-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrgPsCRliep3K0+7j0H7WgIIMf6k0xDiEAIJbUbVlevUm7R5Aa2nv6wDqzw2foa3 6cj5kYhfc7SIbP0QSuvGkg== 0001193125-06-248478.txt : 20061207 0001193125-06-248478.hdr.sgml : 20061207 20061207144508 ACCESSION NUMBER: 0001193125-06-248478 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061207 DATE AS OF CHANGE: 20061207 EFFECTIVENESS DATE: 20061207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXIS Advisor Funds Trust II CENTRAL INDEX KEY: 0000052136 IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 061262302 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 800-399-7788 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: CDC NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20010503 FORMER COMPANY: FORMER CONFORMED NAME: NVEST FUNDS TRUST II DATE OF NAME CHANGE: 20000202 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS TRUST II DATE OF NAME CHANGE: 19940615 0000052136 S000008034 Loomis Sayles Massachusetts Tax Free Income Fund C000021806 Class A NEFMX C000021807 Class B NEMBX N-CSR 1 dncsr.txt IXIS ADVIOSR 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: 811-00242 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, 2006 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] IXIS ADVISOR FUNDS Income Funds Annual Report September 30, 2006 [LOGO] LOOMIS SAYLES & COMPANY, L.P. 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 Portfolio of InvestmentsPage 20 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Rising energy prices and rapid economic growth during much of the fiscal year ended September 30, 2006, prompted the Federal Reserve Board to raise interest rates in an effort to subdue inflation pressures. However, by late summer, falling energy prices and slower economic growth caused the Fed to pause in its tightening cycle. In this environment, interest rates declined and bond prices rebounded. Performance was strong across all fixed-income sectors. For its 2006 fiscal year, Loomis Sayles Core Plus Bond Fund's Class A shares returned 4.03% at net asset value, including $0.61 per share in reinvested dividends. The fund's benchmark, the Lehman Aggregate Bond Index, returned 3.67% for the same period, while the average return on Morningstar's Intermediate-Term Bond category was 3.21%. The fund's 30-day SEC yield was 4.93% as of September 30, 2006. U.S. CORPORATE BONDS DROVE PERFORMANCE The fund was well diversified during the period, with positions in high-yield and investment-grade corporate bonds, mortgage- and asset-backed securities, government and agency bonds, and securities issued in developed and emerging markets overseas. Investments in high-yielding U.S. corporate bonds had the biggest positive impact on performance, with a major automaker and a global finance company among the fund's best performers. The auto company bonds delivered a combination of high yield and price appreciation as investors reacted favorably to news of a restructuring. A consortium of investors is expected to purchase a major share of the financing company, leading to speculation that its bond rating may rise. Among investment-grade bonds, attractive yields from industrials stimulated demand, lifting prices. Early in the fiscal year we maintained the portfolio in a "barbell" structure, with emphasis on both long- and short-maturity bonds. While this configuration aided results early in the period, we subsequently shifted emphasis, adding more intermediate-term bonds, which we felt offered better value. Although the fund's duration - its price sensitivity to interest-rate changes - remained modestly longer than the benchmark, we gradually shortened it during fiscal 2006 to reflect the decline in bond yields and the presence of portfolio holdings that were not denominated in U.S. dollars. MORTGAGE-BACKED AND JAPANESE SECURITIES DETRACTED The fund's position in mortgage-backed securities was a slight drag on performance, especially early in the period when refinancing remained a concern. However, the fund had a smaller allocation to mortgage securities than the benchmark. The fund's position in bonds denominated in the Japanese yen also detracted from performance. The yen declined against the dollar during the period, but we continue to hold these bonds in anticipation of a recovery. SECTOR DIVERSIFICATION SHOULD CONTRIBUTE TO STRONG RETURNS We believe the inversion of the yield curve late in the fiscal period reflected undue investor pessimism. Now that its goal - a "soft landing" for the economy, with moderate growth and subdued inflation - seems to be in sight, we think the Fed may be nearing the end of its rate-raising cycle. We believe interest rates will remain near current levels through the calendar year and into 2007. Demand for investment-grade bonds remains robust, as corporations continue to generate solid earnings, and we believe careful security selection in the sector could produce favorable returns over Treasuries. As long as the economy remains healthy, we think investors may continue to find higher-risk assets attractive, and the fund's emphasis on high-yield bonds with stable to improving credit trends could prove beneficial. We anticipate modest performance from global sectors, and positions in non-U.S.-dollar-denominated bonds, including Asian and emerging market debt, could provide favorable returns. Because we believe the U.S. dollar may weaken, foreign currency exposure should be increasingly important for the fund. In our opinion, the best returns should come from maintaining the portfolio diversified across all market sectors. 1 LOOMIS SAYLES CORE PLUS BOND FUND Investment Results through September 30, 2006 - -------------------------------------------------------------------------------- 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/ September 30, 1996 through September 30, 2006 [CHART] Net Asset Maximum Sales Lehman Aggregate Lehman U.S. Value/1/ Charge/2/ Bond Index/3/ Credit Index /4/ ---------- ------------- ---------------- ---------------- 9/30/1996 $10,000 $ 9,550 $10,000 $10,000 10/31/1996 10,254 9,793 10,222 10,273 11/30/1996 10,501 10,029 10,397 10,493 12/31/1996 10,379 9,912 10,300 10,348 1/31/1997 10,437 9,968 10,331 10,362 2/28/1997 10,503 10,031 10,357 10,406 3/31/1997 10,347 9,881 10,242 10,244 4/30/1997 10,461 9,990 10,396 10,399 5/31/1997 10,602 10,125 10,494 10,517 6/30/1997 10,788 10,303 10,619 10,665 7/31/1997 11,222 10,717 10,905 11,056 8/31/1997 11,031 10,535 10,812 10,893 9/30/1997 11,251 10,744 10,971 11,083 10/31/1997 11,358 10,847 11,131 11,224 11/30/1997 11,410 10,896 11,182 11,287 12/31/1997 11,527 11,009 11,294 11,407 1/31/1998 11,681 11,155 11,439 11,542 2/28/1998 11,718 11,191 11,431 11,538 3/31/1998 11,791 11,260 11,470 11,581 4/30/1998 11,845 11,312 11,530 11,654 5/31/1998 11,966 11,427 11,639 11,792 6/30/1998 12,010 11,470 11,738 11,879 7/31/1998 11,979 11,440 11,763 11,868 8/31/1998 11,860 11,327 11,954 11,924 9/30/1998 12,318 11,764 12,234 12,310 10/31/1998 12,189 11,640 12,170 12,120 11/30/1998 12,431 11,872 12,239 12,349 12/31/1998 12,451 11,891 12,275 12,384 1/31/1999 12,586 12,019 12,363 12,507 2/28/1999 12,331 11,776 12,147 12,210 3/31/1999 12,502 11,939 12,215 12,296 4/30/1999 12,600 12,033 12,253 12,332 5/31/1999 12,327 11,772 12,146 12,168 6/30/1999 12,248 11,697 12,107 12,104 7/31/1999 12,200 11,651 12,056 12,037 8/31/1999 12,151 11,605 12,050 12,008 9/30/1999 12,357 11,801 12,189 12,138 10/31/1999 12,385 11,828 12,234 12,194 11/30/1999 12,404 11,846 12,234 12,207 12/31/1999 12,410 11,852 12,175 12,142 1/31/2000 12,358 11,802 12,135 12,100 2/29/2000 12,498 11,935 12,281 12,212 3/31/2000 12,669 12,099 12,443 12,316 4/30/2000 12,436 11,876 12,408 12,208 5/31/2000 12,344 11,788 12,402 12,162 6/30/2000 12,718 12,145 12,660 12,468 7/31/2000 12,793 12,217 12,775 12,619 8/31/2000 12,958 12,375 12,960 12,783 9/30/2000 12,977 12,393 13,041 12,850 10/31/2000 12,903 12,323 13,128 12,863 11/30/2000 13,026 12,440 13,342 13,029 12/31/2000 13,328 12,728 13,590 13,282 1/31/2001 13,658 13,044 13,812 13,646 2/28/2001 13,794 13,173 13,933 13,765 3/31/2001 13,810 13,189 14,002 13,850 4/30/2001 13,732 13,114 13,944 13,800 5/31/2001 13,819 13,198 14,028 13,927 6/30/2001 13,824 13,201 14,081 13,997 7/31/2001 14,173 13,535 14,396 14,363 8/31/2001 14,331 13,686 14,561 14,555 9/30/2001 14,270 13,628 14,731 14,534 10/31/2001 14,552 13,897 15,039 14,895 11/30/2001 14,456 13,805 14,832 14,765 12/31/2001 14,294 13,650 14,738 14,664 1/31/2002 14,261 13,619 14,857 14,788 2/28/2002 14,205 13,566 15,001 14,899 3/31/2002 14,050 13,418 14,751 14,624 4/30/2002 14,182 13,544 15,037 14,828 5/31/2002 14,301 13,658 15,165 15,024 6/30/2002 13,957 13,329 15,296 15,049 7/31/2002 13,795 13,174 15,481 15,041 8/31/2002 14,109 13,475 15,742 15,431 9/30/2002 14,156 13,519 15,997 15,724 10/31/2002 14,077 13,443 15,924 15,542 11/30/2002 14,344 13,699 15,920 15,743 12/31/2002 14,700 14,038 16,249 16,207 1/31/2003 14,782 14,117 16,263 16,260 2/28/2003 14,995 14,320 16,488 16,585 3/31/2003 15,039 14,362 16,475 16,597 4/30/2003 15,264 14,577 16,611 16,904 5/31/2003 15,568 14,867 16,921 17,437 6/30/2003 15,593 14,891 16,887 17,394 7/31/2003 15,058 14,380 16,319 16,652 8/31/2003 15,203 14,518 16,428 16,783 9/30/2003 15,640 14,937 16,863 17,369 10/31/2003 15,601 14,899 16,705 17,184 11/30/2003 15,696 14,990 16,745 17,263 12/31/2003 15,951 15,233 16,916 17,455 1/31/2004 16,088 15,364 17,052 17,632 2/29/2004 16,212 15,482 17,236 17,854 3/31/2004 16,333 15,598 17,365 18,026 4/30/2004 15,917 15,201 16,914 17,458 5/31/2004 15,777 15,067 16,846 17,336 6/30/2004 15,873 15,159 16,941 17,409 7/31/2004 16,052 15,330 17,109 17,623 8/31/2004 16,373 15,637 17,435 18,039 9/30/2004 16,467 15,726 17,483 18,141 10/31/2004 16,646 15,897 17,629 18,316 11/30/2004 16,613 15,865 17,489 18,133 12/31/2004 16,764 16,010 17,650 18,370 1/31/2005 16,804 16,048 17,760 18,515 2/28/2005 16,788 16,032 17,656 18,406 3/31/2005 16,569 15,824 17,565 18,177 4/30/2005 16,639 15,890 17,803 18,421 5/31/2005 16,794 16,038 17,995 18,678 6/30/2005 16,905 16,144 18,093 18,827 7/31/2005 16,857 16,099 17,929 18,638 8/31/2005 17,029 16,263 18,159 18,921 9/30/2005 16,866 16,107 17,971 18,638 10/31/2005 16,748 15,994 17,829 18,434 11/30/2005 16,810 16,053 17,908 18,546 12/31/2005 16,947 16,185 18,078 18,729 1/31/2006 17,003 16,238 18,079 18,691 2/28/2006 17,065 16,297 18,139 18,774 3/31/2006 16,938 16,176 17,961 18,510 4/30/2006 16,950 16,187 17,929 18,442 5/31/2006 16,901 16,140 17,910 18,410 6/30/2006 16,915 16,153 17,948 18,438 7/31/2006 17,145 16,373 18,190 18,710 8/31/2006 17,378 16,596 18,469 19,056 9/30/2006 17,546 16,757 18,631 19,269 Average Annual Total Returns -- September 30, 2006
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 11/7/73) Net Asset Value/1/ 4.03%/7/ 4.22%/7/ 5.78%/7/ With Maximum Sales Charge/2/ -0.67/7/ 3.27/7/ 5.29/7/ CLASS B (Inception 9/13/93) Net Asset Value/1/ 3.26/7/ 3.46/7/ 5.00/7/ With CDSC/5/ -1.67/7/ 3.12/7/ 5.00/7/ CLASS C (Inception 12/30/94) Net Asset Value/1/ 3.26/7/ 3.46/7/ 5.00/7/ With CDSC/5/ 2.27/7/ 3.46/7/ 5.00/7/ CLASS Y (Inception 12/30/94) Net Asset Value/1/ 4.28 4.62/7/ 6.12/7/ - ---------------------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Aggregate Bond Index/3/ 3.67% 4.81% 6.42% Lehman U.S. Credit Index/4/ 3.39 5.80 6.78 Morningstar Int.-Term Bond Fund Avg./6/ 3.21 4.37 5.67
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 9/30/06 9/30/05 - ---------------------------------------- Aaa 56.4 51.4 - ---------------------------------------- Aa 1.5 0.3 - ---------------------------------------- A 1.2 3.3 - ---------------------------------------- Baa 16.6 22.5 - ---------------------------------------- Ba 13.1 15.8 - ---------------------------------------- B 5.0 2.7 - ---------------------------------------- Not rated* 4.7 2.2 - ---------------------------------------- Short-term & other 1.5 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 9/30/06 9/30/05 - -------------------------------------------------- 1 year or less 6.8 6.0 - -------------------------------------------------- 1-5 years 39.4 46.1 - -------------------------------------------------- 5-10 years 38.5 31.8 - -------------------------------------------------- 10+ years 15.3 16.1 - -------------------------------------------------- Average Effective Maturity 7.6 years 6.8 years - --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes 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 of 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 shares performance assumes a 1% CDSC applied when you sell shares within one year of purchase. /6/Morningstar Intermediate-Term 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/reimbursements, 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: Matthew J. Eagan, CFA Kathleen C. Gaffney, CFA 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 - -------------------------------------------------------------------------------- A resilient economy and strong corporate profits were hallmarks of Loomis Sayles High Income Fund's fiscal year, which ended September 30, 2006. A slowing housing market and declining energy prices late in the period contributed to the Federal Reserve Board's decision to pause from its rate-tightening policies in August and September, calming investors' concerns that the Fed might tighten the economy into a recession. The yield curve, (a graphical representation of the difference in yields between short- and long-term interest rates), "flattened" during the year and eventually became inverted, as yields on short-term Treasury securities rose above long-term rates. However, during the fund's closing fiscal quarter, longer-term issues recouped some of the losses they suffered earlier in fiscal 2006 and provided the highest returns for the year as a whole. For the 12 months ended September 30, 2006, the fund's total return was 9.39% based on the net asset value of Class A shares and $0.34 in reinvested dividends. The fund surpassed its benchmark, the Lehman High Yield Composite Index, which returned 8.07% for the period, and came in well above the 6.76% average return on Morningstar's High Yield Bond category. The fund's 30-day SEC yield as of the end of September 2006 was 6.72%. STRATEGY REMAINED MODERATELY AGGRESSIVE After a short-lived flight to quality in May and June, the higher-risk/return segments of the market rebounded as the economy grew and default rates remained low. Although the difference in yield between high- and low-quality bonds fluctuated within a tight range, investors generally seemed to be comfortable focusing on income more than safety. Emerging markets also provided attractive returns, as improving economies helped investors look past country-specific events. Although the fund's duration (its price sensitivity to changes in interest rates) has been somewhat longer than its benchmark during fiscal 2006, we shortened it slightly in the first half, and built up some liquidity from short-term investments while we waited patiently for attractive opportunities in high-yield bonds. We also maintained an average quality rating of Ba2 throughout the fiscal year, another moderately aggressive strategy, although we shifted some assets into higher-quality issues in the course of the year, as spreads continued to narrow. DIVERSIFIED BY ECONOMIC SECTOR, TYPE OF SECURITY, AND CURRENCY Communications and consumer non-cyclicals, including biotech and pharmaceuticals, were the strongest sectors during fiscal 2006. Our selections in the transportation sector also performed well. However, the auto parts and electric utility industries both experienced setbacks during the period, which detracted somewhat from the fund's results. Convertible preferreds, which convey the right to be converted to the issuer's preferred stock, performed well, accounting for 5.4% of the fund's net assets as of September 30, 2006. We also continued to invest in issues denominated in foreign currencies, which are not part of the benchmark. Issues denominated in U.S. dollars accounted for more than 82% of the fund's total investments at the end of September 2006, slightly less than 85% one year ago. We gradually increased the fund's position in certain high-quality, short-duration issues denominated in other currencies, including Brazil, Mexico, Thailand, and Britain, all of which provided positive results. Issues denominated in the currencies of Argentina and Malaysia were detractors during the period. OUTLOOK INCLUDES STABLE ECONOMIC GROWTH AND BENIGN INFLATION In the United States, the slowdown in housing, coupled with falling prices of energy and other commodities, helped reduce inflation pressures and allowed the Fed to take a "wait and see" attitude. If the economy picks up speed in 2007, then we believe Treasury yields are vulnerable to a modest rise. Given today's historically low interest rates, we believe investors will continue to favor the high-yield sector. As always, we will focus our efforts on careful credit research, seeking the potential for improving credit quality in selected names. 