480 7/31/2004 15,358 14,897 17,060 16,568 8/31/2004 15,552 15,085 17,314 16,747 9/30/2004 15,547 15,081 17,320 16,740 10/31/2004 15,628 15,159 17,426 16,817 11/30/2004 15,558 15,091 17,264 16,697 12/31/2004 15,609 15,141 17,358 16,752 1/31/2005 15,631 15,162 17,380 16,747 2/28/2005 15,570 15,103 17,283 16,680 3/31/2005 15,523 15,057 17,241 16,658 4/30/2005 15,660 15,190 17,442 16,796 5/31/2005 15,740 15,267 17,581 16,889 6/30/2005 15,763 15,290 17,638 16,929 7/31/2005 15,692 15,221 17,488 16,835 8/31/2005 15,802 15,328 17,682 16,979 9/30/2005 15,711 15,238 17,546 16,896 Average Annual Total Returns -- September 30, 2005
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 1/3/89) Net Asset Value/1/ 1.05% 4.39% 4.62% With Maximum Sales Charge/2/ -1.98 3.76 4.30 CLASS B (Inception 9/27/93) Net Asset Value/1/ 0.29 3.69 3.93 With CDSC/5/ -4.61 3.35 3.93 CLASS C (Inception 12/30/94) Net Asset Value/1/ 0.21 3.69 3.92 With CDSC/5/ -0.77 3.69 3.92 CLASS Y (Inception 3/31/94)/7/ Net Asset Value/1/ 1.24 4.73 4.98 ------------------------------------------------------------ COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman 1-5 Yr Gov't Bond Index/4/ 0.93% 4.79% 5.39% Lehman Int. Gov't Bond Index/3/ 1.31 5.51 5.78 Morningstar Short Gov't Fund Avg./6/ 1.09 4.10 4.68
All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.ixisadvisorfunds.com. Performance history includes periods from a predecessor fund. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of FUND COMPOSITION 3/31/05 9/30/05 ------------------------------------------------------ Mortgage Related 33.5 55.8 ------------------------------------------------------ Treasuries 50.8 31.0 ------------------------------------------------------ Government Agencies 10.3 7.7 ------------------------------------------------------ Asset Backed Securities 4.1 4.3 ------------------------------------------------------ Short-Term Investments & Other 1.3 1.2 ------------------------------------------------------ % of Net Assets as of EFFECTIVE MATURITY 3/31/05 9/30/05 ------------------------------------------------------ 1 year or less 10.6 9.3 ------------------------------------------------------ 1-5 years 73.7 80.9 ------------------------------------------------------ 5-10 years 12.1 5.9 ------------------------------------------------------ 10+ years 3.6 3.9 ------------------------------------------------------ Average Effective Maturity 3.3 years 3.5 years ------------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes the maximum sales charge of 3.00%. /3/Lehman Intermediate Government Bond Index is an unmanaged index of bonds issued by the U.S. government and its agencies, with maturities between one and ten years. /4/Lehman 1-5 Year Government Bond Index is an unmanaged, market-weighted index of bonds issued by the U.S. government and its agencies, with maturities between 1 and 5 years. /5/Performance for Class B shares assumes a maximum 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C share performance assumes a 1.00% CDSC applied when you sell shares within one year of purchase. /6/Morningstar Short Government Fund Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. /7/Fund performance has been increased by expense waivers, without which performance would have been lower. Note: Lehman 1-5 Year Government Bond Index replaces the Lehman Intermediate Government Bond Index as the fund's benchmark because the fund's advisor believes it is more representative of the types of securities in which the fund can invest. 6 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND PORTFOLIO PROFILE Objective: Seeks to maintain a high level of current income exempt from federal and Massachusetts personal income taxes -------------------------------------------------------------------------------- Strategy: Invests primarily in Massachusetts municipal bonds, including general obligation bonds and issues secured by specific revenue streams -------------------------------------------------------------------------------- Inception Date: March 23, 1984 -------------------------------------------------------------------------------- Manager: Martha A. Strom Robert Payne Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFMX Class B NEMBX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. This fund concentrates in a single geographic region, which can affect your fund's performance. Some income may be subject to federal and state taxes. Capital gains are fully taxable. Management Discussion -------------------------------------------------------------------------------- Loomis Sayles Massachusetts Tax Free Income Fund provided a total return of 3.90% for the fiscal year ended September 30, 2005, based on the net asset value of Class A shares and $0.60 in dividends reinvested during the period. This was slightly behind the fund's benchmark, the Lehman Municipal Bond Index, which returned 4.05% for the period, but it was above the 2.84% average return on Morningstar's Muni Massachusetts category. The fund's 30-day SEC yield at the end of September was 2.97%, equivalent to 4.81% adjusted for the combined maximum federal and Massachusetts income tax rates of 38.45%. During the 12-month period, interest rates moved in different directions. Short-term rates rose in response to the Federal Reserve Board's policy of gradually raising the federal funds rate, while long-term rates generally trended down. This led to what is described as a flattening yield curve, where the spread between long- and short-term interest rates becomes narrow. Rates on municipal bonds typically respond to the same forces as taxable rates, but they tend to be less volatile. INSURANCE, CREDIT QUALITY, AND YIELD MOTIVATED INVESTORS Insured bonds, which experienced strong demand from individual investors, were among the best performers in the municipal market this year. Although the fund benefited from this trend, insured bonds account for a smaller portion of the fund's portfolio than the index. At the same time, prospects for high tax-free income attracted investors to municipal bonds issued to benefit institutions of higher learning and healthcare facilities. These included Massachusetts bonds issued for Mount Holyoke College, which combine a higher yield and a long maturity (2031). High current income and an improving credit rating also stimulated demand for Massachusetts bonds issued for Nichols College. And Catholic Health East bonds rose in price when one of the major rating agencies raised the hospital's credit rating, stimulating demand for this high-coupon, long-term bond. HOUSING AND SHORTER MATURITIES WERE LESS ATTRACTIVE Housing bonds have not done as well because investors were concerned that homeowners would take advantage of low interest rates to refinance mortgages. Bonds with shorter maturities also underperformed as a result of the rising interest-rate environment. The fund's holdings in municipal bonds issued for New England Education Loan Marketing Corp. delivered less-than-stellar performance because they are scheduled to mature in 2009 - a relatively short period. However, they remain in the portfolio because they have an attractive coupon and provide diversification. Some fund holdings were pre-refunded during the period, which effectively shortened their maturities. When a bond is pre-refunded, the issuer refinances an existing, higher-coupon bond by issuing new bonds at lower interest rates. The proceeds of the older issue are invested in high-quality paper - usually U.S. Treasury securities - and the maturity date moves up to the old bond's first call date. While pre-refunding effectively raises the credit rating of the new bond issue, bringing up its price, it also shortens the bond's maturity. The fund's holdings in Massachusetts Bay Transportation Authority bonds, scheduled to mature in 2030, were pre-refunded in March. The resulting price appreciation made this one of the fund's best performers at mid-year, but its new, shorter maturity (2010) subsequently reduced demand and the price of the bonds declined. INTEREST RATES EXPECTED TO FLUCTUATE WITHIN A NARROW RANGE Since the Fed still appears to be concerned about the potential for inflation, we believe they are likely to continue to raise interest rates in slow, steady increments. Our forecast is for market rates to continue to fluctuate, reflecting demand, but within a fairly narrow band. Credit trends in the municipal market seem stable, especially in relation to the taxable markets. We will continue to seek out attractive opportunities to add to the fund's yield. 7 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND Investment Results through September 30, 2005 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/5/ [CHART] September 30, 1995 through September 30, 2005 Net Asset Maximum Sales Lehman Municipal Value /1/ Charge /2/ Bond Index /3/ --------- ------------- ---------------- 9/30/1995 $10,000 $ 9,575 $10,000 10/31/1995 10,168 9,736 10,145 11/30/1995 10,367 9,927 10,314 12/31/1995 10,498 10,052 10,413 1/31/1996 10,532 10,084 10,492 2/29/1996 10,426 9,983 10,421 3/31/1996 10,296 9,858 10,288 4/30/1996 10,266 9,830 10,258 5/31/1996 10,280 9,843 10,255 6/30/1996 10,378 9,937 10,366 7/31/1996 10,456 10,012 10,460 8/31/1996 10,451 10,007 10,458 9/30/1996 10,614 10,163 10,604 10/31/1996 10,725 10,269 10,724 11/30/1996 10,910 10,446 10,920 12/31/1996 10,838 10,377 10,874 1/31/1997 10,857 10,396 10,895 2/28/1997 10,961 10,495 10,995 3/31/1997 10,837 10,377 10,848 4/30/1997 10,925 10,461 10,939 5/31/1997 11,080 10,609 11,104 6/30/1997 11,196 10,720 11,222 7/31/1997 11,515 11,025 11,533 8/31/1997 11,408 10,923 11,425 9/30/1997 11,559 11,068 11,560 10/31/1997 11,616 11,122 11,634 11/30/1997 11,686 11,189 11,703 12/31/1997 11,847 11,343 11,874 1/31/1998 11,943 11,435 11,996 2/28/1998 11,926 11,419 12,000 3/31/1998 11,893 11,387 12,010 4/30/1998 11,851 11,347 11,956 5/31/1998 12,034 11,522 12,145 6/30/1998 12,076 11,563 12,193 7/31/1998 12,083 11,570 12,224 8/31/1998 12,275 11,753 12,413 9/30/1998 12,411 11,884 12,567 10/31/1998 12,361 11,835 12,567 11/30/1998 12,382 11,855 12,611 12/31/1998 12,429 11,900 12,643 1/31/1999 12,572 12,037 12,793 2/28/1999 12,514 11,982 12,738 3/31/1999 12,499 11,967 12,755 4/30/1999 12,536 12,003 12,787 5/31/1999 12,455 11,925 12,713 6/30/1999 12,252 11,731 12,530 7/31/1999 12,295 11,772 12,575 8/31/1999 12,120 11,605 12,475 9/30/1999 12,084 11,570 12,480 10/31/1999 11,914 11,408 12,345 11/30/1999 12,019 11,508 12,476 12/31/1999 11,915 11,408 12,383 1/31/2000 11,817 11,315 12,329 2/29/2000 11,964 11,455 12,472 3/31/2000 12,187 11,669 12,745 4/30/2000 12,132 11,617 12,670 5/31/2000 12,085 11,571 12,604 6/30/2000 12,328 11,804 12,938 7/31/2000 12,485 11,954 13,118 8/31/2000 12,641 12,103 13,320 9/30/2000 12,590 12,055 13,250 10/31/2000 12,692 12,153 13,395 11/30/2000 12,745 12,204 13,496 12/31/2000 13,017 12,464 13,830 1/31/2001 13,062 12,507 13,967 2/28/2001 13,108 12,551 14,011 3/31/2001 13,104 12,547 14,137 4/30/2001 12,969 12,418 13,984 5/31/2001 13,095 12,538 14,134 6/30/2001 13,188 12,627 14,229 7/31/2001 13,388 12,819 14,440 8/31/2001 13,640 13,060 14,677 9/30/2001 13,564 12,987 14,628 10/31/2001 13,690 13,108 14,802 11/30/2001 13,589 13,011 14,678 12/31/2001 13,435 12,864 14,539 1/31/2002 13,510 12,936 14,791 2/28/2002 13,663 13,082 14,969 3/31/2002 13,412 12,842 14,676 4/30/2002 13,657 13,077 14,963 5/31/2002 13,764 13,179 15,054 6/30/2002 13,923 13,331 15,213 7/31/2002 14,100 13,501 15,408 8/31/2002 14,272 13,665 15,594 9/30/2002 14,593 13,973 15,935 10/31/2002 14,328 13,719 15,671 11/30/2002 14,237 13,632 15,606 12/31/2002 14,522 13,905 15,935 1/31/2003 14,492 13,876 15,895 2/28/2003 14,719 14,093 16,117 3/31/2003 14,732 14,106 16,127 4/30/2003 14,827 14,196 16,233 5/31/2003 15,206 14,560 16,613 6/30/2003 15,138 14,494 16,543 7/31/2003 14,481 13,865 15,964 8/31/2003 14,575 13,955 16,083 9/30/2003 14,970 14,334 16,556 10/31/2003 14,946 14,311 16,472 11/30/2003 15,112 14,470 16,644 12/31/2003 15,252 14,604 16,782 1/31/2004 15,356 14,703 16,878 2/29/2004 15,582 14,920 17,132 3/31/2004 15,546 14,885 17,072 4/30/2004 15,128 14,485 16,668 5/31/2004 15,061 14,421 16,608 6/30/2004 15,079 14,438 16,668 7/31/2004 15,295 14,645 16,887 8/31/2004 15,595 14,932 17,226 9/30/2004 15,699 15,032 17,317 10/31/2004 15,840 15,167 17,466 11/30/2004 15,679 15,013 17,322 12/31/2004 15,887 15,212 17,534 1/31/2005 16,078 15,395 17,698 2/28/2005 16,012 15,332 17,639 3/31/2005 15,905 15,229 17,527 4/30/2005 16,193 15,505 17,804 5/31/2005 16,327 15,633 17,930 6/30/2005 16,396 15,699 18,041 7/31/2005 16,289 15,597 17,959 8/31/2005 16,465 15,765 18,141 9/30/2005 16,323 15,631 18,019 Average Annual Total Returns -- September 30, 2005
1 YEAR/5/ 5 YEARS/5/ 10 YEARS/5/ CLASS A (Inception 3/23/84) Net Asset Value/1/ 3.90% 5.32% 5.02% With Maximum Sales Charge/2/ -0.54 4.41 4.57 CLASS B (Inception 9/13/93) Net Asset Value/1/ 3.13 4.62 4.33 With CDSC/4/ -1.87 4.28 4.33 ---------------------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Municipal Bond Index/3/ 4.05% 6.34% 6.06% Morningstar Muni Massachusetts Fund Avg./6/ 2.84 5.42 5.05
Yields as of September 30, 2005
CLASS A CLASS B SEC 30-day Yield/7/ 2.97% 2.34% Taxable Equivalent Yield/8/ 4.81 3.79
All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.ixisadvisorfunds.com. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 3/31/05 9/30/05 ------------------------------------------ Aaa 35.2 36.2 ------------------------------------------ Aa 28.9 27.1 ------------------------------------------ A 19.6 18.8 ------------------------------------------ Baa 9.6 11.8 ------------------------------------------ Not rated* 3.7 3.9 ------------------------------------------ Short-term & other 3.0 2.2 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 3/31/05 9/30/05 ---------------------------------------------------- 1 year or less 2.4 1.5 ---------------------------------------------------- 1-5 years 7.8 21.3 ---------------------------------------------------- 5-10 years 77.4 64.4 ---------------------------------------------------- 10+ years 12.4 12.8 ---------------------------------------------------- Average Effective Maturity 7.9 years 7.3 years ----------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes the maximum sales charge of 4.25%. /3/Lehman Municipal Bond Index is an unmanaged index of bonds issued by municipalities and other government entities having maturities of more than one year. /4/Performance for Class B shares assumes a maximum 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. /5/Fund performance has been increased by expense waivers, without which performance would have been lower. /6/Morningstar Muni Massachusetts Fund Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. /7/SEC yield is based on the fund's net investment income over a 30-day period and is calculated in accordance with SEC guidelines. /8/Taxable equivalent yield is based on the maximum combined federal and MA income tax bracket of 38.45%. A portion of income may be subject to federal, state and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax. 8 LOOMIS SAYLES MUNICIPAL INCOME FUND PORTFOLIO PROFILE Objective: Seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital -------------------------------------------------------------------------------- Strategy: Invests primarily in municipal securities that pay interest exempt from federal income tax other than the alternative minimum tax -------------------------------------------------------------------------------- Fund Inception: May 9, 1977 -------------------------------------------------------------------------------- Managers: Martha A. Strom Robert Payne Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFTX Class B NETBX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. Some income may be subject to federal and state taxes. Capital gains are fully taxable. Investors may be subject to the Alternative Minimum Tax (AMT). Lower-rated bonds offer higher risks. Management Discussion -------------------------------------------------------------------------------- Loomis Sayles Municipal Income Fund provided a total return of 3.91% based on the net asset value of Class A shares and $0.28 in dividends reinvested during the fiscal year ended September 30, 2005. This was slightly below the 4.05% return on the Lehman Municipal Bond Index and better than Morningstar's Muni National Long category, which averaged 3.56% during the period. The fund's 30-day SEC yield at the end of September 2005 was 3.22%, equivalent to 4.95% adjusted for the maximum federal income tax rate of 35.00%. MARKET FAVORED LONG-TERM AND INSURED BONDS Despite the Federal Reserve Board's policy of raising interest rates, bond yields in general are still low, by historic standards. As a result, many investors were willing to reach for higher yields from bonds with longer maturities. These included high-yielding, corporate-backed industrial development bonds (IDBs) issued for hospitals, healthcare facilities, or for-profit companies. As short-term interest rates gradually rose in response to Fed tightening, long-term rates trended irregularly downward during the fiscal year, causing the yield curve to flatten, as the difference in long- versus short-term rates narrowed. Although interest rates were volatile during the period, in general the fund's longer maturity structure was a positive for the fund. Many risk-averse individual investors, however, preferred to sacrifice some yield for relative safety. This intensified demand from individual investors for municipal bonds that are insured against default. Because it owns relatively few such issues, this trend was of little benefit to the fund. CORPORATE-BACKED MUNICIPALS IN DIVERSE AREAS DID WELL The fund's New York holdings performed particularly well, reflecting strong demand, as did the fund's Mississippi holdings, in spite of the devastation to that area caused by Hurricane Katrina. In general, the best-performing bonds in the fund were those with longer maturities, including IDBs issued for Dallas Fort Worth International Airport - insured bonds maturing in 2033. The fund also benefited from two issues that rose in value in response to positive credit trends. These were IDBs issued for the Highlands County Health Facilities in Florida, maturing in 2035, and Solid Waste Disposal & Control bonds issued by Lowndes County, Mississippi, for Weyerhaeuser, maturing in 2022. MARKET CHARACTERISTICS IMPEDED NEWER ISSUES Bonds that contributed least to the fund's performance were issued within the past three months. Demand for longer-term issues with higher yields has been high, and this was reflected in relatively high prices for some attractive new issues. However, these same issues weakened when inflation fears clouded the market outlook. Specific fund holdings that were affected included education IDBs issued in South Carolina and a Massachusetts bond issued for the Lahey Clinic Medical Center. Long-term, we believe these holdings will benefit the fund. FUND EXTENDING MATURITIES Previously, the fund had been focused on bonds maturing within the four- to ten-year maturity range, as a defensive measure. Shorter-term bonds tend to be less sensitive to changes in interest rates and the Fed has been raising rates steadily since June of 2004. Recently, however, bonds at the shorter end of the yield curve have tended to languish, as investors migrated to the longer end of the market. Consequently, we have been gradually extending the fund's duration in an effort to lock in income. Although this increases the fund's income, it will become more sensitive to price changes in the market, and we expect the Fed to continue to raise interest rates, at least for the balance of 2005. We look for rates to move in fits and starts. However, overall trends in the municipal bond market remain fairly stable relative to the broader, taxable market, so we will continue to seek out opportunities to add to the fund's income. 9 LOOMIS SAYLES MUNICIPAL INCOME FUND Investment Results through September 30, 2005 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares [CHART] September 30, 1995 through September 30, 2005 Net Asset Maximum Sales Lehman Municipal Value /1/ Charge /2/ Bond Index /3/ --------- ---------- ---------------- 9/30/1995 $10,000 $ 9,550 $10,000 10/31/1995 10,140 9,684 10,145 11/30/1995 10,308 9,844 10,314 12/31/1995 10,388 9,920 10,413 1/31/1996 10,470 9,999 10,492 2/29/1996 10,407 9,939 10,421 3/31/1996 10,288 9,825 10,288 4/30/1996 10,266 9,804 10,258 5/31/1996 10,257 9,796 10,255 6/30/1996 10,374 9,908 10,366 7/31/1996 10,450 9,980 10,460 8/31/1996 10,442 9,972 10,458 9/30/1996 10,617 10,139 10,604 10/31/1996 10,737 10,254 10,724 11/30/1996 10,900 10,410 10,920 12/31/1996 10,868 10,379 10,874 1/31/1997 10,879 10,389 10,895 2/28/1997 10,975 10,481 10,995 3/31/1997 10,836 10,348 10,848 4/30/1997 10,915 10,424 10,939 5/31/1997 11,038 10,542 11,104 6/30/1997 11,192 10,688 11,222 7/31/1997 11,494 10,977 11,533 8/31/1997 11,425 10,911 11,425 9/30/1997 11,521 11,003 11,560 10/31/1997 11,602 11,080 11,634 11/30/1997 11,638 11,114 11,703 12/31/1997 11,798 11,267 11,874 1/31/1998 11,945 11,407 11,996 2/28/1998 11,980 11,441 12,000 3/31/1998 11,998 11,458 12,010 4/30/1998 11,942 11,405 11,956 5/31/1998 12,071 11,528 12,145 6/30/1998 12,122 11,576 12,193 7/31/1998 12,142 11,596 12,224 8/31/1998 12,304 11,750 12,413 9/30/1998 12,403 11,845 12,567 10/31/1998 12,361 11,805 12,567 11/30/1998 12,413 11,855 12,611 12/31/1998 12,428 11,869 12,643 1/31/1999 12,550 11,985 12,793 2/28/1999 12,523 11,960 12,738 3/31/1999 12,528 11,965 12,755 4/30/1999 12,566 12,001 12,787 5/31/1999 12,522 11,959 12,713 6/30/1999 12,379 11,822 12,530 7/31/1999 12,416 11,858 12,575 8/31/1999 12,290 11,737 12,475 9/30/1999 12,295 11,741 12,480 10/31/1999 12,116 11,571 12,345 11/30/1999 12,230 11,680 12,476 12/31/1999 12,085 11,541 12,383 1/31/2000 12,021 11,480 12,329 2/29/2000 12,154 11,607 12,472 3/31/2000 12,341 11,786 12,745 4/30/2000 12,273 11,721 12,670 5/31/2000 12,239 11,688 12,604 6/30/2000 12,463 11,902 12,938 7/31/2000 12,601 12,034 13,118 8/31/2000 12,775 12,200 13,320 9/30/2000 12,741 12,168 13,250 10/31/2000 12,845 12,267 13,395 11/30/2000 12,933 12,351 13,496 12/31/2000 13,146 12,554 13,830 1/31/2001 13,238 12,642 13,967 2/28/2001 13,259 12,663 14,011 3/31/2001 13,368 12,766 14,137 4/30/2001 13,225 12,630 13,984 5/31/2001 13,351 12,750 14,134 6/30/2001 13,457 12,852 14,229 7/31/2001 13,693 13,077 14,440 8/31/2001 13,911 13,285 14,677 9/30/2001 13,671 13,056 14,628 10/31/2001 13,856 13,232 14,802 11/30/2001 13,706 13,089 14,678 12/31/2001 13,539 12,930 14,539 1/31/2002 13,761 13,142 14,791 2/28/2002 13,947 13,319 14,969 3/31/2002 13,718 13,101 14,676 4/30/2002 13,943 13,316 14,963 5/31/2002 14,014 13,384 15,054 6/30/2002 14,145 13,508 15,213 7/31/2002 14,235 13,595 15,408 8/31/2002 14,346 13,701 15,594 9/30/2002 14,576 13,920 15,935 10/31/2002 14,205 13,566 15,671 11/30/2002 14,183 13,544 15,606 12/31/2002 14,529 13,875 15,935 1/31/2003 14,347 13,702 15,895 2/28/2003 14,558 13,903 16,117 3/31/2003 14,551 13,896 16,127 4/30/2003 14,680 14,020 16,233 5/31/2003 15,046 14,369 16,613 6/30/2003 15,014 14,339 16,543 7/31/2003 14,363 13,716 15,964 8/31/2003 14,513 13,860 16,083 9/30/2003 14,947 14,275 16,556 10/31/2003 14,877 14,208 16,472 11/30/2003 15,069 14,391 16,644 12/31/2003 15,202 14,518 16,782 1/31/2004 15,294 14,606 16,878 2/29/2004 15,531 14,833 17,132 3/31/2004 15,521 14,822 17,072 4/30/2004 15,139 14,458 16,668 5/31/2004 15,105 14,426 16,608 6/30/2004 15,115 14,434 16,668 7/31/2004 15,309 14,621 16,887 8/31/2004 15,587 14,885 17,226 9/30/2004 15,677 14,972 17,317 10/31/2004 15,809 15,097 17,466 11/30/2004 15,668 14,963 17,322 12/31/2004 15,864 15,150 17,534 1/31/2005 16,037 15,315 17,698 2/28/2005 15,958 15,240 17,639 3/31/2005 15,856 15,143 17,527 4/30/2005 16,141 15,415 17,804 5/31/2005 16,261 15,529 17,930 6/30/2005 16,355 15,619 18,041 7/31/2005 16,254 15,522 17,959 8/31/2005 16,455 15,715 18,141 9/30/2005 16,287 15,553 18,019 Average Annual Total Returns -- September 30, 2005
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 5/9/77) Net Asset Value/1/ 3.91% 5.04% 5.00% With Maximum Sales Charge/2/ -0.74 4.09 4.52 CLASS B (Inception 9/13/93) Net Asset Value/1/ 3.14 4.28 4.23 With CDSC/4/ -1.86 3.94 4.23 ------------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Municipal Bond Index/3/ 4.05% 6.34% 6.06% Morningstar Muni National Long Fund Avg./5/ 3.56 5.52 5.17
Yields as of September 30, 2005
CLASS A CLASS B SEC 30-day Yield/6/ 3.22% 2.62% Taxable Equivalent Yield/7/ 4.95 4.02
All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Performance history includes performance from a predecessor fund. For performance current to the most recent month-end, visit www.ixisadvisorfunds.com. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 3/31/05 9/30/05 ------------------------------------------ Aaa 37.8 35.8 ------------------------------------------ Aa 11.3 12.8 ------------------------------------------ A 20.4 24.3 ------------------------------------------ Baa 15.4 14.6 ------------------------------------------ Not rated* 12.2 10.7 ------------------------------------------ Short-term & other 2.9 1.8 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 3/31/05 9/30/05 ---------------------------------------------------- 1 year or less 6.7 4.7 ---------------------------------------------------- 1-5 years 9.4 6.8 ---------------------------------------------------- 5-10 years 76.3 76.6 ---------------------------------------------------- 10+ years 7.6 11.9 ---------------------------------------------------- Average Effective Maturity 7.7 years 8.6 years ----------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes the maximum sales charge of 4.50%. /3/Lehman Municipal Bond Index is an unmanaged index of bonds issued by municipalities and other government entities having maturities of more than one year. /4/Performance for Class B shares assumes a maximum 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. /5/Morningstar Muni National Long Fund Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. /6/SEC yield is based on the fund's net investment income over a 30-day period and is calculated in accordance with SEC guidelines. /7/Taxable equivalent yield is based on the maximum federal income tax bracket of 35%. A portion of income may be subject to federal, state and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax. 10 LOOMIS SAYLES STRATEGIC INCOME FUND PORTFOLIO PROFILE Objective: Seeks high current income, with a secondary objective of capital growth -------------------------------------------------------------------------------- Strategy: Invests primarily in income-producing securities in the U.S. and around the world -------------------------------------------------------------------------------- Fund Inception: May 1, 1995 -------------------------------------------------------------------------------- Managers: Daniel J. Fuss Kathleen C. Gaffney Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFZX Class B NEZBX Class C NECZX Class Y NEZYX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. Foreign and emerging market securities have special risks, such as currency fluctuations, differing political and economic conditions, and different accounting standards. The fund may also invest in lower-rated bonds that may offer higher yields in return for more risk. Management Discussion -------------------------------------------------------------------------------- Loomis Sayles Strategic Income Fund's Class A shares provided a total return of 10.20% at net asset value for the fiscal year ended September 30, 2005, with $0.76 in reinvested dividends. This was significantly ahead of the fund's benchmark, the Lehman Aggregate Bond Index, which returned 2.80% for the period. Bear in mind, however, that the fund has greater investment flexibility than the index. The fund's results were also above the average of Morningstar's Multisector Bond category, which returned 6.06% for the period. The fund's 30-day SEC yield at the end of September was 3.60%. ALL MAJOR SECTORS IN POSITIVE TERRITORY Improving business conditions and stronger credit outlooks attracted investors to lower-quality bonds in search of higher yields, and these accounted for a major share of the fund's portfolio. Meanwhile, currency gains against the U.S. dollar bolstered returns on international issues during the latter part of the fiscal year. Even the weakest market sectors during the period - U.S. government issues and higher-quality, lower yielding U.S. corporate bonds - recorded modest gains. The portfolio's country allocations also added to results. Careful security selection underpinned strong returns among the fund's U.S. holdings, which make up the bulk of the portfolio. Canada, rich in oil, and the fund's second-largest country commitment during the past year, was another significant contributor. Improving business conditions also aided results in Mexico and other developing economies where a stronger currency was also a factor. South Africa, Norway, and Sweden all made small contributions. Healthier finances keyed good results in technology, one of the strongest market sectors. The automotive sector detracted minimally from returns, despite ratings downgrades of Ford and General Motors. Contributions from financial areas - banking and brokerage - were marginally positive. STRONG CURRENCIES, BETTER CREDITS, BOOSTED OVERSEAS RESULTS Creditworthiness has been improving in several countries. As a result, sovereigns - bonds issued by foreign governments - led the portfolio's sector allocations, followed by bonds of local authorities. Among individual holdings, Mexican bonos (bonds issued by the United Mexican States) were the period's leading performers thanks to the peso's rise. Bonds of the Inter-American Development Bank were another leading contributor. The value of these bonds is linked to strength in Brazil's real. Demand for oil outstripped supply and pushed prices higher on world markets, benefiting the Canadian dollar and providing impetus for Canada's government issues. CREDIT CONCERNS UNDERCUT SOME ISSUES Heavy debt and a deteriorating cash position drove down bonds issued by San Francisco-based Calpine, a leading independent energy producer. Auto-parts giant, Delphi Corporation, sought Chapter 11 protection shortly after the end of the fiscal period; the company is working on a turnaround, but its bonds fell in price sharply. Concerns over its weakening credit position weighed on bonds issued by London's venerable Barclays Bank, another fund holding. FUND IS CAUTIOUSLY POSITIONED AS INTEREST RATES RISE We have been adjusting the portfolio in an effort to temper the effects of rising interest rates by reducing its average maturity. We also cut back the portfolio's duration, limiting its sensitivity to changes in rates. Our reasoning is that the Federal Reserve Board's steps to quell inflation by raising short-term interest rates may also sap some of the economy's strength. High energy prices and the impact of the Gulf hurricanes are also likely to dampen economic expectations for a time. But the massive recovery efforts that are already taking shape may boost the economy before long, and energy prices had begun to fall as the period ended. Credit spreads - the yield advantage of corporate bonds over Treasury issues of comparable maturity - have continued to narrow as prices pushed higher. Looking ahead, we believe credit conditions should remain favorable for corporate issues and are looking carefully at BB- and B-rated issues, where risk-adjusted yields remain favorable compared to CCC-rated bonds. We are also maintaining our level of commitment to selected emerging markets where economic growth continues. 