3 LOOMIS SAYLES HIGH INCOME FUND Investment Results through September 30, 2006 - -------------------------------------------------------------------------------- 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/ September 30, 1996 through September 30, 2006 [CHART] Net Asset Maximum Sales Lehman High Yield Value/1/ Charge/2/ Composite Index/3/ --------- ------------- ------------------ 9/30/1996 $10,000 $ 9,550 $10,000 10/31/1996 9,978 9,529 10,077 11/30/1996 10,184 9,725 10,278 12/31/1996 10,356 9,890 10,349 1/31/1997 10,364 9,898 10,444 2/28/1997 10,727 10,244 10,618 3/31/1997 10,584 10,108 10,465 4/30/1997 10,643 10,164 10,567 5/31/1997 10,997 10,502 10,802 6/30/1997 11,068 10,570 10,951 7/31/1997 11,370 10,859 11,252 8/31/1997 11,443 10,928 11,227 9/30/1997 11,784 11,254 11,449 10/31/1997 11,682 11,156 11,459 11/30/1997 11,838 11,305 11,569 12/31/1997 11,948 11,410 11,670 1/31/1998 12,127 11,582 11,880 2/28/1998 12,110 11,565 11,950 3/31/1998 12,235 11,685 12,062 4/30/1998 12,301 11,748 12,110 5/31/1998 12,282 11,729 12,152 6/30/1998 12,323 11,769 12,195 7/31/1998 12,305 11,751 12,265 8/31/1998 11,451 10,936 11,588 9/30/1998 11,342 10,832 11,640 10/31/1998 11,104 10,604 11,402 11/30/1998 11,901 11,366 11,875 12/31/1998 11,743 11,214 11,888 1/31/1999 12,007 11,467 12,065 2/28/1999 12,083 11,539 11,993 3/31/1999 12,278 11,726 12,108 4/30/1999 12,542 11,978 12,343 5/31/1999 12,235 11,685 12,175 6/30/1999 12,201 11,652 12,149 7/31/1999 12,152 11,605 12,198 8/31/1999 11,963 11,424 12,064 9/30/1999 11,885 11,350 11,977 10/31/1999 11,992 11,452 11,897 11/30/1999 12,071 11,528 12,036 12/31/1999 12,212 11,663 12,172 1/31/2000 12,077 11,533 12,120 2/29/2000 12,131 11,585 12,143 3/31/2000 11,765 11,235 11,888 4/30/2000 11,757 11,228 11,907 5/31/2000 11,429 10,915 11,785 6/30/2000 11,776 11,246 12,025 7/31/2000 11,845 11,312 12,117 8/31/2000 11,798 11,267 12,200 9/30/2000 11,554 11,034 12,093 10/31/2000 10,977 10,483 11,706 11/30/2000 10,065 9,612 11,242 12/31/2000 10,245 9,784 11,459 1/31/2001 11,435 10,920 12,318 2/28/2001 11,377 10,865 12,482 3/31/2001 10,796 10,310 12,188 4/30/2001 10,465 9,994 12,036 5/31/2001 10,493 10,021 12,253 6/30/2001 9,890 9,445 11,909 7/31/2001 10,085 9,631 12,084 8/31/2001 10,008 9,557 12,227 9/30/2001 9,097 8,688 11,405 10/31/2001 8,997 8,592 11,687 11/30/2001 9,288 8,870 12,114 12/31/2001 9,154 8,742 12,064 1/31/2002 9,210 8,796 12,148 2/28/2002 8,930 8,529 11,979 3/31/2002 9,171 8,758 12,267 4/30/2002 9,096 8,686 12,463 5/31/2002 8,963 8,559 12,394 6/30/2002 8,322 7,947 11,480 7/31/2002 7,761 7,412 10,979 8/31/2002 8,033 7,672 11,292 9/30/2002 7,735 7,387 11,143 10/31/2002 7,731 7,384 11,046 11/30/2002 8,246 7,875 11,730 12/31/2002 8,344 7,968 11,894 1/31/2003 8,521 8,137 12,290 2/28/2003 8,640 8,251 12,442 3/31/2003 8,863 8,464 12,800 4/30/2003 9,375 8,953 13,559 5/31/2003 9,539 9,110 13,699 6/30/2003 9,745 9,307 14,093 7/31/2003 9,551 9,121 13,938 8/31/2003 9,653 9,218 14,099 9/30/2003 9,969 9,521 14,484 10/31/2003 10,181 9,723 14,777 11/30/2003 10,394 9,927 15,001 12/31/2003 10,672 10,192 15,340 1/31/2004 10,837 10,350 15,633 2/29/2004 10,790 10,304 15,594 3/31/2004 10,851 10,363 15,700 4/30/2004 10,603 10,125 15,593 5/31/2004 10,328 9,863 15,329 6/30/2004 10,551 10,076 15,549 7/31/2004 10,636 10,158 15,760 8/31/2004 10,927 10,435 16,069 9/30/2004 11,079 10,580 16,302 10/31/2004 11,324 10,814 16,597 11/30/2004 11,503 10,985 16,797 12/31/2004 11,776 11,246 17,047 1/31/2005 11,815 11,283 17,025 2/28/2005 12,089 11,545 17,276 3/31/2005 11,661 11,137 16,773 4/30/2005 11,423 10,909 16,610 5/31/2005 11,720 11,193 16,905 6/30/2005 11,999 11,459 17,236 7/31/2005 12,188 11,639 17,538 8/31/2005 12,252 11,701 17,571 9/30/2005 12,224 11,674 17,396 10/31/2005 12,073 11,529 17,275 11/30/2005 12,191 11,642 17,365 12/31/2005 12,369 11,812 17,514 1/31/2006 12,737 12,164 17,793 2/28/2006 12,932 12,350 17,912 3/31/2006 12,981 12,397 18,019 4/30/2006 13,057 12,469 18,130 5/31/2006 12,820 12,244 18,128 6/30/2006 12,844 12,266 18,064 7/31/2006 12,967 12,383 18,241 8/31/2006 13,244 12,648 18,537 9/30/2006 13,373 12,771 18,800 Average Annual Total Returns -- September 30, 2006
SINCE 1 YEAR/6/ 5 YEARS/6/ 10 YEARS/6/ INCEPTION/6/ CLASS A (Inception 2/22/84) Net Asset Value/1/ 9.39% 8.01% 2.95% -- With Maximum Sales Charge/2/ 4.56 7.01 2.48 -- CLASS B (Inception 9/20/93) Net Asset Value/1/ 8.79 7.21 2.22 -- With CDSC/4/ 3.79 6.91 2.22 -- CLASS C (Inception 3/2/98) Net Asset Value/1/ 8.58 7.17 -- 0.39 With CDSC/4/ 7.58 7.17 -- 0.39 - -------------------------------------------------------------------------------------- SINCE CLASS C COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/7/ Lehman High Yield Composite Index/3/ 8.07% 10.51% 6.52% 5.36% Morningstar High Yield Bond Fund Avg./5/ 6.76 9.21 5.17 3.65
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 9/30/06 9/30/05 - ---------------------------------------- Aaa 8.0 -- - ---------------------------------------- Aa 2.5 0.9 - ---------------------------------------- A 0.5 -- - ---------------------------------------- Baa 6.8 6.6 - ---------------------------------------- Ba 17.4 29.7 - ---------------------------------------- B 39.4 23.6 - ---------------------------------------- Caa 6.8 16.3 - ---------------------------------------- Ca -- 0.5 - ---------------------------------------- Not rated* 13.7 21.0 - ---------------------------------------- Short-term & other 4.9 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 9/30/06 9/30/05 - -------------------------------------------------- 1 year or less 4.0 1.8 - -------------------------------------------------- 1-5 years 25.9 24.4 - -------------------------------------------------- 5-10 years 23.1 31.2 - -------------------------------------------------- 10+ years 47.0 42.6 - -------------------------------------------------- Average Effective Maturity 12.0 years 12.3 years - --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes 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 of 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 shares performance assumes a 1% 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/reimbursements, without which performance would have been lower. /7/The since-inception comparative performance figures shown for Class C shares are calculated from 4/1/98. 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, CFA 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 - -------------------------------------------------------------------------------- After raising the federal funds rate (the interest rate banks charge one another for overnight loans) at successive meetings in the fiscal year ended September 30, 2006, the Federal Reserve Board left rates unchanged during August and September. This suggests that the Fed is confident that inflationary pressures have subsided, at least for the time being. It has been a volatile period for the bond markets. Long-term interest rates were slower to respond to the Fed's tightening pressure than short-term rates. The yield curve (a graphical representation of difference in yields between long- and short-term interest rates) flattened during the year and eventually became inverted, as yields on short-term Treasury securities rose above long-term rates. Loomis Sayles Limited Term Government and Agency Fund's total return for the fiscal year ended September 30, 2006 was 3.20% based on the net asset value of Class A shares and $0.43 in reinvested dividends. The fund's benchmark, the Lehman 1-5 Year Government Bond Index, returned 3.69%, while the average return on Morningstar's Short Government category was 3.12%. The fund's 30-day SEC yield was 4.47% as of September 30, 2006. HIGHER-YIELDING SECURITIES CONTRIBUTED TO PERFORMANCE Its emphasis on mortgage-backed securities (MBS) helped put the fund in the upper half of its Morningstar category, which is composed of managed mutual funds that invest in short-term U.S. government bonds. The fund's results were slightly behind its Lehman benchmark, an index of government bonds maturing in 1-5 years. For the bond market as a whole, U.S. Treasury securities were among the weaker performers during the fiscal year, largely because these top-quality securities have a lower yield than mortgage-backed securities, which are regarded as riskier. Although there were periods during the year when investors chose safety and liquidity over yield and Treasuries outperformed, for the full period, higher current income provided a performance edge. The fund emphasized mortgage-backed securities throughout the year, and holdings in Treasury securities were reduced. Despite periods of price volatility, the net effect of our strategy was positive for the fund. We used periods when prices dipped to add to the fund's holdings, and we initiated a position in commercial mortgage-backed securities (CMBS) - loan portfolios backed by mortgages on commercial property as opposed to home mortgages. The CMBS in the fund's portfolio are top rated (AAA) and have pre-payment protection, but they also offer the potential for a significantly higher interest rate than Treasury securities. We will continue to look for opportunities in this sector. DURATION STRATEGY REFLECTS OUTLOOK FOR DECLINING INTEREST RATES Because we had gradually increased the portfolio's duration during the fiscal year, the fund was able to benefit from a decline in interest rates as the period drew to a close. However, we are not yet convinced that rates have begun a secular downtrend, so recently we again reduced the fund's duration modestly. The portfolio remains in what we describe as a barbelled maturity structure, with greater concentrations of assets at the shorter and longer ends of the yield curve. This allows the fund to benefit from relative stability on the short end and higher yields on the long end of the curve. Down the line, we believe the yield curve should move out of its current configuration, resuming a pattern that is historically more normal. We do not expect the Fed to significantly increase interest rates in the near future, although we are not ruling out the potential for an additional 0.25% rate hike. Based on this relatively benign interest rate outlook, we are focusing on identifying income opportunities rather than looking for capital appreciation. 5 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND Investment Results through September 30, 2006 - -------------------------------------------------------------------------------- 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/ September 30, 1996 through September 30, 2006 [CHART] Lehman 1-5 Year Net Asset Maximum Sales Government Bond Value/1/ Charge/2/ Index/3/ --------- ------------- ---------------- 9/30/1996 $10,000 $ 9,700 $10,000 10/31/1996 10,161 9,856 10,137 11/30/1996 10,288 9,979 10,232 12/31/1996 10,206 9,900 10,207 1/31/1997 10,249 9,941 10,253 2/28/1997 10,262 9,954 10,272 3/31/1997 10,209 9,902 10,241 4/30/1997 10,298 9,989 10,340 5/31/1997 10,361 10,050 10,415 6/30/1997 10,461 10,147 10,495 7/31/1997 10,633 10,314 10,646 8/31/1997 10,615 10,297 10,634 9/30/1997 10,726 10,404 10,730 10/31/1997 10,846 10,520 10,831 11/30/1997 10,864 10,538 10,852 12/31/1997 10,947 10,618 10,933 1/31/1998 11,105 10,772 11,058 2/28/1998 11,080 10,747 11,056 3/31/1998 11,061 10,729 11,094 4/30/1998 11,104 10,771 11,147 5/31/1998 11,176 10,841 11,214 6/30/1998 11,258 10,920 11,278 7/31/1998 11,273 10,934 11,326 8/31/1998 11,453 11,109 11,500 9/30/1998 11,781 11,427 11,709 10/31/1998 11,666 11,316 11,755 11/30/1998 11,630 11,281 11,729 12/31/1998 11,655 11,305 11,769 1/31/1999 11,717 11,366 11,820 2/28/1999 11,583 11,235 11,720 3/31/1999 11,637 11,288 11,802 4/30/1999 11,671 11,321 11,836 5/31/1999 11,583 11,236 11,797 6/30/1999 11,508 11,163 11,830 7/31/1999 11,453 11,109 11,849 8/31/1999 11,448 11,105 11,878 9/30/1999 11,579 11,231 11,968 10/31/1999 11,601 11,253 11,995 11/30/1999 11,612 11,264 12,011 12/31/1999 11,575 11,228 12,000 1/31/2000 11,525 11,180 11,976 2/29/2000 11,628 11,279 12,066 3/31/2000 11,772 11,419 12,162 4/30/2000 11,734 11,382 12,178 5/31/2000 11,740 11,388 12,218 6/30/2000 11,908 11,551 12,378 7/31/2000 11,968 11,609 12,459 8/31/2000 12,093 11,731 12,572 9/30/2000 12,187 11,821 12,681 10/31/2000 12,230 11,864 12,756 11/30/2000 12,397 12,025 12,903 12/31/2000 12,542 12,166 13,091 1/31/2001 12,701 12,320 13,270 2/28/2001 12,796 12,412 13,370 3/31/2001 12,877 12,491 13,476 4/30/2001 12,851 12,466 13,485 5/31/2001 12,915 12,528 13,552 6/30/2001 12,925 12,537 13,597 7/31/2001 13,165 12,770 13,796 8/31/2001 13,252 12,854 13,899 9/30/2001 13,460 13,056 14,170 10/31/2001 13,662 13,252 14,340 11/30/2001 13,484 13,080 14,246 12/31/2001 13,402 13,000 14,223 1/31/2002 13,473 13,069 14,268 2/28/2002 13,606 13,198 14,361 3/31/2002 13,410 13,008 14,211 4/30/2002 13,656 13,246 14,424 5/31/2002 13,749 13,336 14,505 6/30/2002 13,886 13,470 14,657 7/31/2002 14,085 13,662 14,885 8/31/2002 14,223 13,796 14,991 9/30/2002 14,351 13,920 15,172 10/31/2002 14,382 13,951 15,197 11/30/2002 14,316 13,887 15,113 12/31/2002 14,495 14,060 15,317 1/31/2003 14,488 14,053 15,302 2/28/2003 14,614 14,175 15,413 3/31/2003 14,604 14,166 15,437 4/30/2003 14,629 14,190 15,472 5/31/2003 14,718 14,276 15,608 6/30/2003 14,691 14,251 15,615 7/31/2003 14,386 13,954 15,408 8/31/2003 14,433 14,000 15,416 9/30/2003 14,673 14,233 15,649 10/31/2003 14,570 14,133 15,545 11/30/2003 14,609 14,171 15,538 12/31/2003 14,712 14,270 15,648 1/31/2004 14,775 14,332 15,703 2/29/2004 14,889 14,442 15,820 3/31/2004 14,945 14,497 15,900 4/30/2004 14,676 14,236 15,647 5/31/2004 14,628 14,189 15,614 6/30/2004 14,683 14,243 15,631 7/31/2004 14,766 14,323 15,714 8/31/2004 14,952 14,503 15,884 9/30/2004 14,947 14,499 15,877 10/31/2004 15,025 14,574 15,951 11/30/2004 14,957 14,509 15,836 12/31/2004 15,007 14,556 15,889 1/31/2005 15,028 14,577 15,884 2/28/2005 14,969 14,520 15,821 3/31/2005 14,924 14,476 15,800 4/30/2005 15,055 14,604 15,931 5/31/2005 15,132 14,678 16,019 6/30/2005 15,155 14,700 16,057 7/31/2005 15,087 14,634 15,967 8/31/2005 15,192 14,737 16,104 9/30/2005 15,106 14,653 16,025 10/31/2005 15,039 14,588 15,993 11/30/2005 15,084 14,632 16,052 12/31/2005 15,184 14,728 16,125 1/31/2006 15,190 14,734 16,144 2/28/2006 15,240 14,783 16,149 3/31/2006 15,167 14,712 16,146 4/30/2006 15,175 14,719 16,190 5/31/2006 15,170 14,715 16,203 6/30/2006 15,193 14,737 16,230 7/31/2006 15,343 14,883 16,374 8/31/2006 15,481 15,017 16,518 9/30/2006 15,590 15,122 16,616 Average Annual Total Returns -- September 30, 2006
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 1/3/89) Net Asset Value/1/ 3.20%/6/ 2.98%/6/ 4.54%/6/ With Maximum Sales Charge/2/ 0.13/6/ 2.35/6/ 4.22/6/ CLASS B (Inception 9/27/93) Net Asset Value/1/ 2.36/6/ 2.26/6/ 3.84/6/ With CDSC/4/ -2.60/6/ 1.91/6/ 3.84/6/ CLASS C (Inception 12/30/94) Net Asset Value/1/ 2.46/6/ 2.28/6/ 3.85/6/ With CDSC/4/ 1.47/6/ 2.28/6/ 3.85/6/ CLASS Y (Inception 3/31/94) Net Asset Value/1/ 3.43 3.28 4.90 - ------------------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman 1-5 Yr Gov't Bond Index/3/ 3.69% 3.24% 5.21% Morningstar Short Gov't Fund Avg./5/ 3.12 2.74 4.55
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 9/30/06 9/30/05 - ---------------------------------------------------- Mortgage Related 65.4 55.8 - ---------------------------------------------------- Treasuries 19.4 31.0 - ---------------------------------------------------- Government Sponsored 5.8 7.7 - ---------------------------------------------------- Asset-Backed Securities 4.5 4.3 - ---------------------------------------------------- Hybrid ARMs 2.0 -- - ---------------------------------------------------- Mortgage Backed Securities 1.1 -- - ---------------------------------------------------- Short-Term Investments & Other 1.8 1.2 - ----------------------------------------------------
% of Net Assets as of EFFECTIVE MATURITY 9/30/06 9/30/05 - -------------------------------------------------- 1 year or less 21.3 9.3 - -------------------------------------------------- 1-5 years 59.6 80.9 - -------------------------------------------------- 5-10 years 19.1 5.9 - -------------------------------------------------- 10+ years n/a 3.9 - -------------------------------------------------- Average Effective Maturity 3.5 years 3.5 years - --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 3.00%. /3/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 one and five years. /4/Performance for Class B shares assumes a maximum of 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 shares performance assumes a 1% CDSC applied when you sell shares within one year of purchase. /5/Morningstar Short Government 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/reimbursements, without which performance would have been lower. 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: Robert Payne Martha A. Strom 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. Realized capital gains are fully taxable. Some investors may be subject to the Alternative Minimum Tax (AMT). Lower-rated bonds entail higher risks. Management Discussion - -------------------------------------------------------------------------------- During the fiscal year ended September 30, 2006, the Federal Reserve Board gradually raised the federal funds rate (the rate banks charge one another on overnight loans) by 1.5%, which caused bond prices to decline. Short-term bonds were most affected, but long-term rates eventually followed suit, leaving spreads (the difference between short- and long-term interest rates) near historic lows. For fiscal 2006, the total return on Loomis Sayles Massachusetts Tax Free Income Fund was 4.24%, based on the net asset value of Class A shares and $0.64 per share in reinvested dividends. The fund's results were better than the 3.75% average return on Morningstar's Muni Massachusetts category, but lagged the 4.45% return on the Lehman Municipal Bond Index. The fund's 30-day SEC yield at the end of September was 3.76%, equivalent to a taxable yield of 6.07%, adjusted for the combined maximum federal and Massachusetts income tax rates of 38.45%. MASSACHUSETTS BONDS UNDERPERFORMED NATIONAL MUNI MARKET Both in terms of supply and demand, Massachusetts bonds were lackluster during the fiscal year relative to the national markets. The best performers were longer maturity, structured, insured bonds. Higher-yielding bonds also performed well as investors in pursuit of more income bid up bond prices. Higher education and healthcare-related issues did well because they tend to offer relatively high yields. The weakest performers during the period were general obligation bonds, which are backed by local taxpayer receipts and issued for states, counties, school districts, cities and towns. These bonds are regarded as higher in quality than bonds backed by revenues from service fees so their yield is lower. Demand for higher-quality, intermediate maturity, structured issues was generally tepid. Municipal bonds issued in Puerto Rico are popular additions to many single-state bond funds because they add diversification and the interest they pay is not taxable at either the state or federal levels. Puerto Rico bonds accounted for a portion of the fund's assets throughout the period, but this spring budget woes experienced by this island protectorate brought down the value of these bonds. The timing of our purchase of some Puerto Rico Infrastructure Financing Authority revenue bonds also proved unfortunate, as it preceded a downturn in the market. We believe the seeds for recovery in the Puerto Rican economy may already have been sown, and these holdings continue in the portfolio. Individual holdings that contributed most to performance during the period included higher-coupon, Massachusetts general obligation bonds. Our strategy for the year has been to keep the fund's maturity longer than the benchmark, seeking higher yields. We also focused on revenue bonds (as opposed to tax-backed issues) again in pursuit of higher yields. Although the portfolio's duration - its sensitivity to changes in interest rates - is slightly shorter now than it has been, this reflects market movements rather than a change in our strategy. OUTLOOK IS FOR RELATIVELY MINOR CHANGES IN MUNICIPAL BOND RATES Currently we expect yields to fluctuate close to their current range, and we are not looking for major changes in the yield curve. We will continue to add to the fund's yield as opportunities present themselves. Overall credit quality in the municipal markets appears to be steady or improving slightly with the economy as a whole. Long term, we believe the municipal yield curve should remain flat - with relatively little difference between long- and short-term rates - although the curve in the municipal market is significantly steeper than in the Treasury market. As long as the Fed continues to exercise restraint in its tightening efforts, we believe the municipal market should hold its own or slightly underperform the taxable markets. 7 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND Investment Results through September 30, 2006 - -------------------------------------------------------------------------------- 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/ September 30, 1996 through September 30, 2006 [CHART] Net Asset Maximum Sales Lehman Municipal Value/1/ Charge/2/ Bond Index/3/ --------- ------------- ---------------- 9/30/1996 $10,000 $ 9,575 $10,000 10/31/1996 10,105 9,676 10,113 11/30/1996 10,279 9,842 10,298 12/31/1996 10,211 9,777 10,255 1/31/1997 10,229 9,795 10,274 2/28/1997 10,328 9,889 10,369 3/31/1997 10,211 9,777 10,230 4/30/1997 10,294 9,856 10,316 5/31/1997 10,440 9,996 10,471 6/30/1997 10,548 10,100 10,583 7/31/1997 10,849 10,388 10,876 8/31/1997 10,748 10,291 10,774 9/30/1997 10,891 10,428 10,902 10/31/1997 10,944 10,479 10,972 11/30/1997 11,010 10,542 11,037 12/31/1997 11,162 10,688 11,197 1/31/1998 11,252 10,774 11,313 2/28/1998 11,237 10,759 11,316 3/31/1998 11,205 10,729 11,326 4/30/1998 11,166 10,691 11,275 5/31/1998 11,338 10,856 11,454 6/30/1998 11,378 10,894 11,499 7/31/1998 11,384 10,901 11,528 8/31/1998 11,565 11,074 11,706 9/30/1998 11,694 11,197 11,852 10/31/1998 11,646 11,151 11,851 11/30/1998 11,666 11,170 11,893 12/31/1998 11,710 11,212 11,923 1/31/1999 11,845 11,341 12,065 2/28/1999 11,790 11,289 12,012 3/31/1999 11,776 11,276 12,029 4/30/1999 11,811 11,309 12,059 5/31/1999 11,735 11,236 11,989 6/30/1999 11,543 11,053 11,816 7/31/1999 11,584 11,091 11,859 8/31/1999 11,419 10,934 11,764 9/30/1999 11,385 10,901 11,769 10/31/1999 11,226 10,748 11,642 11/30/1999 11,324 10,843 11,765 12/31/1999 11,226 10,749 11,678 1/31/2000 11,134 10,661 11,627 2/29/2000 11,272 10,793 11,762 3/31/2000 11,483 10,995 12,019 4/30/2000 11,431 10,945 11,948 5/31/2000 11,386 10,902 11,886 6/30/2000 11,615 11,122 12,201 7/31/2000 11,763 11,263 12,371 8/31/2000 11,910 11,404 12,561 9/30/2000 11,862 11,358 12,496 10/31/2000 11,958 11,450 12,632 11/30/2000 12,008 11,498 12,728 12/31/2000 12,264 11,743 13,042 1/31/2001 12,307 11,784 13,172 2/28/2001 12,350 11,825 13,213 3/31/2001 12,346 11,822 13,332 4/30/2001 12,219 11,700 13,187 5/31/2001 12,338 11,813 13,329 6/30/2001 12,425 11,897 13,418 7/31/2001 12,614 12,078 13,617 8/31/2001 12,851 12,305 13,841 9/30/2001 12,779 12,236 13,795 10/31/2001 12,898 12,350 13,959 11/30/2001 12,803 12,259 13,842 12/31/2001 12,658 12,120 13,711 1/31/2002 12,729 12,188 13,949 2/28/2002 12,873 12,326 14,117 3/31/2002 12,636 12,099 13,840 4/30/2002 12,867 12,320 14,111 5/31/2002 12,968 12,417 14,196 6/30/2002 13,118 12,561 14,346 7/31/2002 13,285 12,720 14,531 8/31/2002 13,447 12,875 14,706 9/30/2002 13,749 13,165 15,028 10/31/2002 13,499 12,925 14,779 11/30/2002 13,414 12,844 14,717 12/31/2002 13,682 13,101 15,028 1/31/2003 13,654 13,073 14,990 2/28/2003 13,868 13,279 15,199 3/31/2003 13,880 13,291 15,208 4/30/2003 13,969 13,376 15,309 5/31/2003 14,327 13,718 15,667 6/30/2003 14,262 13,656 15,601 7/31/2003 13,643 13,064 15,055 8/31/2003 13,732 13,149 15,167 9/30/2003 14,104 13,505 15,613 10/31/2003 14,082 13,483 15,534 11/30/2003 14,238 13,633 15,696 12/31/2003 14,370 13,760 15,826 1/31/2004 14,468 13,853 15,917 2/29/2004 14,681 14,057 16,156 3/31/2004 14,647 14,025 16,100 4/30/2004 14,253 13,647 15,719 5/31/2004 14,190 13,587 15,662 6/30/2004 14,207 13,604 15,719 7/31/2004 14,411 13,798 15,926 8/31/2004 14,693 14,069 16,245 9/30/2004 14,791 14,163 16,331 10/31/2004 14,925 14,290 16,472 11/30/2004 14,772 14,144 16,336 12/31/2004 14,969 14,333 16,535 1/31/2005 15,148 14,505 16,690 2/28/2005 15,086 14,445 16,634 3/31/2005 14,985 14,348 16,529 4/30/2005 15,256 14,608 16,790 5/31/2005 15,383 14,729 16,909 6/30/2005 15,448 14,791 17,013 7/31/2005 15,347 14,695 16,937 8/31/2005 15,513 14,854 17,108 9/30/2005 15,367 14,714 16,992 10/31/2005 15,247 14,599 16,889 11/30/2005 15,331 14,680 16,970 12/31/2005 15,471 14,813 17,116 1/31/2006 15,489 14,831 17,162 2/28/2006 15,616 14,953 17,278 3/31/2006 15,498 14,839 17,158 4/30/2006 15,512 14,852 17,153 5/31/2006 15,572 14,910 17,229 6/30/2006 15,500 14,842 17,164 7/31/2006 15,676 15,009 17,368 8/31/2006 15,919 15,242 17,626 9/30/2006 16,019 15,338 17,749 Average Annual Total Returns -- September 30, 2006
1 YEAR/5/ 5 YEARS/5/ 10 YEARS/5/ CLASS A (Inception 3/23/84) Net Asset Value/1/ 4.24% 4.63% 4.83% With Maximum Sales Charge/2/ -0.20 3.72 4.38 CLASS B (Inception 9/13/93) Net Asset Value/1/ 3.53 3.92 4.14 With CDSC/4/ -1.47 3.58 4.14 - ---------------------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Municipal Bond Index/3/ 4.45% 5.17% 5.90% Morningstar Muni Massachusetts Fund Avg./6/ 3.75 4.28 4.94
Yields as of September 30, 2006
CLASS A CLASS B SEC 30-Day Yield/7/ 3.76% 3.18% Taxable Equivalent Yield/8/ 6.07 5.14
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 9/30/06 9/30/05 - ---------------------------------------- Aaa 36.8 36.2 - ---------------------------------------- Aa 20.5 27.1 - ---------------------------------------- A 20.3 18.8 - ---------------------------------------- Baa 9.5 11.8 - ---------------------------------------- Ba 4.3 -- - ---------------------------------------- Not rated* 6.0 3.9 - ---------------------------------------- Short-term & other 2.6 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 9/30/06 9/30/05 - -------------------------------------------------- 1 year or less 1.9 1.5 - -------------------------------------------------- 1-5 years 30.7 21.3 - -------------------------------------------------- 5-10 years 49.3 64.4 - -------------------------------------------------- 10+ years 18.1 12.8 - -------------------------------------------------- Average Effective Maturity 6.9 years 7.3 years - --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes 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 of 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/reimbursements, 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: Robert Payne Martha A. Strom 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. Realized capital gains are fully taxable. Some investors may be subject to the Alternative Minimum Tax (AMT). Lower-rated bonds entail higher risks. Management Discussion - -------------------------------------------------------------------------------- During the fiscal year ended September 30, 2006, the Federal Reserve Board gradually raised the federal funds rate (the rate banks charge one another on overnight loans) by 1.5%, causing bond prices to decline. Short-term bonds were most affected, but long-term rates eventually followed suit. By the end of the period, spreads (the difference between short- and long-term interest rates) were near historic lows. For fiscal 2006, the total return on Class A shares of Loomis Sayles Municipal Income Fund was 4.82%, based on net asset value and $0.28 per share in reinvested dividends. The fund's results were ahead of both the 4.45% return on the fund's benchmark, the Lehman Municipal Bond Index, and the 4.26% average return on Morningstar's Muni National Long category. The fund's 30-day SEC yield at the end of September was 4.07%, equivalent to a taxable yield of 6.18% based on the maximum federal income tax rate of 35.00%. MARKET FAVORED LONG-TERM AND INSURED BONDS The fund's emphasis on some of the better-performing revenue sectors - including corporate-backed industrial development bonds (IDBs) and healthcare-related issues - contributed to its positive results. Longer-maturity, structured, insured bonds performed well as the market saw steady demand but lower supply over the period. Higher-yielding IDBs and healthcare issues were also in demand as investors continued to search for higher yield in a lower interest-rate environment. The weakest performers during the period were general obligation bonds, which are backed by local taxpayer receipts and issued for states, counties, school districts, cities and towns. These bonds are regarded as higher in quality than bonds backed by service fees, so their yield is generally lower. Demand for higher-quality, intermediate quality, structured issues was generally tepid. On a geographical basis, the strongest areas were New York, Michigan, and California. In these states, credit spreads were tighter and many lower-quality bonds were pre-refunded, raising their perceived quality and market value, although shortening maturities. Weaker geographic areas included Puerto Rico, which has been experiencing budget problems, and Massachusetts and Florida due to fluctuating supply/demand. However, we believe the seeds for recovery in the Puerto Rican economy may already have been sown, so these holdings continue in the portfolio. Our strategy this year has been to keep the fund's maturity longer than the benchmark, in pursuit of higher yields. We have also tended to focus on revenue as opposed to tax-backed bonds, again in search of current income, and that strategy has proved to be sound. Although the portfolio's duration - its sensitivity to changes in interest rates - was slightly shorter at the end of fiscal 2006 than it has been, this reflects market movements rather than a change in our strategy. OUTLOOK IS FOR RELATIVELY MINOR CHANGES IN MUNICIPAL BOND RATES Currently we expect yields to fluctuate close to their current range, and we are not looking for major changes in the yield curve. We will continue to build up the fund's yield as opportunities present themselves. Overall credit quality in the municipal markets appears to be stable or improving slightly with the economy as a whole. Long-term, we believe the municipal yield curve should remain flat - with relatively little difference between long- and short-term rates - although the curve in the municipal market is significantly steeper than in the Treasury market. As long as the Fed continues to exercise restraint in its tightening efforts, we believe the municipal market should hold its own or slightly underperform the taxable markets. 9 LOOMIS SAYLES MUNICIPAL INCOME FUND Investment Results through September 30, 2006 - -------------------------------------------------------------------------------- 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/8/ September 30, 1996 through September 30, 2006 [CHART] Net Asset Maximum Sales Lehman Municipal Value/1/ Charge/2/ Bond Index/3/ --------- ---------- ---------------- 9/30/1996 $10,000 $ 9,550 $10,000 10/31/1996 10,113 9,658 10,113 11/30/1996 10,267 9,805 10,298 12/31/1996 10,236 9,775 10,255 1/31/1997 10,246 9,785 10,274 2/28/1997 10,337 9,872 10,369 3/31/1997 10,206 9,747 10,230 4/30/1997 10,281 9,818 10,316 5/31/1997 10,397 9,929 10,471 6/30/1997 10,541 10,067 10,583 7/31/1997 10,826 10,339 10,876 8/31/1997 10,761 10,277 10,774 9/30/1997 10,851 10,363 10,902 10/31/1997 10,927 10,436 10,972 11/30/1997 10,961 10,468 11,037 12/31/1997 11,112 10,612 11,197 1/31/1998 11,250 10,744 11,313 2/28/1998 11,328 10,818 11,316 3/31/1998 11,345 10,834 11,326 4/30/1998 11,291 10,783 11,275 5/31/1998 11,413 10,900 11,454 6/30/1998 11,461 10,946 11,499 7/31/1998 11,481 10,964 11,528 8/31/1998 11,634 11,110 11,706 9/30/1998 11,728 11,200 11,852 10/31/1998 11,688 11,162 11,851 11/30/1998 11,737 11,209 11,893 12/31/1998 11,751 11,222 11,923 1/31/1999 11,866 11,332 12,065 2/28/1999 11,841 11,308 12,012 3/31/1999 11,846 11,313 12,029 4/30/1999 11,882 11,347 12,059 5/31/1999 11,840 11,307 11,989 6/30/1999 11,705 11,178 11,816 7/31/1999 11,740 11,212 11,859 8/31/1999 11,620 11,097 11,764 9/30/1999 11,625 11,102 11,769 10/31/1999 11,456 10,941 11,642 11/30/1999 11,564 11,044 11,765 12/31/1999 11,471 10,954 11,678 1/31/2000 11,410 10,896 11,627 2/29/2000 11,536 11,017 11,762 3/31/2000 11,714 11,187 12,019 4/30/2000 11,650 11,125 11,948 5/31/2000 11,617 11,094 11,886 6/30/2000 11,830 11,297 12,201 7/31/2000 11,961 11,423 12,371 8/31/2000 12,126 11,580 12,561 9/30/2000 12,093 11,549 12,496 10/31/2000 12,192 11,644 12,632 11/30/2000 12,275 11,723 12,728 12/31/2000 12,478 11,916 13,042 1/31/2001 12,565 12,000 13,172 2/28/2001 12,585 12,019 13,213 3/31/2001 12,688 12,117 13,332 4/30/2001 12,553 11,988 13,187 5/31/2001 12,672 12,102 13,329 6/30/2001 12,773 12,199 13,418 7/31/2001 12,997 12,412 13,617 8/31/2001 13,204 12,609 13,841 9/30/2001 12,976 12,392 13,795 10/31/2001 13,152 12,560 13,959 11/30/2001 13,010 12,424 13,842 12/31/2001 12,851 12,273 13,711 1/31/2002 13,062 12,474 13,949 2/28/2002 13,238 12,642 14,117 3/31/2002 13,021 12,435 13,840 4/30/2002 13,234 12,639 14,111 5/31/2002 13,302 12,703 14,196 6/30/2002 13,426 12,821 14,346 7/31/2002 13,511 12,903 14,531 8/31/2002 13,617 13,004 14,706 9/30/2002 13,835 13,212 15,028 10/31/2002 13,483 12,877 14,779 11/30/2002 13,462 12,856 14,717 12/31/2002 13,790 13,170 15,028 1/31/2003 13,618 13,005 14,990 2/28/2003 13,818 13,196 15,199 3/31/2003 13,811 13,190 15,208 4/30/2003 13,934 13,307 15,309 5/31/2003 14,281 13,638 15,667 6/30/2003 14,251 13,610 15,601 7/31/2003 13,633 13,019 15,055 8/31/2003 13,776 13,156 15,167 9/30/2003 14,188 13,549 15,613 10/31/2003 14,121 13,485 15,534 11/30/2003 14,303 13,659 15,696 12/31/2003 14,429 13,780 15,826 1/31/2004 14,517 13,864 15,917 2/29/2004 14,742 14,079 16,156 3/31/2004 14,732 14,069 16,100 4/30/2004 14,369 13,723 15,719 5/31/2004 14,338 13,692 15,662 6/30/2004 14,346 13,701 15,719 7/31/2004 14,531 13,877 15,926 8/31/2004 14,794 14,129 16,245 9/30/2004 14,880 14,210 16,331 10/31/2004 15,005 14,330 16,472 11/30/2004 14,872 14,202 16,336 12/31/2004 15,057 14,380 16,535 1/31/2005 15,222 14,537 16,690 2/28/2005 15,147 14,465 16,634 3/31/2005 15,050 14,373 16,529 4/30/2005 15,321 14,631 16,790 5/31/2005 15,434 14,740 16,909 6/30/2005 15,524 14,825 17,013 7/31/2005 15,428 14,733 16,937 8/31/2005 15,619 14,916 17,108 9/30/2005 15,460 14,764 16,992 10/31/2005 15,341 14,650 16,889 11/30/2005 15,430 14,735 16,970 12/31/2005 15,561 14,860 17,116 1/31/2006 15,587 14,886 17,162 2/28/2006 15,721 15,014 17,278 3/31/2006 15,602 14,900 17,158 4/30/2006 15,609 14,907 17,153 5/31/2006 15,659 14,955 17,229 6/30/2006 15,603 14,901 17,164 7/31/2006 15,781 15,071 17,368 8/31/2006 16,067 15,344 17,626 9/30/2006 16,203 15,474 17,749 Average Annual Total Returns -- September 30, 2006