11 LOOMIS SAYLES STRATEGIC INCOME FUND Investment Results through September 30, 2005 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/7/ [CHART] Septenber 30, 1995 through September 30, 2005 Lehman Net Asset Maximum Sales Lehman Aggregate Universal Bond Value /1/ Charge /2/ Bond Index /3/ Index /4/ --------- ------------- ---------------- --------------- 9/30/1995 $10,000 $ 9,550 $10,000 $10,000 10/31/1995 9,946 9,498 10,130 10,123 11/30/1995 10,227 9,767 10,282 10,277 12/31/1995 10,603 10,126 10,426 10,431 1/31/1996 10,856 10,368 10,495 10,522 2/29/1996 10,561 10,086 10,313 10,341 3/31/1996 10,636 10,157 10,241 10,276 4/30/1996 10,620 10,142 10,184 10,234 5/31/1996 10,789 10,303 10,163 10,220 6/30/1996 10,933 10,441 10,299 10,357 7/31/1996 10,912 10,421 10,328 10,386 8/31/1996 11,112 10,612 10,310 10,383 9/30/1996 11,501 10,984 10,490 10,573 10/31/1996 11,830 11,298 10,722 10,793 11/30/1996 12,310 11,756 10,906 10,984 12/31/1996 12,139 11,593 10,805 10,896 1/31/1997 12,175 11,627 10,838 10,943 2/28/1997 12,367 11,810 10,865 10,981 3/31/1997 12,232 11,682 10,744 10,853 4/30/1997 12,310 11,756 10,905 11,017 5/31/1997 12,575 12,009 11,008 11,134 6/30/1997 12,861 12,282 11,139 11,270 7/31/1997 13,439 12,834 11,439 11,578 8/31/1997 13,093 12,503 11,342 11,482 9/30/1997 13,555 12,945 11,509 11,659 10/31/1997 13,270 12,673 11,676 11,770 11/30/1997 13,342 12,741 11,730 11,835 12/31/1997 13,274 12,676 11,848 11,961 1/31/1998 13,490 12,883 12,000 12,111 2/28/1998 13,737 13,119 11,991 12,120 3/31/1998 14,031 13,399 12,032 12,176 4/30/1998 14,035 13,403 12,095 12,238 5/31/1998 13,806 13,185 12,210 12,326 6/30/1998 13,587 12,975 12,313 12,407 7/31/1998 13,417 12,813 12,339 12,437 8/31/1998 11,769 11,240 12,540 12,436 9/30/1998 12,151 11,604 12,834 12,731 10/31/1998 12,282 11,729 12,766 12,679 11/30/1998 13,106 12,516 12,838 12,805 12/31/1998 13,046 12,459 12,877 12,834 1/31/1999 13,271 12,674 12,969 12,920 2/28/1999 13,082 12,493 12,742 12,715 3/31/1999 13,772 13,153 12,813 12,812 4/30/1999 14,655 13,996 12,854 12,888 5/31/1999 14,201 13,562 12,741 12,758 6/30/1999 14,242 13,601 12,701 12,735 7/31/1999 13,961 13,333 12,646 12,683 8/31/1999 13,787 13,167 12,640 12,669 9/30/1999 13,875 13,251 12,787 12,806 10/31/1999 13,992 13,362 12,834 12,860 11/30/1999 14,245 13,604 12,833 12,881 12/31/1999 14,632 13,974 12,771 12,856 1/31/2000 14,496 13,844 12,729 12,813 2/29/2000 15,068 14,389 12,883 12,976 3/31/2000 15,220 14,535 13,053 13,127 4/30/2000 14,784 14,119 13,016 13,086 5/31/2000 14,307 13,663 13,010 13,062 6/30/2000 14,852 14,184 13,280 13,343 7/31/2000 14,983 14,308 13,401 13,472 8/31/2000 15,312 14,623 13,595 13,669 9/30/2000 14,908 14,237 13,681 13,739 10/31/2000 14,301 13,658 13,771 13,793 11/30/2000 14,227 13,587 13,996 13,979 12/31/2000 14,732 14,069 14,256 14,247 1/31/2001 15,200 14,516 14,489 14,526 2/28/2001 15,178 14,495 14,615 14,648 3/31/2001 14,604 13,947 14,689 14,697 4/30/2001 14,366 13,719 14,628 14,632 5/31/2001 14,686 14,025 14,716 14,737 6/30/2001 14,647 13,987 14,771 14,779 7/31/2001 14,657 13,997 15,102 15,069 8/31/2001 14,981 14,307 15,275 15,258 9/30/2001 14,238 13,597 15,453 15,368 10/31/2001 14,574 13,918 15,776 15,677 11/30/2001 14,781 14,116 15,558 15,493 12/31/2001 14,713 14,051 15,460 15,400 1/31/2002 14,880 14,211 15,585 15,530 2/28/2002 15,059 14,381 15,736 15,675 3/31/2002 15,232 14,547 15,474 15,448 4/30/2002 15,601 14,899 15,774 15,743 5/31/2002 15,931 15,215 15,908 15,861 6/30/2002 15,678 14,973 16,046 15,919 7/31/2002 15,307 14,618 16,239 16,054 8/31/2002 15,735 15,027 16,514 16,350 9/30/2002 15,523 14,824 16,781 16,584 10/31/2002 15,832 15,119 16,705 16,527 11/30/2002 16,424 15,685 16,700 16,572 12/31/2002 16,992 16,227 17,045 16,915 1/31/2003 17,470 16,683 17,060 16,961 2/28/2003 17,941 17,134 17,296 17,202 3/31/2003 18,115 17,300 17,282 17,219 4/30/2003 19,155 18,293 17,425 17,422 5/31/2003 20,113 19,208 17,750 17,755 6/30/2003 20,366 19,450 17,715 17,751 7/31/2003 19,812 18,921 17,119 17,180 8/31/2003 20,040 19,138 17,233 17,303 9/30/2003 21,020 20,074 17,689 17,764 10/31/2003 21,495 20,528 17,524 17,637 11/30/2003 22,093 21,099 17,566 17,698 12/31/2003 22,912 21,881 17,745 17,900 1/31/2004 23,320 22,271 17,887 18,054 2/29/2004 23,304 22,255 18,081 18,232 3/31/2004 23,609 22,547 18,216 18,378 4/30/2004 22,629 21,611 17,742 17,908 5/31/2004 22,251 21,250 17,671 17,816 6/30/2004 22,674 21,654 17,771 17,930 7/31/2004 22,894 21,864 17,947 18,120 8/31/2004 23,599 22,537 18,290 18,479 9/30/2004 24,218 23,128 18,339 18,551 10/31/2004 24,792 23,676 18,493 18,721 11/30/2004 25,387 24,244 18,346 18,605 12/31/2004 25,876 24,712 18,514 18,789 1/31/2005 25,688 24,532 18,631 18,897 2/28/2005 26,024 24,853 18,521 18,820 3/31/2005 25,597 24,445 18,426 18,682 4/30/2005 25,395 24,252 18,675 18,910 5/31/2005 25,649 24,495 18,877 19,131 6/30/2005 26,131 24,955 18,980 19,261 7/31/2005 26,359 25,172 18,807 19,122 8/31/2005 26,664 25,464 19,048 19,357 9/30/2005 26,671 25,471 18,852 19,176 Average Annual Total Returns -- September 30, 2005
SINCE 1 YEAR 5 YEARS/7/ 10 YEARS/7/ INCEPTION/7/ CLASS A (Inception 5/1/95) Net Asset Value/1/ 10.20% 12.34% 10.31% -- With Maximum Sales Charge/2/ 5.24 11.31 9.80 -- CLASS B (Inception 5/1/95) Net Asset Value/1/ 9.46 11.50 9.48 -- With CDSC/5/ 4.46 11.24 9.48 -- CLASS C (Inception 5/1/95) Net Asset Value/1/ 9.45 11.52 9.49 -- With CDSC/5/ 8.45 11.52 9.49 -- CLASS Y (Inception 12/1/99) Net Asset Value/1/ 10.51 12.70 -- 11.71% ------------------------------------------------------------------------------------ SINCE CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/8/ Lehman Aggregate Bond Index/3/ 2.80% 6.62% 6.55% 7.01% Lehman U.S. Universal Bond Index/4/ 3.37 6.90 6.73 7.20 Morningstar Multisector Bond Fund Avg./6/ 6.06 7.49 6.72 6.58
All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Performance history includes periods from a predecessor fund. For performance current to the most recent month-end, visit www.ixisadvisorfunds.com. Class Y shares are available to certain institutional investors only. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 3/31/05 9/30/05 ------------------------------------------ Aaa 36.4 35.1 ------------------------------------------ Aa 12.1 9.9 ------------------------------------------ A 0.6 0.5 ------------------------------------------ Baa 3.0 4.0 ------------------------------------------ Ba 8.9 8.7 ------------------------------------------ B 15.1 10.2 ------------------------------------------ Caa 7.9 7.2 ------------------------------------------ Ca 0.9 0.8 ------------------------------------------ C -- 0.2 ------------------------------------------ Not rated* 11.3 14.6 ------------------------------------------ Short-term & other 3.8 8.8 ------------------------------------------
Credit quality is based on ratings from Moody's Investor Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 3/31/05 9/30/05 -------------------------------------------------- 1 year or less 4.1 10.5 -------------------------------------------------- 1-5 years 50.2 48.8 -------------------------------------------------- 5-10 years 21.9 17.7 -------------------------------------------------- 10+ years 23.8 23.0 -------------------------------------------------- Average Effective Maturity 8.4 years 8.1 years --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes the maximum sales charge of 4.50%. /3/Lehman Aggregate Bond Index is 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. /4/Lehman U.S. Universal Bond Index is an unmanaged index representing a blend of the Lehman Aggregate Bond Index, the High Yield Index, and the Emerging Market Indexes, among other indexes. /5/Performance for Class B shares assumes a maximum 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C share performance assumes a 1.00% CDSC applied when you sell shares within one year of purchase. /6/Morningstar Multisector Bond Fund Average is the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. /7/Fund performance has been increased by expense waivers, without which performance would have been lower. /8/The since-inception comparative performance figures shown for Class Y are calculated from 12/31/99. 12 ADDITIONAL INFORMATION The views expressed in this report reflect those of the portfolio managers as of the dates indicated. The managers' views are subject to change at any time without notice based on changes in market or other conditions. References to specific securities or industries should not be regarded as investment advice. Because the funds are actively managed, there is no assurance that they will continue to invest in the securities or industries mentioned. For more complete information on any IXIS Advisor Fund, contact your financial professional or call IXIS Advisor Funds and ask for a free prospectus, which contains more complete information including charges and other ongoing expenses. Investors should consider a fund's objective, risks and expenses carefully before investing. This and other fund information can be found in the prospectus. Please read the prospectus carefully before investing. PROXY VOTING INFORMATION A description of the funds' proxy voting policies and procedures is available without charge, upon request, by calling IXIS Advisor Funds at 800-225-5478; on the funds' website at www.ixisadvisorfunds.com; and on the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2005 is available from the funds' website and the SEC's website. QUARTERLY PORTFOLIO SCHEDULES The funds file a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 13 UNDERSTANDING YOUR FUNDS' EXPENSES As a mutual fund shareholder, you incur different costs: transaction costs, including sales charges (loads) on purchases, redemption fees and certain exchange fees and ongoing costs, including management fees, distribution and/or service fees (12b-1 fees), and other fund expenses. In addition, each fund assesses a minimum balance fee of $20 on an annual basis for accounts that fall below the required minimum to establish an account. Certain exemptions may apply. These costs are described in more detail in the funds' prospectus. The examples below are intended to help you understand the ongoing costs of investing in the funds and help you compare these with the ongoing costs of investing in other mutual funds. The first line in the table of each Class of fund shares shows the actual account values and actual fund expenses you would have paid on a $1,000 investment in the fund from April 1, 2005 through September 30, 2005. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example $8,600 account value divided by $1,000 = $8.60) and multiply the result by the number in the Expenses Paid During Period column as shown below for your Class. The second line in the table of each Class of fund shares provides information about hypothetical account values and hypothetical expenses based on the fund's actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid on your investment for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown reflect ongoing costs only, and do not include any transaction costs such as sales charges, redemption fees, or exchange fees. Therefore, the second line in the table of each fund is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. If transaction costs were included, total costs would be higher.
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES CORE PLUS BOND FUND 4/1/05 9/30/05 4/1/05 - 9/30/05 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,017.90 $5.56 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.60 $5.57 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,013.60 $9.34 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.80 $9.35 ------------------------------------------------------------------------------------------------------------------ CLASS C ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,013.60 $9.34 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.80 $9.35 ------------------------------------------------------------------------------------------------------------------ CLASS Y ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,019.00 $4.30 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,020.80 $4.31
*Expenses are equal to the fund's annualized expense ratio (after advisory fee waiver): 1.10%, 1.85%, 1.85% and 0.85% for Class A, B, C and Y, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to relect the half-year period). 14 UNDERSTANDING YOUR FUNDS' EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES HIGH INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,048.30 $8.22 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,017.00 $8.09 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,044.40 $12.04 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,013.30 $11.86 ------------------------------------------------------------------------------------------------------------------ CLASS C ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,044.40 $12.04 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,013.30 $11.86
*Expenses are equal to the fund's annualized expense ratio (after advisory fee waiver): 1.60%, 2.35% and 2.35% for Class A, B and C, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to relect the half-year period).
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* AGENCY FUND 4/1/05 9/30/05 4/1/05 - 9/30/05 ------------------------------------------------------------------------------------------------------------------- CLASS A ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,012.10 $6.25 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,018.90 $6.28 ------------------------------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,008.30 $10.02 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05 ------------------------------------------------------------------------------------------------------------------- CLASS C ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,008.30 $10.02 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05 ------------------------------------------------------------------------------------------------------------------- CLASS Y ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,013.70 $4.34 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,020.80 $4.36
*Expenses are equal to the fund's annualized expense ratio: 1.24%, 1.99%, 1.99% and 0.86% for Class A, B, C and Y (after transfer agent fee waiver), respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to relect the half-year period). 15 UNDERSTANDING YOUR FUNDS' EXPENSES
LOOMIS SAYLES MASSACHUSETTS TAX FREE BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,025.70 $5.99 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.20 $5.97 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,021.20 $9.78 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.40 $9.75
*Expenses are equal to the fund's annualized expense ratio (after advisory fee waiver): 1.18% and 1.93% for Class A and B, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to relect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES MUNICIPAL INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,027.30 $5.18 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,020.00 $5.17 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,023.50 $8.98 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.20 $8.95
*Expenses are equal to the fund's annualized expense ratio: 1.02% and 1.77% for Class A and B, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to relect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES STRATEGIC INCOME FUND 4/1/05 9/30/05 4/1/05 - 9/30/05 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,042.60 $6.35 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,018.90 $6.28 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,039.40 $10.17 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05 ------------------------------------------------------------------------------------------------------------------ CLASS C ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,039.40 $10.17 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.10 $10.05 ------------------------------------------------------------------------------------------------------------------ CLASS Y ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,044.90 $4.77 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,020.40 $4.71
*Expenses are equal to the fund's annualized expense ratio: 1.24%, 1.99%, 1.99% and 0.93% for Class A, B, C and Y, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by 365 (to relect the half-year period). 16 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS The Board of Trustees, including the Independent Trustees, considers matters bearing on each Fund's advisory agreement(s) (including advisory administration agreements) (the "Agreements") at most of its meetings throughout the year. Once a year, usually in the spring, the Contract Review and Governance Committee of the Board meets to review the Agreements to determine whether to recommend that the full Board approve the continuation of the Agreements for an additional one-year period. After the Committee has made its recommendation, the full Board, including the Independent Trustees, determines whether to approve the continuation of the Agreements. In connection with these meetings, the Trustees receive materials that the Funds' investment advisers believe to be reasonably necessary for the Trustees to evaluate the Agreements. These materials generally include, among other items, (i) information on the investment performance of the Funds and the performance of peer groups of funds and the Funds' performance benchmarks, (ii) information on the Funds' advisory fees and other expenses, including information comparing the Funds' expenses to those of peer groups of funds and information about any applicable expense caps and fee "breakpoints," (iii) sales and redemption data in respect of the Funds, (iv) information about the profitability of the Agreements to the Funds' advisers (the "Advisers"), and (v) information obtained through the completion of a questionnaire by the Advisers (the Trustees are consulted as to the information requested through that questionnaire). The Board of Trustees, including the Independent Trustees, may also consider other material facts such as (i) the Advisers' financial results and financial condition, (ii) each Fund's investment objective and strategies and the size, education and experience of each Adviser's investment and/or administrative staff and its use of technology, external research and trading cost measurement tools, (iii) arrangements in respect of the distribution of the Funds' shares, (iv) the procedures employed to determine the value of the Funds' assets, (v) the allocation of the Funds' brokerage, if any, including allocations to brokers affiliated with an Adviser and the use of "soft" commission dollars to pay Fund expenses and to pay for research and other similar services, (vi) the resources devoted to, and the record of compliance with, the Funds' investment policies and restrictions, policies on personal securities transactions and other compliance policies, and (vii) the general economic outlook with particular emphasis on the mutual fund industry. Throughout the process, the Trustees are afforded the opportunity to ask questions of and request additional materials from the Advisers and their affiliates. The Board of Trustees most recently approved the continuation of the Agreements at their meeting held in May, 2005. In considering whether to approve the continuation of the Agreements, the Board of Trustees, including the Independent Trustees, did not identify any single factor as determinative. Matters considered by the Trustees, including the Independent Trustees, in connection with their approval of the Agreements included the following: The nature, extent and quality of the services provided to the Funds under the Agreements. The Trustees considered the nature, extent and quality of the services provided by the Advisers and their affiliates to the Funds and the resources dedicated to the Funds by the Advisers and their affiliates. The Trustees considered not only the advisory services provided by Loomis Sayles to the Funds, but also the monitoring and oversight services provided by IXIS Advisors with respect to the Funds for which IXIS Advisors provides advisory oversight services. For each Fund, the Trustees also considered the benefits to shareholders of investing in a mutual 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. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the nature, extent and quality of services provided supported the renewal of the Agreements. Investment performance of the Funds and the Advisers. As noted above, the Trustees received information about the performance of the Funds over various time periods, including information which compared the performance of the Funds to the performance of peer groups of funds and the Funds' respective performance benchmarks. In addition, the Trustees also reviewed data prepared by an independent third party which analyzed the performance of the Funds using a variety of performance metrics, including metrics which also measured the performance of the Funds on a risk adjusted basis. After reviewing the information with respect to each Fund, the Board concluded that the Fund's performance supported the renewal of the Agreements relating to that Fund. The Trustees also considered each Adviser's performance and reputation generally, these Funds' performance as a fund family generally, and the historical responsiveness of the Advisers and their affiliates to Trustee concerns about performance and the willingness of the Advisers to take steps intended to improve performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the performance of the Funds and the Advisers supported the renewal of the Agreements. The costs of the services to be provided and profits to be realized by the Advisers and their affiliates from their respective relationships with the Funds. The Trustees considered the fees charged to the Funds for advisory services as well as the total expense levels of the Funds. 17 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS (continued) This information included comparisons (provided both by management and also by an independent third party) of the Funds' advisory fees and total expense levels to those of their peer groups and information about the advisory fees charged by the Advisers to comparable accounts. In considering the fees charged to comparable accounts, the Trustees considered, among other things, management's representations about the differences between managing mutual funds as compared to other types of accounts, including the additional resources required to effectively manage mutual fund assets. 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 Trustees considered management's recommendations regarding reductions of expense caps, which impacted three of the Funds and resulted in substantial estimated annual savings to the Funds. The Trustees noted that the Loomis Sayles Strategic Income Fund, the Loomis Sayles High Income Fund and the Loomis Sayles Massachusetts Tax Free Income Fund had total expense ratios and advisory fee rates that were at or above the median of a peer group of Funds. The Trustees also noted management's stated justification for the fees charged to the funds, which included information about the performance of the Funds, the services provided to the Funds and management's view as to why it was appropriate that some funds bear advisory fees greater than their peer group median. The Trustees also considered the compensation directly or indirectly received by the Advisers and their affiliates from their relationships with the Funds. The Trustees reviewed information provided by management as to the profitability of the Advisers and their affiliates' relationships with the Funds, and information about the allocation of expenses used to calculate profitability. When reviewing profitability, the Trustees also considered information about court cases in which adviser profitability was an issue in whole or in part, the performance of the relevant Funds, the expense levels of the Funds, and whether the Advisers had implemented breakpoints and/or expense caps with respect to such Funds. For the Loomis Sayles Strategic Income Fund, after discussing these issues with the Trustees, Fund management proposed an additional breakpoint for that Fund. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the advisory fee charged to each of the Funds was fair and reasonable, and that the costs of these services generally and the related profitability of the Advisers and their affiliates in respect of their relationships with the Funds supported the renewal of the Agreements. Economies of Scale. The Trustees considered the existence of any economies of scale in the provision of services by the Advisers and whether those economies are shared with the Funds through breakpoints in their investment advisory fee or other means, such as expense waivers. The Trustees noted that the Funds benefited from breakpoints and/or expense caps. In considering these issues, the Trustees also took note of the costs of the services provided (both on an absolute and a relative basis) and the profitability to the Advisers and their affiliates of their relationships with the Funds, as discussed above. After reviewing these and related factors, the Trustees considered, within the context of their overall conclusions regarding each of the Agreements, that the extent to which economies of scale were shared with the Funds supported the renewal of the Agreements. The Trustees also considered other factors, which included but were not limited to the following: . whether each Fund has operated in accordance with its investment objective and the Fund's record of compliance with its investment restrictions, and the compliance programs of the Funds and the Advisers. They also considered the compliance related resources the Advisers and their affiliates were providing to the Funds. . the nature, quality, cost and extent of administrative and shareholder services performed by the Advisers and their affiliates, both under the Agreements and under separate agreements covering transfer agency and administrative services. . so-called "fallout benefits" to the Advisers and their affiliates, such as the engagement of affiliates of the Advisers to provide distribution, brokerage and transfer agency services to the Funds, and the benefits of research made available to the Advisers by reason of brokerage commissions generated by the Funds' securities transactions. The Trustees also considered the fact that Loomis Sayles' parent company benefits from the retention of affiliated Advisers. The Trustees considered the possible conflicts of interest associated with these fallout and other benefits, and the reporting, disclosure and other processes in place to disclose and monitor such possible conflicts of interest. 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 each of the existing advisory agreements should be continued through June 30, 2006. 18 LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS Investments as of September 30, 2005
Principal Amount + Description Value (a) ---------------------------------------------------------------------------------------------- Bonds and Notes -- 98.0% of Total Net Assets Aerospace & Defense -- 0.6% $ 1,400,000 Northrop Grumman Corp. 7.125%, 2/15/2011 $ 1,547,196 --------------- Asset Backed Securities -- 8.1% 2,000,000 American Express Credit Account Master Trust, Series 2003-4, Class A 1.690%, 1/15/2009 1,962,438 690,000 AmeriCredit Automobile Receivables Trust, Series 2003-D-M, Class A-4 2.840%, 8/06/2010 677,566 2,595,000 AmeriCredit Automobile Receivables Trust, Series 2005-CF, Class A3 4.470%, 5/06/2010 2,592,622 3,755,000 BMW Vehicle Owner Trust, Series 2004-A, Class A4 3.320%, 2/25/2009 3,686,032 1,275,000 Citibank Credit Card Issuance Trust, Series 2003-A2, Class A2 2.700%, 1/15/2008 1,269,585 3,430,000 Countrywide Asset-Backed Certificates, Series 2003-5, Class AF4 4.905%, 8/25/2032 3,425,032 790,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A2 3.872%, 3/25/2020 777,180 1,095,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3 4.615%, 2/25/2035 1,072,598 1,730,000 Ford Credit Auto Owner Trust, Series 2004-A, Class A4 3.540%, 11/15/2008 1,699,695 1,850,000 Residential Asset Securities Corp., Series 2003-KS10, Class A14 4.470%, 3/25/2032 1,842,579 1,000,000 WFS Financial Owner Trust, Series 2004-4, Class A3 2.980%, 9/17/2009 984,125 515,000 WFS Financial Owner Trust, Series 2004-4, Class A4 3.440%, 5/17/2012 502,762 --------------- 20,492,214 --------------- Automotive -- 2.3% 1,510,000 Ford Motor Credit Co., Global Note 5.625%, 10/01/2008 1,426,894 1,565,000 General Motors Acceptance Corp. 8.000%, 11/01/2031 1,366,509 2,880,000 Navistar International Corp., Senior Subordinated Note 9.375%, 6/01/2006 2,937,600 --------------- 5,731,003 --------------- Banking -- 1.4% 1,400,000 Chevy Chase Bank FSB, Subordinated Note 6.875%, 12/01/2013 1,438,500 715,000 JPMorgan Chase & Co., Global Subordinated Note 5.750%, 1/02/2013 743,534 1,200,000 State Street Institutional Capital A, Series A, Guaranteed Note, 144A 7.940%, 12/30/2026 1,284,085 --------------- 3,466,119 --------------- Beverage -- 1.5% 3,125,000 Cia Brasileira de Bebidas, Guaranteed Note 8.750%, 9/15/2013 3,710,937 --------------- Brokerage -- 1.1% 675,000 Goldman Sachs Group, Inc., Senior Note 6.600%, 1/15/2012 731,740 1,995,000 Lehman Brothers Holdings, Inc. 7.000%, 2/01/2008 2,094,325 --------------- 2,826,065 ---------------