1 YEAR/8/ 5 YEARS/8/ 10 YEARS/8/ CLASS A (Inception 5/9/77) Net Asset Value/1/ 4.82% 4.54% 4.95% With Maximum Sales Charge/2/ 0.13 3.58 4.47 CLASS B (Inception 9/13/93) Net Asset Value/1/ 4.03 3.80 4.10 With CDSC/4/ -0.97 3.45 4.10 - ---------------------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Municipal Bond Index/3/ 4.45% 5.17% 5.90% Morningstar Muni National Long Fund Avg./5/ 4.26 4.56 5.08
Yields as of September 30, 2006
CLASS A CLASS B SEC 30-Day Yield/6/ 4.07% 3.51% Taxable Equivalent Yield/7/ 6.18 5.30
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 9/30/06 9/30/05 - ---------------------------------------- Aaa 28.2 35.8 - ---------------------------------------- Aa 13.8 12.8 - ---------------------------------------- A 27.1 24.3 - ---------------------------------------- Baa 14.1 14.6 - ---------------------------------------- Ba 3.3 -- - ---------------------------------------- Not rated* 12.0 10.7 - ---------------------------------------- Short-term & other 1.5 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 9/30/06 9/30/05 - -------------------------------------------------- 1 year or less 4.4 4.7 - -------------------------------------------------- 1-5 years 3.7 6.8 - -------------------------------------------------- 5-10 years 76.0 76.6 - -------------------------------------------------- 10+ years 15.9 11.9 - -------------------------------------------------- Average Effective Maturity 8.4 years 8.6 years - --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes 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 of 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. /8/Fund performance has been increased by expense waivers/reimbursements, without which performance would have been lower. 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, CFA, CIC Kathleen C. Gaffney, CFA 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 - -------------------------------------------------------------------------------- A resilient economy and strong corporate profits were hallmarks of Loomis Sayles Strategic Income Fund's fiscal year, which ended September 30, 2006. A slowing housing market and declining energy prices late in the period contributed to the Federal Reserve Board's decision to pause from its rate-tightening policies at its meetings in August and September, calming investors' concerns that the Fed might tighten the economy into a recession. The yield curve, (a graphical representation of the difference in yields between short- and long-term interest rates), "flattened" during the year and eventually became inverted, as yields on short-term Treasury securities rose above long-term rates. However, during the closing quarter of the fund's fiscal year, longer-term issues recouped some of the losses they suffered earlier in fiscal 2006 and provided the highest returns for the year as a whole. For the fund's 2006 fiscal year, Class A shares of the fund provided a total return of 9.03% at net asset value, including $0.81 in reinvested dividends. The fund's results were significantly ahead of its benchmark, the Lehman Aggregate Bond Index, which returned 3.67% for the period. Bear in mind that the fund has greater investment flexibility than the benchmark. It also outperformed Morningstar's Multisector Bond category, which had an average return of 4.44%. The fund's 30-day SEC yield at September 30, 2006 was 4.82%. STRATEGY REMAINED AGGRESSIVE In general during the fiscal year, investors who took on risk were well rewarded, as corporate earnings remained sound. After a short-lived flight to quality in May and June, the high-yielding segments of the market rebounded. Emerging markets also rewarded bondholders as improving economies in many countries generated confidence. During the year the fund maintained a longer duration than the Lehman benchmark, which made the fund more sensitive to changes in interest rates. We extended duration further late in the period, when the Fed paused in its interest tightening cycle, allowing the fund to capitalize on the bond price rally. This flexibility in the fund's duration strategy contributed to its strong performance. DIVERSIFIED BY SECURITY TYPE, INDUSTRY AND CURRENCY The fund was broadly diversified, with roughly 60% of assets in investment-grade bonds. Non-U.S.-dollar securities, high-yielding industrial bonds and convertible bonds were the largest positive contributors to performance during the period. The strongest industries and sectors included airlines, telecommunications, and pharmaceuticals. U.S. Treasury securities were modestly positive, although some high-yielding utilities detracted from results. Securities denominated in Canadian dollars posted the strongest returns over the year. The fund's relatively large position in securities denominated in the currencies of Brazil, Mexico, and the Philippines, as well as its holdings denominated in euros, were also strongly positive. Laggards among currencies included South Africa, New Zealand, and Argentina. OUTLOOK INCLUDES STABLE ECONOMIC GROWTH WITH BENIGN INFLATION In the United States, reduced inflation pressures and the Fed's "wait and see" policy with respect to interest rates should provide a positive environment for investment-grade and high-yielding domestic bonds, in our opinion. However, it may be difficult for Treasuries to provide decent returns if interest rates snap back. As long as corporate profits remain solid, we think demand for corporate bonds should persist. Overall, we anticipate modest performance - not home runs - from global sectors as well. Emerging markets did well during the closing quarter of fiscal 2006 and, going forward, we think they should offer lower (although still favorable) returns. Foreign currency exposure may grow increasingly important if, as we expect, the dollar experiences some weakness. 11 LOOMIS SAYLES STRATEGIC INCOME FUND Investment Results through September 30, 2006 - -------------------------------------------------------------------------------- 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/ September 30, 1996 through September 30, 2006 [CHART] Lehman Net Asset Maximum Sales Lehman Aggregate Universal Bond Value/1/ Charge/2/ Bond Index/3/ Index/4/ --------- ------------- ---------------- --------------- 9/30/1996 $10,000 $ 9,550 $10,000 $10,000 10/31/1996 10,286 9,823 10,222 10,208 11/30/1996 10,704 10,222 10,397 10,389 12/31/1996 10,555 10,080 10,300 10,305 1/31/1997 10,585 10,109 10,331 10,350 2/28/1997 10,753 10,269 10,357 10,386 3/31/1997 10,635 10,157 10,242 10,265 4/30/1997 10,704 10,222 10,396 10,420 5/31/1997 10,934 10,442 10,494 10,530 6/30/1997 11,182 10,679 10,619 10,659 7/31/1997 11,685 11,159 10,905 10,950 8/31/1997 11,384 10,871 10,812 10,860 9/30/1997 11,785 11,255 10,971 11,027 10/31/1997 11,538 11,019 11,131 11,132 11/30/1997 11,600 11,078 11,182 11,193 12/31/1997 11,541 11,022 11,294 11,312 1/31/1998 11,729 11,201 11,439 11,454 2/28/1998 11,944 11,406 11,431 11,463 3/31/1998 12,199 11,650 11,470 11,516 4/30/1998 12,203 11,654 11,530 11,574 5/31/1998 12,004 11,464 11,639 11,658 6/30/1998 11,813 11,282 11,738 11,734 7/31/1998 11,666 11,141 11,763 11,763 8/31/1998 10,233 9,773 11,954 11,762 9/30/1998 10,565 10,089 12,234 12,041 10/31/1998 10,679 10,198 12,170 11,991 11/30/1998 11,395 10,883 12,239 12,111 12/31/1998 11,343 10,832 12,275 12,138 1/31/1999 11,539 11,020 12,363 12,219 2/28/1999 11,374 10,862 12,147 12,026 3/31/1999 11,975 11,436 12,215 12,118 4/30/1999 12,742 12,169 12,253 12,189 5/31/1999 12,347 11,792 12,146 12,066 6/30/1999 12,383 11,826 12,107 12,045 7/31/1999 12,139 11,593 12,056 11,996 8/31/1999 11,987 11,448 12,050 11,983 9/30/1999 12,064 11,521 12,189 12,112 10/31/1999 12,165 11,618 12,234 12,163 11/30/1999 12,386 11,828 12,234 12,183 12/31/1999 12,722 12,150 12,175 12,159 1/31/2000 12,604 12,037 12,135 12,118 2/29/2000 13,101 12,511 12,281 12,272 3/31/2000 13,233 12,638 12,443 12,415 4/30/2000 12,855 12,276 12,408 12,376 5/31/2000 12,439 11,880 12,402 12,354 6/30/2000 12,913 12,332 12,660 12,620 7/31/2000 13,027 12,441 12,775 12,742 8/31/2000 13,314 12,714 12,960 12,928 9/30/2000 12,962 12,379 13,041 12,994 10/31/2000 12,435 11,875 13,128 13,045 11/30/2000 12,370 11,813 13,342 13,221 12/31/2000 12,809 12,233 13,590 13,475 1/31/2001 13,216 12,622 13,812 13,738 2/28/2001 13,197 12,603 13,933 13,854 3/31/2001 12,698 12,126 14,002 13,900 4/30/2001 12,491 11,929 13,944 13,839 5/31/2001 12,769 12,195 14,028 13,938 6/30/2001 12,735 12,162 14,081 13,978 7/31/2001 12,744 12,170 14,396 14,252 8/31/2001 13,025 12,439 14,561 14,431 9/30/2001 12,379 11,822 14,731 14,535 10/31/2001 12,671 12,101 15,039 14,827 11/30/2001 12,851 12,273 14,832 14,653 12/31/2001 12,792 12,217 14,738 14,565 1/31/2002 12,938 12,356 14,857 14,688 2/28/2002 13,093 12,504 15,001 14,825 3/31/2002 13,244 12,648 14,751 14,611 4/30/2002 13,564 12,954 15,037 14,889 5/31/2002 13,852 13,229 15,165 15,001 6/30/2002 13,632 13,018 15,296 15,056 7/31/2002 13,309 12,710 15,481 15,184 8/31/2002 13,681 13,066 15,742 15,463 9/30/2002 13,497 12,889 15,997 15,685 10/31/2002 13,765 13,146 15,924 15,631 11/30/2002 14,280 13,637 15,920 15,673 12/31/2002 14,774 14,109 16,249 15,998 1/31/2003 15,189 14,506 16,263 16,042 2/28/2003 15,599 14,897 16,488 16,269 3/31/2003 15,751 15,042 16,475 16,285 4/30/2003 16,655 15,905 16,611 16,477 5/31/2003 17,488 16,701 16,921 16,792 6/30/2003 17,708 16,911 16,887 16,788 7/31/2003 17,226 16,451 16,319 16,248 8/31/2003 17,424 16,640 16,428 16,365 9/30/2003 18,276 17,454 16,863 16,801 10/31/2003 18,689 17,848 16,705 16,681 11/30/2003 19,209 18,345 16,745 16,739 12/31/2003 19,922 19,025 16,916 16,929 1/31/2004 20,276 19,364 17,052 17,075 2/29/2004 20,262 19,350 17,236 17,243 3/31/2004 20,527 19,604 17,365 17,381 4/30/2004 19,676 18,790 16,914 16,937 5/31/2004 19,347 18,476 16,846 16,851 6/30/2004 19,715 18,827 16,941 16,958 7/31/2004 19,906 19,010 17,109 17,138 8/31/2004 20,519 19,596 17,435 17,477 9/30/2004 21,057 20,109 17,483 17,545 10/31/2004 21,556 20,586 17,629 17,706 11/30/2004 22,073 21,080 17,489 17,596 12/31/2004 22,499 21,486 17,650 17,771 1/31/2005 22,335 21,330 17,760 17,873 2/28/2005 22,627 21,609 17,656 17,800 3/31/2005 22,256 21,255 17,565 17,669 4/30/2005 22,080 21,087 17,803 17,885 5/31/2005 22,301 21,298 17,995 18,093 6/30/2005 22,720 21,698 18,093 18,217 7/31/2005 22,918 21,887 17,929 18,086 8/31/2005 23,184 22,141 18,159 18,308 9/30/2005 23,205 22,161 17,971 18,137 10/31/2005 22,975 21,941 17,829 17,991 11/30/2005 23,090 22,051 17,908 18,079 12/31/2005 23,339 22,289 18,078 18,253 1/31/2006 23,932 22,855 18,079 18,279 2/28/2006 24,193 23,104 18,139 18,352 3/31/2006 24,057 22,975 17,961 18,189 4/30/2006 24,421 23,322 17,929 18,167 5/31/2006 24,164 23,077 17,910 18,141 6/30/2006 24,097 23,012 17,948 18,169 7/31/2006 24,453 23,353 18,190 18,419 8/31/2006 25,045 23,918 18,469 18,706 9/30/2006 25,301 24,162 18,631 18,877 Average Annual Total Returns -- September 30, 2006
SINCE 1 YEAR 5 YEARS/7/ 10 YEARS/7/ INCEPTION/7/ CLASS A (Inception 5/1/95) Net Asset Value/1/ 9.03% 15.36% 9.72% -- With Maximum Sales Charge/2/ 4.11 14.30 9.21 -- CLASS B (Inception 5/1/95) Net Asset Value/1/ 8.22 14.49 8.91 -- With CDSC/5/ 3.22 14.26 8.91 -- CLASS C (Inception 5/1/95) Net Asset Value/1/ 8.14 14.50 8.90 -- With CDSC/5/ 7.14 14.50 8.90 -- CLASS Y (Inception 12/1/99) Net Asset Value/1/ 9.28 15.68 -- 11.35% - ------------------------------------------------------------------------------------ SINCE CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/8/ Lehman Aggregate Bond Index/3/ 3.67% 4.81% 6.42% 6.35% Lehman U.S. Universal Bond Index/4/ 4.08 5.37 6.56 6.62 Morningstar Multisector Bond Fund Avg./6/ 4.44 8.47 6.14 6.56
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 9/30/06 9/30/05 - ---------------------------------------- Aaa 32.1 35.1 - ---------------------------------------- Aa 6.1 9.9 - ---------------------------------------- A 3.5 0.5 - ---------------------------------------- Baa 15.3 4.0 - ---------------------------------------- Ba 9.5 8.7 - ---------------------------------------- B 13.6 10.2 - ---------------------------------------- Caa 3.5 7.2 - ---------------------------------------- Ca -- 0.8 - ---------------------------------------- C -- 0.2 - ---------------------------------------- Not rated* 5.6 14.6 - ---------------------------------------- Short-term & other 10.8 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 9/30/06 9/30/05 - -------------------------------------------------- 1 year or less 14.5 10.5 - -------------------------------------------------- 1-5 years 25.7 48.8 - -------------------------------------------------- 5-10 years 18.0 17.7 - -------------------------------------------------- 10+ years 41.8 23.0 - -------------------------------------------------- Average Effective Maturity 12.7 years 8.1 years - --------------------------------------------------
Portfolio characteristics will vary. NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes 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 Index, among other indexes. /5/Performance for Class B shares assumes a maximum of 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/reimbursements, without which performance would have been lower. /8/The since-inception comparative performance figures shown for Class Y are calculated from 12/1/99. 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 (SEC'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, 2006 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 FUND 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, 2006 through September 30, 2006. 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 4/1/06 9/30/06 4/1/06 - 9/30/06 - ------------------------------------------------------------------------------------------------------------------ CLASS A - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,035.90 $5.36 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.80 $5.32 - ------------------------------------------------------------------------------------------------------------------ CLASS B - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,031.40 $9.17 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.04 $9.10 - ------------------------------------------------------------------------------------------------------------------ CLASS C - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,032.30 $9.17 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.04 $9.10 - ------------------------------------------------------------------------------------------------------------------ CLASS Y - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,037.00 $4.09 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,021.06 $4.05 - ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after waiver/reimbursement): 1.05%, 1.80%, 1.80% and 0.80% 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 reflect the half-year period). 14 UNDERSTANDING FUND EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES HIGH INCOME FUND 4/1/06 9/30/06 4/1/06 - 9/30/06 - ------------------------------------------------------------------------------------------------------------------ CLASS A - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,030.10 $6.36 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33 - ------------------------------------------------------------------------------------------------------------------ CLASS B - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,028.20 $10.17 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10 - ------------------------------------------------------------------------------------------------------------------ CLASS C - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,026.20 $10.16 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.04 $10.10 - ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after waiver/reimbursement): 1.25%, 2.00% and 2.00% 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 reflect the half-year period).