Principal Amount + Description Value (a) ---------------------------------------------------------------------------------- Chemicals -- 1.5% $ 1,470,000 ICI Wilmington, Inc., Guaranteed Note 5.625%, 12/01/2013 $ 1,483,749 1,615,000 Lubrizol Corp. 6.500%, 10/01/2034 1,693,271 600,000 Methanex Corp., Senior Note 6.000%, 8/15/2015 585,669 --------------- 3,762,689 --------------- Construction Machinery -- 0.7% 1,600,000 Case New Holland, Inc., Senior Note 9.250%, 8/01/2011 1,692,000 --------------- Consumer Products -- 0.9% 865,000 Church & Dwight Co., Inc. 6.000%, 12/15/2012 843,375 1,375,000 Jostens IH Corp., Senior Subordinated Note 7.625%, 10/01/2012 1,388,750 --------------- 2,232,125 --------------- Electric -- 2.6% 1,455,000 Duke Energy Corp., Senior Note 4.200%, 10/01/2008 1,432,580 2,030,000 Empresa Nacional de Electricidad SA, Chile 8.350%, 8/01/2013 2,310,777 1,325,000 Enersis SA, Chile 7.375%, 1/15/2014 1,400,041 1,325,000 Ipalco Enterprises, Inc., Senior Secured Note 7.375%, 11/14/2008 1,404,500 --------------- 6,547,898 --------------- Food and Beverage -- 0.8% 225,000 Kraft Foods, Inc. 5.250%, 10/01/2013 227,485 1,675,000 Kraft Foods, Inc. 5.625%, 11/01/2011 1,730,640 --------------- 1,958,125 --------------- Foreign Local Governments -- 2.9% 3,000,000 Pemex Finance, Ltd., Series 1998, Class 18NT 9.150%, 11/15/2018 3,765,510 3,265,000 Pemex Project Funding Master Trust 7.875%, 2/01/2009 3,534,362 --------------- 7,299,872 --------------- Gaming -- 0.5% 450,000 Harrah's Operating Co., Inc., Guaranteed Senior Note 7.500%, 1/15/2009 482,915 770,000 Harrah's Operating Co., Inc., Senior Note 7.125%, 6/01/2007 797,477 --------------- 1,280,392 --------------- Government Agencies -- 8.2% 10,400,000 FHLMC 2.875%, 12/15/2006 10,215,494 2,750,000 FHLMC 3.220%, 6/20/2007 (SGD) 1,646,700 140,000,000 FNMA 1.750%, 3/26/2008 (JPY) 1,275,395 6,600,000 FNMA 2.290%, 2/19/2009 (SGD) 3,866,284 3,710,000 FNMA 5.250%, 1/15/2009(c) 3,795,668 --------------- 20,799,541 ---------------
See accompanying notes to financial statements. 19 LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) ----------------------------------------------------------------------------------------- Healthcare -- 1.5% $ 1,510,000 Aetna, Inc., Senior Note 7.875%, 3/01/2011 $ 1,720,983 765,000 AmerisourceBergen Corp., Senior Note, 144A 5.875%, 9/15/2015 755,437 1,315,000 WellPoint, Inc. 3.750%, 12/14/2007 1,288,241 --------------- 3,764,661 --------------- Home Construction -- 1.1% 1,405,000 Desarrolladora Homex SA de CV, Guaranteed Senior Note, 144A 7.500%, 9/28/2015 1,405,000 1,315,000 Pulte Homes, Inc., Senior Note 4.875%, 7/15/2009 1,301,040 --------------- 2,706,040 --------------- Independent Energy -- 0.6% 480,000 Chesapeake Energy Corp., Senior Note 6.375%, 6/15/2015 482,400 990,000 Pioneer Natural Resources Co., Senior Note 6.500%, 1/15/2008 1,016,480 --------------- 1,498,880 --------------- Industrial Other -- 1.1% 2,865,000 Aramark Services, Inc., Guaranteed Note 7.000%, 7/15/2006 2,903,414 --------------- Insurance -- 0.5% 1,325,000 Axis Capital Holdings 5.750%, 12/01/2014 1,314,852 --------------- Media Cable -- 2.6% 2,000,000 CSC Holdings, Inc., Senior Note 7.625%, 7/15/2018 1,870,000 515,000 CSC Holdings, Inc., Senior Note 7.875%, 2/15/2018 491,825 1,540,000 Rogers Cable, Inc. 6.750%, 3/15/2015 1,543,850 2,920,000 Shaw Communications, Inc., Senior Note 7.400%, 10/17/2007 (CAD) 2,652,911 --------------- 6,558,586 --------------- Media Non-Cable -- 2.6% 1,435,000 Clear Channel Communications, Inc., Global Note 4.250%, 5/15/2009 1,383,989 620,000 Cox Communications, Inc. 5.450%, 12/15/2014 615,967 2,265,000 Cox Communications, Inc. 7.750%, 11/01/2010 2,506,377 540,000 Reed Elsevier Capital, Inc. 4.625%, 6/15/2012 524,578 1,290,000 Time Warner, Inc. 7.700%, 5/01/2032 1,527,262 --------------- 6,558,173 --------------- Metals and Mining -- 0.9% 2,300,000 International Steel Group, Inc. 6.500%, 4/15/2014 2,277,000 70,000 Texas Industries, Inc., Senior Note, 144A 7.250%, 7/15/2013 72,800 --------------- 2,349,800 ---------------
Principal Amount + Description Value (a) ----------------------------------------------------------------------------------------- Mortgage Backed Securities -- 3.0% $ 1,500,000 GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A 4.751%, 7/10/2039 $ 1,471,523 1,710,000 LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3 4.647%, 7/15/2030 1,682,184 2,400,000 Morgan Stanley Capital I, Series 2005-T19, Class A4A 4.890%, 6/12/2047 2,373,966 2,195,000 Wachovia Bank Commercial Mortgage Trust, Series 2005-C20, Class A2 4.519%, 7/15/2042 2,158,277 --------------- 7,685,950 --------------- Mortgage Related -- 26.4% 2,624,414 FHLMC 4.000%, 7/01/2019 2,521,989 7,626,937 FHLMC 4.500%, with various maturities to 2034(d) 7,403,123 9,233,649 FHLMC 5.000%, with various maturities to 2035(d) 9,101,702 2,220,550 FHLMC 5.500%, with various maturities to 2018(d) 2,253,606 318,840 FHLMC 6.000%, 6/01/2035 324,438 2,565,000 FHLMC (TBA) 5.000%, 10/01/2035 2,509,693 1,028,879 FNMA 4.000%, 6/01/2019 990,755 4,462,185 FNMA 4.500%, 9/01/2019 4,372,651 8,460,855 FNMA 5.000%, with various maturities to 2035(d) 8,316,830 13,716,332 FNMA 5.500%, with various maturities to 2035(d) 13,744,280 4,354,898 FNMA 6.000%, with various maturities to 2034(d) 4,444,005 4,278,413 FNMA 6.500%, with various maturities to 2034(d) 4,405,619 428,241 FNMA 7.000%, with various maturities to 2030(d) 448,257 482,499 FNMA 7.500%, with various maturities to 2032(d) 510,753 1,532,356 GNMA 5.500%, 2/20/2034 1,544,475 589,900 GNMA 6.000%, 1/15/2029 605,041 1,579,845 GNMA 6.500%, with various maturities to 2032(d) 1,644,865 774,104 GNMA 7.000%, with various maturities to 2029(d) 816,142 223,155 GNMA 7.500%, with various maturities to 2030(d) 237,601 92,515 GNMA 8.000%, 11/15/2029 99,105 271,142 GNMA 8.500%, with various maturities to 2023(d) 296,668 27,544 GNMA 9.000%, with various maturities to 2016(d) 29,936 69,673 GNMA 11.500%, with various maturities to 2015(d) 77,230 --------------- 66,698,764 ---------------
See accompanying notes to financial statements. 20 LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) -------------------------------------------------------------------------------- Non-Captive Diversified Financial -- 0.6% $ 138,000,000 General Electric Capital Corp., (MTN) 1.400%, 11/02/2006 (JPY) $ 1,231,565 500,000 General Electric Capital Corp., Series E, (MTN) 1.725%, 6/27/2008 (SGD) 288,799 --------------- 1,520,364 --------------- Paper -- 3.5% 3,165,000 Abitibi-Consolidated Finance, LP 7.875%, 8/01/2009 3,141,263 1,495,000 Abitibi-Consolidated, Inc. 8.550%, 8/01/2010 1,521,163 1,200,000 Georgia-Pacific Corp. 7.375%, 12/01/2025 1,248,000 755,000 Georgia-Pacific Corp. 7.750%, 11/15/2029 809,738 480,000 Georgia-Pacific Corp. 8.875%, 5/15/2031 567,682 1,535,000 International Paper Co. 4.000%, 4/01/2010 1,462,086 --------------- 8,749,932 --------------- Pharmaceuticals -- 2.2% 1,470,000 Caremark Rx, Inc., Senior Note 7.375%, 10/01/2006 1,504,564 1,250,000 Medco Health Solutions 7.250%, 8/15/2013 1,377,613 2,750,000 Valeant Pharmaceuticals International, Senior Note 7.000%, 12/15/2011 2,708,750 --------------- 5,590,927 --------------- Pipelines -- 1.1% 2,464,000 Kinder Morgan Energy Partners, LP 7.125%, 3/15/2012 2,725,324 --------------- Railroads -- 0.5% 1,155,000 CSX Corp. 4.875%, 11/01/2009 1,153,061 --------------- Real Estate Investment Trusts -- 2.4% 195,000 Colonial Realty, LP, Senior Note 4.750%, 2/01/2010 190,814 1,350,000 Colonial Realty, LP, Senior Note 5.500%, 10/01/2015 1,326,617 2,040,000 EOP Operating, LP, Guaranteed Note 4.650%, 10/01/2010 2,006,142 1,250,000 iStar Financial, Inc., Senior Note 6.000%, 12/15/2010 1,283,120 1,340,000 Simon Property Group, LP 6.375%, 11/15/2007 1,379,844 --------------- 6,186,537 --------------- Refining -- 0.2% 515,000 Premcor Refining Group (The), Inc., Senior Note 7.500%, 6/15/2015 551,050 --------------- Sovereigns -- 0.5% 9,195,000 Kingdom of Sweden 4.000%, 12/01/2009 (SEK) 1,249,095 --------------- Supermarkets -- 2.3% 85,000 Albertson's, Inc. 7.750%, 6/15/2026 74,585 650,000 Albertson's, Inc., Senior Note 7.450%, 8/01/2029 560,692
Principal Amount + Description Value (a) ---------------------------------------------------------------------------------- Supermarkets -- continued $ 405,000 Albertson's, Inc., Senior Note 8.000%, 5/01/2031 $ 368,795 55,000 Albertson's, Inc., Series C, (MTN) 6.625%, 6/01/2028 43,915 1,620,000 Delhaize America, Inc. 9.000%, 4/15/2031 1,870,032 2,720,000 Fred Meyer, Inc. 7.450%, 3/01/2008 2,867,737 --------------- 5,785,756 --------------- Technology -- 0.4% 665,000 Corning, Inc. 6.200%, 3/15/2016 684,018 275,000 Sungard Data Systems, Inc., Senior Note, 144A 9.125%, 8/15/2013 284,969 --------------- 968,987 --------------- Transportation Services -- 0.5% 1,310,000 Overseas Shipholding Group, Senior Note 7.500%, 2/15/2024 1,300,175 --------------- Treasuries -- 5.4% 565,000 U.S. Treasury Bond 5.375%, 2/15/2031 632,976 12,054,030 U.S. Treasury Inflation Indexed Bond 2.375%, 1/15/2025 12,895,931 --------------- 13,528,907 --------------- Wireless -- 0.3% 100,000 Rogers Wireless, Inc. 7.250%, 12/15/2012 105,750 730,000 Sprint Capital Corp. 6.125%, 11/15/2008 758,050 --------------- 863,800 --------------- Wirelines -- 4.7% 1,180,000 AT&T Corp., Senior Note 9.750%, 11/15/2031 1,494,175 1,650,000 GTE Corp. 7.900%, 2/01/2027 1,760,324 3,200,000 LCI International, Inc., Senior Note 7.250%, 6/15/2007 3,120,000 1,240,000 Qwest Corp. 7.200%, 11/10/2026 1,109,800 670,000 Qwest Corp. 7.250%, 9/15/2025 624,775 1,675,000 Qwest Corp. 7.500%, 6/15/2023 1,528,438 2,080,000 Sprint Capital Corp. 6.875%, 11/15/2028 2,297,726 --------------- 11,935,238 --------------- Total Bonds and Notes (Identified Cost $246,909,334) 247,494,449 ===============
See accompanying notes to financial statements. 21 LOOMIS SAYLES CORE PLUS BOND FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------------------- Short-Term Investment -- 1.2% $2,904,133 Repurchase Agreement with Investors Bank & Trust Co. dated 9/30/2005 at 2.75% to be repurchased at $2,904,799 on 10/03/2005, collateralized by $781,946 Federal Home Loan Mortgage Association Bond, 4.12%, due 12/15/2034 valued at $780,583 and $2,118,319 Small Business Administration Bond, 7.125%, due 9/25/2016 valued at $2,268,757 $ 2,904,133 ------------ Total Short-Term Investment (Identified Cost $2,904,133) 2,904,133 ------------ Total Investments -- 99.2% (Identified Cost $249,813,467)(b) 250,398,582 Other assets less liabilities -- 0.8% 2,059,163 ------------ Total Net Assets -- 100% $252,457,745 ============ (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2005, the net unrealized depreciation on investments based on cost of $251,023,876 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 3,037,189 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (3,662,483) ------------ Net unrealized depreciation $ (625,294) ============ (c) All or a portion of this security has been segregated to cover collateral requirements on TBA obligations. (d) The Fund's investment in mortgage related securities of the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of each issuer which have the same coupon rate have been aggregated for the purpose of presentation in the Schedule of Investments. + Principal amount is in U.S. dollars unless otherwise noted. FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association GNMA Government National Mortgage Association MTN Medium Term Note TBA To Be Announced (see Note 2g of Notes to Financial Statements) 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2005, the value of these securities amounted to $3,802,291 or 1.5% of net assets. CAD Canadian Dollar JPY Japanese Yen SEK Swedish Krona SGD Singapore Dollar
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited) Mortgage Related 26.4% Government Agencies 8.2 Asset Backed Securities 8.1 Treasuries 5.4 Wirelines 4.7 Paper 3.5 Mortgage Backed Securities 3.0 Foreign Local Governments 2.9 Media Cable 2.6 Media Non-Cable 2.6 Electric 2.6 Real Estate Investment Trusts 2.4 Supermarkets 2.3 Automotive 2.3 Pharmaceuticals 2.2 Other, less than 2% each 18.8
See accompanying notes to financial statements. 22 LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of September 30, 2005
Principal Amount + Description Value (a) ----------------------------------------------------------------------------------------------- Bonds and Notes -- 94.1% of Total Net Assets Airlines -- 2.0% $ 35,000 AMR Corp., Senior Note 4.500%, 2/15/2024 $ 24,194 225,000 AMR Corp., Senior Note, Convertible 4.250%, 9/23/2023 178,875 86,366 Continental Airlines, Inc., Series 1997-4, Class 4B 6.900%, 1/02/2017 73,874 164,248 Continental Airlines, Inc., Series 1998-1, Class 1A 6.648%, 9/15/2017 158,760 169,920 Continental Airlines, Inc., Series 1998-1, Class 1B 6.748%, 3/15/2017 146,981 53,769 Continental Airlines, Inc., Series 1999-1, Class C 6.954%, 8/02/2009 47,117 108,877 Continental Airlines, Inc., Series 1999-2, Class B 7.566%, 3/15/2020 94,688 120,690 Continental Airlines, Inc., Series 2002-2, Class B 8.307%, 4/02/2018 106,588 --------------- 831,077 --------------- Automotive -- 6.7% 600,000 Cummins, Inc. 7.125%, 3/01/2028 609,000 70,000 Dana Corp. 5.850%, 1/15/2015 54,907 175,000 Dana Corp. 7.000%, 3/15/2028 133,123 275,000 Dana Corp. 7.000%, 3/01/2029 209,417 265,000 Delphi Corp. 7.125%, 5/01/2029 169,600 145,000 Ford Motor Co. 6.375%, 2/01/2029 104,037 175,000 Ford Motor Co. 6.625%, 10/01/2028 126,437 355,000 General Motors Acceptance Corp. 4.670%, 3/20/2007(c) 347,550 145,000 General Motors Acceptance Corp. 8.000%, 11/01/2031 126,610 125,000 General Motors Acceptance Corp. of Canada, Ltd., Series E., (MTN) 6.625%, 12/17/2010 (GBP) 198,847 120,000 Goodyear Tire & Rubber Co. (The) 7.857%, 8/15/2011 116,100 580,000 Lear Corp., Series B 5.750%, 8/01/2014 484,300 110,000 Tenneco Automotive, Inc., Senior Subordinated Note 8.625%, 11/15/2014 110,825 --------------- 2,790,753 --------------- Banking -- 3.2% 7,000,000 Barclays Bank PLC, 144A 4.160%, 2/22/2010 (THB) 160,482 9,000,000 Barclays Financial LLC, 144A 4.100%, 3/22/2010 (THB) 205,611 990,000 Citibank NA, 144A 15.000%, 7/02/2010 (BRL) 464,744 500,000 HSBC Bank USA, 144A 3.310%, 8/25/2010 506,400 --------------- 1,337,237 ---------------
Principal Amount + Description Value (a) ------------------------------------------------------------------------------------------ Biotechnology -- 0.9% $ 360,000 Inhale Therapeutic Systems, Inc., Subordinated Note 3.500%, 10/17/2007 $ 352,350 --------------- Chemicals -- 2.6% 450,000 Borden, Inc. 7.875%, 2/15/2023 360,000 550,000 Borden, Inc. 9.200%, 3/15/2021 500,500 270,000 Hercules, Inc., Subordinated Note 6.500%, 6/30/2029 211,275 --------------- 1,071,775 --------------- Commercial Services -- 0.2% 100,000 Hertz Corp. 7.625%, 6/01/2012 96,010 --------------- Construction Machinery -- 2.8% 350,000 Case Credit Corp. 6.750%, 10/21/2007 353,500 100,000 Case New Holland, Inc., Senior Note 9.250%, 8/01/2011 105,750 120,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note 7.750%, 12/15/2013 110,100 550,000 United Rentals North America, Inc., Senior Subordinated Note 7.000%, 2/15/2014 510,125 85,000 Williams Scotsman, Inc., Senior Note, 144A 8.500%, 10/01/2015 86,062 --------------- 1,165,537 --------------- Consumer Products -- 0.1% 60,000 Spectrum Brands, Inc., Senior Subordinated Note 7.375%, 2/01/2015 54,000 --------------- Electric -- 2.7% 100,000 Allegheny Energy Supply Co. LLC 7.800%, 3/15/2011 109,500 65,000 Calpine Canada Energy Finance ULC 8.500%, 5/01/2008 38,837 200,000 Calpine Corp., Senior Note 7.750%, 4/15/2009 104,000 200,000 Calpine Corp., Senior Note 7.875%, 4/01/2008(d) 118,000 610,000 Calpine Corp., Senior Note 8.500%, 2/15/2011(d) 323,300 160,000 Calpine Corp., Senior Secured Note, 144A 8.500%, 7/15/2010 114,400 10,000 Calpine Corp., Senior Secured Note, 144A 8.750%, 7/15/2013 7,075 40,000 Dynegy Holdings, Inc. 7.125%, 5/15/2018 37,000 140,000 Enersis SA, Chile 7.375%, 1/15/2014 147,929 90,000 NGC Corp. 7.625%, 10/15/2026 83,250 20,000 NGC Corp. Capital Trust, Series B 8.316%, 6/01/2027 17,950 --------------- 1,101,241 --------------- Environmental -- 0.4% 190,000 Allied Waste North America, Series B, Senior Note 5.750%, 2/15/2011 177,175 ---------------
See accompanying notes to financial statements. 23 LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) ------------------------------------------------------------------------------ Financial Services -- 0.6% $ 250,000 Astoria Depositor Corp., 144A 8.144%, 5/01/2021 $ 248,412 --------------- Food -- 0.3% 115,000 Friendly Ice Cream Corp., Guaranteed Senior Note 8.375%, 6/15/2012 108,675 --------------- Food and Beverage -- 1.6% 600,000 Bavaria SA, Senior Note, 144A 8.875%, 11/01/2010 661,800 --------------- Healthcare -- 2.2% 150,000 Columbia/HCA, Inc. 7.500%, 12/15/2023 148,962 75,000 Columbia/HCA, Inc. 7.690%, 6/15/2025 75,373 200,000 Columbia/HCA, Inc. (MTN) 7.580%, 9/15/2025 198,182 500,000 Columbia/HCA, Inc. (MTN) 7.750%, 7/15/2036 495,913 --------------- 918,430 --------------- Home Construction -- 0.7% 300,000 K Hovnanian Enterprises, Inc. 6.250%, 1/15/2015 281,335 --------------- Independent Energy -- 0.8% 70,000 Chesapeake Energy Corp., Senior Note 6.375%, 6/15/2015 70,350 270,000 Chesapeake Energy Corp., Senior Note 6.875%, 1/15/2016 276,750 --------------- 347,100 --------------- Integrated Energy -- 1.3% 265,000 Cerro Negro Finance, Ltd., 144A 7.900%, 12/01/2020 252,413 300,000 Petrozuata Finance, Inc., Series B, 144A 8.220%, 4/01/2017 286,500 --------------- 538,913 --------------- Lodging -- 1.2% 300,000 FelCor Lodging, LP, Senior Note 9.000%, 6/01/2011 326,250 160,000 Host Marriott, LP REIT, Senior Note 6.375%, 3/15/2015 155,200 --------------- 481,450 --------------- Media Cable -- 4.1% 550,000 CSC Holdings, Inc., Senior Note 7.625%, 7/15/2018 514,250 250,000 NTL Cable PLC 9.750%, 4/15/2014 (GBP) 444,358 175,000 PanAmSat Corp. 6.875%, 1/15/2028 160,125 650,000 Rogers Cable, Inc., Senior Note 5.500%, 3/15/2014 599,625 --------------- 1,718,358 --------------- Metals and Mining -- 1.5% 520,000 AK Steel Corp., Guaranteed Senior Note 7.750%, 6/15/2012 479,700 150,000 Glencore Funding, LLC, Guaranteed Note, 144A 6.000%, 4/15/2014 142,097 --------------- 621,797 ---------------
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------------- Oil Field Services -- 0.3% $ 110,000 North American Energy Partners, Inc., Senior Note 8.750%, 12/01/2011 $ 104,500 --------------- Packaging -- 1.5% 350,000 Owens-Illinois, Inc., Senior Note 7.500%, 5/15/2010 355,250 135,000 Owens-Illinois, Inc., Senior Note 7.800%, 5/15/2018 135,675 155,000 Solo Cup Co., Senior Subordinated Note 8.500%, 2/15/2014 137,175 --------------- 628,100 --------------- Paper -- 3.8% 475,000 Abitibi-Consolidated, Inc. 7.500%, 4/01/2028 401,375 250,000 Abitibi-Consolidated, Inc. 8.500%, 8/01/2029 223,750 100,000 Arcel Finance, Ltd., 144A 6.361%, 5/01/2012 98,808 197,280 Arcel Finance, Ltd., 144A 7.048%, 9/01/2011 207,036 685,000 Bowater, Inc. 6.500%, 6/15/2013 638,763 --------------- 1,569,732 --------------- Pharmaceuticals -- 6.1% 85,000 Elan Capital Corp., Ltd., Convertible 6.500%, 11/10/2008 115,286 120,000 Elan Finance Corp., Senior Note, 144A 7.750%, 11/15/2011 105,600 235,000 Enzon, Inc. 4.500%, 7/01/2008 213,263 127,000 EPIX Pharmaceuticals, Inc., Senior Note 3.000%, 6/15/2024 96,838 375,000 IVAX Corp., Senior Note, Convertible 1.500%, 3/01/2024 423,281 202,000 IVAX Corp., Senior Subordinated Note, Convertible 4.500%, 5/15/2008 201,748 250,000 Pharma Services Intermediate Holdings Corp., Senior Note, 0.00% (step to 11.50% on 4/01/2009), 4/01/2014(e) 185,000 315,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, Convertible 5.500%, 10/17/2008 298,463 155,000 Valeant Pharmaceuticals International, Subordinated Note, Convertible 3.000%, 8/16/2010 140,856 300,000 Valeant Pharmaceuticals International, Subordinated Note, Convertible 4.000%, 11/15/2013 271,875 310,000 Vertex Pharmaceuticals, Inc., Convertible, 144A 5.750%, 2/15/2011 487,475 --------------- 2,539,685 --------------- Pipelines -- 5.4% 65,000 Coastal Corp. 6.500%, 6/01/2008 64,025 415,000 El Paso CGP, Co. 6.375%, 2/01/2009 404,625 825,000 El Paso CGP, Co. 6.950%, 6/01/2028 742,500 982,000 Williams Cos., Inc., Series A 7.500%, 1/15/2031 1,043,375 --------------- 2,254,525 ---------------
See accompanying notes to financial statements. 24 LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) ---------------------------------------------------------------------------------------------- Real Estate Investment Trusts -- 1.3% $ 500,000 Crescent Real Estate Equities, LP, Senior Subordinated Note 9.250%, 4/15/2009 $ 531,875 --------------- Retailers -- 4.5% 250,000 Dillard's, Inc. 6.625%, 1/15/2018 232,500 600,000 Dillard's, Inc. 7.750%, 7/15/2026 582,000 400,000 Foot Locker, Inc. 8.500%, 1/15/2022 435,000 765,000 Toys R US, Inc. 7.375%, 10/15/2018 612,000 --------------- 1,861,500 --------------- Sovereigns --7.2% 1,190,000 Republic of Argentina 2.000%, 9/30/2014 (ARS)(c) 421,997 520,000 Republic of Brazil 8.250%, 1/20/2034 522,600 175,000 Republic of Colombia 8.125%, 5/21/2024 187,688 100,000,000 Republic of Colombia 11.750%, 3/01/2010 (COP) 49,950 4,420,000 United Mexican States 8.000%, 12/07/2023 (MXN) 380,339 14,850,000 United Mexican States 9.000%, 12/20/2012 (MXN) 1,414,910 --------------- 2,977,484 --------------- Supermarkets -- 0.8% 305,000 Albertson's, Inc., Senior Note 7.450%, 8/01/2029 263,094 20,000 Albertson's, Inc., Senior Note 8.000%, 5/01/2031 18,212 55,000 Albertson's, Inc., Series C, (MTN) 6.625%, 6/01/2028 43,915 --------------- 325,221 --------------- Supranational -- 3.8% 6,000,000 Inter-American Development Bank, Series E, (MTN), Zero Coupon, 5/11/2009 (BRL) 1,583,804 --------------- Technology -- 11.7% 125,000 Amkor Technology, Inc. 5.000%, 3/15/2007 110,156 125,000 Amkor Technology, Inc., Senior Note 7.750%, 5/15/2013 106,875 225,000 Corning, Inc. 5.900%, 3/15/2014 228,275 270,000 Corning, Inc. 6.200%, 3/15/2016 277,721 225,000 Corning, Inc. 6.750%, 9/15/2013 240,985 155,000 Corning, Inc. 6.850%, 3/01/2029 156,432 215,000 Kulicke & Soffa Industries, Inc., Subordinated Note, Convertible 0.500%, 11/30/2008 158,831 910,000 Lucent Technologies, Inc. 6.450%, 3/15/2029 796,250 315,000 Maxtor Corp., Subordinated Note 5.750%, 3/01/2012(f) 283,500
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------- Technology -- continued $ 425,000 Nortel Networks Corp. 6.875%, 9/01/2023 $ 395,250 300,000 Nortel Networks Corp., Guaranteed Senior Note 4.250%, 9/01/2008 282,375 65,000 Northern Telecom Capital Corp. 7.875%, 6/15/2026 63,700 100,000 SCI Systems, Inc., Subordinated Note, Convertible 3.000%, 3/15/2007 96,250 120,000 Sungard Data Systems, Inc., 144A 10.250%, 8/15/2015 121,500 85,000 Sungard Data Systems, Inc., Senior Note, 144A 9.125%, 8/15/2013 88,081 105,000 Unisys Corp. 6.875%, 3/15/2010 101,325 145,000 Unisys Corp., Senior Note 8.000%, 10/15/2012 142,463 325,000 Xerox Capital Trust I, Guaranteed Note 8.000%, 2/01/2027 337,188 300,000 Xerox Corp., (MTN) 7.200%, 4/01/2016 327,000 500,000 Xerox Corp., Senior Note 6.875%, 8/15/2011 522,500 --------------- 4,836,657 --------------- Transportation Services -- 5.8% 275,000 American President Cos., Ltd., Senior Note 8.000%, 1/15/2024 282,219 120,035 Atlas Air, Inc., Series 1998-1, Class 1A 7.380%, 1/02/2018 119,514 117,634 Atlas Air, Inc., Series 1999-1, Class A1 7.200%, 1/02/2019 116,904 117,737 Atlas Air, Inc., Series 2000-1, Class A 8.707%, 1/02/2019 121,946 250,000 Bombardier Capital Funding, LP 6.750%, 5/14/2009 (GBP) 434,919 120,000 Hertz Corp., Senior Note 6.350%, 6/15/2010 113,475 335,000 Hertz Corp., Senior Note 6.900%, 8/15/2014 310,280 300,000 Overseas Shipholding Group, Senior Note 7.500%, 2/15/2024 297,750 295,000 Stena AB, Senior Note 7.000%, 12/01/2016 272,875 350,000 Stena AB, Senior Note 7.500%, 11/01/2013 340,375 --------------- 2,410,257 --------------- Wireless -- 0.4% 150,000 Rogers Wireless Communications, Inc., Senior Secured Note 6.375%, 3/01/2014 150,750 --------------- Wirelines -- 5.6% 50,000 Cincinnati Bell, Inc. 8.375%, 1/15/2014 49,250 95,000 Citizens Communications Co. 7.000%, 11/01/2025 83,600 155,000 Citizens Communications Co., Senior Note 9.000%, 8/15/2031 157,131 375,000 Qwest Capital Funding, Inc. 6.875%, 7/15/2028 308,438
See accompanying notes to financial statements. 25 LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) ------------------------------------------------------------------------------------------- Wirelines -- continued $ 1,890,000 Qwest Capital Funding, Inc. 7.750%, 2/15/2031 $ 1,630,125 75,000 Qwest Capital Funding, Inc., Guaranteed Note 7.000%, 8/03/2009 73,313 --------------- 2,301,857 --------------- Total Bonds and Notes (Identified Cost $36,913,116) 38,979,372 --------------- Shares ------------------------------------------------------------------------------------------- Preferred Stocks -- 4.2% Electric -- 1.7% 6,475 AES Trust III, Convertible, 6.75%, 10/15/2029 314,037 8,000 CMS Energy Trust I, Convertible, 7.75%, 7/15/2027 400,000 --------------- 714,037 --------------- Packaging -- 0.6% 6,500 Owens-Illinois, Inc., Convertible, 4.75%, 12/31/2049 234,813 --------------- Pipelines -- 1.1% 4,000 Williams Holdings of Delaware, Convertible, 5.50%, 6/01/2033 464,500 --------------- Technology -- 0.5% 225 Lucent Technologies Capital Trust I, Convertible, 7.75%, 3/15/2017 226,969 --------------- Wirelines -- 0.3% 2,000 Philippine Long Distance Telephone Co., Sponsored GDR, Convertible, $3.50, 12/31/2049 105,000 --------------- Total Preferred Stocks (Identified Cost $1,412,789) 1,745,319 --------------- Shares ------------------------------------------------------------------------------------------- Common Stocks -- 0.3% Investment Companies -- 0.2% 3,005 CIM High Yield Securities Fund 12,621 2,175 High Income Opportunity Fund, Inc. 13,680 3,835 Morgan Stanley Emerging Markets Debt Fund, Inc.(d) 39,769 --------------- 66,070 --------------- Metals and Mining -- 0.1% 900 Cia Vale do Rio Doce, ADR 39,474 --------------- Total Common Stocks (Identified Cost $77,853) 105,544 --------------- Principal Amount + ------------------------------------------------------------------------------------------- Short-Term Investments -- 2.6% $ 743,850 Repurchase Agreement with Investors Bank & Trust Co. dated 9/30/2005 at 2.75% to be repurchased at $744,020 on 10/03/2005, collateralized by $12,418 Federal Home Loan Mortgage Association Bond, with rates of 4.168% -- 4.268%, with maturities from 1/15/2028 -- 1/15/2033 valued at $12,509, $554,001 Federal National Mortgage Association Bond, with rates of 3.815% -- 4.612%, with maturities from 12/25/2021 -- 11/1/2034 valued at $543,095, $13,232 Government National Mortgage Association Bond, with rates of 4.00% -- 4.875%, with maturities from 2/20/2033 -- 4/20/2034 valued at $13,386, and $197,964 Small Business Administration Bond, with rates of 5.875% -- 7.375%, with maturities from 8/25/2014 -- 3/25/2030 valued at $212,052 743,850
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------------------- $ 326,432 Repurchase Agreement with Merrill Lynch & Co, dated 9/30/2005 at 3.93% to be repurchased at $326,539 on 10/03/2005, collateralized by $326,433 Federal Home Loan Mortgage Association Bond, with rates of 0.00% -- 6.25%, with maturities from 1/30/07 -- 7/15/32 valued at $332,962(g) $ 326,432 --------------- Total Short-Term Investments (Identified Cost $1,070,282) 1,070,282 --------------- Total Investments -- 101.2% (Identified Cost $39,474,040)(b) 41,900,517 Other assets less liabilities -- (1.2)% (495,356) --------------- Total Net Assets -- 100% $ 41,405,161 =============== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2005, the net unrealized appreciation on investments based on cost of $39,477,512 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 3,177,582 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (754,577) --------------- Net unrealized appreciation $ 2,423,005 =============== (c) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). (d) All or a portion of this security was on loan to brokers at September 30, 2005. (e) Step Bond: Coupon rate is zero or below market for an initial period and then increases to a higher coupon rate at a specified date. (f) Illiquid security. At September 30, 2005, the value of this security amounted to $283,500 or 0.7% of net assets. (g) Represents investment of securities lending collateral. + Principal amount is in U.S. dollars unless otherwise noted. ADR/GDR An American Depositary Receipt (ADR) or Global Depositary Receipt (GDR) is a certificate issued by a U.S. Bank representing the right to receive securities of the foreign issuer described. The values of ADRs and GDRs are significantly influenced by trading on exchanges not located in the United States. MTN Medium Term Note REIT Real Estate Investment Trust 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2005, the value of these securities amounted to $4,244,496 or 10.3% of net assets. ARS Argentine Peso BRL Brazilian Real COP Colombian Peso GBP British Pound MXN Mexican Peso THB Thai Baht
See accompanying notes to financial statements. 26 LOOMIS SAYLES HIGH INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005 Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited) Technology 12.2% Sovereigns 7.2 Automotive 6.7 Pipelines 6.5 Pharmaceuticals 6.1 Wirelines 5.9 Transportation Services 5.8 Retailers 4.5 Electric 4.4 Media Cable 4.1 Supranational 3.8 Paper 3.8 Banking 3.2 Construction Machinery 2.8 Chemicals 2.6 Healthcare 2.2 Packaging 2.1 Airlines 2.0 Other, less than 2% each 12.7