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* AGENCY FUND 4/1/06 9/30/06 4/1/06 - 9/30/06 - ------------------------------------------------------------------------------------------------------------------- CLASS A - ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,027.80 $5.08 - ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,020.05 $5.06 - ------------------------------------------------------------------------------------------------------------------- CLASS B - ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,024.00 $8.88 - ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,016.29 $8.85 - ------------------------------------------------------------------------------------------------------------------- CLASS C - ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,024.00 $8.88 - ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,016.29 $8.85 - ------------------------------------------------------------------------------------------------------------------- CLASS Y - ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,028.30 $3.61 - ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,021.51 $3.60 - -------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after waiver/reimbursement): 1.00%, 1.75%, 1.75% and 0.71% 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 reflect the half-year period). 15 UNDERSTANDING FUND EXPENSES
LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* FUND 4/1/06 9/30/06 4/1/06 - 9/30/06 - --------------------------------------------------------------------------------------------------------------------- Class A - --------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,033.60 $4.84 - --------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,020.31 $4.81 - --------------------------------------------------------------------------------------------------------------------- Class B - --------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,030.40 $8.65 - --------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59 - ---------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio (after waiver/reimbursement): 0.95% and 1.70% 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 reflect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES MUNICIPAL INCOME FUND 4/1/06 9/30/06 4/1/06 - 9/30/06 - ------------------------------------------------------------------------------------------------------------------ CLASS A - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,038.60 $4.85 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,020.31 $4.81 - ------------------------------------------------------------------------------------------------------------------ CLASS B - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,034.70 $8.67 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
*Expenses are equal to the Fund's annualized expense ratio (after waiver/reimbursement): 0.95% and 1.70% 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 reflect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES STRATEGIC INCOME FUND 4/1/06 9/30/06 4/1/06 - 9/30/06 - ------------------------------------------------------------------------------------------------------------------ CLASS A - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,051.80 $5.40 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.80 $5.32 - ------------------------------------------------------------------------------------------------------------------ CLASS B - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,047.80 $9.19 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.09 $9.05 - ------------------------------------------------------------------------------------------------------------------ CLASS C - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,047.70 $9.19 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.09 $9.05 - ------------------------------------------------------------------------------------------------------------------ CLASS Y - ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,052.50 $3.96 - ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,021.21 $3.90 - ------------------------------------------------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio: 1.05%, 1.79%, 1.79% and 0.77% 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 reflect 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 (collectively, 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 adviser believes 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' adviser (the "Adviser"), and (v) information obtained through the completion of a questionnaire by the Adviser (the Trustees are consulted as to the information requested through that questionnaire). The Board of Trustees, including the Independent Trustees, also consider other matters such as (i) the Adviser's financial results and financial condition, (ii) each Fund's investment objective and strategies and the size, education and experience of the Adviser's investment 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 the 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 Adviser. The Board of Trustees most recently approved the continuation of the Agreements at their meeting held in May, 2006. 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 Adviser and its affiliates to the Funds and the resources dedicated to the Funds by the Adviser and its affiliates, including recent or planned investments by the Adviser in additional personnel or other resources. They also took note of the competitive market for talented personnel, in particular, for personnel who have contributed to the generation of strong investment performance. They also considered the need for the Adviser to offer competitive compensation in order to attract and retain capable personnel. The Trustees considered not only the advisory services provided by the Adviser 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. In particular, the Trustees noted that IXIS Advisors had over the past year negotiated changes to the Funds' transfer agency and custodial arrangements, resulting in significant cost savings for the Funds. The Trustees also noted that some of these changes had resulted in increases in costs or decreases in revenues for IXIS Advisors and its affiliates. They also considered the administrative services provided by IXIS Advisors and its affiliates to the Funds. 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 Adviser. 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. With respect to each Fund, the Board concluded that the Fund's performance or other relevant factors supported the renewal of the Agreement relating to that Fund. In the case of each Fund that had performance that lagged that of a relevant peer group for certain (although, not necessarily all) periods, the Board concluded that other factors relevant to performance supported renewal of the 17 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS Funds' Agreements. These factors varied from Fund to Fund, but included one or more of the following: (1) that the Fund's performance, although lagging in certain recent periods was stronger over the longer term; (2) that the underperformance was attributable, to a significant extent, to investment decisions by the Fund's Adviser that were reasonable and consistent with the Fund's investment objective and policies; (3) that the Fund's Adviser had taken or is taking steps designed to help improve the Fund's investment performance; (4) that the Fund's advisory fee had recently been, or is proposed to be, reduced or the Fund's expenses capped, with the goal of helping the Fund's net return to shareholders become more competitive; and (5) that reductions in the Fund's expense levels resulting from decreased expenses and/or increased assets were not yet fully reflected in the Fund's performance results. The Trustees also considered the Adviser's performance and reputation generally, the Funds' performance as a fund family generally, and the historical responsiveness of the Adviser to Trustee concerns about performance and the willingness of the Adviser 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 Adviser supported the renewal of the Agreements. The costs of the services to be provided and profits to be realized by the Adviser and its 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. 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 Adviser 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 that over the past several years, management had made recommendations regarding reductions in advisory fee rates, the implementation of advisory fee breakpoints and the institution of advisory fee waivers and expense caps. They noted that currently all of the IXIS Advisor Funds in the report have expense caps in place, and they considered the amounts waived or reimbursed by the Adviser under these caps. The Trustees noted that several Funds had total expense ratios or advisory fee rates that were above the median of a peer group of Funds. The Trustees considered the circumstances that accounted for such relatively higher expenses. The Trustees noted that for the Loomis Sayles Limited Term Government and Agency Fund, the relatively higher expense ratio resulted to a significant extent from relatively higher transfer agency expenses. The Trustees also considered the compensation directly or indirectly received by the Adviser and its affiliates from their relationships with the Funds. The Trustees reviewed information provided by management as to the profitability of the Adviser's and its affiliates' relationships with the Funds, and information about the allocation of expenses used to calculate profitability. In this regard, the Funds, at the request of the Independent Trustees, retained an independent accounting firm to review the cost allocation methods used by the Adviser to determine profitability, and engaged in extensive discussions with the Adviser regarding such methods and Adviser profitability generally. They also reviewed information provided by management about the effect of distribution costs and Fund growth on Adviser profitability. When reviewing profitability, the Trustees also considered information about court cases in which adviser profitability was an issue, the performance of the relevant Funds, the expense levels of the Funds, and whether the Adviser had implemented breakpoints and/or expense caps with respect to such Funds. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the advisory fees charged to each of the Funds were fair and reasonable, and that the costs of these services generally and the related profitability of the Adviser and its 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 Adviser and whether those economies are shared with the Funds through "breakpoints" in its investment advisory fees (lower fee rates applicable to assets in excess of certain threshold levels) or other means, such as expense waivers. The Trustees noted that four of the IXIS Advisor Funds in this report had breakpoints in their advisory fees and the remaining Funds were subject to expense caps. The Trustees also considered management's representation that for certain Funds the Adviser did not benefit from economies of scale in providing services to the Funds (because of the investment style of the Fund, the small size of the Fund or for other reasons). In considering 18 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS 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 Adviser and its 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 Adviser. They also considered the compliance related resources the Adviser and its affiliates were providing to the Funds. .. the nature, quality, cost and extent of administrative and shareholder services performed by the Adviser and its affiliates, both under the Agreements and under a separate agreement covering administrative services. .. so-called "fallout benefits" to the Adviser, such as the engagement of affiliates of the Adviser to provide distribution and brokerage services to the Funds, and the benefits of research made available to the Adviser by reason of brokerage commissions generated by the Funds' securities transactions. 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, 2007. 19 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------------------- Bonds and Notes -- 98.5% of Net Assets Agencies -- 1.0% $ 2,145,000 Pemex Project Funding Master Trust, 7.875%, 2/01/2009 $ 2,245,815 --------------- Asset-Backed Securities -- 6.1% 480,303 AmeriCredit Automobile Receivables Trust, Series 2003-D-M, Class A-4, 2.840%, 8/06/2010 473,549 2,595,000 AmeriCredit Automobile Receivables Trust, Series 2005-CF, Class A-3, 4.470%, 5/06/2010(j) 2,579,093 788,214 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A2, 3.872%, 3/25/2020 775,831 1,095,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3, 4.615%, 2/25/2035 1,059,643 2,190,000 Countrywide Asset-Backed Certificates, Series 2006-S4, Class A3, 5.804%, 7/25/2034 2,183,046 1,730,000 Ford Credit Auto Owner Trust, Series 2004-A, Class A4, 3.540%, 11/15/2008 1,703,509 1,800,000 Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A2, 5.117%, 4/10/2037 1,796,987 1,832,687 Residential Asset Securities Corp., Series 2003-KS10, Class AI4, 4.470%, 3/25/2032 1,798,162 644,789 WFS Financial Owner Trust, Series 2004-4, Class A3, 2.980%, 9/17/2009 637,788 515,000 WFS Financial Owner Trust, Series 2004-4, Class A4, 3.440%, 5/17/2012 501,483 --------------- 13,509,091 --------------- Automotive -- 3.9% 1,645,000 Ford Motor Co., 7.450%, 7/16/2031(c) 1,270,763 1,510,000 Ford Motor Credit Co., Global Note, 5.625%, 10/01/2008 1,448,585 655,000 GMAC LLC, (MTN), 6.750%, 12/01/2014(c) 639,447 4,240,000 GMAC LLC, 8.000%, 11/01/2031 4,433,263 105,000,000 Toyota Motor Credit Corp., 0.750%, 6/09/2008 (JPY) 890,318 --------------- 8,682,376 --------------- Banking -- 0.6% 1,200,000 State Street Institutional Capital A, Series A, Guaranteed Note, 144A, 7.940%, 12/30/2026 1,252,462 --------------- Brokerage -- 0.5% 1,045,000 Goldman Sachs Group, Inc., Senior Note, 6.600%, 1/15/2012 1,102,675 --------------- Chemicals -- 0.3% 600,000 Methanex Corp., Senior Note, 6.000%, 8/15/2015 574,406 --------------- Construction Machinery -- 0.8% 1,600,000 Case New Holland, Inc., Senior Note, 9.250%, 8/01/2011 1,696,000 --------------- Consumer Products -- 1.9% 431,000,000 General Electric Capital Corp., (MTN), 0.550%, 10/14/2008 (JPY) 3,633,083 68,400,000 International Bank for Reconstruction & Development, 2.000%, 2/18/2008 (JPY) 589,614 --------------- 4,222,697 ---------------
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------- Electric -- 4.1% $ 1,455,000 Duke Energy Corp., Senior Note, 4.200%, 10/01/2008 $ 1,424,606 2,030,000 Empresa Nacional de Electricidad SA, Chile, 8.350%, 8/01/2013(c) 2,277,642 1,325,000 Enersis SA, Chile, 7.375%, 1/15/2014 1,408,323 1,325,000 Ipalco Enterprises, Inc., Senior Secured Note, 8.375%, 11/14/2008 1,361,437 1,710,000 Progress Energy, Inc., 7.100%, 3/01/2011 1,833,019 790,000 Southern California Edison Co., 7.625%, 1/15/2010 844,135 --------------- 9,149,162 --------------- Financial Services -- 4.0% 271,000,000 General Electric Capital Corp. (MTN), 1.400%, 11/02/2006 (JPY) 2,296,027 1,050,000 HSBC Finance Corp., 7.000%, 5/15/2012 1,135,278 1,185,000 Morgan Stanley, 4.000%, 1/15/2010 1,143,564 2,270,000 Residential Capital Corp., 6.500%, 4/17/2013 2,305,282 1,805,000 Residential Capital Corp., 6.875%, 6/30/2015 1,874,924 --------------- 8,755,075 --------------- Food & Beverage -- 1.4% 1,345,000 Constellation Brands, Inc., 7.250%, 9/01/2016 1,360,131 1,750,000 Smithfield Foods, Inc., 7.000%, 8/01/2011 1,763,125 --------------- 3,123,256 --------------- Gaming -- 0.3% 770,000 Harrah's Operating Co., Inc., Senior Note, 7.125%, 6/01/2007 775,673 --------------- Healthcare -- 2.1% 1,470,000 Caremark Rx, Inc., Senior Note, 7.375%, 10/01/2006 1,470,000 575,000 HCA, Inc., 7.500%, 12/15/2023 445,856 1,250,000 Medco Health Solutions, 7.250%, 8/15/2013 1,356,727 1,315,000 WellPoint, Inc., 3.750%, 12/14/2007 1,289,514 --------------- 4,562,097 --------------- Home Construction -- 1.8% 1,665,000 Desarrolladora Homex SA de CV, 7.500%, 9/28/2015 1,631,700 1,220,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.500%, 1/15/2014 1,116,300 1,315,000 Pulte Homes, Inc., Senior Note, 4.875%, 7/15/2009 1,291,663 --------------- 4,039,663 --------------- Independent Energy -- 0.3% 645,000 Anadarko Petroleum Corp., 6.450%, 9/15/2036 658,822 ---------------
See accompanying notes to financial statements. 20 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - -------------------------------------------------------------------------------------------- Media Cable -- 1.0% $ 1,060,000 Cox Communications, Inc., 6.750%, 3/15/2011 $ 1,103,980 1,085,000 CSC Holdings, Inc., Senior Note, Series B, 7.625%, 4/01/2011 1,113,481 --------------- 2,217,461 --------------- Media Non-Cable -- 0.8% 1,515,000 Time Warner, Inc., 7.700%, 5/01/2032 1,691,858 --------------- Mortgage Backed Securities -- 7.1% 795,000 Banc of America Commercial Mortgage, Inc., Series 2005-6, Class A2, 5.165%, 9/10/2047 795,013 850,000 Banc of America Commercial Mortgage, Inc., Series 2006-1, Class A2, 5.334%, 9/10/2045 854,437 1,245,000 Bear Stearns Commercial Mortgage Securities, Inc., Series 2005-PW10, Class A2, 5.270%, 12/11/2040 1,249,214 2,150,000 Bear Stearns Commercial Mortgage Securities, Inc., Series 2006-PW12, Class A4, 5.711%, 9/11/2038(d) 2,223,564 710,000 Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2006-CD2, Class A2, 5.408%, 1/15/2046 715,769 2,160,000 Commercial Mortgage Pass Through Certificates, Series 2006-C7, Class A4, 5.769%, 6/10/2046(d) 2,237,560 1,500,000 GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A, 4.751%, 7/10/2039 1,441,702 1,710,000 LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3, 4.647%, 7/15/2030 1,669,442 2,400,000 Morgan Stanley Capital I, Series 2005-T19, Class A4A, 4.890%, 6/12/2047 2,326,960 2,195,000 Wachovia Bank Commercial Mortgage Trust, Series 2005-C20, Class A2, 4.519%, 7/15/2042 2,144,064 --------------- 15,657,725 --------------- Mortgage Related -- 29.9% 2,290,171 FHLMC, 4.000%, 7/01/2019 2,164,412 6,712,901 FHLMC 4.500%, with various maturities to 2034(e) 6,411,559 12,749,980 FHLMC 5.000%, with various maturities to 2036(e) 12,330,911 1,792,536 FHLMC 5.500%, with various maturities to 2018(e) 1,795,408 247,559 FHLMC, 6.000%, 6/01/2035 249,365 140,000,000 FNMA, 1.750%, 3/26/2008 (JPY) 1,205,772 140,000,000 FNMA, 2.125%, 10/09/2007 (JPY) 1,204,868 908,790 FNMA, 4.000%, 6/01/2019 860,083 6,308,897 FNMA 4.500%, with various maturities to 2035(e) 6,020,706 6,207,849 FNMA, 5.000%, 7/01/2035 5,968,952 10,614,826 FNMA 5.500%, with various maturities to 2036(e)(i) 10,496,848
Principal Amount+ Description Value (a) - ------------------------------------------------------------------------------------------ Mortgage Related -- continued $ 6,313,901 FNMA 6.000%, with various maturities to 2034(e) $ 6,389,955 6,042,261 FNMA 6.500%, with various maturities to 2036(e) 6,155,144 289,443 FNMA 7.000%, with various maturities to 2030(e) 298,260 352,345 FNMA 7.500%, with various maturities to 2032(e) 364,867 1,258,237 GNMA, 5.500%, 2/20/2034 1,246,947 469,880 GNMA, 6.000%, 1/15/2029 476,835 992,336 GNMA 6.500%, with various maturities to 2032(e) 1,019,728 583,716 GNMA 7.000%, with various maturities to 2029(e) 603,134 171,720 GNMA 7.500%, with various maturities to 2030(e) 178,962 90,939 GNMA, 8.000%, 11/15/2029 96,455 171,710 GNMA 8.500%, with various maturities to 2023(e) 184,407 24,415 GNMA 9.000%, with various maturities to 2016(e) 26,117 64,045 GNMA 11.500%, with various maturities to 2015(e) 71,273 --------------- 65,820,968 --------------- Paper -- 1.1% 1,200,000 Georgia-Pacific Corp., 7.375%, 12/01/2025 1,134,000 755,000 Georgia-Pacific Corp., 7.750%, 11/15/2029 724,800 480,000 Georgia-Pacific Corp., 8.875%, 5/15/2031 499,200 --------------- 2,358,000 --------------- Pharmaceuticals -- 2.0% 660,000 AmerisourceBergen Corp., 5.875%, 9/15/2015 647,048 760,000 Valeant Pharmaceuticals International, Subordinated Note, 3.000%, 8/16/2010 718,200 520,000 Valeant Pharmaceuticals International, Subordinated Note, 4.000%, 11/15/2013(c) 488,150 2,750,000 Valeant Pharmaceuticals International, Senior Note, 7.000%, 12/15/2011 2,591,875 --------------- 4,445,273 --------------- Pipelines -- 0.8% 1,695,000 Kinder Morgan, Inc., 6.500%, 9/01/2012 1,696,388 --------------- Real Estate Investment Trusts -- 2.4% 195,000 Colonial Realty, LP, Senior Note, 4.750%, 2/01/2010 189,965 1,350,000 Colonial Realty, LP, Senior Note, 5.500%, 10/01/2015 1,315,428 1,180,000 EOP Operating, LP, Guaranteed Note, 4.650%, 10/01/2010 1,144,855 1,250,000 iStar Financial, Inc., Senior Note, 6.000%, 12/15/2010 1,270,855