See accompanying notes to financial statements. 27 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND -- SCHEDULE OF INVESTMENTS Investments as of September 30, 2005
Principal Amount Description Value (a) --------------------------------------------------------------------------------------------- Bonds and Notes -- 98.8% of Total Net Assets Asset Backed Securities -- 4.3% $ 1,035,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3 4.615%, 2/25/2035 $ 1,013,825 2,240,000 Residential Asset Mortgage Products, Inc., Series 2003-RZ5, Class A3 3.800%, 7/25/2030 2,230,550 1,376,000 Residential Funding Mortgage Securities II, Series 2003-HI4, Class AI4 4.590%, 4/25/2018 1,365,243 1,900,000 Residential Funding Mortgage Securities II, Series 2004-HI3, Class A3 3.810%, 8/25/2017 1,875,143 670,000 Residential Funding Mortgage Securities II, Series 2004-HI3, Class A4 4.630%, 1/25/2020 663,344 --------------- 7,148,105 --------------- Government Agencies -- 7.7% 2,935,000 Federal Farm Credit Bank 2.375%, 10/02/2006 2,878,457 6,200,000 Federal Home Loan Bank 3.625%, 11/14/2008(c) 6,056,544 3,000,000 FNMA 5.500%, 5/02/2006 3,020,811 600,000 FNMA 6.625%, 9/15/2009 644,773 --------------- 12,600,585 --------------- Mortgage Related -- 55.8% 7,050,916 FHLMC 4.000%, with various maturities to 2019(d) 6,775,734 6,214,548 FHLMC 4.500%, with various maturities to 2034(d) 6,061,214 7,949,950 FHLMC 5.000%, 7/01/2019(e) 7,931,955 3,329,397 FHLMC 5.500%, 12/01/2034 3,331,347 312,873 FHLMC 6.000%, 11/01/2019 321,454 11,272,754 FHLMC 6.500%, with various maturities to 2034(d) 11,592,148 387,818 FHLMC 7.000%, 2/01/2016 404,989 81,767 FHLMC 7.500%, with various maturities to 2026(d) 86,365 68,204 FHLMC 8.000%, with various maturities to 2015(d) 71,711 7,293 FHLMC 10.000%, 7/01/2019 8,119 517,736 FHLMC 11.500%, with various maturities to 2020(d) 566,828 7,995,000 FHLMC (TBA) 4.500%, 10/01/2020 7,827,601 18,032,997 FNMA 4.000%, with various maturities to 2020(d) 17,372,095 1,474,347 FNMA 4.500%, 9/01/2019 1,444,764 5,494,865 FNMA 5.500%, with various maturities to 2034(d) 5,512,085
Principal Amount Description Value (a) ---------------------------------------------------------------------------------- Mortgage Related -- continued $ 7,075,653 FNMA 6.000%, with various maturities to 2034(d) $ 7,257,101 10,705,894 FNMA 6.500%, with various maturities to 2034(d) 11,025,411 417,886 FNMA 7.000%, 12/01/2022 443,161 1,102,893 FNMA 7.500%, with various maturities to 2032(d) 1,166,974 183,674 FNMA 8.000%, with various maturities to 2016(d) 196,921 210,981 GNMA 6.000%, 12/15/2031 216,168 870,320 GNMA 6.500%, 5/15/2031 906,011 851,390 GNMA 7.000%, with various maturities to 2031(d) 896,150 646 GNMA 8.500%, 2/15/2006 658 49,943 GNMA 9.000%, with various maturities to 2009(d) 52,339 15,233 GNMA 9.500%, 8/15/2009 16,219 1,190 GNMA 10.000%, 9/15/2016 1,329 26,925 GNMA 12.500%, with various maturities to 2015(d) 30,176 213,151 GNMA 16.000%, with various maturities to 2012(d) 245,554 83,721 GNMA 17.000%, with various maturities to 2011(d) 97,712 --------------- 91,860,293 --------------- Treasuries -- 31.0% 5,155,000 U.S. Treasury Bond 7.250%, 5/15/2016 6,377,096 3,200,000 U.S. Treasury Note 1.875%, 12/31/2005 3,186,125 790,000 U.S. Treasury Note 2.250%, 2/15/2007 769,972 5,330,000 U.S. Treasury Note 2.375%, 8/15/2006 5,252,966 1,290,000 U.S. Treasury Note 2.500%, 10/31/2006 1,267,980 8,095,000 U.S. Treasury Note 3.000%, 12/31/2006 7,980,529 2,500,000 U.S. Treasury Note 3.125%, 10/15/2008 2,424,220 17,960,000 U.S. Treasury Note 3.375%, 2/28/2007(c) 17,763,554 1,930,000 U.S. Treasury Note 6.125%, 8/15/2007 1,997,324 750,000 U.S. Treasury Note 6.625%, 5/15/2007 779,092 4,000,000 U.S. Treasury STRIPS, Zero Coupon, 11/15/2009 3,357,016 --------------- 51,155,874 --------------- Total Bonds and Notes (Identified Cost $163,819,775) 162,764,857 ---------------
See accompanying notes to financial statements. 28 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount Description Value (a) -------------------------------------------------------------------------------------------------- Short-Term Investment -- 10.5% $ 17,368,595 Repurchase Agreement with Investors Bank & Trust Co. dated 9/30/2005 at 2.75% to be repurchased at $17,372,575 on 10/03/2005, collateralized by $16,911,123 Small Business Administration Bond, with rates of 6.30% -- 7.375%, with maturities from 1/25/2016 -- 4/25/2030 valued at $18,237,025 $ 17,368,595 --------------- Total Short-Term Investment (Identified Cost $17,368,595) 17,368,595 --------------- Total Investments -- 109.3% (Identified Cost $181,188,370)(b) 180,133,452 Other assets less liabilities -- (9.3)% (15,354,625) --------------- Total Net Assets -- 100% $ 164,778,827 =============== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2005, the net unrealized depreciation on investments based on cost of $182,303,838 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ -- Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (2,170,386) --------------- Net unrealized depreciation $ (2,170,386) =============== (c) All or a portion of this security has been segregated to cover collateral requirements on TBA obligations. (d) The Fund's investment in mortgage related securities of the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and the Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of each issuer which have the same coupon rate have been aggregated for the purpose of presentation in the Schedule of Investments. (e) Security purchased on a delayed delivery basis. FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association GNMA Government National Mortgage Association STRIPS Separate Trading of Registered Interest and Principal of Securities TBA To Be Announced (see Note 2g of Notes to Financial Statements)
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited) Mortgage Related 55.8% Treasuries 31.0 Government Agencies 7.7 Asset Backed Securities 4.3
See accompanying notes to financial statements. 29 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of September 30, 2005
Principal Amount Description Value (a) --------------------------------------------------------------------------------------------- Tax Exempt Obligations -- 97.6% of Total Net Assets Highlands County, FL, Health Facilities Authority -- 1.4% $ 1,000,000 Adventis Health System, 5.875%, 11/15/2029 $ 1,084,040 --------------- Martha's Vineyard, MA -- 1.3% 1,000,000 Land Bank Revenue, 5.000%, 5/01/2032, (AMBAC insured) 1,039,560 --------------- Massachusetts -- 6.0% 4,000,000 State Refunding Series A, 6.500%, 11/01/2014, (AMBAC insured) 4,818,680 --------------- Massachusetts Bay Transportation Authority -- 5.4% 2,500,000 Series A, 5.000%, 7/01/2032 2,586,500 1,000,000 Series A, Prerefunded, 5.250%, 7/01/2030 1,085,760 630,000 Series A, Unrefunded, 5.250%, 7/01/2030 663,094 --------------- 4,335,354 --------------- Massachusetts Development Finance Agency -- 16.6% 2,000,000 Cambridge Street Development Series A, 5.125%, 2/01/2034, (MBIA insured) 2,102,800 1,000,000 Hampshire College, 5.625%, 10/01/2024 1,067,930 4,000,000 Mount Holyoke College, 5.250%, 7/01/2031 4,237,040 2,800,000 Refunding Springfield Resource Recovery-A, 5.625%, 6/01/2019 2,951,536 1,100,000 Visual and Performing Arts, 6.000%, 8/01/2021 1,318,603 1,500,000 WGBH Educational Foundation Series A, 5.375%, 1/01/2042, (AMBAC insured) 1,621,050 --------------- 13,298,959 --------------- Massachusetts Health & Educational Facilities Authority -- 33.1% 1,160,000 Baystate Medical Center Series F, 5.700%, 7/01/2027 1,227,616 2,000,000 Boston University, 5.000%, 10/01/2039 2,076,240 2,200,000 Catholic Health East, 5.500%, 11/15/2032 2,320,186 3,000,000 Harvard University Series N, 6.250%, 4/01/2020 3,736,800 2,845,000 Nichols College Series C, 6.000%, 10/01/2017 3,002,983 2,000,000 Partners Healthcare Systems Series B, 5.250%, 7/01/2029 2,096,740 2,500,000 Partners Healthcare Systems Series C, 5.750%, 7/01/2021 2,761,050 1,500,000 Tufts University Series I, 5.250%, 2/15/2030 1,585,140 1,000,000 University of Massachusetts Project Series C, 5.250%, 10/01/2031, (MBIA insured) 1,068,010 2,000,000 University of Massachusetts Series C, 5.125%, 10/01/2034, (FGIC insured) 2,106,080 2,000,000 Wellesley College Series F, 5.125%, 7/01/2039 2,070,540
Principal Amount Description Value (a) ------------------------------------------------------------------------------------ Massachusetts Health & Educational Facilities Authority -- continued $ 1,315,000 Wheaton College Series E, 5.000%, 7/01/2017 $ 1,396,149 1,030,000 Williams College Series H, 5.000%, 7/01/2017 1,103,573 --------------- 26,551,107 --------------- Massachusetts Housing Finance Agency -- 3.0% 410,000 Single Family Mortgage Series 21, 7.125%, 6/01/2025 410,471 2,000,000 Single Family Mortgage Series A, 4.600%, 12/01/2015 2,019,320 --------------- 2,429,791 --------------- Massachusetts Port Authority -- 3.8% 1,750,000 Delta Air Lines, Inc. Project Series A, 5.500%, 1/01/2019, (AMBAC insured) 1,826,738 1,200,000 Series A, 5.000%, 7/01/2033, (MBIA insured) 1,234,020 --------------- 3,060,758 --------------- Massachusetts Water Resources Authority -- 6.3% 1,000,000 General Series A, 5.250%, 8/01/2020, (MBIA insured) 1,105,840 3,240,000 Series A, 6.500%, 7/15/2019, (FGIC insured) 3,931,027 --------------- 5,036,867 --------------- Michigan Hospital Finance Authority -- 2.0% 1,500,000 Oakwood Obligated Group, 5.500%, 11/01/2017 1,625,880 --------------- New England Education Loan Marketing -- 4.0% 3,000,000 Student Loan Revenue Bond Sub-Issue H, 6.900%, 11/01/2009 3,188,250 --------------- New Jersey Economic Development Authority -- 2.1% 1,610,000 Series A, 5.625%, 6/15/2018 1,700,627 --------------- Puerto Rico Commonwealth Aqueduct & Sewer Authority -- 4.3% 3,000,000 Aqueduct & Sewer Authority, 6.250%, 7/01/2013 3,449,550 --------------- Puerto Rico Public Finance Corporation -- 4.1% 3,000,000 Commonwealth Appropriation Series A, 5.750%, 8/01/2027(c) 3,278,280 --------------- Tennessee Housing Development Agency -- 1.3% 1,000,000 Series A, 5.200%, 7/01/2023 1,042,920 --------------- University of Massachusetts Building Authority -- 2.9% 2,200,000 SR -- Series 1, 5.250%, 11/01/2028, (AMBAC insured) 2,364,494 --------------- Total Tax Exempt Obligations (Cost $73,944,884) 78,305,117 ---------------
See accompanying notes to financial statements. 30 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount Description Value (a) -------------------------------------------------------------------------------------------------- Short-Term Investment -- 0.9% $ 760,125 Repurchase Agreement with Investors Bank & Trust Co. dated 9/30/2005 at 2.75% to be repurchased at $760,299 on 10/03/2005, collateralized by $61,763 Federal Home Loan Mortgage Association Bond, with rates of 4.22% -- 4.27% with maturities from 7/15/2031 -- 11/15/2031 valued at $62,293, $176,539 Federal National Mortgage Association Bond, with rates of 4.00% -- 4.38%, with maturities from 1/15/2027 -- 7/20/2034 valued at $177,989, and $519,991 Small Business Administration Bond, with rates of 6.375% -- 7.625%, with maturities from 8/25/2014 -- 5/25/2028 valued at $557,879 $ 760,125 --------------- Total Short-Term Investment (Cost $760,125) 760,125 --------------- Total Investments -- 98.5% (Identified Cost $74,705,009)(b) 79,065,242 Other assets less liabilities -- 1.5% 1,159,757 --------------- Total Net Assets -- 100.0% $ 80,224,999 =============== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2005, the net unrealized appreciation on investments based on cost of $74,840,937 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 4,316,539 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (92,234) --------------- Net unrealized appreciation $ 4,224,305 =============== (c) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). AMBAC American Municipal Bond Assurance Corporation FGIC Financial Guarantee Insurance Company MBIA Municipal Bond Investors Assurance Corporation
Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited) College & University 33.8% Hospital -- Obligated Group 13.9 Water & Sewerage 10.6 State General Obligation 10.1 Mass Transit 4.0 Student Loan 4.0 Airport 3.8 Resource Recovery 3.7 Redevelopment Agency/Urban Renewal 2.6 Housing -- Multifamily 2.5 Special Tax 2.1 Non-Profit 2.0 Other, less than 2% each 4.5
See accompanying notes to financial statements. 31 LOOMIS SAYLES MUNICIPAL INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of September 30, 2005
Principal Amount Description Value (a) --------------------------------------------------------------------------------------------------- Tax Exempt Obligations -- 98.2% of Total Net Assets California -- 7.4% $ 1,000,000 California Health Facilities Financing Authority (Cedar-Sinai Medical Center), 5.000%, 11/15/2027 $ 1,031,190 1,000,000 California Health Facilities Financing Authority, Multiple Obligors, 4.950%, 7/01/2026 1,041,690 2,000,000 California State, 5.125%, 6/01/2027 2,097,300 1,000,000 California State Public Works Board, (Coalinga State Hospital), 5.000%, 6/01/2010 1,064,320 2,655,000 California Statewide Communities Development Authority, 5.250%, 7/01/2023 2,862,860 --------------- 8,097,360 --------------- Colorado -- 2.2% 2,500,000 Colorado Health Facility Authority Revenue, (Covenant Retirement Communities), 5.000%, 12/01/2035 2,455,300 --------------- District of Columbia -- 3.8% 1,000,000 District of Columbia, 5.500%, 6/01/2014 1,079,690 3,000,000 Metropolitan Washington D.C. Airports Authority, 5.125%, 10/01/2029, (FGIC insured) 3,118,530 --------------- 4,198,220 --------------- Florida -- 4.6% 1,750,000 Coral Gables, FL, Health Facilities Authority, Multiple Obligors, 5.000%, 8/15/2034 1,872,657 3,000,000 Highlands County, FL, Health Facilities Authority, Multiple Obligors, 5.375%, 11/15/2035 3,128,940 --------------- 5,001,597 --------------- Illinois -- 5.9% 1,910,000 Illinois Educational Facility Authority Revenue, 5.000%, 7/01/2033 1,974,214 1,200,000 Illinois State, 5.400%, 12/01/2020, (MBIA insured) 1,307,232 3,000,000 Metropolitan Pier & Exposition Authority, IL, 5.250%, 6/15/2042, (MBIA insured) 3,172,740 --------------- 6,454,186 --------------- Indiana -- 1.9% 2,000,000 Indianapolis, IN, Local Public Improvement Bond Bank, 5.250%, 7/01/2033, (MBIA insured) 2,098,080 --------------- Louisiana -- 4.6% 4,000,000 Desoto Parish, LA, Environmental Improvement, 5.000%, 11/01/2018 4,014,320 1,000,000 Ernest N. Morial, New Orleans, LA, Exhibit Hall Authority, 5.000%, 7/15/2033 1,023,210 --------------- 5,037,530 --------------- Massachusetts -- 3.8% 3,000,000 Massachusetts State, 5.000%, 3/01/2019 3,201,600 1,045,000 Massachusetts State Health & Educational Facilities Authority, (Lahey Clinic Medical Center) 4.500%, 8/15/2035, (FGIC insured) 992,301 --------------- 4,193,901 ---------------
Principal Amount Description Value (a) ---------------------------------------------------------------------------------------------- Michigan -- 7.8% $ 1,000,000 Michigan State Comprehensive Transportation, 5.250%, 5/15/2022 $ 1,103,690 2,850,000 Michigan State Hospital Finance Authority, Henry Ford Health System, 5.500%, 3/01/2014 3,096,810 1,100,000 Michigan State Hospital Finance Authority, Oakwood Obligated Group, 5.500%, 11/01/2014 1,199,363 1,000,000 Taylor Brownfield Redevelopment Authority, MI, 5.000%, 5/01/2025, (MBIA insured) 1,055,230 2,000,000 University of Michigan, 5.250%, 12/01/2020 2,119,640 --------------- 8,574,733 --------------- Minnesota -- 2.9% 1,000,000 Chaska Minnesota Electric Revenue, 5.250%, 10/01/2025 1,073,120 2,000,000 Minnesota State Municipal Power Agency, 5.250%, 10/01/2024 2,146,580 --------------- 3,219,700 --------------- Mississippi -- 5.0% 2,000,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.700%, 4/01/2022 2,424,380 2,500,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.800%, 4/01/2022 3,058,675 --------------- 5,483,055 --------------- New Jersey -- 2.9% 1,000,000 New Jersey Economic Development Authority, 5.500%, 6/15/2024 1,048,850 1,000,000 New Jersey Economic Development Authority, 5.625%, 6/15/2018 1,056,290 1,000,000 New Jersey Health Care Facilities Financing Authority, Catholic Health East, 5.375%, 11/15/2033 1,050,210 --------------- 3,155,350 --------------- New York -- 16.8% 3,000,000 New York State Dormitory Authority, 5.500%, 5/15/2013 3,308,850 2,740,000 New York State Dormitory Authority, 5.750%, 7/01/2013 3,035,098 1,000,000 New York State Dormitory Authority, Rockefeller University, 5.000%, 7/01/2032 1,043,480 1,000,000 New York State Housing Finance Agency, 5.250%, 9/15/2019 1,082,850 3,000,000 New York State Municipal Bond Bank Agency, 5.250%, 6/01/2020 3,210,300 1,000,000 New York, NY, 4.250%, 5/15/2019 991,800 1,020,000 New York, NY, 6.000%, 1/15/2020 1,153,141 1,400,000 New York, NY, City Health & Hospital Corp., 5.000%, 2/15/2020 1,469,048 2,000,000 New York, NY, City Municipal Water Finance Authority, 5.000%, 6/15/2025 2,122,940 1,000,000 New York, NY, City Municipal Water Finance Authority, 5.125%, 6/15/2034 1,050,450 --------------- 18,467,957 ---------------
See accompanying notes to financial statements. 32 LOOMIS SAYLES MUNICIPAL INCOME FUND --SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount Description Value (a) ------------------------------------------------------------------------------------------ North Carolina -- 1.3% $ 1,300,000 North Carolina Eastern Municipal Power Agency, 5.500%, 1/01/2012 $ 1,394,029 --------------- Oregon -- 5.4% 1,750,000 Multnomah County, OR, Hospital Facilities Authority, Providence Health System, 5.250%, 10/01/2012 1,912,312 4,000,000 Western Generation Agency 7.400%, 1/01/2016(c) 4,055,320 --------------- 5,967,632 --------------- Pennsylvania -- 4.0% 4,000,000 Pennsylvania State Industrial Development Authority, 5.500%, 7/01/2019, (AMBAC insured) 4,426,680 --------------- Puerto Rico -- 3.0% 1,000,000 Puerto Rico Commonwealth Infrastructure Financing Authority, 5.500%, 10/01/2040 1,090,780 2,000,000 Puerto Rico Public Finance Corp., 5.750%, 8/01/2027(d) 2,185,520 --------------- 3,276,300 --------------- South Carolina -- 3.7% 3,000,000 Greenville County, SC, School District, 5.500%, 12/01/2028 3,235,890 800,000 Newberry Investing in Childrens Education, (Newberry County School District), 5.250%, 12/01/2022 828,616 --------------- 4,064,506 --------------- South Dakota -- 1.2% 1,250,000 South Dakota Health & Educational Facilities Authority, Sioux Valley Hospital, 5.250%, 11/01/2027 1,309,663 --------------- Tennessee -- 2.2% 1,500,000 Tennessee Housing Development Agency, 5.200%, 7/01/2023 1,564,380 810,000 Tennessee Housing Development Agency, Homeownership Program, 5.150%, 7/01/2022 836,147 --------------- 2,400,527 --------------- Texas -- 5.8% 2,000,000 Dallas-Fort Worth, TX, International Airport, 5.500%, 11/01/2033, (MBIA insured) 2,132,660 1,000,000 Katy, TX, Independent School District, 5.125%, 2/15/2020 1,062,580 3,000,000 Lewisville, TX, Independent School District, 5.250%, 8/15/2027 3,164,040 --------------- 6,359,280 --------------- Washington -- 2.0% 2,000,000 Energy Northwest, WA, Electric, Project No. 1, 5.500%, 7/01/2014 2,234,920 --------------- Total Tax Exempt Obligations (Identified Cost $103,666,989) 107,870,506 ---------------
Principal Amount Description Value (a) --------------------------------------------------------------------------------------------------- Short-Term Investment -- 1.7% $ 1,936,077 Repurchase Agreement with Investors Bank & Trust Co. dated 9/30/2005 at 2.75% to be repurchased at $1,936,520 on 10/03/2005, collateralized by $930,455 Federal National Mortgage Association Bond, with rates of 4.18% -- 4.437%, with maturities from 2/1/2034 -- 5/25/2034 valued at $933,298, and $1,020,278 Small Business Administration Bond, with rates of 6.30% -- 6.375%, with maturities from 7/25/2028 -- 9/25/2028 valued at $1,099,583 $ 1,936,077 --------------- Total Short-Term Investment (Cost $1,936,077) 1,936,077 --------------- Total Investments -- 99.9% (Identified Cost $105,603,066)(b) 109,806,583 Other assets less liabilities -- 0.1% 58,187 --------------- Total Net Assets -- 100.0% $ 109,864,770 =============== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2005, the net unrealized appreciation on investments based on cost of $105,722,453 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 4,489,726 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (405,596) --------------- Net unrealized appreciation $ 4,084,130 =============== (c) Illiquid security. At September 30, 2005, the value of this security amounted to $4,055,320 or 3.7% of net assets. (d) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). AMBAC American Municipal Bond Assurance Corporation FGIC Financial Guarantee Insurance Company MBIA Municipal Bond Investors Assurance Corporation
See accompanying notes to financial statements. 33 LOOMIS SAYLES MUNICIPAL INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005 Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited) Hospital -- Obligated Group 17.5% Corporate Backed/Industrial Revenue/Pollution Control 13.6 College & University 8.5 State General Obligation 8.0 Special Tax 6.7 Electric 6.2 Airport 4.8 Water & Sewerage 4.8 City and Town 3.9 School District 3.9 Lease 3.7 Resource Recovery 3.7 Bond Bank/Pooled Loan Program 2.9 Non-Profit 2.6 Senior Living 2.2 Housing -- Single Family 2.2 Other, less than 2% each 3.0
See accompanying notes to financial statements. 34 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS Investments as of September 30, 2005
Principal Amount + Description Value (a) ------------------------------------------------------------------------------------ Bonds and Notes -- 87.8% of Total Net Assets Convertible Bonds -- 5.6% Canada -- 0.6% $ 6,525,000 Nortel Networks Corp., Guaranteed Senior Note 4.250%, 9/01/2008 $ 6,141,656 5,300,000 Province of Saskatchewan 6.000%, 6/01/2006, (CAD) 4,642,344 --------------- 10,784,000 --------------- Ireland -- 0.1% 2,045,000 Elan Capital Corp., Ltd. 6.500%, 11/10/2008 2,773,633 --------------- United Kingdom -- 0.3% 3,270,000 Colt Telecom Group PLC 2.000%, 4/03/2007, (EUR) 4,835,168 --------------- United States -- 4.6% 5,469,000 Amkor Technology, Inc. 5.000%, 3/15/2007 4,819,556 3,035,000 AMR Corp., Senior Note 4.500%, 2/15/2024 2,097,944 200,000 Builders Transport, Inc., Subordinated Note 6.500%, 5/01/2011(c) (d) (e) (f) (g) 20 1,000,000 Builders Transport, Inc., Subordinated Note 8.000%, 8/15/2005(c) (d) (e) (f) (g) 100 7,270,000 Chiron Corp. 1.625%, 8/01/2033 7,106,425 3,120,000 Continental Airlines, Inc. 5.000%, 6/15/2023 2,141,100 176,000 Dixie Group, Inc., Subordinated Note 7.000%, 5/15/2012 166,540 9,018,000 Enzon, Inc. 4.500%, 7/01/2008 8,183,835 3,901,000 EPIX Pharmaceuticals, Inc., Senior Note 3.000%, 6/15/2024 2,974,512 4,865,000 Inhale Therapeutic Systems, Inc., Subordinated Note 3.500%, 10/17/2007 4,761,619 500,000 IVAX Corp., Senior Note 1.500%, 3/01/2024(h) 564,375 2,360,000 IVAX Corp., Senior Note 4.500%, 5/15/2008 2,357,050 5,810,000 Kulicke & Soffa Industries, Inc., Subordinated Note 0.500%, 11/30/2008 4,292,137 100,000 Kulicke & Soffa Industries, Inc., Subordinated Note 1.000%, 6/30/2010 75,875 7,330,000 Level 3 Communications, Inc. 6.000%, 9/15/2009 3,839,087 275,000 Level 3 Communications, Inc. 6.000%, 3/15/2010 141,281 2,335,000 Liberty Media Corp. 3.500%, 1/15/2031 2,314,569 2,822,000 Maxtor Corp., Subordinated Note 5.750%, 3/01/2012(g) 2,539,800 1,180,000 Nektar Therapeutics, Subordinated Note, 144A 3.250%, 9/28/2012 1,241,950 625,000 Nextel Communications, Inc., Senior Note 5.250%, 1/15/2010 629,687 500,000 Preston Corp., Subordinated Note 7.000%, 5/01/2011 466,250 10,385,000 Regeneron Pharmaceuticals, Inc., Subordinated Note 5.500%, 10/17/2008 9,839,787
Principal Amount + Description Value (a) ----------------------------------------------------------------------------------------------- United States -- continued $ 311,000 Richardson Electronics, Ltd., 144A 7.750%, 12/15/2011 $ 287,675 600,000 SCI Systems, Inc. Subordinated Note 3.000%, 3/15/2007 577,500 12,316,000 Valeant Pharmaceuticals International, Subordinated Note 3.000%, 8/16/2010 11,192,165 8,885,000 Valeant Pharmaceuticals International, Subordinated Note 4.000%, 11/15/2013 8,052,031 5,225,000 Vertex Pharmaceuticals, Inc., 144A 5.750%, 2/15/2011 8,216,312 --------------- 88,879,182 --------------- Total Convertible Bonds (Identified Cost $101,836,543) 107,271,983 --------------- Non-Convertible Bonds -- 82.2% Argentina -- 0.8% 2,405,000 Pecom Energia SA, 144A 8.125%, 7/15/2010 2,573,350 34,415,000 Republic of Argentina 2.000%, 9/30/2014, (ARS)(i) 12,204,236 1,294,608 Republic of Argentina 8.280%, 12/31/2033(k) 1,335,388 --------------- 16,112,974 --------------- Brazil -- 1.2% 11,297,000 Republic of Brazil 8.250%, 1/20/2034 11,353,485 6,000,000 Republic of Brazil 8.875%, 4/15/2024 6,402,000 5,026,000 Republic of Brazil 10.125%, 5/15/2027 6,021,148 --------------- 23,776,633 --------------- Canada -- 15.0% 6,105,000 Abitibi-Consolidated, Inc. 7.500%, 4/01/2028 5,158,725 1,295,000 Bombardier, Inc. 7.350%, 12/22/2026, (CAD) 921,305 6,450,000 Bombardier, Inc., 144A 7.450%, 5/01/2034 5,450,250 9,005,000 Calpine Canada Energy Finance ULC 8.500%, 5/01/2008(h) 5,380,487 2,800,000 Calpine Canada Energy Finance ULC 8.750%, 10/15/2007, (CAD) 1,493,333 27,540,000 Canadian Government 4.250%, 9/01/2008, (CAD) 24,225,250 111,010,000 Canadian Government 4.500%, 9/01/2007, (CAD) 97,545,561 24,200,000 Canadian Government 6.000%, 6/01/2008, (CAD) 22,180,731 335,000 General Motors Acceptance Corp. of Canada, Ltd., Series E., (MTN) 6.625%, 12/17/2010, (GBP) 532,911 825,000 General Motors Nova Scotia Finance Co. 8.875%, 7/10/2023, (GBP) 1,105,717 945,000 GMAC Canada Ltd. 7.750%, 9/26/2008, (NZD) 588,532 3,750,000 Nortel Networks Corp. 6.875%, 9/01/2023 3,487,500 8,435,000 North American Energy Partners, Inc., Senior Note 8.750%, 12/01/2011 8,013,250
See accompanying notes to financial statements. 35 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------- Canada -- continued $ 5,990,000 Province of British Columbia 5.250%, 12/01/2006, (CAD) $ 5,265,584 29,235,000 Province of British Columbia 6.000%, 6/09/2008, (CAD) 26,770,207 13,000,000 Province of Manitoba 4.450%, 12/01/2008, (CAD) 11,495,131 6,685,000 Province of Manitoba 5.750%, 6/02/2008, (CAD) 6,081,941 1,525,000 Province of Ontario 3.500%, 9/08/2006, (CAD) 1,314,268 33,780,000 Province of Ontario 5.700%, 12/01/2008, (CAD) 30,903,833 6,240,000 Province of Ontario 5.900%, 3/08/2006, (CAD) 5,433,175 18,470,000 Province of Saskatchewan 5.500%, 6/02/2008, (CAD) 16,701,011 8,500,000 Rogers Wireless Communications, Inc., Senior Note 7.625%, 12/15/2011, (CAD) 7,768,817 2,525,000 Rogers Wireless Communications, Inc., Senior Secured Note 6.375%, 3/01/2014 2,537,625 --------------- 290,355,144 --------------- Cayman Islands -- 0.3% 1,000,000 Enersis SA, Cayman Island 7.400%, 12/01/2016 1,065,759 3,905,000 Vale Overseas, Ltd. 8.250%, 1/17/2034 4,402,887 --------------- 5,468,646 --------------- Chile -- 0.6% 4,875,000 Empresa Nacional de Electricidad SA, Chile 7.875%, 2/01/2027 5,247,387 250,000 Empresa Nacional de Electricidad SA, Chile 8.350%, 8/01/2013 284,578 1,700,000 Empresa Nacional de Electricidad SA, Chile 8.625%, 8/01/2015 1,984,889 4,525,000 Enersis SA, Chile 7.375%, 1/15/2014 4,781,273 --------------- 12,298,127 --------------- Ireland -- 0.6% 12,230,000 Elan Finance Corp., Senior Note, 144A 7.750%, 11/15/2011 10,762,400 --------------- Mexico -- 3.8% 141,400,000 United Mexican States 8.000%, 12/07/2023, (MXN) 12,167,412 473,800,000 United Mexican States 9.000%, 12/20/2012, (MXN) 45,143,734 160,000,000 United Mexican States 10.000%, 12/05/2024, (MXN) 16,501,592 --------------- 73,812,738 --------------- Netherlands -- 0.0% 337,000 GMAC International Finance BV 8.000%, 3/14/2007, (NZD) 228,477 ---------------
Principal Amount + Description Value (a) ------------------------------------------------------------------------------- Norway -- 0.3% $ 10,000,000 Kingdom of Norway 5.500%, 5/15/2009, (NOK) $ 1,649,558 22,740,000 Kingdom of Norway 6.750%, 1/15/2007, (NOK) 3,650,534 --------------- 5,300,092 --------------- Philippines -- 0.3% 3,700,000 Philippine Long Distance Telephone Co., (MTN) 8.350%, 3/06/2017 3,824,875 1,851,938 Quezon Power, Ltd., Senior Secured Note, 8.860%, 6/15/2017 1,805,639 --------------- 5,630,514 --------------- Republic of Korea -- 0.6% 5,470,000 Hanarotelecom, Inc., 144A 7.000%, 2/01/2012 5,398,666 5,000,000 Hynix Semiconductor, Inc., 144A 9.875%, 7/01/2012 5,550,000 300,000 Samsung Electronics Co., Ltd., 144A 7.700%, 10/01/2027 333,555 --------------- 11,282,221 --------------- Singapore -- 0.1% 1,050,000 SP PowerAssets, Ltd., Series E, (MTN) 3.730%, 10/22/2010, (SGD) 645,943 --------------- South Africa -- 0.1% 11,405,000 Republic of South Africa 12.500%, 12/21/2006, (ZAR) 1,883,214 --------------- Supranational -- 2.2% 15,543,570 European Investment Bank, 144A Zero Coupon, 9/12/2008, (BRL) 4,575,624 24,450,000 Inter-American Development Bank, Series E, (MTN) 6.000%, 12/15/2017, (NZD) 16,700,576 80,000,000 Inter-American Development Bank, Series E, (MTN), Zero Coupon, 5/11/2009, (BRL) 21,117,389 --------------- 42,393,589 --------------- Sweden -- 1.5% 207,265,000 Kingdom of Sweden 6.500%, 5/05/2008, (SEK) 29,478,248 --------------- United Kingdom -- 0.4% 4,570,000 NTL Cable PLC 9.750%, 4/15/2014, (GBP) 8,122,862 --------------- United States -- 52.7% 5,565,000 AES Corp. (The) 8.375%, 3/01/2011, (GBP) 10,112,306 4,020,000 AES Corp. (The), Senior Note 7.750%, 3/01/2014 4,261,200 1,975,000 AES Corp. (The), Senior Subordinated Note 8.875%, 11/01/2027 2,152,749 9,525,000 AK Steel Corp., Guaranteed Senior Note 7.750%, 6/15/2012 8,786,812 9,520,000 Albertson's, Inc., Senior Note 7.450%, 8/01/2029 8,211,981 775,000 Albertson's, Inc., Senior Note 8.000%, 5/01/2031 705,720 1,240,000 Albertson's, Inc., Series C, (MTN) 6.625%, 6/01/2028 990,090