See accompanying notes to financial statements. 21 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ------------------------------------------------------------------------ Real Estate Investment Trusts -- continued $ 1,340,000 Simon Property Group, LP, 6.375%, 11/15/2007 $ 1,351,579 --------------- 5,272,682 --------------- Refining -- 0.5% 1,105,000 Premcor Refining Group, Inc. (The), 6.125%, 5/01/2011 1,128,670 --------------- Sovereigns -- 1.5% 11,445,000 Kingdom of Norway, 5.500%, 5/15/2009 (NOK) 1,820,279 2,165,000 Kingdom of Norway, 6.000%, 5/16/2011 (NOK) 359,370 4,680,000 Kingdom of Sweden, 3.000%, 7/12/2016 (SEK) 604,466 3,555,000 Kingdom of Sweden, 4.000%, 12/01/2009 (SEK) 492,150 --------------- 3,276,265 --------------- Supermarkets -- 2.3% 1,535,000 Albertson's, Inc., 7.450%, 8/01/2029 1,421,809 370,000 Albertson's, Inc., 7.750%, 6/15/2026 351,518 610,000 Albertson's, Inc., Senior Note, 8.000%, 5/01/2031 592,989 35,000 Albertson's, Inc., Senior Note, 8.700%, 5/01/2030 35,290 270,000 Albertson's, Inc., Series C, (MTN), 6.625%, 6/01/2028 231,650 125,000 American Stores Co., 8.000%, 6/01/2026 126,641 935,000 Delhaize America, Inc., 9.000%, 4/15/2031 1,095,249 1,015,000 Kroger Co. (The), 7.500%, 4/01/2031(c) 1,122,539 --------------- 4,977,685 --------------- Supranational -- 0.5% 120,000,000 Inter-American Development Bank, 1.900%, 7/08/2009 (JPY) 1,046,696 --------------- Technology -- 2.2% 270,000 Avnet, Inc., Convertible, 2.000%, 3/15/2034 257,175 175,000 Avnet, Inc., 6.000%, 9/01/2015 170,753 390,000 Avnet, Inc., 6.625%, 9/15/2016 396,933 665,000 Corning, Inc., 6.200%, 3/15/2016 680,230 355,000 Corning, Inc., 7.250%, 8/15/2036 378,086 1,280,000 Lucent Technologies, Inc., 6.450%, 3/15/2029 1,139,200 920,000 Northern Telecom Capital Corp., 7.875%, 6/15/2026 800,400 978,000 Xerox Corp., 6.400%, 3/15/2016 973,110 --------------- 4,795,887 ---------------
Principal Amount+ Description Value (a) - ------------------------------------------------------------------------------------------ Treasuries -- 10.6% $ 7,637,392 U.S. Treasury Bond, 2.375%, 1/15/2025(c)(f) $ 7,760,308 3,045,000 U.S. Treasury Bond 4.000%, with various maturities to 2014(c)(g) 2,958,491 575,000 U.S. Treasury Bond, 4.500%, 2/15/2036(c) 550,967 420,000 U.S. Treasury Note, 3.000%, 11/15/2007 411,469 565,000 U.S. Treasury Note, 3.375%, 10/15/2009(c) 545,313 3,350,000 U.S. Treasury Note, 4.375%, 8/15/2012(c) 3,315,060 6,125,000 U.S. Treasury Note, 4.500%, 2/15/2016(c) 6,063,511 1,680,000 U.S. Treasury Note, 5.125%, 5/15/2016(c) 1,742,738 --------------- 23,347,857 --------------- Wireless -- 0.3% 730,000 Sprint Capital Corp., 6.125%, 11/15/2008 740,693 --------------- Wirelines -- 6.4% 2,760,000 Embarq Corp., 7.995%, 6/01/2036 2,922,572 1,650,000 GTE Corp., 7.900%, 2/01/2027 1,720,638 3,200,000 LCI International, Inc., Senior Note, 7.250%, 6/15/2007 3,208,000 210,000 Qwest Capital Funding, Inc., 6.500%, 11/15/2018 190,050 1,240,000 Qwest Corp., 7.200%, 11/10/2026(c) 1,190,400 850,000 Qwest Corp. 7.250%, 9/15/2025 823,438 255,000 Qwest Corp. 7.250%, 10/15/2035 241,613 1,675,000 Qwest Corp., 7.500%, 6/15/2023 1,658,251 2,160,000 Telefonica Emisones SAU, 6.421%, 6/20/2016 2,222,266 --------------- 14,177,228 --------------- Total Bonds and Notes (Identified Cost $217,755,584) 217,000,606 --------------- Shares/ Principal Amount+ - ------------------------------------------------------------------------------------------ Short-Term Investments -- 13.8% 27,548,560 State Street Securities Lending Quality Trust(h) 27,548,560 $ 2,779,660 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/29/2006 at 3.45% to be repurchased at $2,780,460 on 10/02/2006, collateralized by $2,875,000 U.S. Treasury Bond, 3.375% due 11/15/2008 valued at $2,872,420 including accrued interest (Note 2f) $ 2,779,660 --------------- Total Short-Term Investments (Identified Cost $30,328,220) 30,328,220 --------------- Total Investments -- 112.3% (Identified Cost $248,083,804)(b) 247,328,826 Other assets less liabilities--(12.3)% (27,113,374) --------------- Total Net Assets -- 100% $ 220,215,452 ===============
See accompanying notes to financial statements. 22 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006 + Principal amount is in U.S. dollars unless otherwise noted. (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2006, the net unrealized depreciation on investments based on cost of $248,760,557 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 $ 2,482,059 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (3,913,790) ----------- Net unrealized depreciation $(1,431,731) =========== (c) All or a portion of this security was on loan to brokers at September 30, 2006. (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). (e) 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. (f) Treasury Inflation Protected Security (TIPS). (g) All separate investments in U.S. Treasury securities which have the same coupon rate have been aggregated for the purpose of presentation in the schedule of investments. (h) Represents investment of securities lending collateral. (i) A portion of this security is a delayed delivery security. (Note 2h) (j) All or a portion of this security has been segregated to cover requirements on delayed delivery securities. FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association GNMA Government National Mortgage Association MTN Medium Term Note 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, 2006, the total value of these securities amounted to $1,252,462 or 0.6% of total net assets. JPY Japanese Yen NOK Norwegian Krone SEK Swedish Krona
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited) Mortgage Related 29.9% Treasuries 10.6 Mortgage Backed Securities 7.1 Wirelines 6.4 Asset-Backed Securities 6.1 Electric 4.1 Financial Services 4.0 Automotive 3.9 Real Estate Investment Trusts 2.4 Supermarkets 2.3 Technology 2.2 Healthcare 2.1 Pharmaceuticals 2.0 Other, less than 2% each 15.4
See accompanying notes to financial statements. 23 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------- Bonds and Notes -- 87.4% of Net Assets Airlines -- 1.2% $ 82,157 Continental Airlines, Inc., Series 1997-4, Class 4B, 6.900%, 1/02/2017 $ 78,783 154,044 Continental Airlines, Inc., Series 1998-1, Class 1B, 6.748%, 3/15/2017 150,193 43,834 Continental Airlines, Inc., Series 1999-1, Class C, 6.954%, 8/02/2009 41,971 210,553 Continental Airlines, Inc., Series 2000-2, Class B, 8.307%, 4/02/2018 204,237 --------------- 475,184 --------------- Automotive -- 8.5% 420,000 Ford Motor Co., 6.375%, 2/01/2029(e) 307,125 815,000 Ford Motor Co., 6.625%, 10/01/2028(e) 608,194 170,000 Ford Motor Co., 7.450%, 7/16/2031(e) 131,325 905,000 Ford Motor Credit Co., 5.700%, 1/15/2010 836,082 125,000 GMAC Canada, Ltd., Series E., (MTN), 6.625%, 12/17/2010 (GBP) 229,070 10,000 GMAC International Finance BV, 8.000%, 3/14/2007 (NZD) 6,486 330,000 GMAC LLC, (MTN), 6.750%, 12/01/2014(e) 322,164 180,000 GMAC LLC, Series E, (MTN), 7.500%, 12/01/2006 (NZD) 116,822 405,000 GMAC LLC, 8.000%, 11/01/2031(e) 423,460 430,000 Goodyear Tire & Rubber Co. (The), 7.857%, 8/15/2011(e) 418,175 --------------- 3,398,903 --------------- Banking -- 4.2% 250,000,000 Barclays Financial LLC, 144A, 4.060%, 9/16/2010 (KRW) 262,219 9,000,000 Barclays Financial LLC, 144A, 4.100%, 3/22/2010 (THB) 228,358 7,000,000 Barclays Financial LLC, 144A, 4.160%, 2/22/2010 (THB) 178,141 990,000 Citibank NA, 144A, 15.000%, 7/02/2010 (BRL) 494,731 500,000 HSBC Bank USA, 144A, 3.310%, 8/25/2010 503,600 --------------- 1,667,049 --------------- Chemicals -- 4.2% 450,000 Borden, Inc., 7.875%, 2/15/2023 369,000 550,000 Borden, Inc., 9.200%, 3/15/2021 511,500 60,000 Georgia Gulf Corp., 144A, 10.750%, 10/15/2016 59,100 380,000 Hercules, Inc., Subordinated Note, 6.500%, 6/30/2029 306,375 125,000 LPG International, Inc., 7.250%, 12/20/2015 123,438 300,000 Lyondell Chemical Co., 8.000%, 9/15/2014 303,750 --------------- 1,673,163 ---------------
Principal Amount+ Description Value (a) - ----------------------------------------------------------------------------------------- Construction Machinery -- 0.3% $ 120,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note, 7.750%, 12/15/2013 $ 111,600 --------------- Diversified Financial Services -- 0.3% 1,436,358,000 JPMorgan Chase & Co., 144A, Zero Coupon, 3/28/2011 (IDR) 101,502 --------------- Electric -- 1.3% 375,000 Dynegy Holdings, Inc., 7.125%, 5/15/2018 343,125 180,000 Dynegy Holdings, Inc., 7.625%, 10/15/2026 164,250 --------------- 507,375 --------------- Food & Beverage -- 0.2% 100,000 Dole Food Co., Inc., 8.625%, 5/01/2009 97,750 --------------- Healthcare -- 1.7% 150,000 HCA, Inc., 7.500%, 12/15/2023 116,310 400,000 HCA, Inc., 7.500%, 11/06/2033 312,000 200,000 HCA, Inc., (MTN), 7.580%, 9/15/2025 154,150 30,000 Invitrogen Corp., Convertible, 1.500%, 2/15/2024 26,025 5,000 Tenet Healthcare Corp., 6.875%, 11/15/2031(e) 3,919 80,000 Tenet Healthcare Corp., 9.250%, 2/01/2015 77,000 --------------- 689,404 --------------- Home Construction -- 2.9% 320,000 K. Hovnanian Enterprises, Inc., 6.250%, 1/15/2015 283,600 150,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.250%, 1/15/2016(e) 132,000 30,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.500%, 1/15/2014 27,450 590,000 KB Home, 7.250%, 6/15/2018 565,603 155,000 Pulte Homes, Inc., 6.000%, 2/15/2035 139,750 --------------- 1,148,403 --------------- Independent Energy -- 2.0% 615,000 Chesapeake Energy Corp., 6.500%, 8/15/2017 576,562 60,000 NRG Energy, Inc., 7.250%, 2/01/2014 59,550 165,000 NRG Energy, Inc., 7.375%, 2/01/2016 163,969 --------------- 800,081 --------------- Integrated Energy -- 1.4% 265,000 Cerro Negro Finance, Ltd., 144A, 7.900%, 12/01/2020 245,788 300,000 Petrozuata Finance, Inc., Series B, 144A, 8.220%, 4/01/2017 292,500 --------------- 538,288 --------------- Media Cable -- 4.5% 550,000 CSC Holdings, Inc., Senior Note, 7.625%, 7/15/2018(e) 563,063
See accompanying notes to financial statements. 24 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ----------------------------------------------------------------------------------------------- Media Cable -- continued $ 175,000 Intelsat Corp., 6.875%, 1/15/2028 $ 154,000 250,000 NTL Cable PLC, 9.750%, 4/15/2014 (GBP) 482,130 650,000 Rogers Cable, Inc., Senior Note, 5.500%, 3/15/2014 611,000 --------------- 1,810,193 --------------- Oil Field Services -- 0.3% 110,000 North American Energy Partners, Inc., Senior Note, 8.750%, 12/01/2011 109,725 --------------- Packaging -- 0.3% 135,000 Owens-Illinois, Inc., Senior Note 7.800%, 5/15/2018 128,250 --------------- Paper -- 5.6% 215,000 Abitibi-Consolidated, Inc., 7.500%, 4/01/2028 169,850 250,000 Abitibi-Consolidated, Inc., 8.500%, 8/01/2029 207,500 685,000 Bowater, Inc., 6.500%, 6/15/2013(e) 607,937 60,000 Domtar, Inc., 5.375%, 12/01/2013 51,300 75,000 Georgia-Pacific Corp., 7.250%, 6/01/2028 70,125 155,000 Georgia-Pacific Corp., 7.375%, 12/01/2025 146,475 370,000 Georgia-Pacific Corp., 7.750%, 11/15/2029 355,200 170,000 Georgia-Pacific Corp., 8.000%, 1/15/2024 167,450 430,000 Georgia-Pacific Corp., 8.875%, 5/15/2031 447,200 10,000 Jefferson Smurfit Corp., 7.500%, 6/01/2013 9,225 --------------- 2,232,262 --------------- Pharmaceuticals -- 8.9% 185,000 Bristol-Myers Squibb Co., 5.750%, 10/01/2011 188,447 85,000 Elan Capital Corp., Ltd., Convertible, 6.500%, 11/10/2008 181,156 440,000 Elan Finance Corp., Senior Note, 7.750%, 11/15/2011 428,450 425,000 Enzon, Inc., Convertible, 4.500%, 7/01/2008 408,000 127,000 EPIX Pharmaceuticals, Inc., Senior Note, Convertible, 3.000%, 6/15/2024 81,280 45,000 Human Genome Sciences, Inc., Convertible, 2.250%, 8/15/2012 41,513 265,000 Incyte Corp., Convertible, 3.500%, 2/15/2011 201,069 360,000 Inhale Therapeutic Systems, Inc., Subordinated Note, Convertible, 3.500%, 10/17/2007 349,200 202,000 IVAX Corp., Senior Subordinated Note, Convertible, 4.500%, 5/15/2008 202,758 210,000 Merck & Co., Inc., 4.750%, 3/01/2015 200,439 345,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, Convertible, 5.500%, 10/17/2008 339,825
Principal Amount+ Description Value (a) - --------------------------------------------------------------------------------------- Pharmaceuticals -- continued $ 190,000 Valeant Pharmaceuticals International, Subordinated Note, Convertible, 3.000%, 8/16/2010 $ 179,550 450,000 Valeant Pharmaceuticals International, Subordinated Note, Convertible, 4.000%, 11/15/2013 422,437 139,000 Vertex Pharmaceuticals, Inc., 144A, Convertible, 5.750%, 2/15/2011 314,487 --------------- 3,538,611 --------------- Pipelines -- 3.6% 915,000 El Paso Corp, 6.950%, 6/01/2028 860,100 125,000 Kinder Morgan Energy Partners, LP, Senior Note, 5.800%, 3/15/2035 113,715 65,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 5.700%, 1/05/2016 60,002 415,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 6.400%, 1/05/2036 371,610 25,000 Kinder Morgan, Inc., Senior Note, 5.150%, 3/01/2015 22,464 --------------- 1,427,891 --------------- Retailers -- 2.0% 250,000 Dillard's, Inc., 6.625%, 1/15/2018 238,125 765,000 Toys R US, Inc., 7.375%, 10/15/2018 553,669 --------------- 791,794 --------------- Sovereigns -- 5.5% 1,190,000 Republic of Argentina, 2.418%, 9/30/2014 (ARS)(d) 392,292 4,420,000 United Mexican States, Series M-10, 8.000%, 12/07/2023 (MXN) 383,865 14,850,000 United Mexican States, 9.000%, 12/20/2012 (MXN) 1,404,091 --------------- 2,180,248 --------------- Supermarkets -- 2.7% 720,000 Albertson's, Inc., Senior Note 7.450%, 8/01/2029 666,907 115,000 Albertson's, Inc., 7.750%, 6/15/2026 109,256 130,000 Albertson's, Inc., Senior Note, 8.000%, 5/01/2031 126,375 25,000 Albertson's, Inc., Senior Note, 8.700%, 5/01/2030 25,207 130,000 Albertson's, Inc., Series C, (MTN), 6.625%, 6/01/2028 111,535 50,000 American Stores Co., 8.000%, 6/01/2026 50,656 --------------- 1,089,936 --------------- Supranational -- 4.8% 6,000,000 Inter-American Development Bank, Series E, (MTN), Zero Coupon, 5/11/2009 (BRL) 1,917,859 --------------- Technology -- 8.8% 125,000 Amkor Technology, Inc., Senior Note, 7.750%, 5/15/2013 114,688 155,000 Corning, Inc., 6.850%, 3/01/2029 162,282
See accompanying notes to financial statements. 25 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ----------------------------------------------------------------------------------------------- Technology -- continued $ 250,000 JDS Uniphase Corp., Zero Coupon, 11/15/2010 $ 227,187 215,000 Kulicke & Soffa Industries, Inc., Subordinated Note, Convertible, 0.500%, 11/30/2008 187,587 35,000 Kulicke & Soffa Industries, Inc., Convertible, 1.000%, 6/30/2010 32,988 910,000 Lucent Technologies, Inc., 6.450%, 3/15/2029 809,900 293,000 Maxtor Corp., Subordinated Note, 5.750%, 3/01/2012(f) 269,560 300,000 Nortel Networks Corp., Convertible, 4.250%, 9/01/2008 286,500 425,000 Nortel Networks Corp., 6.875%, 9/01/2023 350,625 40,000 Northern Telecom Capital Corp., 7.875%, 6/15/2026 34,800 210,000 Sanmina-SCI Corp., 8.125%, 3/01/2016 205,800 105,000 Unisys Corp., 6.875%, 3/15/2010(e) 99,225 145,000 Unisys Corp., Senior Note, 8.000%, 10/15/2012 135,575 596,000 Xerox Corp., 6.400%, 3/15/2016 593,020 --------------- 3,509,737 --------------- Transportation Services -- 2.9% 275,000 American President Cos., Ltd., Senior Note, 8.000%, 1/15/2024(f) 247,500 300,000 Overseas Shipholding Group, Senior Note, 7.500%, 2/15/2024 292,500 295,000 Stena AB, Senior Note, 7.000%, 12/01/2016 278,038 350,000 Stena AB, Senior Note, 7.500%, 11/01/2013 343,875 --------------- 1,161,913 --------------- Treasuries -- 2.0% 785,000 U.S. Treasury Note, 4.625%, 9/30/2008 784,080 --------------- Wireless -- 1.2% 435,000 Level 3 Communications, Inc., Convertible, 2.875%, 7/15/2010 438,806 5,000 Level 3 Communications, Inc., Convertible, 6.000%, 3/15/2010(e) 4,394 20,000 Level 3 Communications, Inc., Senior Note, 11.500%, 3/01/2010(e) 20,550 --------------- 463,750 --------------- Wirelines -- 6.1% 65,000 Cincinnati Bell Telephone Co., 6.300%, 12/01/2028(e) 56,225 50,000 Cincinnati Bell, Inc., 8.375%, 1/15/2014(e) 50,500 95,000 Citizens Communications Co., 7.000%, 11/01/2025 81,937 375,000 Qwest Capital Funding, Inc., Guaranteed Note, 6.875%, 7/15/2028 335,625
Principal Amount+ Description Value (a) - ----------------------------------------------------------------------------------------------- Wirelines -- continued $ 75,000 Qwest Capital Funding, Inc., Guaranteed Note, 7.000%, 8/03/2009(e) $ 75,375 1,890,000 Qwest Capital Funding, Inc., 7.750%, 2/15/2031 1,823,850 --------------- 2,423,512 --------------- Total Bonds and Notes (Identified Cost $32,696,127) 34,778,463 --------------- Shares - ----------------------------------------------------------------------------------------------- Preferred Stocks -- 5.4% Automotive -- 0.1% 1,675 Ford Motor Co. Capital Trust II, Convertible, 6.500%, 1/15/2032 56,263 --------------- Electric -- 2.1% 6,475 AES Trust III, Convertible, 6.750%, 10/15/2029 316,628 8,000 CMS Energy Trust I, Convertible, 7.750%, 7/15/2027 399,000 140,000 NGC Corp. Capital Trust I, Series B, Convertible, 8.316%, 6/01/2027 127,400 --------------- 843,028 --------------- Packaging -- 0.6% 6,500 Owens-Illinois, Inc., Convertible, 4.750%, 12/31/2049 227,825 --------------- Pipelines -- 2.0% 9,500 El Paso Energy Capital Trust I, Convertible, 4.750%, 3/31/2028 353,685 4,000 Williams Holdings of Delaware, Convertible, 5.500%, 6/01/2033 450,500 --------------- 804,185 --------------- Technology -- 0.6% 225 Lucent Technologies Capital Trust I, Convertible, 7.750%, 3/15/2017 229,922 --------------- Total Preferred Stocks (Identified Cost $1,838,475) 2,161,223 --------------- Shares - ----------------------------------------------------------------------------------------------- Common Stocks -- 2.2% Home Construction -- 0.2% 1,775 KB Home(e) 77,745 --------------- Metals & Mining -- 0.1% 1,800 Companhia Vale do Rio Doce, ADR 38,808 --------------- Pharmaceuticals -- 1.9% 6,875 Merck & Co., Inc. 288,062 1,717 Teva Pharmaceutical Industries, Ltd., ADR(e) 58,533 11,998 Vertex Pharmaceuticals, Inc.(c)(e) 403,733 --------------- 750,328 --------------- Total Common Stocks (Identified Cost $565,801) 866,881 --------------- Shares - ----------------------------------------------------------------------------------------------- Closed-End Investment Companies -- 0.1% 3,835 Morgan Stanley Emerging Markets Debt Fund, Inc.(e) 38,772 2,175 High Income Opportunity Fund, Inc. 13,855 --------------- Total Closed-End Investment Companies (Identified Cost $45,444) 52,627 ---------------
See accompanying notes to financial statements. 26 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Shares/ Principal Amount Description Value (a) - ---------------------------------------------------------------------------------------------------------- Short-Term Investments -- 17.1% 4,281,021 State Street Securities Lending Quality Trust(g) $ 4,281,021 $ 2,535,361 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/29/2006 at 3.45% to be repurchased at $2,536,090 on 10/02/2006, collateralized by $2,625,000 U.S. Treasury Note, 3.375% due 11/15/2008 valued at $2,622,645, including accrued interest (Note 2f) 2,535,361 --------------- Total Short-Term Investments (Identified Cost $6,816,382) 6,816,382 --------------- Total Investments -- 112.2% (Identified Cost $41,962,229)(b) 44,675,576 Other assets less liabilities -- (12.2)% (4,867,483) --------------- Net Assets -- 100% $ 39,808,093 =============== + Principal amount is in U.S. dollars unless otherwise noted. (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2006, the net unrealized appreciation on investments based on cost of $41,965,589 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost $ 3,446,702 Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value (736,715) --------------- Net unrealized appreciation $ 2,709,987 =============== (c) Non-income producing security. (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). (e) All or a portion of this security was on loan to brokers at September 30, 2006. (f) Illiquid security. At September 30, 2006, the value of these securities amounted to $517,060 or 1.3% of net assets. (g) Represents investment of securities lending collateral. ADR An American Depositary Receipt is a certificate issued by a custodian bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States. MTN Medium Term Note 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, 2006, the total value of these securities amounted to $2,680,426 or 6.7% of total net assets. ARS Argentine Peso BRL Brazilian Real GBP British Pound IDR Indonesian Rupiah KRW South Korean Won MXN Mexican Peso NZD New Zealand Dollar THB Thailand Baht
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited) Pharmaceuticals 10.8% Technology 9.4 Automotive 8.6 Wirelines 6.1 Paper 5.6 Pipelines 5.6 Sovereigns 5.5 Supranational 4.8 Media Cable 4.5 Chemicals 4.2 Banking 4.2 Electric 3.4 Home Construction 3.1 Transportation Services 2.9 Supermarkets 2.7 Independent Energy 2.0 Retailers 2.0 Treasuries 2.0 Others, less than 2% each 7.7