See accompanying notes to financial statements. 36 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) -------------------------------------------------------------------------------- United States -- continued $ 1,750,000 Altria Group, Inc. 7.000%, 11/04/2013 $ 1,915,485 1,442,789 American Airlines, Inc., Series 93A6 8.040%, 9/16/2011 1,278,470 750,000 American Airlines, Inc., Series 1999-1, Class A2 7.024%, 10/15/2009 759,865 825,000 American Airlines, Inc., Series 1999-1, Class B 7.324%, 10/15/2009 722,830 700,000 American Airlines, Inc., Series 2001-2, Class B 8.608%, 4/01/2011 655,142 9,853,000 American President Cos., Ltd., Senior Note 8.000%, 1/15/2024 10,111,641 6,450,000 Amkor Technology, Inc., Senior Note 7.125%, 3/15/2011 5,563,125 475,000 Amkor Technology, Inc., Senior Note 7.750%, 5/15/2013 406,125 925,000 Amkor Technology, Inc., Senior Subordinated Note 10.500%, 5/01/2009(h) 786,250 8,000,000 ASIF Global Financing, 144A 2.380%, 2/26/2009, (SGD) 4,682,243 10,155,000 Astoria Depositor Corp., 144A 8.144%, 5/01/2021 10,090,516 7,786,254 Atlas Air, Inc., Series 1998-1, Class 1A 7.380%, 1/02/2018 7,752,461 16,288,877 Atlas Air, Inc., Series 1998-1, Class 1B 7.680%, 1/02/2014(c) 13,748,626 3,709,380 Atlas Air, Inc., Series 1999-1, Class A1 7.200%, 1/02/2019 3,686,385 440,293 Atlas Air, Inc., Series 1999-1, Class A2 6.880%, 7/02/2009 423,468 8,319,594 Atlas Air, Inc., Series 1999-1, Class B 7.630%, 1/02/2015(c) 6,918,750 784,915 Atlas Air, Inc., Series 2000-1, Class A 8.707%, 1/02/2019 812,976 5,323,737 Atlas Air, Inc., Series 2000-1, Class B 9.057%, 1/02/2014(c) 4,915,619 975,000,000 Barclays Bank PLC, 144A 4.160%, 2/22/2010, (THB) 22,352,905 17,310,000,000 Barclays Financial LLC, 144A 4.060%, 9/16/2010, (KRW) 16,232,250 529,000,000 Barclays Financial LLC, 144A 4.100%, 3/22/2010, (THB) 12,085,353 21,340,000,000 Barclays Financial LLC, 144A 4.460%, 9/23/2010, (KRW) 20,355,925 800,000 Bausch & Lomb, Inc. 7.125%, 8/01/2028 861,949 16,381,000 Borden, Inc. 7.875%, 2/15/2023 13,104,800 3,079,000 Borden, Inc. 8.375%, 4/15/2016 2,863,470 4,557,000 Borden, Inc. 9.200%, 3/15/2021 4,146,870 500,000 Bowater, Inc. 6.500%, 6/15/2013 466,250 8,470,000 Calpine Corp., Senior Note 7.750%, 4/15/2009 4,404,400 900,000 Calpine Corp., Senior Note 7.875%, 4/01/2008(h) 531,000 7,410,000 Calpine Corp., Senior Note 8.500%, 2/15/2011(h) 3,927,300
Principal Amount + Description Value (a) ------------------------------------------------------------------------------------ United States -- continued $ 3,560,000 Calpine Corp., Senior Note 8.625%, 8/15/2010(h) $ 1,869,000 355,000 Chesapeake Energy Corp. 144A 6.500%, 8/15/2017 361,212 425,000 Cincinnati Bell, Inc. 8.375%, 1/15/2014 418,625 2,500,000 CIT Group, Inc., Series E, Senior Note, (MTN) 5.500%, 12/01/2014, (GBP) 4,514,301 18,650,000 Citibank NA, 144A 15.000%, 7/02/2010, (BRL) 8,755,022 925,000 Coastal Corp. 7.750%, 6/15/2010 943,500 5,320,000 Columbia/HCA, Inc. 7.050%, 12/01/2027 5,024,804 500,000 Columbia/HCA, Inc. 7.500%, 12/15/2023 496,539 500,000 Columbia/HCA, Inc. (MTN) 7.580%, 9/15/2025 495,456 1,204,453 Continental Airlines, Inc., Series 1997-4, Class 4A 6.900%, 1/02/2018 1,177,218 4,111,029 Continental Airlines, Inc., Series 1997-4, Class 4B 6.900%, 1/02/2017 3,516,385 1,544,726 Continental Airlines, Inc., Series 1998-1, Class 1B 6.748%, 3/15/2017 1,336,188 1,646,119 Continental Airlines, Inc., Series 1999-1, Class A 6.545%, 2/02/2019 1,614,052 7,670,702 Continental Airlines, Inc., Series 1999-1, Class B 6.795%, 8/02/2018 6,637,699 3,471,945 Continental Airlines, Inc., Series 1999-1, Class C 6.954%, 8/02/2009 3,042,420 2,003,332 Continental Airlines, Inc., Series 1999-2, Class B 7.566%, 3/15/2020 1,742,265 556,537 Continental Airlines, Inc., Series 2001-1, Class A1 6.703%, 6/15/2021 528,750 950,546 Continental Airlines, Inc., Series 2001-1, Class B 7.373%, 12/15/2015 830,452 6,589,682 Continental Airlines, Inc., Series 2002-2, Class B 8.307%, 4/02/2018 5,819,683 6,225,000 Corning, Inc. 5.900%, 3/15/2014 6,315,605 6,220,000 Corning, Inc. 6.200%, 3/15/2016 6,397,880 650,000 Corning, Inc. 6.750%, 9/15/2013 696,178 1,000,000 Corning, Inc. 6.850%, 3/01/2029 1,009,241 400,000 CSC Holdings, Inc., Senior Note 7.875%, 2/15/2018 382,000 250,000 CSC Holdings, Inc., Series B, Senior Note 8.125%, 7/15/2009 251,875 250,000 CSC Holdings, Inc., Series B, Senior Note 8.125%, 8/15/2009 251,875 2,145,000 Cummins, Inc. 7.125%, 3/01/2028 2,177,175 310,000 Dana Corp. 5.850%, 1/15/2015 243,158 460,000 Dana Corp. 7.000%, 3/15/2028 349,922 1,610,000 Dana Corp. 7.000%, 3/01/2029 1,226,044
See accompanying notes to financial statements. 37 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) --------------------------------------------------------------------------------- United States -- continued $ 200,000 Delphi Automotive Systems Corp. 6.550%, 6/15/2006(l) $ 147,000 11,700,000 Delphi Automotive Systems Corp. 7.125%, 5/01/2029(l) 7,488,000 425,000 Dillard's, Inc. 7.875%, 1/01/2023 420,750 7,285,000 Dillard's, Inc. 6.625%, 1/15/2018 6,775,050 1,350,000 Dillard's, Inc. 7.000%, 12/01/2028 1,242,000 1,600,000 Dillard's, Inc. 7.130%, 8/01/2018 1,520,000 1,500,000 Dillard's, Inc. 7.750%, 7/15/2026 1,455,000 900,000 Dynegy Holdings, Inc. 7.125%, 5/15/2018 832,500 3,705,000 Edison Mission Energy Corp., Senior Note 7.730%, 6/15/2009 3,908,775 260,000 El Paso CGP, Co. 6.375%, 2/01/2009 253,500 14,215,000 El Paso CGP, Co. 6.950%, 6/01/2028 12,793,500 1,965,000 EL Paso Corp. 7.000%, 5/15/2011 1,960,088 750,000 EL Paso Corp., Senior Note, (MTN) 7.800%, 8/01/2031 751,875 1,600,000 El Paso Energy Corp. 6.750%, 5/15/2009 1,584,000 1,000,000 EL Paso Energy Corp., (MTN) 7.750%, 1/15/2032(i) 1,007,500 4,000,000 FHLMC 3.220%, 6/20/2007, (SGD) 2,395,624 29,200,000 FNMA 2.290%, 2/19/2009, (SGD) 17,108,411 6,500,000 FNMA 2.375%, 2/15/2007 6,328,335 9,000,000 FNMA, Zero Coupon, 10/29/2007, (NZD) 5,415,945 1,000,000 Foot Locker, Inc. 8.500%, 1/15/2022 1,087,500 150,000 Ford Motor Co. 6.625%, 10/01/2028 108,375 2,110,000 Friendly Ice Cream Corp., Guaranteed Senior Note 8.375%, 6/15/2012 1,993,950 50,275,000 General Electric Capital Corp. 6.500%, 9/28/2015, (NZD) 34,067,679 30,350,000 General Electric Capital Corp. 6.625%, 2/04/2010, (NZD) 20,873,607 500,000 General Electric Capital Corp., Series E, (MTN) 1.725%, 6/27/2008, (SGD) 288,850 3,100,000 General Electric Capital Corp., Series E, (MTN) 6.125%, 5/17/2012, (GBP) 5,890,703 6,625,000 General Motors Acceptance Corp. 4.5588%, 7/16/2007(i) 6,442,309 8,000,000 General Motors Acceptance Corp. 4.670%, 3/20/2007(i) 7,832,112 3,401,000 General Motors Acceptance Corp., Series E, (MTN) 7.500%, 12/01/2006, (NZD) 2,249,849
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------- United States -- continued $ 1,350,000 Georgia-Pacific Corp. 7.250%, 6/01/2028 $ 1,388,813 3,200,000 Georgia-Pacific Corp. 7.375%, 12/01/2025 3,328,000 3,775,000 Georgia-Pacific Corp. 7.750%, 11/15/2029 4,048,688 885,000 Goodyear Tire & Rubber 7.000%, 3/15/2028 716,850 1,845,000 Goodyear Tire & Rubber, 144A 9.000%, 7/01/2015 1,817,325 2,590,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note 7.750%, 12/15/2013 2,376,325 840,000 Hawaiian Telcom Communications, Inc., Senior Subordinated Note, 144A 12.500%, 5/01/2015 848,400 1,000,000 HCA, Inc., Senior Note 5.750%, 3/15/2014 953,172 270,000 Hercules, Inc., Subordinated Note 6.500%, 6/30/2029 211,275 1,780,000 Hertz Corp., Senior Note 6.350%, 6/15/2010 1,683,218 695,000 Hertz Corp., Senior Note 6.900%, 8/15/2014 643,715 16,050,000 HSBC Bank USA, 144A 3.310%, 8/25/2010 16,255,440 2,515,000 IMC Global, Inc. 7.300%, 1/15/2028 2,584,163 1,880,000 IMC Global, Inc. 7.375%, 8/01/2018 1,929,350 640,000 JC Penney Co., Inc. 7.125%, 11/15/2023 704,000 92,000,000 JPMorgan Chase Bank NA, 144A, Zero Coupon, 5/17/2010, (BRL) 22,114,404 1,500,000 K Hovnanian Enterprises, Inc., Senior Note 6.375%, 12/15/2014 1,426,502 500,000 K Hovnanian Enterprises, Inc., Senior Note, 144A 6.250%, 1/15/2016 465,574 12,035,000 Lucent Technologies, Inc. 6.450%, 3/15/2029 10,530,625 1,250,000 McDonald's Corp., Series E, (MTN) 3.6275%, 10/10/2010, (SGD) 760,520 1,131,000 Missouri Pacific Railroad Co. 5.000%, 1/01/2045 843,241 1,000,000 Morgan Stanley 5.375%, 11/14/2013, (GBP) 1,805,853 1,000,000 Navistar International 6.250%, 3/01/2012 950,000 2,145,000 NGC Corp. 7.625%, 10/15/2026 1,984,125 7,670,000 NGC Corp. Capital Trust, Series B 8.316%, 6/01/2027 6,883,825 3,175,000 Northern Telecom Capital Corp. 7.875%, 6/15/2026 3,111,500 250,235 Northwest Airlines Corp. 7.950%, 3/01/2015(d) 190,581 6,145,000 Owens-Illinois, Inc., Senior Note 7.800%, 5/15/2018 6,175,725 3,000,000 Pemex Project Funding Master Trust, 144A 8.625%, 12/01/2023 3,652,500
See accompanying notes to financial statements. 38 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Principal Amount + Description Value (a) --------------------------------------------------------------------------------------------- United States -- continued $ 4,350,000 Pemex Project Funding Master Trust, 144A 9.500%, 9/15/2027 $ 5,713,725 2,000,000 Pharma Services Intermediate Holdings Corp., Senior Note, Convertible, 0.00% (step to 11.50% on 4/01/2009), 4/01/2014(j) 1,480,000 1,920,000 Pioneer Natural Resource 5.875%, 7/15/2016 1,889,002 800,000 Qwest Capital Funding, Inc. 6.500%, 11/15/2018 664,000 33,450,000 Qwest Capital Funding, Inc. 6.875%, 7/15/2028 27,512,625 950,000 Qwest Capital Funding, Inc. 7.250%, 2/15/2011 904,875 1,700,000 Qwest Capital Funding, Inc. 7.750%, 2/15/2031 1,466,250 2,025,000 Qwest Capital Funding, Inc., Guaranteed Note 7.000%, 8/03/2009 1,979,438 2,420,000 Qwest Capital Funding, Inc., Guaranteed Note 7.625%, 8/03/2021 2,117,500 1,350,000 Qwest Corp. 7.250%, 9/15/2025 1,258,875 6,100,000 SLM Corp. 6.500%, 6/15/2010, (NZD) 4,178,682 2,595,000 Sungard Data Systems, Inc., 144A 10.250%, 8/15/2015 2,627,438 1,810,000 Sungard Data Systems, Inc., Senior Note, 144A 9.125%, 8/15/2013 1,875,613 6,405,000 Telcordia Technologies, Inc., Senior Subordinated Note, 144A 10.000%, 3/15/2013 6,052,725 496,687 Tiverton Power Associates, LP, 144A 9.000%, 7/15/2018 342,714 3,680,000 Toys R US, Inc. 7.375%, 10/15/2018 2,944,000 315,000 TXU Corp. 5.550%, 11/15/2014 299,038 2,225,000 TXU Corp. 6.550%, 11/15/2034 2,065,027 5,000,000 U.S. Treasury Note 1.625%, 2/28/2006 4,954,885 95,775,000 U.S. Treasury Note 2.500%, 5/31/2006 94,820,985 49,730,000 U.S. Treasury Note 2.625%, 5/15/2008 47,822,407 29,225,000 U.S. Treasury Note 2.750%, 6/30/2006 28,948,736 50,270,000 U.S. Treasury Note 3.000%, 2/15/2008 48,940,610 100,000,000 U.S. Treasury Note 3.625%, 4/30/2007 99,156,200 25,000,000 U.S. Treasury Note 3.625%, 6/30/2007 24,761,725 38,000,000 U.S. Treasury Note 4.375%, 5/15/2007 38,126,160 1,020,000 United Rentals North America, Inc., Senior Subordinated Note 7.000%, 2/15/2014 946,050 2,500,000 Wal-Mart Stores, Inc. 4.750%, 1/29/2013, (GBP) 4,430,074 600,000 Williams Cos., Inc. 7.875%, 9/01/2021 660,000
Principal Amount + Description Value (a) ------------------------------------------------------------------------------------------ United States -- continued $ 965,000 Williams Cos., Inc., Senior Note 7.750%, 6/15/2031 $ 1,044,613 8,600,000 Williams Cos., Inc., Series A 7.500%, 1/15/2031 9,137,500 15,550,000 Xerox Capital Trust I, Guaranteed Note 8.000%, 2/01/2027 16,133,125 1,730,000 Xerox Corp., (MTN) 7.200%, 4/01/2016 1,885,700 --------------- 1,021,954,624 --------------- Uruguay -- 0.2% 1,600,000 Republic of Uruguay 7.500%, 3/15/2015 1,640,000 2,877,483 Republic of Uruguay 7.875%, 1/15/2033(k) 2,823,530 --------------- 4,463,530 --------------- Venezuela -- 1.5% 16,535,000 Cerro Negro Finance, Ltd., 144A 7.900%, 12/01/2020 15,749,588 13,790,000 Petrozuata Finance, Inc., Series B, 144A 8.220%, 4/01/2017 13,169,450 --------------- 28,919,038 --------------- Total Non-Convertible Bonds (Identified Cost $1,539,895,373) 1,592,889,014 --------------- Total Bonds and Notes (Identified Cost $1,641,731,916) 1,700,160,997 --------------- Shares ------------------------------------------------------------------------------------------ Common Stocks -- 4.4% Brazil -- 0.3% 117,000 Cia Vale do Rio Doce, ADR 5,131,620 --------------- United States -- 4.1% 1,371,000 Associated Estates Realty Corp. (REIT) 13,435,800 137,000 Camden Property Trust (REIT) 7,637,750 53,260 Chesapeake Energy Corp. 2,037,195 36,565 CIM High Yield Securities Fund 153,573 41,343 Corning, Inc. 799,160 182,500 Developers Diversified Realty Corp. (REIT) 8,522,750 282,500 Duke Energy Corp. 8,240,525 460,000 Equity Residential Properties Trust (REIT) 17,411,000 1,063,850 High Income Opportunity Fund, Inc. 6,691,617 632,475 Managed High Income Portfolio, Inc. 3,946,644 110,211 Morgan Stanley Emerging Markets Debt Fund, Inc.(h) 1,142,888 117,700 Simon Property Group, Inc. (REIT) 8,723,924 --------------- 78,742,826 --------------- Total Common Stocks (Identified Cost $66,439,343) 83,874,446 --------------- Preferred Stocks -- 2.8% Philippines -- 0.4% 156,314 Philippine Long Distance Telephone Co., Sponsored GDR, Convertible, $3.50, 12/31/2049 8,206,485 --------------- United States -- 2.4% 121,150 AES Trust III, Convertible, 6.75%, 10/15/2029 5,875,775 36,725 CMS Energy Trust I, Convertible, 7.75%, 7/15/2027 1,836,250
See accompanying notes to financial statements. 39 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005
Shares Description Value (a) ---------------------------------------------------------------------------------------------- Preferred Stocks -- continued United States -- continued 51,500 Cummins Capital Trust I, Convertible, 7.00%, 6/15/2031 $ 4,802,375 1,100 Delphi Trust I, 8.25%, 10/15/2033 10,285 41,300 Felcor Lodging Trust, Inc. (REIT), Convertible, 8.08%, 12/13/2049 1,011,850 24,550 Host Marriott Finance Trust (REIT), Convertible, 6.75%, 12/2/2026 1,350,250 13,100 Lucent Technologies Capital Trust I, Convertible, 7.75%, 3/15/2017 13,214,625 15,000 Newell Financial Trust I, Convertible, 5.25%, 12/1/2027 658,125 312,900 Owens-Illinois, Inc., Convertible, 4.75%, 12/31/2049 11,303,513 800 Pacific Gas & Electric Co., Series G, 4.80% 17,200 267,925 Travelers Property Casualty, Convertible, 4.50%, 4/15/2032 6,446,275 11,000 United Rentals Trust I, Convertible, 6.50%, 8/1/2028 442,750 --------------- 46,969,273 --------------- Total Preferred Stocks (Identified Cost $48,853,165) 55,175,758 --------------- Principal Amount + ---------------------------------------------------------------------------------------------- Short-Term Investments -- 6.4% $ 116,460,129 Repurchase Agreement with Investors Bank & Trust Co. dated 9/30/2005 at 2.75% to be repurchased at $116,486,818 on 10/03/2005, collateralized by $20,742,826 Federal Home Loan Mortgage Association Bond, 4.268%, due 1/15/2033 valued at $21,000,000, $62,521,043 Federal National Mortgage Association Bond, with rates of 3.872% -- 4.180%, with maturities from 5/25/2034 -- 10/1/2041 valued at $63,000,000, $20,739,274 Government National Mortgage Association Bond, 4.625%, due 1/20/2034 valued at $21,000,000, and $16,040,480 Small Business Administration Bond, with rates of 6.125% -- 6.74%, with maturities from 6/25/2019 -- 1/25/2029 valued at $17,283,136 116,460,129 7,747,758 Repurchase Agreement with Merrill Lynch & Co, dated 9/30/2005 at 3.93% to be repurchased at $7,750,295 on 10/03/2005, collateralized by $7,747,580 Federal Home Loan Mortgage Association Bond, with rates of 0.00% -- 6.25%, with maturities from 1/30/07 -- 7/15/32 valued at $7,902,725(m) 7,747,758 --------------- Total Short-Term Investments (Identified Cost $124,207,887) 124,207,887 --------------- Total Investments -- 101.4% (Identified Cost $1,881,232,311)(b) 1,963,419,088 Other assets less liabilities -- (1.4)% (26,571,347) --------------- Total Net Assets -- 100% $ 1,936,847,741 ===============
(a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2005, the net unrealized appreciation on investments based on cost of $1,883,611,622 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 109,892,422 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (30,084,956) --------------- Net unrealized appreciation $ 79,807,466 =============== (c) Non-income producing security. (d) Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code. (e) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. (f) Security is in default of principal and/or interest payments. (g) Illiquid security. At September 30, 2005, the value of these securities amounted to $2,539,920 or 0.1% of net assets. (h) All or a portion of this security was on loan to brokers at September 30, 2005. (i) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). (j) Step Bond: Coupon rate is zero or below market for an initial period and then increases to a higher coupon rate at a specified date. (k) All or a portion of interest payment is paid in-kind. (l) Became non-income producing effective October 8, 2005 due to bankruptcy filing. (m) Represents investment of securities lending collateral. + Principal amount is in U.S. dollars unless otherwise noted. ADR/GDR An American Depositary Receipt (ADR) or Global Depositary Receipt (GDR) is a certificate issued by a U.S. Bank representing the right to receive securities of the foreign issuer described. The values of ADRs and GDRs are significantly influenced by trading on exchanges not located in the United States. FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association MTN Medium Term Note REIT Real Estate Investment Trust 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2005, the value of these securities amounted to $229,990,104 or 11.9% of net assets. ARS Argentine Peso BRL Brazilian Real CAD Canadian Dollar EUR Euro GBP British Pound KRW South Korean Won MXN Mexican Peso NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona SGD Singapore Dollar THB Thai Baht ZAR South African Rand
See accompanying notes to financial statements. 40 LOOMIS SAYLES STRATEGIC INCOME FUND -- SCHEDULE OF INVESTMENTS (continued) Investments as of September 30, 2005 Holdings at September 30, 2005 as a Percentage of Net Assets (unaudited) Treasuries 20.0% Sovereigns 13.0 Foreign Local Governments 7.1 Banking 6.3 Technology 5.9 Electric 4.2 Pharmaceuticals 3.9 Wirelines 3.4 Non Captive Diversified 3.1 REITs 2.9 Transportation Services 2.9 Supranational 2.2 Other, less than 2% each 20.1
See accompanying notes to financial statements. 41 This Page Intentionally Left Blank 42 STATEMENTS OF ASSETS & LIABILITIES September 30, 2005
Limited Term Government and Core Plus Bond Fund High Income Fund Agency Fund --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ASSETS Investments at cost $ 246,909,334 $ 38,403,758 $ 163,819,775 Repurchase agreements at cost 2,904,133 1,070,282 17,368,595 Net unrealized appreciation (depreciation) 585,115 2,426,477 (1,054,918) --------------------- --------------------- --------------------- Investments at value 250,398,582 41,900,517 180,133,452 Receivable for Fund shares sold 1,197,630 28,087 63,292 Receivable for securities sold 2,841,357 32,402 1,308,495 Dividends and interest receivable 2,734,531 651,838 972,826 Tax reclaims receivable -- 144 -- Receivable from investment adviser -- 30,944 -- Securities lending income receivable 969 5,191 1,853 Prepaid expense 720 82 242 --------------------- --------------------- --------------------- TOTAL ASSETS 257,173,789 42,649,205 182,480,160 --------------------- --------------------- --------------------- LIABILITIES Collateral on securities loaned, at value -- 326,432 -- Payable for securities purchased 3,242,337 576,144 17,110,136 Payable for Fund shares redeemed 453,986 101,695 131,114 Dividends payable 365,132 98,041 108,675 Management fees payable 151,966 20,673 68,475 Deferred Trustees' fees 201,381 49,660 176,337 Transfer agent fees payable 206,422 17,498 40,377 Administrative fees payable 13,396 2,154 9,205 Other accounts payable and accrued expenses 81,424 51,747 57,014 --------------------- --------------------- --------------------- TOTAL LIABILITIES 4,716,044 1,244,044 17,701,333 --------------------- --------------------- --------------------- NET ASSETS $ 252,457,745 $ 41,405,161 $ 164,778,827 ===================== ===================== ===================== NET ASSETS CONSIST OF: Paid-in capital $ 271,877,715 $ 122,535,799 $ 191,851,664 Undistributed (overdistributed) net investment income 2,160,307 (64,686) (134,584) Accumulated net realized gain (loss) on investments and foreign currency transactions (22,171,364) (83,494,563) (25,883,335) Net unrealized appreciation (depreciation) on investments and foreign currency translations 591,087 2,428,611 (1,054,918) --------------------- --------------------- --------------------- NET ASSETS $ 252,457,745 $ 41,405,161 $ 164,778,827 ===================== ===================== ===================== COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets $ 105,111,457 $ 25,817,076 $ 141,417,316 ===================== ===================== ===================== Shares of beneficial interest 9,211,887 5,184,679 12,748,538 ===================== ===================== ===================== Net asset value and redemption price per share $ 11.41 $ 4.98 $ 11.09 ===================== ===================== ===================== Offering price per share (100/[100-maximum sales charge] of net asset value) $ 11.95 $ 5.21 $ 11.43 ===================== ===================== ===================== Class B shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charge) Net assets $ 132,221,276 $ 12,033,607 $ 15,114,209 ===================== ===================== ===================== Shares of beneficial interest 11,583,483 2,415,247 1,365,648 ===================== ===================== ===================== Net asset value and offering price per share $ 11.41 $ 4.98 $ 11.07 ===================== ===================== ===================== Class C shares: (redemption price is equal to net asset value less any applicable contingent deferred sales charge) Net assets $ 6,065,000 $ 3,554,478 $ 5,714,799 ===================== ===================== ===================== Shares of beneficial interest 530,974 713,702 515,548 ===================== ===================== ===================== Net asset value and offering price per share $ 11.42 $ 4.98 $ 11.08 ===================== ===================== ===================== Class Y shares: Net assets $ 9,060,012 $ -- $ 2,532,503 ===================== ===================== ===================== Shares of beneficial interest 790,604 -- 227,492 ===================== ===================== ===================== Net asset value, offering and redemption price per share $ 11.46 $ -- $ 11.13 ===================== ===================== ===================== Total value of securities on loan $ -- $ 317,864 $ -- ===================== ===================== =====================
See accompanying notes to financial statements. 43
Massachusetts Tax Free Municipal Strategic Income Fund Income Fund Income Fund --------------------- --------------------- --------------------- --------------------- --------------------- $ 73,944,884 $ 103,666,989 $ 1,757,024,424 760,125 1,936,077 124,207,887 4,360,233 4,203,517 82,186,777 --------------------- --------------------- --------------------- 79,065,242 109,806,583 1,963,419,088 988 3,236 25,497,633 115,942 35,451 -- 1,300,457 1,620,239 23,616,872 -- -- 11,264 3,589 -- -- -- -- 110,999 189 182 1,505 --------------------- --------------------- --------------------- 80,486,407 111,465,691 2,012,657,361 --------------------- --------------------- --------------------- -- -- 7,747,758 -- 837,377 61,451,482 50,686 433,004 1,778,164 62,735 103,850 3,232,172 39,931 44,588 922,128 57,419 119,045 134,675 9,362 12,368 234,990 4,415 5,924 68,898 36,860 44,765 239,353 --------------------- --------------------- --------------------- 261,408 1,600,921 75,809,620 --------------------- --------------------- --------------------- $ 80,224,999 $ 109,864,770 $ 1,936,847,741 ===================== ===================== ===================== $ 78,407,023 $ 106,343,460 $ 1,884,673,306 17,655 140,917 13,786,896 (2,559,912) (823,124) (43,592,817) 4,360,233 4,203,517 81,980,356 --------------------- --------------------- --------------------- $ 80,224,999 $ 109,864,770 $ 1,936,847,741 ===================== ===================== ===================== $ 77,018,486 $ 102,255,243 $ 977,198,057 ===================== ===================== ===================== 4,635,184 13,673,934 68,946,276 ===================== ===================== ===================== $ 16.62 $ 7.48 $ 14.17 ===================== ===================== ===================== $ 17.36 $ 7.83 $ 14.84 ===================== ===================== ===================== $ 3,206,513 $ 7,609,527 $ 144,080,835 ===================== ===================== ===================== 193,407 1,016,400 10,132,667 ===================== ===================== ===================== $ 16.58 $ 7.49 $ 14.22 ===================== ===================== ===================== $ -- $ -- $ 765,199,863 ===================== ===================== ===================== -- -- 53,825,835 ===================== ===================== ===================== $ -- $ -- $ 14.22 ===================== ===================== ===================== $ -- $ -- $ 50,368,986 ===================== ===================== ===================== -- -- 3,553,734 ===================== ===================== ===================== $ -- $ -- $ 14.17 ===================== ===================== ===================== $ -- $ -- $ 7,542,497 ===================== ===================== =====================
44 STATEMENTS OF OPERATIONS For the Year Ended September 30, 2005
Limited Term Government Core Plus Bond Fund High Income Fund and Agency Fund --------------------- --------------------- ----------------------- --------------------- --------------------- --------------------- NET INVESTMENT INCOME Dividends $ -- $ 102,887 $ -- Interest 13,647,132 3,415,219 5,552,283 Securities lending income 20,238 37,568 23,347 Less net foreign taxes withheld -- (676) -- --------------------- --------------------- --------------------- 13,667,370 3,554,998 5,575,630 --------------------- --------------------- --------------------- Expenses Management fees 1,138,592 260,872 785,427 Service fees - Class A 279,297 61,987 318,965 Service and distribution fees - Class B 1,420,420 155,393 131,049 Service and distribution fees - Class C 62,026 31,446 62,191 Trustees' fees and expenses 56,309 21,175 39,024 Administrative fees 170,210 27,317 96,860 Custodian fees 88,441 57,987 60,700 Transfer agent fees - Class A, Class B, Class C 779,995 132,796 301,044 Transfer agent fees - Class Y 36,549 -- 16,619 Audit and tax services 31,412 38,685 24,909 Legal fees 19,161 5,216 8,983 Shareholder reporting 123,351 40,103 80,290 Registration 57,505 46,554 64,594 Miscellaneous 20,929 9,422 12,735 --------------------- --------------------- --------------------- Total expenses 4,284,197 888,953 2,003,390 Less waiver/reimbursement (154,449) (61,643) (11,830) --------------------- --------------------- --------------------- Net expenses 4,129,748 827,310 1,991,560 --------------------- --------------------- --------------------- Net investment income 9,537,622 2,727,688 3,584,070 --------------------- --------------------- --------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net 4,285,731 1,682,732 (6,238) Foreign currency transactions - net 57,608 14,573 -- Change in unrealized appreciation (depreciation) of: Investments - net (8,318,611) (252,818) (1,789,947) Foreign currency translations - net (14,780) 1,492 -- --------------------- --------------------- --------------------- Net realized and unrealized gain (loss) on investments and foreign currency transactions (3,990,052) 1,445,979 (1,796,185) --------------------- --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 5,547,570 $ 4,173,667 $ 1,787,885 ===================== ===================== =====================
See accompanying notes to financial statements. 45
Massachusetts Tax Municipal Strategic Free Income Fund Income Fund Income Fund --------------------- --------------------- --------------------- --------------------- --------------------- $ -- $ -- $ 4,642,868 3,968,317 5,454,265 69,081,045 -- -- 474,028 -- -- (55,901) --------------------- --------------------- --------------------- 3,968,317 5,454,265 74,142,040 --------------------- --------------------- --------------------- 495,163 558,306 7,659,002 196,494 268,285 1,531,878 39,296 82,344 1,366,616 -- -- 4,824,725 24,118 35,995 83,418 52,354 73,067 773,439 36,828 39,328 349,740 102,737 129,268 1,980,198 -- -- 39,437 25,906 26,137 40,474 5,436 7,491 72,852 28,754 31,690 498,570 20,115 35,237 193,471 8,941 8,973 67,938 --------------------- --------------------- --------------------- 1,036,142 1,296,121 19,481,758 (3,589) -- -- --------------------- --------------------- --------------------- 1,032,553 1,296,121 19,481,758 --------------------- --------------------- --------------------- 2,935,764 4,158,144 54,660,282 --------------------- --------------------- --------------------- 447,715 1,495,771 21,255,490 -- -- 707,981 (258,210) (1,327,773) 28,039,775 -- -- (505,997) --------------------- --------------------- --------------------- 189,505 167,998 49,497,249 --------------------- --------------------- --------------------- $ 3,125,269 $ 4,326,142 $ 104,157,531 ===================== ===================== =====================
46 STATEMENTS OF CHANGES IN NET ASSETS
Core Plus Bond Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2005 2004 --------------------- --------------------- --------------------- --------------------- FROM OPERATIONS: Net investment income $ 9,537,622 $ 11,076,363 Net realized gain (loss) on investments and foreign currency transactions 4,343,339 9,525,887 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (8,333,391) (6,354,947) --------------------- --------------------- Increase (decrease) in net assets resulting from operations 5,547,570 14,247,303 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (5,451,945) (5,832,828) Class B (5,851,384) (5,866,726) Class C (254,068) (259,130) Class Y (529,060) (806,864) --------------------- --------------------- Total distributions (12,086,457) (12,765,548) --------------------- --------------------- INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 10) (26,672,030) (36,519,835) --------------------- --------------------- Redemption Fees Class A 578 164 Class B 727 204 Class C 32 7 Class Y 53 17 --------------------- --------------------- 1,390 392 --------------------- --------------------- Net increase (decrease) in net assets (33,209,527) (35,037,688) --------------------- --------------------- NET ASSETS Beginning of year 285,667,272 320,704,960 --------------------- --------------------- End of year $ 252,457,745 $ 285,667,272 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ 2,160,307 $ 2,485,658 ===================== =====================