See accompanying notes to financial statements. 27 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND PORTFOLIO OF INVESTMENTS Investments as of September 30, 2006
Principal Amount Description Value (a) - --------------------------------------------------------------------------------------------------- Bonds and Notes -- 98.2% of Net Assets Asset-Backed Securities -- 4.5% $ 1,035,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3, 4.615%, 2/25/2035 $ 1,001,580 2,200,000 Countrywide Asset-Backed Certificates, Series 2006-S1, Class A2, 5.549%, 8/25/2021 2,196,177 51,852 Residential Asset Mortgage Products, Inc., Series 2003-RZ5, Class A3, 3.800%, 7/25/2030 51,679 430,382 Residential Funding Mortgage Securities II, Inc., Series 2004-HI3, Class A3, 3.810%, 8/25/2017 427,840 670,000 Residential Funding Mortgage Securities II, Inc., Series 2004-HI3, Class A4, 4.630%, 1/25/2020 662,655 660,000 Residential Funding Mortgage Securities II, Inc., Series 2005-HI3, Class A4, 5.490%, 9/25/2035 653,220 853,476 Residential Funding Mortgage Securities II, Inc., Series 2002-HI5, Class A7, 5.700%, 1/25/2028 860,366 --------------- 5,853,517 --------------- Government Sponsored -- 5.8% 600,000 Fannie Mae, 6.625%, 9/15/2009(d) 627,920 2,935,000 Federal Farm Credit Bank, 2.375%, 10/02/2006 2,935,000 4,200,000 Federal Home Loan Bank, 3.625%, 11/14/2008(d) 4,085,819 --------------- 7,648,739 --------------- Hybrid ARMs -- 2.0% 2,014,504 Morgan Stanley Mortgage Loan Trust, Series 2005-3AR, Class 5A, 5.589%, 7/25/2035(c) 1,986,170 630,071 Washington Mutual, Series 2004-AR7, Class A2A, 3.537%, 7/25/2034 626,983 --------------- 2,613,153 --------------- Mortgage Backed Securities -- 1.1% 1,400,000 Commercial Mortgage Pass Through Certificates, Series 2006-C7, Class A4, 5.769%, 6/10/2046(c) 1,450,270 --------------- Mortgage Related -- 65.4% 903,254 FHLMC, 4.500%, 5/01/2034 846,081 12,452,936 FHLMC 5.000%, with various maturities to 2035(e) 12,172,279 2,841,331 FHLMC, 5.500%, 12/01/2034 2,807,621 7,585,000 FHLMC (TBA), 6.000%, 7/01/2016(h) 7,689,294 248,617 FHLMC, 6.000%, 11/01/2019 252,111 13,635,344 FHLMC 6.500%, with various maturities to 2034(e) 13,912,563 296,328 FHLMC, 7.000%, 2/01/2016 303,946
Principal Amount Description Value (a) - ------------------------------------------------------------------------------------- Mortgage Related -- continued $ 57,381 FHLMC 7.500%, with various maturities to 2026(e) $ 59,294 37,285 FHLMC 8.000%, with various maturities to 2015(e) 38,815 6,789 FHLMC, 10.000%, 7/01/2019 7,478 345,816 FHLMC 11.500%, with various maturities to 2020(e) 375,182 15,570,519 FNMA 4.000%, with various maturities to 2019(e) 14,751,869 3,001,495 FNMA 4.500%, with various maturities to 2035(e) 2,846,308 8,035,833 FNMA 5.000%, with various maturities to 2035(e) 7,726,588 4,587,790 FNMA 5.500%, with various maturities to 2034(e) 4,544,031 5,412,375 FNMA 6.000%, with various maturities to 2034(e) 5,483,239 8,556,131 FNMA 6.500%, with various maturities to 2036(e) 8,718,595 307,741 FNMA, 7.000%, 12/01/2022 320,071 764,656 FNMA 7.500%, with various maturities to 2032(e) 791,302 137,156 FNMA 8.000%, with various maturities to 2016(e) 144,082 159,261 GNMA, 6.000%, 12/15/2031 161,444 630,392 GNMA, 6.500%, 5/15/2031 647,850 637,455 GNMA 7.000%, with various maturities to 2029(e) 658,430 32,512 GNMA 9.000%, with various maturities to 2009(e) 33,264 11,737 GNMA, 9.500%, 8/15/2009 12,173 10,787 GNMA 12.500%, with various maturities to 2015(e) 12,018 144,438 GNMA 16.000%, with various maturities to 2012(e) 165,687 73,375 GNMA 17.000%, with various maturities to 2011(e) 85,517 --------------- 85,567,132 --------------- Treasuries -- 19.4% 1,290,000 U.S. Treasury Note, 2.500%, 10/31/2006(d) 1,287,481 8,095,000 U.S. Treasury Note, 3.000%, 12/31/2006(g) 8,053,578 1,000,000 U.S. Treasury Note, 3.125%, 10/15/2008(d) 970,000 8,985,000 U.S. Treasury Note, 3.375%, 2/28/2007(g) 8,924,980 1,930,000 U.S. Treasury Note, 6.125%, 8/15/2007(d) 1,948,621 750,000 U.S. Treasury Note, 6.625%, 5/15/2007(d) 757,294 4,000,000 U.S. Treasury STRIPS, Zero Coupon, 11/15/2009 3,469,352 --------------- 25,411,306 --------------- Total Bonds and Notes (Identified Cost $129,744,739) 128,544,117 ---------------
See accompanying notes to financial statements. 28 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Shares/ Principal Amount Description Value (a) - --------------------------------------------------------------------------------------------------------- Short-Term Investments -- 5.4% 4,765,375 State Street Securities Lending Quality Trust(f) $ 4,765,375 $ 2,280,582 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/29/2006 at 3.45% to be repurchased at $2,281,237 on 10/02/2006, collateralized by $2,340,000 U.S. Treasury Bond, 3.875% due 5/15/2009 valued at $2,365,143 including accrued interest (Note 2f) 2,280,582 --------------- Total Short-Term Investments (Identified Cost $7,045,957) 7,045,957 --------------- Total Investments -- 103.6% (Identified Cost $136,790,696)(b) 135,590,074 Other assets less liabilities--(3.6)% (4,766,882) --------------- Net Assets -- 100% $ 130,823,192 =============== (a) See Note 2a of Notes to Financial statements. (b) Federal Tax Information: At September 30, 2006, the unrealized depreciation on investments based on cost of $137,035,116 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 $ 398,459 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (1,843,501) --------------- Net unrealized depreciation $ (1,445,042) =============== (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, 2006. (e) 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 Portfolio of Investments. (f) Represents investment of securities lending collateral. (g) All or a portion of this security has been segregated to cover requirements on delayed delivery obligations. (h) Delayed delivery security. (Note 2h) ARM Adjustable Rate Mortgage 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 2h of Notes to Financial Statements)
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited) Mortgage Related 65.4% Treasuries 19.4 Government Sponsored 5.8 Asset-Backed Securities 4.5 Hybrid ARMs 2.0 Mortgage Backed Securities 1.1
See accompanying notes to financial statements. 29 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2006
Principal Amount Description Value (a) - -------------------------------------------------------------------------------- Tax Exempt Obligations -- 97.3% of Net Assets Highlands County, FL, Health Facilities Authority -- 1.5% $ 1,000,000 Adventis Health System, 5.875%, 11/15/2029 $ 1,091,120 --------------- Marthas Vineyard, MA -- 1.4% 1,000,000 Land Bank Revenue, 5.000%, 5/01/2032 (AMBAC insured) 1,045,520 --------------- Massachusetts -- 6.4% 4,000,000 State Refunding Series A, 6.500%, 11/01/2014 (AMBAC insured) 4,769,360 --------------- Massachusetts Bay Transportation Authority -- 3.8% 2,000,000 Sales Tax Revenue Series C, 5.000%, 7/01/2028 2,150,820 630,000 Series A, Unrefunded, 5.250%, 7/01/2030 661,097 --------------- 2,811,917 --------------- Massachusetts Development Finance Agency -- 16.9% 2,000,000 Cambridge Street Development Series A, 5.125%, 2/01/2034 (MBIA insured) 2,102,920 1,450,000 Curry College, Series A, 5.000%, 3/01/2036 (ACA insured) 1,486,033 1,000,000 Hampshire College, 5.625%, 10/01/2024 1,069,280 2,500,000 Mount Holyoke College, 5.250%, 7/01/2031 2,638,025 2,800,000 Springfield Resource Recovery Series A, 5.625%, 6/01/2019 2,934,148 1,100,000 Visual and Performing Arts, 6.000%, 8/01/2021 1,327,656 1,000,000 WGBH Educational Foundation Series A, 5.375%, 1/01/2042 (AMBAC insured) 1,092,840 --------------- 12,650,902 --------------- Massachusetts Health & Educational Facilities Authority -- 35.4% 1,160,000 Baystate Medical Center Series F, 5.700%, 7/01/2027 1,230,261 2,000,000 Boston University, 5.000%, 10/01/2039 (FGIC insured) 2,086,960 2,200,000 Catholic Health East, 5.500%, 11/15/2032 2,335,652 3,000,000 Harvard University Series N, 6.250%, 4/01/2020 3,734,160 2,845,000 Nichols College Series C, 6.000%, 10/01/2017 2,995,785 2,000,000 Partners Healthcare Systems Series B, 5.250%, 7/01/2029 2,079,480 2,500,000 Partners Healthcare Systems Series C, 5.750%, 7/01/2021 2,717,975 1,500,000 Tufts University Series I, 5.250%, 2/15/2030 1,582,935 1,000,000 University of Massachusetts Project Series C, 5.250%, 10/01/2031 (MBIA insured) 1,070,410 2,000,000 University of Massachusetts Series C, 5.125%, 10/01/2034 (FGIC insured) 2,119,920 2,000,000 Wellesley College Series F, 5.125%, 7/01/2039 2,066,740
Principal Amount Description Value (a) - ---------------------------------------------------------------------------------------- Massachusetts Health & Educational Facilities Authority -- continued $ 1,315,000 Wheaton College Series E, 5.000%, 7/01/2017 $ 1,398,134 1,030,000 Williams College Series H, 5.000%, 7/01/2017 1,102,213 --------------- 26,520,625 --------------- Massachusetts Housing Finance Agency -- 0.5% 340,000 Single Family Mortgage Series 21, 7.125%, 6/01/2025 340,993 --------------- Massachusetts Port Authority -- 4.1% 1,750,000 Delta Air Lines, Inc. Project Series A, 5.500%, 1/01/2019 (AMBAC insured) 1,836,782 1,200,000 Series A, 5.000%, 7/01/2033 (MBIA insured) 1,254,348 --------------- 3,091,130 --------------- Massachusetts Water Resources Authority -- 6.7% 1,000,000 General Series A, 5.250%, 8/01/2020 (MBIA insured) 1,108,900 3,240,000 Series A, 6.500%, 7/15/2019 (FGIC insured) 3,903,876 --------------- 5,012,776 --------------- Michigan Hospital Finance Authority -- 2.2% 1,500,000 Oakwood Obligated Group, 5.500%, 11/01/2017 1,626,825 --------------- New England Education Loan Marketing -- 2.8% 2,000,000 Student Loan Revenue Bond Sub-Issue H, 6.900%, 11/01/2009 2,113,320 --------------- New Jersey Economic Development Authority -- 1.4% 1,000,000 Series A, 5.625%, 6/15/2018 1,041,870 --------------- New Jersey Transportation Trust Fund Authority -- 1.5% 1,000,000 Series A, 5.500%, 12/15/2023 1,158,010 --------------- Puerto Rico Commonwealth Aqueduct & Sewer Authority -- 4.5% 3,000,000 Aqueduct & Sewer Authority, 6.250%, 7/01/2013 3,399,000 --------------- Puerto Rico Commonwealth Infrastructure Financing Authority -- 2.1% 1,500,000 Series B, 5.000%, 7/01/2031 1,557,330 --------------- Puerto Rico Public Finance Corp. -- 4.3% 3,000,000 Commonwealth Appropriation Series A, 5.750%, 8/01/2027(c) 3,232,980 --------------- University of Massachusetts Building Authority -- 1.8% 1,250,000 SR - Series 1, 5.250%, 11/01/2028 (AMBAC insured) 1,376,138 --------------- Total Tax Exempt Obligations (Identified Cost $68,612,972) 72,839,816 ---------------
See accompanying notes to financial statements. 30 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount Description Value (a) - -------------------------------------------------------------------------------------------------- Short-Term Investments -- 3.6% $ 2,677,532 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/29/2006 at 3.45% to be repurchased at $2,678,302 on 10/02/2006, collateralized by $2,180,000 U.S. Treasury Bond, 6.875% due 8/15/2025 valued at $2,846,490 including accrued interest (Note 2F) (Identified Cost $2,677,532) $ 2,677,532 --------------- Total Investments -- 100.9% (Identified Cost $71,290,504)(b) 75,517,348 Other assets less liabilities--(0.9)% (693,949) --------------- Total Net Assets -- 100% $ 74,823,399 =============== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2006, the net unrealized appreciation on investments based on cost of $71,427,894 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 $ 4,121,153 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (31,699) --------------- Net unrealized appreciation $ 4,089,454 =============== (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). ACA American Capital Access AMBAC American Municipal Bond Assurance Corporation FGIC Financial Guarantee Insurance Company MBIA Municipal Bond Investors Assurance Corporation
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited) Colleges & Universities 33.0% Water & Sewerage 13.3 State Appropriations 12.2 Hospital 11.2 Airport 4.1 Resource Recovery 3.9 Sales Tax 3.8 Pre-Refunded 3.3 Student Loan 2.8 Redevelopment Agency/Urban Renewal 2.8 Hospital-Obligated Group 2.2 Other, less than 2% each 4.7
See accompanying notes to financial statements. 31 LOOMIS SAYLES MUNICIPAL INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2006
Principal Amount Description Value (a) - ------------------------------------------------------------------------------------------- Tax Exempt Obligations -- 98.5% of Net Assets California -- 8.2% $ 2,655,000 California Statewide Communities Development Authority (California Endowment), 5.250%, 7/01/2023 $ 2,873,692 1,000,000 California Health Facilities Financing Authority (Cedar-Sinai Medical Center), 5.000%, 11/15/2027 1,043,080 1,000,000 California Health Facilities Financing Authority (California Healthcare West), 4.950%, 7/01/2026 1,049,740 1,500,000 California State, 5.125%, 6/01/2027 1,555,500 1,500,000 California Statewide Communities Development Authority (Sutter Health), Series A, 5.000%, 11/15/2043 1,552,095 --------------- 8,074,107 --------------- Colorado -- 2.5% 2,500,000 Colorado Health Facilities Authority, 5.000%, 12/01/2035 2,514,975 --------------- District of Columbia -- 3.2% 3,000,000 Metropolitan Washington D.C. Airports Authority, 5.125%, 10/01/2029 (FGIC insured) 3,146,220 --------------- Florida -- 2.7% 1,500,000 Highlands County, FL, Health Facilities Authority (Adventist Health System), 5.375%, 11/15/2035 1,580,940 1,000,000 Jacksonville, FL, Economic Development Community Health Care Facilities (Mayo Clinic), 5.000%, 11/15/2036 1,045,780 --------------- 2,626,720 --------------- Guam -- 1.1% 1,000,000 Guam Government Waterworks Authority, 5.875%, 7/01/2035 1,071,580 --------------- Illinois -- 3.2% 1,000,000 Illinois Educational Facility Authority Revenue, 5.000%, 7/01/2033 1,038,750 2,000,000 Metropolitan Pier & Exposition Authority, IL, 5.250%, 6/15/2042 (MBIA insured) 2,120,040 --------------- 3,158,790 --------------- Indiana -- 1.0% 1,000,000 Indiana Health & Educational Facility, Financing Authority (Clarian Health Obligation), Series A, 5.000%, 2/15/2039 1,032,410 --------------- Louisiana -- 5.2% 4,000,000 DeSoto Parish, LA, Environmental Improvement, 5.000%, 11/01/2018 4,085,120 1,000,000 Ernest N. Morial, New Orleans, LA, Exhibit Hall Authority, 5.000%, 7/15/2033 (AMBAC insured) 1,025,930 --------------- 5,111,050 --------------- Massachusetts -- 2.7% 1,500,000 Massachusetts State, 5.000%, 3/01/2019 1,608,375 1,045,000 Massachusetts State Health & Educational Facilities Authority (Lahey Clinic Medical Center), 4.500%, 8/15/2035 (FGIC insured) 1,031,634 --------------- 2,640,009 ---------------
Principal Amount Description Value (a) - ------------------------------------------------------------------------------------------- Michigan -- 6.0% $ 1,500,000 Michigan State Hospital Finance Authority (Henry Ford Health System), Series A, 5.000%, 11/15/2038 $ 1,555,395 1,100,000 Michigan State Hospital Finance Authority (Oakwood Obligated Group), 5.500%, 11/01/2014 1,198,648 1,000,000 Taylor Brownfield Redevelopment Authority, MI, 5.000%, 5/01/2025 (MBIA insured) 1,058,550 2,000,000 University of Michigan Hospital, 5.250%, 12/01/2020 2,132,920 --------------- 5,945,513 --------------- Minnesota -- 3.3% 1,000,000 Chaska Minnesota Electric Revenue, 5.250%, 10/01/2025 1,079,510 2,000,000 Minnesota State Municipal Power Agency, 5.250%, 10/01/2024 2,146,920 --------------- 3,226,430 --------------- Mississippi -- 5.5% 2,000,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.700%, 4/01/2022 2,419,340 2,500,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.800%, 4/01/2022 3,051,350 --------------- 5,470,690 --------------- New Jersey -- 5.5% 1,000,000 New Jersey Economic Development Authority, 5.500%, 6/15/2024 1,052,040 1,000,000 New Jersey Economic Development Authority, Series A, 5.625%, 6/15/2018 1,041,870 1,000,000 New Jersey Health Care Facilities Financing Authority (Catholic Health East), 5.375%, 11/15/2033 1,057,210 2,000,000 New Jersey Transportation Trust Fund Authority, Series A, 5.500%, 12/15/2023 2,316,020 --------------- 5,467,140 --------------- New York -- 17.6% 1,020,000 New York, NY, 6.000%, 1/15/2020 1,146,694 1,400,000 New York, NY, City Health & Hospital Corp., 5.000%, 2/15/2020 (FSA insured) 1,467,606 1,000,000 New York, NY, City Industrial Development Agency, 5.500%, 1/01/2024 1,079,560 2,000,000 New York, NY, City Municipal Water Finance Authority, 5.000%, 6/15/2025 (MBIA insured) 2,125,940 1,000,000 New York, NY, City Municipal Water Finance Authority, 5.125%, 6/15/2034 (FSA insured) 1,049,990 1,000,000 New York State Dormitory Authority (Rockefeller University), 5.000%, 7/01/2032 1,042,450 2,000,000 New York State Dormitory Authority, 5.500%, 5/15/2013 2,187,280 2,740,000 New York State Dormitory Authority, 5.750%, 7/01/2013 2,978,819 1,000,000 New York State Housing Finance Agency, 5.250%, 9/15/2019 1,089,880 3,000,000 New York State Municipal Bond Bank Agency, 5.250%, 6/01/2020 3,209,910 --------------- 17,378,129 ---------------
See accompanying notes to financial statements. 32 LOOMIS SAYLES MUNICIPAL INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount Description Value (a) - --------------------------------------------------------------------------------------------- North Carolina -- 1.4% $ 1,300,000 North Carolina Eastern Municipal Power Agency, 5.500%, 1/01/2012 $ 1,393,847 --------------- Oregon -- 6.0% 1,750,000 Multnomah County, OR, Hospital Facilities Authority (Providence Health System), 5.250%, 10/01/2012 1,889,685 4,000,000 Western Generation Agency, 7.400%, 1/01/2016(c) 4,011,840 --------------- 5,901,525 --------------- Pennsylvania -- 4.5% 4,000,000 Pennsylvania State Industrial Development Authority, 5.500%, 7/01/2019 (AMBAC insured) 4,395,000 --------------- Puerto Rico -- 3.3% 1,000,000 Puerto Rico Commonwealth Infrastructure Financing Authority, 5.500%, 10/01/2040 1,074,480 2,000,000 Puerto Rico Public Finance Corp., Commonwealth Appropriation Series A, 5.750%, 8/01/2027(d) 2,155,320 --------------- 3,229,800 --------------- South Carolina -- 3.3% 1,100,000 Charleston Educational Excellence Finance Corp., 5.250%, 12/01/2030 1,173,205 1,155,000 Lexington One School Facilities Corp., 5.000%, 12/01/2026 1,214,113 800,000 Newberry Investing in Children's Education (Newberry County School District), 5.250%, 12/01/2022 843,352 --------------- 3,230,670 --------------- South Dakota -- 1.3% 1,250,000 South Dakota Health & Educational Facilities Authority (Sioux Valley Hospital), 5.250%, 11/01/2027 1,320,638 --------------- Tennessee -- 4.4% 2,500,000 Tennessee Energy Acquisition Corp., Gas Revenue, Series A, 5.250%, 9/01/2026 2,804,675 1,500,000 Tennessee Housing Development Agency, Series A, 5.200%, 7/01/2023 1,572,360 --------------- 4,377,035 --------------- Texas -- 4.3% 2,000,000 Dallas-Fort Worth, TX, International Airport, 5.500%, 11/01/2033 (MBIA insured) 2,142,480 1,000,000 Katy, TX, Independent School District, 5.125%, 2/15/2020 1,056,250 1,000,000 Lewisville, TX, Independent School District, 5.250%, 8/15/2027 1,048,310 --------------- 4,247,040 --------------- Washington -- 2.3% 2,000,000 Energy Northwest, WA, Electric, Project No. 1, 5.500%, 7/01/2014 2,227,480 --------------- Total Tax Exempt Obligations (Identified Cost $93,378,364) 97,186,798 ---------------
Principal Amount Description Value (a) - ------------------------------------------------------------------------------------------------------ Short-Term Investments -- 0.3% $ 271,524 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 09/29/2006 at 3.45% to be repurchased at $271,602 on 10/02/2006, collateralized by $285,000 U.S. Treasury Note, 3.375% due 11/15/2008 valued at $285,122, including accrued interest (Note 2f) (Identified Cost $271,524) $ 271,524 --------------- Total Investments -- 98.8% (Identified Cost $93,649,888)(b) 97,458,322 Other assets less liabilities--1.2% 1,177,525 --------------- Net Assets -- 100% $ 98,635,847 =============== (a) See Note 2a of Notes to Financial Statements. (b) Federal Tax Information: At September 30, 2006, the net unrealized appreciation on investments based on cost of $93,754,016 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over of tax cost $ 3,798,375 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (94,069) --------------- Net unrealized appreciation $ 3,704,306 =============== (c) Illiquid security. At September 30, 2006, the value of this security amounted to $4,011,840 or 4.1% 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 Corp. FGIC Financial Guarantee Insurance Company MBIA Municipal Bond Investors Assurance Corp. FSA Financial Security Assurance, Inc.