High Income Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2005 2004 --------------------- --------------------- --------------------- --------------------- FROM OPERATIONS: Net investment income $ 2,727,688 $ 3,223,716 Net realized gain (loss) on investments and foreign currency transactions 1,697,305 2,160,377 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (251,326) (389,892) --------------------- --------------------- Increase (decrease) in net assets resulting from operations 4,173,667 4,994,201 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (1,635,303) (1,756,090) Class B (908,339) (1,304,202) Class C (182,735) (172,398) Class Y -- -- --------------------- --------------------- Total distributions (2,726,377) (3,232,690) --------------------- --------------------- INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 10) (5,264,082) (6,616,858) --------------------- --------------------- Redemption Fees Class A 3,017 146 Class B 1,868 110 Class C 370 16 Class Y -- -- --------------------- --------------------- 5,255 272 --------------------- --------------------- Net increase (decrease) in net assets (3,811,537) (4,855,075) --------------------- --------------------- NET ASSETS Beginning of year 45,216,698 50,071,773 --------------------- --------------------- End of year $ 41,405,161 $ 45,216,698 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ (64,686) $ (110,020) ===================== =====================
Limited Term Government and Agency Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2005 2004 --------------------- --------------------- --------------------- --------------------- FROM OPERATIONS: Net investment income $ 3,584,070 $ 3,418,590 Net realized gain (loss) on investments and foreign currency transactions (6,238) 1,021,149 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (1,789,947) (2,043,680) --------------------- --------------------- Increase (decrease) in net assets resulting from operations 1,787,885 2,396,059 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (3,733,934) (4,112,174) Class B (285,636) (358,642) Class C (135,224) (232,332) Class Y (65,428) (214,192) --------------------- --------------------- Total distributions (4,220,222) (4,917,340) --------------------- --------------------- INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 10) 39,221,920 (16,942,090) --------------------- --------------------- Redemption Fees Class A -- -- Class B -- -- Class C -- -- Class Y -- -- --------------------- --------------------- -- -- --------------------- --------------------- Net increase (decrease) in net assets 36,789,583 (19,463,371) --------------------- --------------------- NET ASSETS Beginning of year 127,989,244 147,452,615 --------------------- --------------------- End of year $ 164,778,827 $ 127,989,244 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ (134,584) $ (110,117) ===================== =====================
See accompanying notes to financial statements. 47
Massachusetts Tax Free Income Fund Municipal Income Fund -------------------------------------------- -------------------------------------------- Year Ended Year Ended Year Ended Year Ended September 30, September 30, September 30, September 30, 2005 2004 2005 2004 --------------------- --------------------- --------------------- --------------------- $ 2,935,764 $ 3,273,976 $ 4,158,144 $ 5,063,313 447,715 (325,070) 1,495,771 (199,243) (258,210) 1,181,062 (1,327,773) 1,189,663 --------------------- --------------------- --------------------- --------------------- 3,125,269 4,129,968 4,326,142 6,053,733 --------------------- --------------------- --------------------- --------------------- (2,824,718) (3,115,670) (3,981,690) (4,693,919) (111,486) (157,408) (243,518) (324,812) -- -- -- -- -- -- -- -- --------------------- --------------------- --------------------- --------------------- (2,936,204) (3,273,078) (4,225,208) (5,018,731) --------------------- --------------------- --------------------- --------------------- (5,825,158) (7,548,538) (11,124,657) (17,936,186) --------------------- --------------------- --------------------- --------------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --------------------- --------------------- --------------------- --------------------- -- -- -- -- --------------------- --------------------- --------------------- --------------------- (5,636,093) (6,691,648) (11,023,723) (16,901,184) --------------------- --------------------- --------------------- --------------------- 85,861,092 92,552,740 120,888,493 137,789,677 --------------------- --------------------- --------------------- --------------------- $ 80,224,999 $ 85,861,092 $ 109,864,770 $ 120,888,493 ===================== ===================== ===================== ===================== $ 17,655 $ 18,623 $ 140,917 $ 146,840 ===================== ===================== ===================== =====================
Strategic Income Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2005 2004 --------------------- --------------------- $ 54,660,282 $ 27,670,276 21,963,471 15,404,828 27,533,778 21,984,923 --------------------- --------------------- 104,157,531 65,060,027 --------------------- --------------------- (31,992,206) (14,995,915) (6,262,718) (6,962,890) (21,270,824) (8,540,977) (1,531,716) (428,194) --------------------- --------------------- (61,057,464) (30,927,976) --------------------- --------------------- 1,154,844,870 377,319,844 --------------------- --------------------- 32,202 1,885 6,890 817 25,315 1,391 1,499 65 --------------------- --------------------- 65,906 4,158 --------------------- --------------------- 1,198,010,843 411,456,053 --------------------- --------------------- 738,836,898 327,380,845 --------------------- --------------------- $ 1,936,847,741 $ 738,836,898 ===================== ===================== $ 13,786,896 $ 5,317,888 ===================== =====================
48 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: --------------------------------------- --------------------------- Net asset value, Dividends beginning Net Net realized Total from from of investment and unrealized investment net investment Total Redemption period income gain (loss) operations income distributions fee ---------- ---------- -------------- ---------- -------------- ------------- ---------- CORE PLUS BOND FUND Class A 9/30/2005 $ 11.69 $ 0.46(c) $ (0.18) $ 0.28 $ (0.56) $ (0.56) $ 0.00(g) 9/30/2004 11.63 0.47(c) 0.13 0.60 (0.54) (0.54) 0.00(g) 9/30/2003(f) 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) -- Class B 9/30/2005 11.70 0.37(c) (0.18) 0.19 (0.48) (0.48) 0.00(g) 9/30/2004 11.62 0.38(c) 0.14 0.52 (0.44) (0.44) 0.00(g) 9/30/2003(f) 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) -- Class C 9/30/2005 11.71 0.37(c) (0.18) 0.19 (0.48) (0.48) 0.00(g) 9/30/2004 11.63 0.38(c) 0.14 0.52 (0.44) (0.44) 0.00(g) 9/30/2003(f) 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) -- Class Y 9/30/2005 11.74 0.49(c) (0.18) 0.31 (0.59) (0.59) 0.00(g) 9/30/2004 11.69 0.50(c) 0.13 0.63 (0.58) (0.58) 0.00(g) 9/30/2003(f) 11.33 0.41(c) 0.35 0.76 (0.40) (0.40) -- 12/31/2002 11.63 0.69(c) (0.32) 0.37 (0.67) (0.67) -- 12/31/2001(d) 11.54 0.79 0.10 0.89 (0.80) (0.80) -- 12/31/2000 11.54 0.83 0.01 0.84 (0.84) (0.84) -- HIGH INCOME FUND* Class A 9/30/2005 $ 4.82 $ 0.33(c) $ 0.16 $ 0.49 $ (0.33) $ (0.33) $ 0.00(g) 9/30/2004 4.65 0.33(c) 0.17 0.50 (0.33) (0.33) 0.00(g) 9/30/2003(f) 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) -- Class B 9/30/2005 4.83 0.29(c) 0.15 0.44 (0.29) (0.29) 0.00(g) 9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) (0.30) 0.00(g) 9/30/2003(f) 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) --
(a)A sales charge for Class A and Class C (prior to February 1, 2004) 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 has been calculated using the average shares outstanding during the period. (d)As required, effective January 1, 2001, the Funds 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, 5.59% to 5.52% for Class C and 6.75% to 6.68% for Class Y shares. For High Income Fund, the effect of this change was to decrease net investment income per share by $.01 for Class A and Class B and to decrease the ratio of net investment income to average net assets from 11.39% to 11.31% for Class A and 10.64% to 10.56% for Class B. Per share data and ratios for the periods prior to January 1, 2001 have not been restated to reflect this change in presentation. See accompanying notes to financial statements. 49
Ratios to average net assets: ------------------------------------ Net asset Net assets value, end Total end of Gross Net Net investment Portfolio of return period Expenses Expenses income turnover period (%) (a) (000's) (%) (b) (e) (%) (b) (%) (b) rate (%) ---------- --------- ---------- ----------- --------- -------------- --------- $ 11.41 2.4(h) $ 105,111 1.18 1.13 3.93 64 11.69 5.3(h) 120,009 1.22 1.19 4.05 69 11.63 6.4 133,887 1.28 N/A 4.31 61 11.28 2.8 147,647 1.18 N/A 5.65 65 11.59 7.2 173,836 1.09 N/A 6.26 84 11.52 7.4 174,969 1.04 N/A 7.03 83 11.41 1.6(h) 132,221 1.93 1.88 3.18 64 11.70 4.6(h) 148,556 1.97 1.94 3.29 69 11.62 5.8 161,317 2.03 N/A 3.55 61 11.28 2.1 141,188 1.93 N/A 4.90 65 11.59 6.5 127,520 1.84 N/A 5.49 84 11.51 6.5 100,353 1.79 N/A 6.28 83 11.42 1.6(h) 6,065 1.93 1.88 3.17 64 11.71 4.6(h) 6,162 1.98 1.94 3.30 69 11.63 5.8 7,612 2.03 N/A 3.55 61 11.29 2.1 9,024 1.93 N/A 4.90 65 11.60 6.5 11,470 1.84 N/A 5.52 84 11.52 6.5 12,541 1.79 N/A 6.28 83 11.46 2.7(h) 9,060 0.99 0.88 4.18 64 11.74 5.5(h) 10,941 0.98 0.94 4.30 69 11.69 6.9 17,889 0.73 N/A 4.85 61 11.33 3.5 18,346 0.67 N/A 6.15 65 11.63 7.8 17,351 0.67 N/A 6.68 84 11.54 7.6 14,013 0.67 N/A 7.40 83 $ 4.98 10.3(h) $ 25,817 1.72 1.58 6.60 42 4.82 11.1 24,641 1.65 N/A 6.97 51 4.65 19.5 23,809 1.71 N/A 7.62 41 4.12 (8.9) 22,454 1.58 N/A 8.85 114 4.94 (10.7) 33,471 1.47 N/A 11.31 65 6.21 (16.1) 46,960 1.36 N/A 11.47 60 4.98 9.3(h) 12,034 2.47 2.33 5.85 42 4.83 10.5 17,967 2.40 N/A 6.22 51 4.65 18.8 23,405 2.46 N/A 6.89 41 4.12 (9.7) 23,031 2.33 N/A 8.10 114 4.95 (11.3) 34,713 2.22 N/A 10.56 65 6.22 (16.6) 47,793 2.11 N/A 10.72 60
(e)Represents the total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. (f)For the nine months ended September 30, 2003. (g)Amount rounds to less than $0.01. (h)Had certain expenses not been reduced during the period, total return would have been lower. * The financial information for periods prior to September 30, 2004 reflects the financial information for the CDC Nvest High Income Fund's Class A and Class B shares, which were reorganized into Class A and Class B 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. 50 FINANCIAL HIGHLIGHTS (continued) For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: --------------------------------------- --------------------------- Net asset value, Dividends beginning Net Net realized Total from from of investment and unrealized investment net investment Total Redemption period income gain (loss) operations income distributions fee ---------- ---------- -------------- ---------- -------------- ------------- ---------- HIGH INCOME FUND * (continued) Class C 9/30/2005 $ 4.83 $ 0.29(c) $ 0.15 $ 0.44 $ (0.29) $ (0.29) $ 0.00(f) 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) -- LIMITED TERM GOVERNMENT AND AGENCY FUND** Class A 9/30/2005 $ 11.30 $ 0.28(c) $ (0.16) $ 0.12 $ (0.33) $ (0.33) $ -- 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) -- Class B 9/30/2005 11.28 0.20(c) (0.17) 0.03 (0.24) (0.24) -- 9/30/2004 11.49 0.22(c) (0.09) 0.13 (0.34) (0.34) -- 9/30/2003(e) 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) -- Class C 9/30/2005 11.30 0.20(c) (0.18) 0.02 (0.24) (0.24) -- 9/30/2004 11.50 0.22(c) (0.08) 0.14 (0.34) (0.34) -- 9/30/2003(e) 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) -- Class Y 9/30/2005 11.34 0.31(c) (0.17) 0.14 (0.35) (0.35) -- 9/30/2004 11.55 0.32(c) (0.09) 0.23 (0.44) (0.44) -- 9/30/2003(e) 11.78 0.25(c) (0.08) 0.17 (0.40) (0.40) -- 12/31/2002 11.41 0.48(c) 0.48 0.96 (0.59) (0.59) -- 12/31/2001(d) 11.20 0.56 0.26 0.82 (0.61) (0.61) -- 12/31/2000 11.00 0.75 0.19 0.94 (0.74) (0.74) --
(a)A sales charge for Class A and Class C (prior to February 1, 2004) 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 has been calculated using the average shares outstanding during the period. (d)As required, effective January 1, 2001, the Funds 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 High Income Fund was to decrease net investment income per share by $.01 for Class C and to decrease the ratio of net investment income to average net assets from 10.63% to 10.54% for Class C. For Limited Term Government and Agency Fund, the effect of this change was to decrease net investment income per share by $.04 for Class A, B, C, and Y and to decrease the ratio of net investment income to average net assets from 4.88% to 4.52% for Class A, 4.22% to 3.85% for Class B, 4.25% to 3.89% for Class C, and 5.34% to 4.98% for Class Y. Per share data and ratios 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)Amounts round to less than $0.01. See accompanying notes to financial statements. 51
Ratios to average net assets: ------------------------------------- Net asset Net assets, value, Total end of Gross Net Net investment Portfolio end of return period Expenses Expenses income turnover period (%) (a) (000's) (%) (b) (%) (b) (%) (b) rate (%) --------- --------- ----------- --------- --------- -------------- --------- $ 4.98 9.3(h) $ 3,554 2.47(i) 2.33 5.82 42 4.83 10.5 2,608 2.40 N/A 6.22 51 4.65 18.8 2,858 2.46 N/A 6.89 41 4.12 (9.5) 2,605 2.33 N/A 8.10 114 4.94 (11.5) 4,153 2.22 N/A 10.54 65 6.22 (16.6) 5,369 2.11 N/A 10.72 60 $11.09 1.1 $ 141,417 1.24 N/A 2.50 93 11.30 1.9 106,701 1.32 N/A 2.60 80 11.51 1.2 117,225 1.37 N/A 2.41 53 11.73 8.2 106,013 1.35 N/A 3.66 88 11.36 6.9 109,189 1.42 N/A 4.52 275 11.16 8.3 118,833 1.40 N/A 6.18 384 11.07 0.3 15,114 1.99 N/A 1.75 93 11.28 1.2 10,107 2.00 N/A 1.95 80 11.49 0.7 14,637 2.02 N/A 1.77 53 11.71 7.5 16,263 2.00 N/A 3.01 88 11.34 6.2 14,317 2.07 N/A 3.85 275 11.14 7.7 11,884 2.05 N/A 5.53 384 11.08 0.2 5,715 1.99 N/A 1.75 93 11.30 1.3 6,949 2.00 N/A 1.94 80 11.50 0.7 8,704 2.02 N/A 1.77 53 11.72 7.5 8,079 2.00 N/A 3.01 88 11.35 6.2 5,851 2.07 N/A 3.89 275 11.15 7.7 6,617 2.05 N/A 5.53 384 11.13 1.2(h) 2,533 1.59(g) 1.02 2.77 93 11.34 2.1 4,233 1.13 N/A 2.82 80 11.55 1.5 6,886 0.93 N/A 2.87 53 11.78 8.6 8,529 0.88 N/A 4.14 88 11.41 7.4 3,441 0.95 N/A 4.98 275 11.20 8.8 3,254 0.95 N/A 6.63 384
(g)Represents total expenses prior to waiver of a portion of the Class's transfer agent expenses. (h)Had certain expenses not been reduced during the period, total return would have been lower. (i)Represents the total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. * The financial information for periods prior to September 30, 2004 reflects the financial information for the CDC Nvest High Income Fund's Class C shares which were reorganized into Class C shares 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. ** 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 A, Class B, Class C, and Class Y shares which were reorganized into Class A, Class B, Class C, and Class Y 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. 52 FINANCIAL HIGHLIGHTS (continued) For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ----------------------------------------- --------------------------- Net asset Dividends value, Net Net realized Total from from beginning investment and unrealized investment net investment Total of period income gain (loss) operations income distributions ---------- ---------- -------------- ---------- -------------- ------------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2005 $ 16.58 $ 0.60 $ 0.04 $ 0.64 $ (0.60) $ (0.60) 9/30/2004 16.41 0.61 0.17 0.78 (0.61) (0.61) 9/30/2003(f) 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) Class B 9/30/2005 16.54 0.46 0.05 0.51 (0.47) (0.47) 9/30/2004 16.37 0.49 0.18 0.67 (0.50) (0.50) 9/30/2003(f) 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) MUNICIPAL INCOME FUND Class A 9/30/2005 $ 7.47 $ 0.28 $ 0.01 $ 0.29 $ (0.28) $ (0.28) 9/30/2004 7.41 0.29 0.06 0.35 (0.29) (0.29) 9/30/2003(f) 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) Class B 9/30/2005 7.48 0.22 0.01 0.23 (0.22) (0.22) 9/30/2004 7.41 0.24 0.07 0.31 (0.24) (0.24) 9/30/2003(f) 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)
(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 less than one year are not annualized. (b)Computed on an annualized basis for periods less than one year. (c)Represents total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. (d)As required, effective January 1, 2001, the Funds 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 Massachusetts Tax Free Income Fund was to increase the ratio of net investment income to average net assets from 4.66% to 4.67% for Class A and from 4.02% to 4.03% for Class B shares. For Municipal Income Fund, the effect of this change was to increase net investment income per share by $0.01 and to decrease net realized and unrealized gains and losses per share by $0.01 for Class A shares and Class B shares and increase the ratio of net investment income to average net assets from 4.84% to 4.89% for Class A shares and from 4.09% to 4.14% for Class B shares. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. See accompanying notes to financial statements. 53
Ratios to average net assets: -------------------------------- Net asset Net assets, Net value, Total end of Gross Net investment Portfolio end of return period Expenses Expenses income turnover period (%) (a) (000's) (%) (b) (c) (%) (b) (%) (b) rate (%) ---------- --------- ----------- ----------- --------- ---------- --------- $ 16.62 3.9(e) $ 77,018 1.22 1.22 3.59 5 16.58 4.9 81,427 1.33 N/A 3.74 21 16.41 3.1 86,368 1.38 N/A 3.99 9 16.40 8.1 92,053 1.34 N/A 4.19 33 15.82 3.2(e) 89,376 1.35 1.33 4.67 60 16.06 9.3(e) 91,785 1.39 1.13 5.24 68 16.58 3.1(e) 3,207 1.97 1.97 2.84 5 16.54 4.2 4,435 2.00 N/A 3.08 21 16.37 2.6 6,185 2.03 N/A 3.34 9 16.36 7.4 6,742 1.99 N/A 3.54 33 15.78 2.5(e) 8,313 2.00 1.98 4.03 60 16.03 8.6(e) 8,715 2.04 1.78 4.59 68 $ 7.48 3.9 $ 102,255 1.07 N/A 3.65 29 7.47 4.9 111,801 1.11 N/A 4.00 35 7.41 2.9 126,906 1.10 N/A 4.14 42 7.43 7.3 133,005 1.06 N/A 4.67 33 7.25 3.0 137,852 1.07 N/A 4.89 80 7.39 8.8 142,539 0.95 N/A 5.39 156 7.49 3.1 7,610 1.82 N/A 2.90 29 7.48 4.2 9,087 1.86 N/A 3.25 35 7.41 2.2 10,884 1.85 N/A 3.39 42 7.44 6.7 12,326 1.81 N/A 3.92 33 7.25 2.2 14,549 1.82 N/A 4.14 80 7.39 8.0 14,520 1.70 N/A 4.64 156
(e)Had certain expenses not been reduced during the period, total returns would have been lower. (f)For the nine months ended September 30, 2003. 54 FINANCIAL HIGHLIGHTS (continued) For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ---------------------------------------- --------------------------- Net asset Dividends value, Net Net realized Total from from beginning investment and unrealized investment net investment Total of period income (c) gain (loss) operations income distributions ---------- ---------- -------------- ---------- -------------- ------------- STRATEGIC INCOME FUND* Class A 9/30/2005 $ 13.57 $ 0.66 $ 0.70 $ 1.36 $ (0.76) $ (0.76) 9/30/2004 12.57 0.75 1.11 1.86 (0.86) (0.86) 9/30/2003(d) 10.72 0.57 1.93 2.50 (0.65) (0.65) 12/31/2002 9.88 0.75 0.72 1.47 (0.63) (0.63) 12/31/2001(f) 10.80 0.91 (0.92) (0.01) (0.91) (0.91) 12/31/2000 11.65 0.99 (0.91) 0.08 (0.93) (0.93) Class B 9/30/2005 13.60 0.56 0.71 1.27 (0.65) (0.65) 9/30/2004 12.59 0.65 1.10 1.75 (0.74) (0.74) 9/30/2003(d) 10.71 0.51 1.92 2.43 (0.55) (0.55) 12/31/2002 9.88 0.67 0.73 1.40 (0.57) (0.57) 12/31/2001(f) 10.79 0.83 (0.90) (0.07) (0.84) (0.84) 12/31/2000 11.65 0.90 (0.91) (0.01) (0.85) (0.85) Class C 9/30/2005 13.60 0.55 0.72 1.27 (0.65) (0.65) 9/30/2004 12.58 0.64 1.11 1.75 (0.73) (0.73) 9/30/2003(d) 10.70 0.50 1.93 2.43 (0.55) (0.55) 12/31/2002 9.87 0.67 0.73 1.40 (0.57) (0.57) 12/31/2001(f) 10.78 0.83 (0.91) (0.08) (0.83) (0.83) 12/31/2000 11.64 0.90 (0.91) (0.01) (0.85) (0.85) Class Y 9/30/2005 13.57 0.70 0.70 1.40 (0.80) (0.80) 9/30/2004 12.58 0.78 1.11 1.89 (0.90) (0.90) 9/30/2003(d) 10.74 0.60 1.93 2.53 (0.69) (0.69) 12/31/2002 9.90 0.80 0.71 1.51 (0.67) (0.67) 12/31/2001(f) 10.81 0.94 (0.92) 0.02 (0.93) (0.93) 12/31/2000 11.65 0.96 (0.84) 0.12 (0.96) (0.96)
Redemption fee ---------- STRATEGIC INCOME FUND* Class A 9/30/2005 $ 0.00(g) 9/30/2004 0.00(g) 9/30/2003(d) -- 12/31/2002 -- 12/31/2001(f) -- 12/31/2000 -- Class B 9/30/2005 0.00(g) 9/30/2004 0.00(g) 9/30/2003(d) -- 12/31/2002 -- 12/31/2001(f) -- 12/31/2000 -- Class C 9/30/2005 0.00(g) 9/30/2004 0.00(g) 9/30/2003(d) -- 12/31/2002 -- 12/31/2001(f) -- 12/31/2000 -- Class Y 9/30/2005 0.00(g) 9/30/2004 0.00(g) 9/30/2003(d) -- 12/31/2002 -- 12/31/2001(f) -- 12/31/2000 --
(a)A sales charge for Class A and Class C (prior to February 1, 2004) shares and a contingent deferred sales charge for Class B and Class C shares are not reflected in total return calculations. Periods of less than one year are not annualized. (b)Computed on an annualized basis for period less than one year. (c)Per share net investment income has been calculated using the average shares outstanding during the period. (d)For the nine months ended September 30, 2003. (e)Had certain expenses not been reduced during the period, total return would have been lower. (f)As required, effective January 1, 2001, the Funds adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. 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, 8.03% to 8.02% for Class B and 8.04% to 8.02% for Class C. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. See accompanying notes to financial statements. 55
Ratios to average net assets: ------------------------------- Net asset Net assets, Net value, end Total end of Gross Net investment Portfolio of return period Expenses Expenses income turnover period (%) (a) (000's) (%) (b)(h) (%) (b) (%) (b) rate (%) ---------- --------- ----------- ---------- --------- ---------- --------- $ 14.17 10.2 $ 977,198 1.18 N/A 4.71 14 13.57 15.2 343,586 1.23 N/A 5.66 28 12.57 23.7(e) 140,576 1.31 1.28 6.49 27 10.72 15.5 92,303 1.33 N/A 7.38 30 9.88 (0.1) 94,156 1.31 N/A 8.77 10 10.80 0.7 116,986 1.24 N/A 8.73 13 14.22 9.5 144,081 1.93 N/A 3.98 14 13.60 14.3 128,714 1.98 N/A 4.91 28 12.59 23.0(e) 118,217 2.06 2.03 5.73 27 10.71 14.6 98,501 2.08 N/A 6.63 30 9.88 (0.8) 102,159 2.06 N/A 8.02 10 10.79 (0.2) 120,200 1.99 N/A 7.98 13 14.22 9.5 765,200 1.93 N/A 3.93 14 13.60 14.3 255,705 1.98 N/A 4.87 28 12.58 23.0(e) 66,394 2.06 2.03 5.73 27 10.70 14.7 27,727 2.08 N/A 6.63 30 9.87 (0.8) 28,925 2.06 N/A 8.02 10 10.78 (0.2) 37,208 1.99 N/A 7.98 13 14.17 10.5 50,369 0.91 N/A 4.98 14 13.57 15.5(e) 10,833 1.08 1.00 5.93 28 12.58 24.0 2,193 0.97 N/A 6.83 27 10.74 15.9 1,039 0.94 N/A 7.77 30 9.90 0.3 445 0.93 N/A 9.10 10 10.81 1.0 335 0.90 N/A 9.07 13
(g)Amount rounds to less than $0.01. (h)Represents total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. * The financial information for periods prior to September 30, 2004 reflects the financial information for CDC Nvest Strategic Income Fund's Class A, Class B, Class C and Class Y shares, which were reorganized into Class A, Class B, Class C and Class Y 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. 56 NOTES TO FINANCIAL STATEMENTS September 30, 2005 1. Organization. IXIS Advisor Funds Trust I (formerly CDC Nvest Funds Trust I), IXIS Advisor Funds Trust II (formerly CDC Nvest Funds Trust II) and Loomis Sayles Funds II (the "Trusts" and each a "Trust") are each organized as a Massachusetts business trust. Each Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company. Each Declaration of Trust permits the Board of Trustees to authorize the issuance of an unlimited number of shares of the Trust in multiple series (individually, a "Fund" and collectively, the "Funds"). Information presented in these financial statements pertains to certain fixed income Funds of the Trusts; the financial statements of the other Funds of the Trusts are presented in separate reports. The following Funds are included in this report: IXIS Advisor Funds Trust I: Loomis Sayles Core Plus Bond Fund (the "Core Plus Bond Fund") IXIS Advisor Funds Trust II: Loomis Sayles Massachusetts Tax Free Income Fund (the "Massachusetts Tax Free Income Fund") Loomis Sayles Funds II: Loomis Sayles High Income Fund (the "High Income Fund") Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term Government and Agency Fund") Loomis Sayles Municipal Income Fund (the "Municipal Income Fund") Loomis Sayles Strategic Income Fund (the "Strategic Income Fund") Core Plus Bond Fund, Limited Term Government and Agency Fund and Strategic Income Fund each offer Class A, Class B, Class C and Class Y shares. High Income Fund offers Class A, Class B, and Class C shares. Massachusetts Tax Free Income Fund and Municipal Income Fund each offer Class A and Class B shares. Class A shares of all Funds except Limited Term Government and Agency Fund and Massachusetts Tax Free Income Fund are sold with a maximum front end sales charge of 4.50%. Class A shares of Limited Term Government and Agency Fund are sold with a maximum front end sales charge of 3.00% and Class A shares of Massachusetts Tax Free Income Fund are sold with a maximum front end sales charge of 4.25%. Class B shares do not pay a front end sales charge, but pay higher ongoing Rule 12b-1 fees than Class A shares for eight years (at which point they automatically convert to Class A shares), and are subject to a contingent deferred sales charge ("CDSC") if those shares are redeemed within six years of purchase. Class C shares do not pay a front end sales charge, do not convert to any other class of shares and pay higher ongoing Rule 12b-1 fees than Class A shares and may be subject to a CDSC of 1.00% if those shares are redeemed within one year. Class Y shares do not pay a front end sales charge, a CDSC or Rule 12b-1 fees. They are generally intended for institutional investors with a minimum initial investment of $1,000,000, though some categories of investors are excepted from the minimum investment amount. Most expenses of the Trusts can be directly attributed to a Fund. Expenses which cannot be directly attributed are generally apportioned based on the relative net assets of each of the funds in the Trusts. Expenses of a Fund are borne pro rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the Rule 12b-1 service and distribution fees and, for those Funds that offer Class Y shares, transfer agent fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 Plan. Shares of each class would receive their pro rata share of the net assets of a Fund, if the Fund were liquidated. The Trustees approve separate dividends from net investment income on each class of shares. 2. Significant Accounting Policies. The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements. The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. a. Security Valuation. Debt securities for which market quotations are readily available (other than short-term obligations with a remaining maturity of less than sixty days) are generally valued at market price on the basis of valuations furnished to the Funds by a pricing service authorized by the Board of Trustees, which service determines 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 with a remaining maturity of less than sixty days are stated at amortized cost, which approximates market value. Equity securities for which market quotations are readily available are valued at market price on the basis of valuations furnished to the Funds by a pricing service which has been authorized by the Board of Trustees. The pricing service provides the last reported sale price for securities listed on an applicable securities exchange or, if no sale was reported and in the case of over-the-counter securities not so listed, the last reported bid price. Securities traded on the NASDAQ National Market are valued at the NASDAQ Official Closing Price ("NOCP"), or if lacking NOCP, at the most recent bid quotation on the NASDAQ National Market. Securities traded on foreign exchanges are valued at the market price on the non-U.S. exchange, unless a Fund believes that an occurrence after the closing of that exchange will materially affect a 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. All other securities and assets are valued at their fair value as determined in good faith by the Funds' investment adviser, pursuant to the procedures approved by the Board of Trustees. Certain securities held by High Income Fund and Strategic Income Fund were valued on the basis of a price provided by a principal market maker. The prices provided by the principal market makers may differ from Fund value that would be realized if the securities were sold. 57 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 b. Security Transactions and Related Investment Income. Security transactions are accounted for on trade date. Dividend income is recorded on ex-dividend date, or in the case of certain foreign securities, as soon thereafter as the Fund is notified, and interest income is recorded on an accrual basis. Interest income is increased by the accretion of discount and decreased by the amortization of premium. In determining net gain or loss on securities sold, the cost of securities has been determined on an identified cost basis. Investment income and non-class specific expenses are allocated on a pro rata basis to each class based on the relative value of settled shares of each class to the total for the Fund. Realized and unrealized gains and losses are allocated on a pro rata basis to each class based on the relative net assets of each class to the total net assets for the Fund. c. Foreign Currency Translation. The books and records of the Funds are maintained in U.S. dollars. The value of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign exchange rates prevailing at the end of the period. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. Since the values of investment securities are presented at the foreign exchange rates prevailing at the end of the period, it is not practical to isolate that portion of the results of operations arising from changes in exchange rates from fluctuations arising from changes in market prices of the investment securities. Such changes are included with the net realized and unrealized gain or loss on investments. Net realized foreign exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities at the end of the fiscal period, resulting from changes in exchange rates. Each Fund (except Massachusetts Tax Free Income Fund and Municipal Income Fund) may purchase investments of foreign issuers. Investing in securities of foreign issuers involves special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include revaluation of currencies and the risk of appropriation. Moreover, the markets for securities of many foreign issuers may be less liquid and the prices of such securities may be more volatile than those of comparable U.S. companies and the U.S. government. d. Federal and Foreign Income Taxes. The Trusts treat each Fund as a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains at least annually. Accordingly, no provision for federal income tax has been made. A Fund may be subject to foreign taxes on income and gains on investments that are accrued based upon the Fund's understanding of the tax rules and regulations that exist in the countries in which the Fund invests. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities. Such taxes are accrued as applicable. e. Dividends and Distributions to Shareholders. Dividends and distributions are recorded on ex-dividend date. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations, which may differ from accounting principles generally accepted in the United States of America. Permanent differences are primarily due to differing treatments for book and tax purposes of items such as paydowns on mortgage-backed securities and foreign currency transactions. Permanent book and tax basis differences relating to shareholder distributions, net investment income, and net realized gains will result in reclassifications to the capital accounts. Temporary differences between book and tax distributable earnings are primarily due to deferred Trustees' fees, defaulted bond income accruals, premium amortization accruals, market discounts, capital loss carryforwards, and wash sales. Distributions from net investment income and short-term capital gains are considered to be ordinary income for tax purposes. The tax character of distributions paid to shareholders during the years ended September 30, 2005 and 2004 was as follows:
2005 Distributions Paid From: 2004 Distributions Paid From: - ----------------------------- ----------------------------- Exempt Exempt Ordinary Interest Ordinary Interest Fund Income Dividends Total Income Dividends Total ---- ------ --------- ----- ------ --------- ----- Core Plus Bond Fund $12,086,457 $ -- $12,086,457 $12,765,548 $ -- $12,765,548 High Income Fund 2,726,377 -- 2,726,377 3,232,690 -- 3,232,690 Limited Term Government and Agency Fund 4,220,222 -- 4,220,222 4,917,340 -- 4,917,340 Massachusetts Tax Free Income Fund 11,120 2,925,084 2,936,204 4,733 3,268,345 3,273,078 Municipal Income Fund 105,537 4,119,671 4,225,208 22,140 4,996,591 5,018,731 Strategic Income Fund 61,057,464 -- 61,057,464 30,927,976 -- 30,927,976
58 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 As of September 30, 2005, the components of distributable earnings on a tax basis were as follows:
Limited Term Massachusetts Core Plus High Government and Tax Free Municipal Strategic Bond Fund Income Fund Agency Fund Income Fund Income Fund Income Fund ------------ ------------ -------------- ------------- ----------- ------------ Undistributed ordinary income/tax exempt income $ 2,701,746 $ 83,014 $ 149,838 $ 138,099 $ 363,811 $ 15,613,715 Capital loss carryforward: Expires September 30, 2007 -- -- (9,755,614) (1,149,888) (564,858) -- Expires September 30, 2008 -- (13,289,736) (4,165,768) (116,500) -- -- Expires September 30, 2009 -- (43,374,721) (4,128,091) -- -- (10,758,584) Expires September 30, 2010 (20,960,955) (26,826,634) (663,109) (1,003,440) -- (21,770,312) Expires September 30, 2011 -- -- (425,323) -- -- (7,096,274) Expires September 30, 2012 -- -- (193,904) -- (138,879) -- Expires September 30, 2013 -- -- -- (154,156) -- -- ------------ ------------ ------------ ----------- ---------- ------------ Total capital loss carryforward (20,960,955) (83,491,091) (19,331,809) (2,423,984) (703,737) (39,625,170) Deferred net capital losses (post October) -- -- (5,436,058) -- -- -- Unrealized appreciation (depreciation) (619,322) 2,425,139 (2,170,386) 4,224,305 4,084,130 79,601,045 ------------ ------------ ------------ ----------- ---------- ------------ Total accumulated earnings (losses) $(18,878,531) $(80,982,938) $(26,788,415) $ 1,938,420 $3,744,204 $ 55,589,590 ============ ============ ============ =========== ========== ============ Capital loss carryforward utilized in the current year $ 2,332,785 $ 1,649,813 $ 3,602,040 $ -- $1,135,534 $ 9,757,916
f. Repurchase Agreements. Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 102% of the repurchase price, including interest. Each Fund's subadviser is responsible for determining that the value of the collateral is at all times at least equal to 102% of the repurchase price, including interest. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. g. Delayed Delivery Commitments. Each Fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. Collateral consisting of liquid securities or cash and cash equivalents is maintained in an amount at least equal to these commitments with the custodian. h. Indemnifications. Under the Funds' organizational documents, their officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. 3. Purchases and Sales of Securities. For the year ended September 30, 2005, purchases and sales of securities (excluding short-term investments and including paydowns) were as follows:
U.S. Government/Agency Other Securities ---------------------- ---------------- Fund Purchases Sales Purchases Sales ---- --------- ----- --------- ----- Core Plus Bond Fund $114,409,343 $116,343,689 $ 55,862,139 $ 75,460,212 High Income Fund -- -- 17,647,831 22,351,675 Limited Term Government and Agency Fund 136,788,628 153,665,258 1,034,963 -- Massachusetts Tax Free Income Fund -- -- 4,399,207 9,486,002 Municipal Income Fund -- -- 33,180,737 43,417,989 Strategic Income Fund 400,472,116 39,145,189 867,103,078 120,491,121
59 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 4. Management Fees and Other Transactions with Affiliates. a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as the investment adviser to each Fund. Under the terms of the management agreements, each Fund pays a management fee at the following annual rates, calculated daily and payable monthly, based on each Fund's average daily net assets:
Percentage of Average Daily Net Assets ------------------------------------------------- First Next Next Over Fund $100 million $100 million $1.8 billion $2 billion ---- ------------ ------------ ------------ ---------- Core Plus Bond Fund 0.2500% 0.1875% 0.1875% 0.1875% High Income Fund 0.6000% 0.6000% 0.6000% 0.6000% Limited Term Government and Agency Fund 0.5000% 0.5000% 0.5000% 0.5000% Massachusetts Tax Free Income Fund 0.3000% 0.2500% 0.2500% 0.2500% Municipal Income Fund 0.5000% 0.3750% 0.3750% 0.3750% Strategic Income Fund 0.6500% 0.6500% 0.6000% 0.5500%
Prior to March 21, 2005, the management fee for Limited Term Government and Agency Fund was 0.57% on the first $200 million of its average daily net assets, 0.545% on the next $300 million and 0.52% on such assets in excess of $500 million. Prior to July 1, 2005, the management fee for Strategic Income Fund was 0.65% on the first $200 million of its average daily net assets and 0.60% on such assets in excess of $200 million. For the year ended September 30, 2005, the management fees for each Fund were as follows:
Percentage of Management Average Fund Fee Daily Net Assets ---- ---------- ---------------- Core Plus Bond Fund $ 569,296 0.211% High Income Fund 260,872 0.600% Limited Term Government and Agency Fund 785,427 0.527% Massachusetts Tax Free Income Fund 247,582 0.300% Municipal Income Fund 558,306 0.483% Strategic Income Fund 7,659,002 0.608%
IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), formerly CDC IXIS Asset Management Advisers, L.P., serves as the advisory administrator to Core Plus Bond Fund and Massachusetts Tax Free Income Fund. Under the terms of the advisory administration agreements, each Fund pays an advisory administration fee at the following annual rates, calculated daily and payable monthly, based on its average daily net assets:
Percentage of Average Daily Net Assets --------------------------- First Over Fund $100 million $100 million ---- ------------ ------------ Core Plus Bond Fund 0.2500% 0.1875% Massachusetts Tax Free Income Fund 0.3000% 0.2500%
For the year ended September 30, 2005, the advisory administration fees for each Fund were as follows:
Advisory Percentage of Administration Average Fund Fee Daily Net Assets ---- -------------- ---------------- Core Plus Bond Fund $569,296 0.211% Massachusetts Tax Free Income Fund 247,581 0.300%
60 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 Loomis Sayles and IXIS Advisors are wholly-owned subsidiaries of IXIS Asset Management North America, L.P. ("IXIS North America"), formerly CDC IXIS Asset Management North America, L.P., which 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 the following 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 Nationales des Caisses d'Epargne, a financial institution owned by CDC and by the French regional savings banks known as Caisses d'Epargne; and CNP Assurances, a large French life insurance company. Certain officers and directors of Loomis Sayles and IXIS Advisors are also Trustees of the Funds. Management and advisory administration fees are presented in the Statements of Operations as management fees. b. Administrative Expense. IXIS Advisors provides certain administrative services to the Funds. Prior to January 3, 2005, IXIS Asset Management Services Company ("IXIS Services"), formerly CDC IXIS Asset Management Services, Inc., a wholly-owned subsidiary of IXIS North America, performed administrative services for the Funds and subcontracted with Investors Bank & Trust Company ("IBT") to serve as subadministrator. Effective October 1, 2005, State Street Bank & Trust Company ("State Street Bank") became the subadministrator. Pursuant to an agreement among IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS Advisor Funds Trust III (formerly CDC Nvest Funds Trust III), IXIS Advisor Funds Trust IV (formerly CDC Nvest Companies Trust I) and IXIS Advisor Cash Management Trust (formerly CDC Nvest Cash Management Trust) ("IXIS Advisor Funds Trusts"), Loomis Sayles Funds I, Loomis Sayles Funds II ("Loomis Sayles Funds Trusts") and IXIS Advisors (IXIS Services prior to January 3, 2005), each Fund pays IXIS Advisors monthly its pro rata portion of fees equal to an annual rate of 0.0675% of the first $5 billion of the average daily net assets of the IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts, 0.0625% of the next $5 billion, and 0.0500% of such assets in excess of $10 billion, subject to an annual aggregate minimum fee for the IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts of $5 million. For the year ended September 30, 2005, amounts paid to IXIS Services and IXIS Advisors for administrative expense were as follows:
Administrative Fund Fees ---- -------------- Core Plus Bond Fund $170,210 High Income Fund 27,317 Limited Term Government and Agency Fund 96,860 Massachusetts Tax Free Income Fund 52,354 Municipal Income Fund 73,067 Strategic Income Fund 773,439
c. Transfer Agent Fees. IXIS Services is the transfer and shareholder servicing agent for each Fund and has subcontracted with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. Effective January 1, 2005, each Fund, for its Class A, B and C shares, pays fees monthly to IXIS Services equal to an annual rate of $25.25 for each open account and $2.00 for each closed account, subject to a monthly minimum of $1,500 per class and an annual aggregate minimum fee for all Load Fixed Income Funds* of approximately $1.7 million. Each Fund, for its Class Y shares, pays fees monthly to IXIS Services equal to an annual rate of $25.25 for each open account and $2.00 for each closed account, subject to a monthly minimum of $1,500 and an annual aggregate minimum fee for all No-Load Retail Funds** and Load Funds - Class Y*** of approximately $1 million. Prior to January 1, 2005, each Fund, for its Class A, B and C shares, paid monthly to IXIS Services its pro rata portion of an annual aggregate fee equal to 0.142% of the first $1.2 billion of average daily net assets for Class A, B and C of all Load Fixed Income Funds*, 0.135% of the next $5 billion, and 0.130% of such assets in excess of $6.2 billion, subject to a monthly minimum of $1,500 per class and an annual aggregate minimum equal to approximately $1.5 million. Each Fund for its Class Y shares paid monthly to IXIS Services its pro rata portion of an annual aggregate fee equal to 0.026% of the average daily net assets for all No-Load Retail Funds** and Load Funds - Class Y***, subject to a monthly minimum of $1,250 and an annual aggregate minimum equal to approximately $650,000. * Load Fixed Income Funds consist of Core Plus Bond Fund, Massachusetts Tax Free Income Fund, High Income Fund, Limited Term Government and Agency Fund, Municipal Income Fund, Strategic Income Fund and Loomis Sayles Investment Grade Bond Fund. ** No-Load Retail Funds consist of Loomis Sayles Aggressive Growth Fund, Loomis Sayles Bond Fund, Loomis Sayles Global Bond Fund, Loomis Sayles Small Cap Growth Fund, Loomis Sayles Small Cap Value Fund, Loomis Sayles Tax-Managed Equity Fund, Loomis Sayles Value Fund and Loomis Sayles Worldwide Fund. *** Load Funds - Class Y consist of all Funds with Class Y offered within the IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts. 61 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 Effective October 1, 2005, BFDS became the transfer and shareholder servicing agent for the Funds. For the year ended September 30, 2005, amounts paid to IXIS Services as compensation for its services as transfer agent were as follows:
Transfer Agent Fund Fee ---- -------------- Core Plus Bond Fund $ 314,229 High Income Fund 95,373 Limited Term Government and Agency Fund 243,164 Massachusetts Tax Free Income Fund 86,855 Municipal Income Fund 104,381 Strategic Income Fund 1,028,317
For the year ended September 30, 2005, IXIS Services waived a portion of its fees for Limited Term Government and Agency Fund Class Y in the amount of $11,830. IXIS Services, BFDS and other firms are also reimbursed by the Funds for out-of-pocket expenses. In addition, pursuant to other servicing agreements, each Fund pays service fees to other firms that provide similar services for their own shareholder accounts. d. Service and Distribution Fees. Pursuant to Rule 12b-1 under the 1940 Act, the Trusts have adopted a Service Plan relating to each Fund's Class A shares (the "Class A Plan") and Service and Distribution Plans relating to each Fund's Class B and Class C shares (the "Class B and Class C Plans"). Under the Class A Plan, each Fund pays IXIS Asset Management Distributors, L.P. ("IXIS Distributors"), formerly CDC IXIS Asset Management Distributors, L.P., the Fund's distributor (a wholly-owned subsidiary of IXIS North America), a monthly service fee at an annual rate not to exceed 0.25% of the average daily net assets attributable to the Fund's Class A shares, as reimbursement for expenses incurred by IXIS Distributors in providing personal services to investors in Class A shares and/or the maintenance of shareholder accounts. Under the Class B and Class C Plans, each Fund pays IXIS Distributors a monthly service fee at an annual rate of 0.25% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses incurred by IXIS Distributors in providing personal services to investors in Class B and Class C shares and/or the maintenance of shareholder accounts. Also under the Class B and Class C Plans, each Fund pays IXIS Distributors a monthly distribution fee at the annual rate of 0.75% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses incurred by IXIS Distributors in connection with the marketing or sale of Class B and Class C shares. For the year ended September 30, 2005, the Funds paid the following service and distribution fees:
Service Fee Distribution Fee - ----------------------------------------- --------------------------- Fund Class A Class B Class C Class B Class C ---- ------- ------- ------- ------- ------- Core Plus Bond Fund $ 279,297 $ 355,105 $ 15,506 $ 1,065,315 $ 46,520 High Income Fund 61,987 38,848 7,861 116,545 23,585 Limited Term Government and Agency Fund 318,965 32,762 15,548 98,287 46,643 Massachusetts Tax Free Income Fund 196,494 9,824 -- 29,472 -- Municipal Income Fund 268,285 20,586 -- 61,758 -- Strategic Income Fund 1,531,878 341,654 1,206,181 1,024,962 3,618,544
Commissions (including CDSC) on Fund shares paid to IXIS Distributors by investors in shares of the Funds during the year ended September 30, 2005 were as follows:
Fund ---- - Core Plus Bond Fund $ 151,914 High Income Fund 81,866 Limited Term Government and Agency Fund 92,488 Massachusetts Tax Free Income Fund 22,707 Municipal Income Fund 61,673 Strategic Income Fund 3,821,485
62 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 e. Trustees Fees and Expenses. The IXIS Advisor Funds Trusts and the Loomis Sayles Funds Trusts do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of IXIS Advisors, IXIS Distributors, IXIS North America, IXIS Services or their affiliates. Each Trustee who is an independent Trustee of the IXIS Advisor Funds Trusts and the Loomis Sayles Funds Trusts 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 attended. The co-chairmen of the Board each receive an additional annual retainer fee at the annual rate of $25,000. Each committee chairman receives an additional retainer fee at the annual rate of $7,000. Each committee member receives a meeting attendance fee of $3,750 per committee meeting attended. These fees are allocated to the various funds of the IXIS Advisor Funds Trusts and the Loomis Sayles Funds Trusts based on a formula that takes into account, among other factors, the relative net assets of each fund. Trustees are reimbursed for travel expenses in connection with attendance at meetings. Effective October 1, 2005, the compensation schedule for independent Trustees will change. Each independent Trustee will receive a retainer fee at the annual rate of $55,000 and meeting attendance fees of $6,000 for each meeting of the Board of Trustees attended in person and $3,000 for each meeting of the Board of Trustees attended telephonically. Each co-chairman of the Board will receive an additional retainer fee at the annual rate of $25,000. Each committee chairman will receive an additional retainer fee at the annual rate of $10,000. Each committee member will receive a meeting attendance fee of $4,000 per committee meeting attended in person and $2,000 for each committee meeting attended telephonically. A deferred compensation plan (the "Plan") is available to the Trustees on a voluntary basis. Each participating Trustee will receive an amount equal to the value that such deferred compensation would have been had it been invested in a designated fund or certain other funds of the IXIS Advisor Funds Trusts and the Loomis Sayles Funds Trusts on the normal payment date. Deferred amounts remain in the Funds until distributed in accordance with the Plan. Additionally, the Board of Trustees has approved the use of Fund assets to pay their portion of the annual salary for 2005 of an employee of IXIS Advisors who supports the Funds' Chief Compliance Officer. For the year ended September 30, 2005, each Fund's portion of such expense was approximately $900. f. Redemption Fees. Shareholders of Class A shares of Core Plus Bond Fund, High Income Fund and Strategic Income Fund and shareholders of Class Y shares of Core Plus Bond Fund and Strategic Income Fund will be charged a 2% redemption fee if they redeem, including redeeming by exchange, Class A shares and Class Y shares within 60 days of their acquisition (including acquisition by exchange). The redemption fee is intended to offset the costs of the Funds 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. The "first-in, first-out" (FIFO) method is used to determine the holding period of redeemed or exchanged shares, which means that if a shareholder 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. These fees are accounted for as an addition to paid-in capital and are presented on the Statements of Changes in Net Assets. 5. Line of Credit. High Income Fund and Strategic Income Fund, together with certain other funds of IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts, participated in a $50,000,000 committed line of credit provided by IBT under a credit agreement (the "Agreement") dated April 30, 2002. Advances under the Agreement were taken primarily for temporary or emergency purposes. Interest was charged to each participating fund based on its borrowing at a rate per annum equal to the Federal Funds rate plus 0.45%. In addition, each Fund was charged its pro rata portion of a facility fee equal to 0.10% per annum on the unused portion of the line of credit. There were no borrowings by High Income Fund and Strategic Income Fund during the year ended September 30, 2005. Effective October 1, 2005, High Income Fund and Strategic Income Fund, along with certain other portfolios, will participate in a $75,000,000 committed line of credit provided by State Street Bank. Interest is charged to a Fund based on its borrowing at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a Fund is charged its pro rata portion of a facility fee equal to 0.09% per annum on the unused portion of the line of credit. 6. Securities Lending. Each Fund has entered into an agreement with IBT, as an agent of the Funds, to lend securities to certain designated borrowers. The loans are collateralized with cash or securities in an amount equal to at least 105% or 102% of the market value of the loaned international or domestic securities, respectively, when the loan is initiated and at not less than 104.5% or 101.5% of the market value of loaned international or domestic securities, respectively, thereafter. The Funds invest cash collateral in short-term investments, a portion of the income from which is remitted to the borrowers and the remainder allocated between the Funds and IBT as lending agent. The Funds bear the risk of loss with respect to the investment of cash collateral. The market value of securities on loan to borrowers and the value of collateral held by the Funds with respect to such loans at September 30, 2005 were as follows:
Market Value of Value of Collateral Fund Securities on Loan Received ---- ------------------ ------------------- High Income Fund $ 317,864 $ 326,432 Strategic Income Fund 7,542,497 7,747,758
Effective October 1, 2005, State Street Bank became the securities lending agent for the Funds. 63 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 7. Contingent Expense Obligations. Loomis Sayles has given binding undertakings to certain Funds to defer its management fees and, if necessary, bear certain expenses associated with these Funds to limit their operating expenses. These undertakings are in effect until the dates under "Expiration of Waiver" below and will be reevaluated on an annual basis. For the year ended September 30, 2005, expenses were waived as follows: Core Plus Bond Fund $154,449, High Income Fund $61,643 and Massachusetts Tax Free Income Fund $3,589. Loomis Sayles is permitted to recover expenses it has borne (whether through reduction of its management fee or otherwise) in later periods to the extent the Funds' expenses fall below the expense limits, provided, however, that the Funds are not obligated to pay such deferred fees more than one year after the end of the fiscal year in which the fee was deferred. At September 30, 2005, the expense limits as a percentage of average daily net assets and amount subject to possible reimbursement under the expense limitation agreement were as follows:
Expense Limit as a Percentage of Average Expenses Subject Daily Net Assets to possible --------------------------------------- Expiration of Reimbursement Fund Class A Class B Class C Class Y Waiver until September 30, 2006 ---- ------- ------- ------- ------- ---------------- ------------------------ Core Plus Bond Fund 1.05% 1.80% 1.80% 0.80% January 31, 2006 $154,449 High Income Fund 1.45% 2.20% 2.20% -- January 31, 2006 61,643 Massachusetts Tax Free Income Fund 1.15% 1.90% -- -- January 31, 2006 3,589 Strategic Income Fund 1.25% 2.00% 2.00% 1.00% January 31, 2006 --
Prior to July 1, 2005, the expense limits as a percentage of average daily net assets were as follows:
Fund Class A Class B Class C Class Y ---- ------- ------- ------- ------- Core Plus Bond Fund 1.15% 1.90% 1.90% 0.90% High Income Fund -- -- -- -- Massachusetts Tax Free Income Fund 1.40% 2.05% -- -- Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
8. Concentration of Credit. Massachusetts Tax Free Income Fund primarily invests in debt obligations issued by the Commonwealth of Massachusetts and its political subdivisions, agencies and public authorities to obtain funds for various public purposes. The Fund is more susceptible to factors adversely affecting issuers of Massachusetts municipal securities than is a comparable municipal bond fund that is not so concentrated. Uncertain economic and fiscal conditions may affect the ability of issuers of Massachusetts municipal securities to meet their financial obligations. At September 30, 2005, the Fund had the following concentrations by revenue source in excess of 10% as a percentage of the Fund's net assets: College and University 33.8%, Hospital 13.9%, Water and Sewerage 10.6%, and State General Obligation 10.1%. The Fund had investments in securities of issuers insured by American Municipal Bond Assurance Corporation (AMBAC), Financial Guaranty Insurance Company (FGIC), and Municipal Bond Investors Assurance Corporation (MBIA) which aggregated 14.5%, 7.5%, and 6.9% of its net assets, respectively, at September 30, 2005. At September 30, 2005, Municipal Income Fund had more than 10% of its net assets invested in the following: New York 16.8%. Certain revenue or tax related events in a state may impair the ability of issuers of municipal securities to pay principal and interest on their obligations. 9. Acquisition of Assets. After the close of business on March 18, 2005, the Limited Term Government and Agency Fund (the "Fund") acquired all of the assets and liabilities of Loomis Sayles Government Securities Fund ("Government Securities Fund"), pursuant to a plan of reorganization approved by the shareholders of the Government Securities Fund on March 10, 2005. The acquisition was accomplished by a tax-free exchange of 4,449,445.112 Class A shares of the Fund for 4,190,454.806 shares of Government Securities Fund Class A, 834,916.727 Class B shares of the Fund for 783,996.906 shares of Government Securities Fund Class B, and 356.134 Class Y shares of the Fund for 337.738 shares of Government Securities Fund Class Y. Government Securities Fund net assets at that date of $58,846,725, including $237,787 of net unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $116,337,680. The combined net assets of the Fund immediately following the acquisition were $175,184,405. The Fund acquired capital loss carryovers, subject to limitations, of $4,791,200 from Government Securities Fund. 64 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 10. Capital Shares. Each Fund may issue an unlimited number of shares of beneficial interest, without par value. Transactions in capital shares were as follows: Year Ended Year Ended September 30, 2005 September 30, 2004 ----------------------------------- ----------------------------------- Core Plus Bond Fund Shares Amount Shares Amount ----------------------------------- ---------------- ----------------- ---------------- ----------------- Class A: Shares sold 1,388,801 $ 16,079,888 1,605,711 $ 18,625,859 Shares issued in connection with the reinvestment of: Dividends from net investment income 374,646 4,342,323 399,777 4,638,774 ---------------- ----------------- ---------------- ----------------- 1,763,447 20,422,211 2,005,488 23,264,633 Shares repurchased (2,814,749) (32,644,448) (3,251,762) (37,683,812) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (1,051,302) $ (12,222,237) (1,246,274) $ (14,419,179) ---------------- ----------------- ---------------- ----------------- Class B: Shares sold 3,051,314 $ 35,378,116 3,593,650 $ 41,729,759 Shares issued in connection with the reinvestment of: Dividends from net investment income 138,384 1,605,875 162,394 1,885,405 ---------------- ----------------- ---------------- ----------------- 3,189,698 36,983,991 3,756,044 43,615,164 Shares repurchased (4,304,577) (49,860,073) (4,934,717) (57,311,673) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (1,114,879) $ (12,876,082) (1,178,673) $ (13,696,509) ---------------- ----------------- ---------------- ----------------- Class C: Shares sold 117,915 $ 1,367,189 94,805 $ 1,102,148 Shares issued in connection with the reinvestment of: Dividends from net investment income 12,453 144,537 13,177 153,074 ---------------- ----------------- ---------------- ----------------- 130,368 1,511,726 107,982 1,255,222 Shares repurchased (125,755) (1,458,081) (236,056) (2,722,618) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 4,613 $ 53,645 (128,074) $ (1,467,396) ---------------- ----------------- ---------------- ----------------- Class Y: Shares sold 294,003 $ 3,417,059 330,962 $ 3,859,687 Shares issued in connection with the reinvestment of: Dividends from net investment income 36,213 421,543 59,164 689,033 ---------------- ----------------- ---------------- ----------------- 330,216 3,838,602 390,126 4,548,720 Shares repurchased (471,320) (5,465,958) (989,193) (11,485,471) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (141,104) $ (1,627,356) (599,067) $ (6,936,751) ---------------- ----------------- ---------------- ----------------- Increase (decrease) from capital share transactions (2,302,672) $ (26,672,030) (3,152,088) $ (36,519,835) ================ ================= ================ =================
65 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 10. Capital Shares (continued). Year Ended Year Ended September 30, 2005 September 30, 2004 ----------------------------------- ----------------------------------- High Income Fund Shares Amount Shares Amount ----------------------------------- ---------------- ----------------- ---------------- ----------------- Class A: Shares sold 1,843,627 $ 9,144,401 1,288,493 $ 6,184,887 Shares issued in connection with the reinvestment of: Dividends from net investment income 201,974 1,002,839 229,520 1,097,920 ---------------- ----------------- ---------------- ----------------- 2,045,601 10,147,240 1,518,013 7,282,807 Shares repurchased (1,968,099) (9,761,214) (1,529,706) (7,301,820) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 77,502 $ 386,026 (11,693) $ (19,013) ---------------- ----------------- ---------------- ----------------- Class B: Shares sold 127,125 $ 632,910 226,956 $ 1,090,578 Shares issued in connection with the reinvestment of: Dividends from net investment income 79,627 395,537 117,713 563,684 ---------------- ----------------- ---------------- ----------------- 206,752 1,028,447 344,669 1,654,262 Shares repurchased (1,513,258) (7,517,536) (1,651,156) (7,900,417) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (1,306,506) $ (6,489,089) (1,306,487) $ (6,246,155) ---------------- ----------------- ---------------- ----------------- Class C: Shares sold 304,056 $ 1,494,195 84,117 $ 402,199 Shares issued in connection with the reinvestment of: Dividends from net investment income 17,043 84,652 16,780 80,318 ---------------- ----------------- ---------------- ----------------- 321,099 1,578,847 100,897 482,517 Shares repurchased (147,783) (739,866) (174,710) (834,207) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 173,316 $ 838,981 (73,813) $ (351,690) ---------------- ----------------- ---------------- ----------------- Increase (decrease) from capital share transactions (1,055,688) $ (5,264,082) (1,391,993) $ (6,616,858) ================ ================= ================ =================
66 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 10. Capital Shares (continued). Year Ended Year Ended September 30, 2005 September 30, 2004 ----------------------------------- ----------------------------------- Limited Term Government and Agency Fund Shares Amount Shares Amount ----------------------------------- ---------------- ----------------- ---------------- ----------------- Class A: Shares sold 1,025,368 $ 11,507,822 1,157,697 $ 13,126,606 Shares issued in connection with acquisition of Loomis Sayles Government Securities Fund 4,449,445 49,566,819 -- -- Shares issued in connection with the reinvestment of: Dividends from net investment income 223,935 2,506,659 239,161 2,713,978 ---------------- ----------------- ---------------- ----------------- 5,698,748 63,581,300 1,396,858 15,840,584 Shares repurchased (2,390,415) (26,770,920) (2,142,804) (24,327,014) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 3,308,333 $ 36,810,380 (745,946) $ (8,486,430) ---------------- ----------------- ---------------- ----------------- Class B: Shares sold 90,600 $ 1,011,141 134,092 $ 1,517,724 Shares issued in connection with acquisition of Loomis Sayles Government Securities Fund 834,917 9,275,925 -- -- Shares issued in connection with the reinvestment of: Dividends from net investment income 20,684 230,974 25,006 283,349 ---------------- ----------------- ---------------- ----------------- 946,201 10,518,040 159,098 1,801,073 Shares repurchased (476,529) (5,324,127) (537,206) (6,100,694) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 469,672 $ 5,193,913 (378,108) $ (4,299,621) ---------------- ----------------- ---------------- ----------------- Class C: Shares sold 67,790 $ 759,450 106,715 $ 1,211,584 Shares issued in connection with the reinvestment of: Dividends from net investment income 7,387 82,688 12,725 144,384 ---------------- ----------------- ---------------- ----------------- 75,177 842,138 119,440 1,355,968 Shares repurchased (174,813) (1,960,779) (260,938) (2,968,972) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (99,636) $ (1,118,641) (141,498) $ (1,613,004) ---------------- ----------------- ---------------- ----------------- Class Y: Shares sold 206,094 $ 2,316,707 57,198 $ 653,419 Shares issued in connection with acquisition of Loomis Sayles Government Securities Fund 356 3,981 -- -- Shares issued in connection with the reinvestment of: Dividends from net investment income 5,628 63,325 18,709 213,178 ---------------- ----------------- ---------------- ----------------- 212,078 2,384,013 75,907 866,597 Shares repurchased (357,795) (4,047,745) (298,779) (3,409,632) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (145,717) $ (1,663,732) (222,872) $ (2,543,035) ---------------- ----------------- ---------------- ----------------- Increase (decrease) from capital share transactions 3,532,652 $ 39,221,920 (1,488,424) $ (16,942,090) ================ ================= ================ =================
On September 30, 2005, one shareholder owned 9.25% of the Fund's total shares outstanding. 67 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 10. Capital Shares (continued). Year Ended September 30, 2005 ----------------------------------- Massachusetts Tax Free Income Fund Shares Amount -------------------------------------------------------- ---------------- ----------------- Class A: Shares sold 108,967 $ 1,818,083 Shares issued in connection with the reinvestment of: Dividends from net investment income 124,767 2,082,631 ---------------- ----------------- 233,734 3,900,714 Shares repurchased (509,747) (8,484,290) ---------------- ----------------- Net increase (decrease) (276,013) $ (4,583,576) ---------------- ----------------- Class B: Shares sold 3,203 $ 53,537 Shares issued in connection with the reinvestment of: Dividends from net investment income 4,326 72,024 ---------------- ----------------- 7,529 125,561 Shares repurchased (82,197) (1,367,143) ---------------- ----------------- Net increase (decrease) (74,668) $ (1,241,582) ---------------- ----------------- Increase (decrease) from capital share transactions (350,681) $ (5,825,158) ================ =================
Year Ended September 30, 2004 ----------------------------------- Massachusetts Tax Free Income Fund Shares Amount -------------------------------------------------------- ---------------- ----------------- Class A: Shares sold 92,298 $ 1,517,739 Shares issued in connection with the reinvestment of: Dividends from net investment income 138,812 2,281,926 ---------------- ----------------- 231,110 3,799,665 Shares repurchased (583,207) (9,546,927) ---------------- ----------------- Net increase (decrease) (352,097) $ (5,747,262) ---------------- ----------------- Class B: Shares sold 6,385 $ 104,899 Shares issued in connection with the reinvestment of: Dividends from net investment income 5,985 98,181 ---------------- ----------------- 12,370 203,080 Shares repurchased (122,073) (2,004,356) ---------------- ----------------- Net increase (decrease) (109,703) $ (1,801,276) ---------------- ----------------- Increase (decrease) from capital share transactions (461,800) $ (7,548,538) ================ =================
Year Ended Year Ended September 30, 2005 September 30, 2004 ----------------------------------- ----------------------------------- Municipal Income Fund Shares Amount Shares Amount ----------------------------------- ---------------- ----------------- ---------------- ----------------- Class A: Shares sold 417,124 $ 3,133,149 562,771 $ 4,169,045 Shares issued in connection with the reinvestment of: Dividends from net investment income 359,731 2,701,656 431,284 3,197,822 ---------------- ----------------- ---------------- ----------------- 776,855 5,834,805 994,055 7,366,867 Shares repurchased (2,060,532) (15,468,783) (3,170,451) (23,420,778) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (1,283,677) $ (9,633,978) (2,176,396) $ (16,053,911) ---------------- ----------------- ---------------- ----------------- Class B: Shares sold 91,090 $ 683,767 128,884 $ 956,534 Shares issued in connection with the reinvestment of: Dividends from net investment income 20,236 152,169 27,197 201,837 ---------------- ----------------- ---------------- ----------------- 111,326 835,936 156,081 1,158,371 Shares repurchased (309,437) (2,326,615) (409,784) (3,040,646) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) (198,111) $ (1,490,679) (253,703) $ (1,882,275) ---------------- ----------------- ---------------- ----------------- Increase (decrease) from capital share transactions (1,481,788) $ (11,124,657) (2,430,099) $ (17,936,186) ================ ================= ================ =================
68 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2005 10. Capital Shares (continued). Year Ended Year Ended September 30, 2005 September 30, 2004 ----------------------------------- ----------------------------------- Strategic Income Fund Shares Amount Shares Amount ----------------------------------- ---------------- ----------------- ---------------- ----------------- Class A: Shares sold 50,308,376 $ 706,576,467 18,605,688 $ 246,707,247 Shares issued in connection with the reinvestment of: Dividends from net investment income 1,468,469 20,639,715 769,347 10,148,557 ---------------- ----------------- ---------------- ----------------- 51,776,845 727,216,182 19,375,035 256,855,804 Shares repurchased (8,154,982) (114,434,654) (5,231,023) (68,866,251) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 43,621,863 $ 612,781,528 14,144,012 $ 187,989,553 ---------------- ----------------- ---------------- ----------------- Class B: Shares sold 3,250,360 $ 45,753,417 2,393,606 $ 31,720,078 Shares issued in connection with the reinvestment of: Dividends from net investment income 252,300 3,556,640 330,396 4,369,393 ---------------- ----------------- ---------------- ----------------- 3,502,660 49,310,057 2,724,002 36,089,471 Shares repurchased (2,831,055) (39,810,800) (2,654,105) (34,998,138) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 671,605 $ 9,499,257 69,897 $ 1,091,333 ---------------- ----------------- ---------------- ----------------- Class C: Shares sold 37,693,843 $ 531,354,799 14,515,841 $ 193,058,623 Shares issued in connection with the reinvestment of: Dividends from net investment income 386,067 5,441,310 242,679 3,207,880 ---------------- ----------------- ---------------- ----------------- 38,079,910 536,796,109 14,758,520 196,266,503 Shares repurchased (3,055,156) (42,960,385) (1,236,758) (16,245,858) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 35,024,754 $ 493,835,724 13,521,762 $ 180,020,645 ---------------- ----------------- ---------------- ----------------- Class Y: Shares sold 3,058,044 $ 42,955,389 850,431 $ 11,206,980 Shares issued in connection with the reinvestment of: Dividends from net investment income 30,007 421,552 14,335 188,666 ---------------- ----------------- ---------------- ----------------- 3,088,051 43,376,941 864,766 11,395,646 Shares repurchased (332,834) (4,648,580) (240,560) (3,177,333) ---------------- ----------------- ---------------- ----------------- Net increase (decrease) 2,755,217 $ 38,728,361 624,206 $ 8,218,313 ---------------- ----------------- ---------------- ----------------- Increase (decrease) from capital share transactions 82,073,439 $ 1,154,844,870 28,359,877 $ 377,319,844 ================ ================= ================ =================
69 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, and Loomis Sayles Funds II and Shareholders of Loomis Sayles Core Plus Bond Fund, Loomis Sayles Massachusetts Tax Free Income Fund, Loomis Sayles High Income Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis Sayles Municipal Income Fund and Loomis Sayles Strategic Income Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Loomis Sayles Core Plus Bond Fund, a series of IXIS Advisor Funds Trust I, the Loomis Sayles Massachusetts Tax Free Income Fund, a series of IXIS Advisor Funds Trust II, and the Loomis Sayles High Income Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis Sayles Municipal Income Fund and the Loomis Sayles Strategic Income Fund, each a series of Loomis Sayles Funds II (collectively, "the Funds"), at September 30, 2005, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts November 23, 2005 70 ADDITIONAL INFORMATION Shareholder Meetings (Unaudited) At a special shareholders' meeting held on June 2, 2005, shareholders of IXIS Advisor Funds Trust I, of which the Loomis Sayles Core Plus Bond Fund is a series, voted for the following proposals: 1. Election of Trustees for IXIS Advisor Funds Trust I ("Trust I")
Votes Votes For Withheld Total Votes - --------- -------- ----------- Graham T. Allison, Jr. 131,745,061.272 3,213,785.211 134,958,846.483 Edward A. Benjamin 131,812,753.170 3,146,093.313 134,958,846.483 Daniel M. Cain 131,896,620.650 3,062,225.833 134,958,846.483 Paul G. Chenault 131,736,188.725 3,222,657.758 134,958,846.483 Kenneth J. Cowan 131,624,646.555 3,334,199.928 134,958,846.483 Richard Darman 131,920,983.533 3,037,862.950 134,958,846.483 Sandra O. Moose 131,873,816.605 3,085,029.878 134,958,846.483 John A. Shane 131,718,823.070 3,240,023.413 134,958,846.483 Charles D. Baker 131,824,162.901 3,134,683.582 134,958,846.483 Cynthia L. Walker 131,866,957.031 3,091,889.452 134,958,846.483 Robert J. Blanding 131,879,975.460 3,078,871.023 134,958,846.483 John T. Hailer 131,817,344.611 3,141,501.872 134,958,846.483
2. Approval of an Amended and Restated Agreement and Declaration of Trust for Trust I
Voted Abstained Broker Voted For Against Votes Non-Votes Total Votes --------- ------- ----- --------- ----------- 96,227,281.438 3,171,004.690 3,467,338.355 32,093,222.000 134,958,846.483
At a special shareholders' meeting held on June 2, 2005, shareholders of IXIS Advisor Funds Trust II, of which the Loomis Sayles Massachusetts Tax Free Income Fund is a series, voted for the following proposals: 1. Election of Trustees for IXIS Advisor Funds Trust II ("Trust II")
Votes Votes For Withheld Total Votes - --------- -------- ----------- Graham T. Allison, Jr. 22,764,239.374 514,958.204 23,279,197.578 Edward A. Benjamin 22,770,172.406 509,025.172 23,279,197.578 Daniel M. Cain 22,772,091.712 507,105.866 23,279,197.578 Paul G. Chenault 22,749,975.557 529,222.021 23,279,197.578 Kenneth J. Cowan 22,758,192.528 521,005.050 23,279,197.578 Richard Darman 22,761,355.077 517,842.501 23,279,197.578 Sandra O. Moose 22,783,421.156 495,776.422 23,279,197.578 John A. Shane 22,758,852.839 520,344.739 23,279,197.578 Charles D. Baker 22,746,708.764 532,488.814 23,279,197.578 Cynthia L. Walker 22,774,049.885 505,147.693 23,279,197.578 Robert J. Blanding 22,771,113.391 508,084.187 23,279,197.578 John T. Hailer 22,773,708.397 505,489.181 23,279,197.578
2. Approval of an Amended and Restated Agreement and Declaration of Trust for Trust II
Voted Abstained Broker Voted For Against Votes Non-Votes Total Votes --------- ------- ----- --------- ----------- 16,078,256.237 402,230.847 539,405.494 6,259,305.000 23,279,197.578
71 ADDITIONAL INFORMATION At a special shareholders' meeting held on June 2, 2005, shareholders of Loomis Sayles Funds II, of which the Loomis Sayles High Income Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis Sayles Municipal Income Fund and Loomis Sayles Strategic Income Fund are series, voted for the following proposals: 1. Election of Trustees for Loomis Sayles Funds II ("Loomis Trust II")
Votes Votes For Withheld Total - --------- -------- ----- Graham T. Allison, Jr. 132,584,909.794 22,128,560.082 154,713,469.876 Edward A. Benjamin 132,612,377.523 22,101,092.353 154,713,469.876 Daniel M. Cain 132,610,853.597 22,102,616.279 154,713,469.876 Paul G. Chenault 132,528,522.129 22,184,947.747 154,713,469.876 Kenneth J. Cowan 132,560,768.058 22,152,701.818 154,713,469.876 Richard Darman 132,450,040.167 22,263,429.709 154,713,469.876 Sandra O. Moose 132,566,101.551 22,147,368.325 154,713,469.876 John A. Shane 132,564,423.970 22,149,045.906 154,713,469.876 Charles D. Baker 132,593,048.677 22,120,421.199 154,713,469.876 Cynthia L. Walker 132,584,766.724 22,128,703.152 154,713,469.876 Robert J. Blanding 132,514,900.631 22,198,569.245 154,713,469.876 John T. Hailer 132,593,553.721 22,119,916.155 154,713,469.876
2. Approval of an Amended and Restated Agreement and Declaration of Trust for Loomis Trust II
Voted Abstained Broker Voted For Against Votes Non-Votes Total Votes --------- ------- ----- --------- ----------- 103,245,838.162 2,321,818.870 22,868,247.134 32,828,038.000 161,263,942.166
With respect to this proposal, the meeting was adjourned initially to June 22, 2005 and again to July 21, 2005 due to insufficient votes to pass the proposal. 72 TRUSTEE AND OFFICER INFORMATION 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 (the "Trusts"). Unless otherwise indicated, the address of all persons below is 399 Boylston Street, Boston, MA 02116. The Statements of Additional Information include additional information about the Trustees of the Trusts and are available by calling Loomis Sayles at 800-343-2029.
Position(s) Held with the Number of Portfolios in Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- INDEPENDENT TRUSTEES Graham T. Allison, Jr. Trustee, since 1984 for Douglas Dillon Professor and 38; (3/23/40) IXIS Advisor Funds Trust I; Director of the Belfer Center Director, Taubman Centers, since 1993 for IXIS Advisor of Science and International Inc. (real estate investment Funds Trust II; since 2003 Affairs, John F. Kennedy trust); Advisory Board for Loomis Sayles Funds II; School of Government, Member, USEC Inc. (energy Contract Review and Harvard University supplier) Governance Committee Member Charles D. Baker Trustee, since 2005; President and Chief Executive 38; (11/13/56) Contract Review and Officer, Harvard Pilgrim None Governance Committee Health Care (health plan) Member Edward A. Benjamin Trustee, since 2003 for Retired 38; (5/30/38) IXIS Advisor Funds Trust I Director, Coal, Energy and II; since 2002 for Investments & Management, Loomis Sayles Funds II; LLC; Director, Precision Contract Review and Optics Corporation (optics Governance Committee manufacturer) Member Daniel M. Cain Trustee, since 1996 for President and Chief Executive 38; (2/24/45) IXIS Advisor Funds Trust I Officer, Cain Brothers & Trustee, Universal Health and II; since 2003 for Company, Incorporated Realty Income Trust; Loomis Sayles Funds II; (investment banking) Director, Sheridan Co-Chairman of the Board, Healthcorp (physician since 2004; Chairman of practice management) the Audit Committee Paul G. Chenault Trustee, since 2003 for Retired; Trustee, First Variable 38; (9/12/33) IXIS Advisor Funds Trust I Life (variable life insurance) Director, Mailco Office and II; since 2000 for Products, Inc. (mailing Loomis Sayles Funds II; equipment) Contract Review and Governance Committee Member
73 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- INDEPENDENT TRUSTEES continued Kenneth J. Cowan Trustee, since 1993 for Retired 38; (4/5/32) IXIS Advisor Funds Trust I; None since 1975 for IXIS Advisor Funds Trust II; since 2003 for Loomis Sayles Funds II; Co-Chairman of the Board, since 2004; Chairman of the Contract Review and Governance Committee Richard Darman Trustee, since 1996 for Partner, The Carlyle Group 38; (5/10/43) IXIS Advisor Funds Trust I (investments); formerly, Director and Chairman of the and II; since 2003 for Professor, John F. Kennedy Board of Directors, AES Loomis Sayles Funds II; School of Government, Corporation (independent Contract Review and Harvard University power company); Chairman- Governance Committee Designate of the Smithsonian Member National Museum of American History; Trustee, Howard Hughes Medical Institute Sandra O. Moose Trustee, since 1982 for President, Strategic Advisory 38; (2/17/42) IXIS Advisor Funds Trust I; Services (management Director, Verizon since 1993 for IXIS Advisor consulting); formerly, Senior Communications; Director, Funds Trust II and III; since Vice President and Director, Rohm and Haas Company 2003 for Loomis Sayles The Boston Consulting Group, (specialty chemicals); Funds II; Audit Committee Inc. (management consulting) Director, AES Corporation Member John A. Shane Trustee, since 1993 for President, Palmer Service 38; (2/22/33) IXIS Advisor Funds Trust I; Corporation (venture capital Director, Gensym since 1982 for IXIS Advisor organization) Corporation (software and Funds Trust II and III; technology services provider); since 2003 for Loomis Director, Abt Associates Inc. Sayles Funds II; Contract (research and consulting Review and Governance firm) Committee Member Cynthia L. Walker Trustee, since 2005; Audit Dean for Finance and CFO 38; (7/25/56) Committee Member (formerly, Associate Dean for None Finance & CFO), Harvard Medical School
74 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- INTERESTED TRUSTEES Robert J. Blanding/1/ Trustee, since 2002; President, Chairman, Director 38; (4/14/47) Chief Executive Officer of and Chief Executive Officer, None 555 California Street Loomis Sayles Funds II, Loomis, Sayles & Company, San Francisco, CA 94104 since 2003 L.P. John T. Hailer/2/ Trustee, since 2000; President and Chief Executive 38; (11/23/60) President and Chief Officer, IXIS Asset None Executive Officer of IXIS Management Distributors, Advisor Funds I and II, L.P.; President and Chief since 2000; President of Executive Officer, IXIS Loomis Sayles Funds II, Advisor Funds since 2003 OFFICERS Coleen Downs Dinneen Secretary, Clerk and Chief Senior Vice President, General Not Applicable (12/16/60) Legal Officer, since 2004 Counsel, Secretary and Clerk (formerly, Deputy General Counsel, Assistant Secretary and Assistant Clerk) IXIS Asset Management Distribution Corporation, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P. Michael C. Kardok Treasurer, Principal Senior Vice President, IXIS Not Applicable (7/17/59) Financial and Accounting Asset Management Advisors, Officer, since 2004 L.P. and IXIS Asset Management Distributors, L.P.; formerly, Senior Director, PFPC Inc. Max J. Mahoney Anti-Money Laundering Senior Vice President, Deputy Not Applicable (5/1/62) Officer and Assistant General Counsel, Assistant Secretary, since 2005 Secretary and Assistant Clerk, IXIS Asset Management Distribution Corporation, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P.; Chief Compliance Officer, IXIS Asset Management Advisors, L.P.; formerly, Senior Counsel, MetLife, Inc.; formerly, Associate Counsel, LPL Financial Services, Inc.
75 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trust, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- OFFICERS continued John E. Pelletier Chief Operating Officer, Executive Vice President and Not Applicable (6/24/64) since 2004 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; formerly, Director IXIS Asset Management Services Company Daniel J. Fuss Executive Vice President of Vice Chairman and Director, Not Applicable (9/27/33) Loomis Sayles Funds II, Loomis, Sayles & Company, One Financial Center since 2003 L.P.; Prior to 2002, President Boston, MA 02111 and Trustee of Loomis Sayles Funds II Kristin Vigneaux Chief Compliance Officer, Chief Compliance Officer for Not Applicable (9/25/69) since 2004 Mutual Funds, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P.; formerly, Vice President, IXIS Asset Management Services Company
* The year provided is the earliest year during which a Trustee was elected or appointed to the Trusts. All Trustees serve until retirement, resignation or removal from the Board. The current retirement age is 72, but was suspended for the calendar year 2006. At a meeting held on August 26, 2005, the Trustees voted to lift the suspension of the retirement policy but to designate 2006 as a transition period so that any Trustees who are currently 72 or older or who reach age 72 during the remainder of 2005 or in 2006 will not be required to retire until the end of calendar year 2006. ** Each person listed above, except as noted, holds the same position(s) with the IXIS Advisor and Loomis Sayles 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"), IXIS Asset Management Services Company ("IXIS Services") or Loomis, Sayles & Company, L.P. ("Loomis Sayles") are omitted if not materially different from a Trustee's or officer's current position with such entity. *** The Trustees of the Trusts 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. /1/ Mr. Blanding is deemed an "interested person" of the Trust because he holds the following positions with affiliated persons of the Trust: President, Chairman, Director and Chief Executive Officer of Loomis, Sayles & Company, L.P. /2/ Mr. Hailer is deemed an "interested person" of the Trust because he holds the following positions with affiliated persons of the Trust: Director and Executive Vice President of IXIS Asset Management Distribution Corporation, President and Chief Executive Officer of IXIS Asset Management Advisors, L.P. 76 Item 2. Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer and persons performing similar functions. Item 3. Audit Committee Financial Expert. The Board of Trustees of the Registrant has established an audit committee. As of the date hereof, Ms. Cynthia L. Walker, and Mr. Daniel M. Cain, both members of the audit committee, have been designated as `audit committee financial experts" by the Board of Trustees. Each of these individuals is also an Independent Trustee of the Registrant. Item 4. Principal Accountant Fees and Services. Fees paid to Principal Accountant by the Fund. The table below sets forth fees billed by the principal accountant, PricewaterhouseCoopers LLP, for the past two fiscal years for professional services rendered in connection with a) the audit of the Registrant's annual financial statements and services provided in connection with regulatory filings; b) audit-related services (including services that are reasonably related to the performance of the audit of the Registrant's financial statements and but not reported under "Audit Fees"); c) tax compliance, tax advice and tax planning and d) all other fees billed for professional services rendered by the principal accountant to the Registrant, other than the services provided reported as a part of (a) through (c) of this Item.
Audit fees Audit-related fees Tax fees/1/ All other fees ------------------ ------------------ ----------------- ---------------- 2004 2005 2004 2005 2004 2005 2004 2005 -------- -------- ------ ------ ------- ------- ------ ------ Loomis Sayles Massachusetts Tax Free Income Fund $ 21,900 $ 22,350 -- -- $ 5,467 $ 8,304 -- --
1. The tax fees consist of a review of the Registrant's tax returns (2004), preparation of fiscal year-end distribution analysis, financial statement disclosures, and tax return (2005), review of year-end shareholder reporting (2005), and review of tax compliance (2005). Aggregate fees billed to the Registrant for non-audit services during 2004 and 2005 were $5,467 and $8,304, respectively. Fees paid to Principal Accountant By Adviser and Control Affiliates. The following table sets forth the non-audit services provided by the Trust's principal accountant to Loomis, Sayles & Company, L.P. and entities controlling, controlled by or under common control with Loomis, Sayles & Company, L.P. that provide ongoing services to the Trust ("Control Affiliates") for the last two fiscal years. Audit-related fees Tax fees All other fees ------------------ ---------------- ------------------- 2004 2005 2004 2005 2004 2005 -------- -------- ------ -------- -------- -------- Control Affiliates $ 73,600 $ 97,600 -- $ 35,725 $ 54,400 $ 47,800 Aggregate fees billed to Control Affiliates for non-audit services during 2004 and 2005 were $128,000 and $181,125, respectively. None of the audit-related, tax and other services provided by the Registrant's principal accountant were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Audit Committee Pre Approval Policies. Annually, the Registrant's Audit Committee reviews the audit, audit-related, tax and other non-audit services together with the projected fees, for services proposed to be rendered to the Trust and/or other entities for which pre-approval is required during the upcoming year. Any subsequent revisions to already pre-approved services or fees (including fee increases) and requests for pre-approval of new services would be presented for consideration quarterly as needed. If, in the opinion of management, a proposed engagement by the Registrant's independent accountants needs to commence before the next regularly scheduled Audit Committee meeting, any member of the Audit Committee who is an independent Board member is authorized to pre-approve the engagement, but only for engagements to provide audit, audit related and tax services. This approval is subject to review of the full Audit Committee at its next quarterly meeting. All other engagements require the approval of all the members of the audit committee. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Included as part of the Report to Shareholders filed as Item 1 herewith. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Securities Holders. There were no material changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees. Item 11. Controls and Procedures. The Registrant's principal executive officer and principal financial officer have concluded that the Registrant's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no changes in the Registrant's internal control over financial reporting that occurred during the Registrant's last fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 12. Exhibits. (a) (1) Code of Ethics required by Item 2 hereof, filed herewith as exhibit (a)(1) (b) (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 30a-2 under the Investment Company Act of 1940 (17 CFR 270.30a-2), as herewith as exhibits (a)(2)(1)and (a)(2)(2), respectively. (a) (3) Not applicable. (a) Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 are filed herewith as exhibit (b). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IXIS Advisor Funds Trust II By: /s/ John T. Hailer Name: John T. Hailer Title: President and Chief Executive Officer Date: November 28, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ John T. Hailer Name: John T. Hailer Title: President and Chief Executive Officer Date: November 28, 2005 By: /s/ Michael C. Kardok Name: Michael C. Kardok Title: Treasurer Date: November 28, 2005