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited) Corporate Backed/Industrial Revenue/Pollution Control 14.1% Hospital Obligated Group 10.8 Hospital 8.4 Colleges & Universities 7.4 Electric 6.9 Special Tax 6.4 Airport 5.4 State Appropriation 4.5 Lease 4.4 Water & Sewerage 4.3 Resource Recovery 4.1 Bond Bank/Pooled Loan Program 3.3 State General Obligation 3.2 Non-Profit 2.9 Gas 2.8 Senior Living 2.6 City & Town 2.2 School District 2.1 Other, less than 2% each 2.7
See accompanying notes to financial statements. 33 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------- Bonds and Notes -- 87.5% of Net Assets Convertible Bonds -- 4.9% Canada -- 0.2% $ 8,499,000 Nortel Networks Corp., Guaranteed Senior Note, 4.250%, 9/01/2008 $ 8,116,545 --------------- Ireland -- 0.1% 2,045,000 Elan Capital Corp., Ltd., 6.500%, 11/10/2008 4,358,406 --------------- United States -- 4.6% 7,809,000 Amkor Technology, Inc., 5.000%, 3/15/2007(c) 7,340,460 11,820,000 Avnet, Inc., 2.000%, 3/15/2034 11,258,550 32,815,000 Bristol-Myers Squibb Co., 4.890%, 9/15/2023(d) 32,874,067 200,000 Builders Transport, Inc., Subordinated Note, 6.500%, 5/01/2011(g) -- 1,000,000 Builders Transport, Inc., Subordinated Note, 8.000%, 8/15/2005(g) -- 750,000 Ciena Corp., 3.750%, 2/01/2008 723,750 2,000,000 CONMED Corp., 2.500%, 11/15/2024 1,732,500 157,000 Dixie Group, Inc., Subordinated Note, 7.000%, 5/15/2012 148,954 14,933,000 Enzon, Inc., 4.500%, 7/01/2008 14,335,680 5,111,000 EPIX Pharmaceuticals, Inc., Senior Note, 3.000%, 6/15/2024 3,271,040 6,060,000 Human Genome Sciences, Inc., 2.250%, 8/15/2012 5,590,350 16,305,000 Incyte Corp., 3.500%, 2/15/2011 12,371,419 4,865,000 Inhale Therapeutic Systems, Inc., Subordinated Note, 3.500%, 10/17/2007 4,719,050 3,780,000 Invitrogen Corp., 1.500%, 2/15/2024 3,279,150 2,360,000 IVAX Corp., Senior Subordinated Note, 4.500%, 5/15/2008 2,368,850 5,355,000 Kellwood Co., 3.500%, 6/15/2034 4,792,725 3,540,000 Kulicke & Soffa Industries, Inc., 1.000%, 6/30/2010 3,336,450 5,810,000 Kulicke & Soffa Industries, Inc., Subordinated Note, 0.500%, 11/30/2008 5,069,225 12,100,000 Level 3 Communications, Inc., 6.000%, 9/15/2009 10,874,875 1,085,000 Level 3 Communications, Inc., 6.000%, 3/15/2010(c) 953,444 2,335,000 Liberty Media Corp., 3.500%, 1/15/2031 2,577,256 5,050,000 Maxtor Corp., Subordinated Note, 5.750%, 3/01/2012(b) 4,646,000 5,925,000 Nektar Therapeutics, 3.250%, 9/28/2012 5,791,687 625,000 Nextel Communications, Inc., Senior Note, 5.250%, 1/15/2010 614,844 500,000 Preston Corp., Subordinated Note, 7.000%, 5/01/2011 460,000 20,000,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, 5.500%, 10/17/2008 19,700,000
Principal Amount+ Description Value (a) - --------------------------------------------------------------------------------------- United States -- continued $ 311,000 Richardson Electronics, Ltd., 144A, 7.750%, 12/15/2011 $ 280,678 1,950,000 SCI Systems, Inc., Subordinated Note, 3.000%, 3/15/2007 1,911,000 7,716,000 Sinclair Broadcast Group, Inc., (step to 2.000% on 1/15/2011), 4.875%, 7/15/2018(i) 6,857,595 19,005,000 Valeant Pharmaceuticals International, Subordinated Note, 3.000%, 8/16/2010 17,959,725 19,430,000 Valeant Pharmaceuticals International, Subordinated Note, 4.000%, 11/15/2013(c) 18,239,912 2,349,000 Vertex Pharmaceuticals, Inc., 144A, 5.750%, 2/15/2011 5,314,613 23,130,000 Wells Fargo & Co., 5.239%, 5/01/2033(d) 23,368,239 --------------- 232,762,088 --------------- Total Convertible Bonds (Identified Cost $234,655,326) 245,237,039 --------------- Non-Convertible Bonds -- 82.6% Argentina -- 0.5% 2,405,000 Pecom Energia SA, 144A, 8.125%, 7/15/2010 2,501,200 3,603,539 Republic of Argentina, Zero Coupon, 12/15/2035(d) 358,192 40,415,000 Republic of Argentina, 2.418%, 9/30/2014, (ARS)(d) 13,326,318 10,390,625 Republic of Argentina, 5.590%, 8/03/2012(d) 8,226,087 1,351,006 Republic of Argentina, 8.280%, 12/31/2033(c)(f) 1,300,343 --------------- 25,712,140 --------------- Australia -- 0.0% 1,000,000 General Motors Acceptance Corp. of Australia, Ltd., 6.500%, 8/10/2007, (AUD) 720,589 --------------- Brazil -- 3.3% 92,000,000 JPMorgan Chase Bank, 144A, Zero Coupon, 5/17/2010, (BRL) 26,626,390 17,907,000 Republic of Brazil, 8.250%, 1/20/2034(c) 20,593,050 6,000,000 Republic of Brazil, 8.875%, 4/15/2024 7,215,000 107,840,000 Republic of Brazil, 12.500%, 1/05/2022, (BRL) 48,707,295 140,235,000 Republic of Brazil, 12.500%, 1/05/2016, (BRL)(c) 64,738,482 --------------- 167,880,217 --------------- Canada -- 14.7% 250,000 Abitibi-Consolidated, Inc., 6.000%, 6/20/2013 203,125 2,060,000 Abitibi-Consolidated, Inc., 7.400%, 4/01/2018 1,689,200 7,375,000 Abitibi-Consolidated, Inc., 7.500%, 4/01/2028 5,826,250 1,650,000 Alcan, Inc., 5.750%, 6/01/2035 1,563,562 750,000 Avenor, Inc., 10.850%, 11/30/2014, (CAD) 707,895
See accompanying notes to financial statements. 34 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------------- Canada -- continued $ 2,445,000 Bombardier, Inc., 7.350%, 12/22/2026, (CAD) $ 1,985,093 11,600,000 Bombardier, Inc., 144A, 7.450%, 5/01/2034 9,990,500 361,535,000 Canadian Government, 2.750%, 12/01/2007, (CAD) 318,920,608 70,540,000 Canadian Government, 4.250%, 9/01/2008, (CAD)(c) 63,481,267 10,555,000 Canadian Government, 4.250%, 9/01/2009, (CAD) 9,531,748 111,010,000 Canadian Government, 4.500%, 9/01/2007, (CAD)(c) 99,702,920 24,200,000 Canadian Government, 6.000%, 6/01/2008, (CAD)(c) 22,356,448 7,955,000 Domtar, Inc., 5.375%, 12/01/2013 6,801,525 945,000 GMAC Canada, Ltd., 7.750%, 9/26/2008, (NZD) 569,744 335,000 GMAC Canada, Ltd., Series E., (MTN), 6.625%, 12/17/2010, (GBP) 613,909 9,790,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 5.700%, 1/05/2016 9,037,306 22,350,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 6.400%, 1/05/2036 20,013,218 6,840,000 Nortel Networks Corp., 6.875%, 9/01/2023 5,643,000 22,320,000 Nortel Networks, Ltd., 144A, 10.125%, 7/15/2013 23,547,600 14,010,000 North American Energy Partners, Inc., Senior Note, 8.750%, 12/01/2011 13,974,975 5,800,000 Northern Telecom Capital Corp., 7.875%, 6/15/2026 5,046,000 5,990,000 Province of British Columbia, 5.250%, 12/01/2006, (CAD) 5,367,340 29,235,000 Province of British Columbia, 6.000%, 6/09/2008, (CAD) 26,957,926 13,000,000 Province of Manitoba, 4.450%, 12/01/2008, (CAD) 11,724,017 6,685,000 Province of Manitoba, 5.750%, 6/02/2008, (CAD) 6,139,494 6,745,000 Province of Ontario, 3.875%, 3/08/2008, (CAD) 6,013,927 40,020,000 Province of Ontario, 5.700%, 12/01/2008, (CAD) 37,018,545 18,470,000 Province of Saskatchewan, 5.500%, 6/02/2008, (CAD) 16,896,725 8,500,000 Rogers Wireless Communications, Inc., Senior Note, 7.625%, 12/15/2011, (CAD) 8,231,939 2,525,000 Rogers Wireless Communications, Inc., Senior Secured Note, 6.375%, 3/01/2014 2,515,531 --------------- 742,071,337 --------------- Cayman Islands -- 0.0% 1,000,000 Enersis SA, Cayman Island, 7.400%, 12/01/2016 1,071,954 --------------- Chile -- 0.3% 4,875,000 Empresa Nacional de Electricidad SA, Chile, 7.875%, 2/01/2027 5,403,294 250,000 Empresa Nacional de Electricidad SA, Chile, 8.350%, 8/01/2013(c) 280,498
Principal Amount+ Description Value (a) - --------------------------------------------------------------------------------------- Chile -- continued $ 1,700,000 Empresa Nacional de Electricidad SA, Chile, 8.625%, 8/01/2015(c) $ 1,968,834 4,525,000 Enersis SA, Chile, 7.375%, 1/15/2014(c) 4,809,555 --------------- 12,462,181 --------------- France -- 0.3% 224,520,000,000 BNP Paribas SA, 144A, Zero Coupon, 6/13/2011, (IDR) 15,574,630 --------------- Ireland -- 0.6% 32,115,000 Elan Finance Corp., Senior Note, 7.750%, 11/15/2011 31,271,981 --------------- Mexico -- 3.5% 5,850,000 Desarrolladora Homex SA de CV, 7.500%, 9/28/2015 5,733,000 473,800,000 United Mexican States, 9.000%, 12/20/2012, (MXN) 44,798,536 324,500,000 United Mexican States, Series M-10, 8.000%, 12/17/2015, (MXN) 28,961,197 1,138,400,000 United Mexican States, Series M-10, 8.000%, 12/07/2023, (MXN) 98,867,047 --------------- 178,359,780 --------------- Netherlands -- 0.1% 1,330,000 GMAC International Finance BV, 8.000%, 3/14/2007, (NZD) 862,580 1,120,000 Koninklijke (Royal) KPN NV, Series E, (MTN), 5.750%, 3/18/2016, (GBP) 2,074,452 1,800,000 Koninklijke (Royal) KPN NV, Series G (MTN), 4.000%, 6/22/2015, (EUR) 2,134,269 --------------- 5,071,301 --------------- Norway -- 0.1% 22,740,000 Kingdom of Norway, 6.750%, 1/15/2007, (NOK) 3,514,286 10,000,000 Kingdom of Norway, 5.500%, 5/15/2009, (NOK) 1,590,457 --------------- 5,104,743 --------------- Philippines -- 0.1% 3,700,000 Philippine Long Distance Telephone Co., (MTN), 8.350%, 3/06/2017(c) 4,042,250 1,784,500 Quezon Power (Philippines), Ltd., Senior Secured Note, 8.860%, 6/15/2017 1,793,422 --------------- 5,835,672 --------------- Republic of Korea -- 0.2% 5,470,000 Hanarotelecom, Inc., 144A, 7.000%, 2/01/2012 5,374,275 5,000,000 Hynix Semiconductor, Inc., 144A, 9.875%, 7/01/2012(c) 5,450,000 300,000 Samsung Electronics Co., Ltd., 144A, 7.700%, 10/01/2027 322,022 --------------- 11,146,297 --------------- Singapore -- 0.0% 1,050,000 SP PowerAssets, Ltd., Series E, (MTN), 3.730%, 10/22/2010, (SGD) 666,773 --------------- South Africa -- 1.0% 11,405,000 Republic of South Africa, 12.500%, 12/21/2006, (ZAR) 1,474,835
See accompanying notes to financial statements. 35 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - --------------------------------------------------------------------------------- South Africa -- continued $ 320,500,000 Republic of South Africa, Series R153, 13.000%, 8/31/2010, (ZAR) $ 47,000,494 --------------- 48,475,329 Spain -- 2.4% 113,785,000 Telefonica Emisiones SAU, Guaranteed Note, 7.045%, 6/20/2036 120,080,383 --------------- Supranational -- 1.9% 15,543,570 European Investment Bank, 144A, Zero Coupon, 9/12/2008, (BRL) 5,565,725 128,250,000 European Investment Bank, Senior Note, Zero Coupon, 3/10/2021, (AUD) 42,580,210 24,450,000 Inter-American Development Bank, 6.000%, 12/15/2017, (NZD) 15,516,317 80,000,000 Inter-American Development Bank, Series E, (MTN), Zero Coupon, 5/11/2009, (BRL) 25,571,448 12,125,000 Inter-American Development Bank, Series G, (MTN), 6.250%, 6/22/2016, (NZD) 7,826,287 --------------- 97,059,987 --------------- Sweden -- 0.6% 207,265,000 Kingdom of Sweden, 6.500%, 5/05/2008, (SEK) 29,641,003 --------------- United Kingdom -- 0.3% 72,717,436,000 JPMorgan Chase Bank, 144A, Zero Coupon, 10/21/2010, (IDR) 5,347,881 1,000,000 NTL Cable PLC, 9.125%, 8/15/2016 1,032,500 4,570,000 NTL Cable PLC, 9.750%, 4/15/2014, (GBP) 8,813,341 --------------- 15,193,722 --------------- United States -- 52.0% 5,565,000 AES Corp. (The), 8.375%, 3/01/2011, (GBP) 10,628,024 4,020,000 AES Corp. (The), Senior Note, 7.750%, 3/01/2014 4,180,800 1,190,000 Affiliated Computer Services, Inc., 5.200%, 6/01/2015 1,097,775 15,475,000 Albertson's, Inc., 7.750%, 6/15/2026 14,702,008 56,921,000 Albertson's, Inc., Senior Note, 7.450%, 8/01/2029 52,723,645 4,895,000 Albertson's, Inc., Senior Note, 8.000%, 5/01/2031 4,758,493 1,510,000 Albertson's, Inc., Senior Note, 8.700%, 5/01/2030 1,522,528 9,917,000 Albertson's, Inc., Series C, (MTN), 6.625%, 6/01/2028 8,508,399 4,785,000 Allstate Corp., 5.950%, 4/01/2036(c) 4,781,545 1,750,000 Altria Group, Inc., 7.000%, 11/04/2013 1,908,067 825,000 American Airlines, Inc., Series 1999-1, Class B, 7.324%, 10/15/2009 804,375 1,225,697 American Airlines, Inc., Series 93A6, 8.040%, 9/16/2011 1,188,926 10,103,000 American President Cos., Ltd., Senior Note, 8.000%, 1/15/2024(b) 9,092,700 6,950,000 Amkor Technology, Inc., Senior Note, 7.125%, 3/15/2011(c) 6,394,000
Principal Amount+ Description Value (a) - --------------------------------------------------------------------------------- United States -- continued $ 475,000 Amkor Technology, Inc., Senior Note, 7.750%, 5/15/2013 $ 435,813 1,511,000 Amkor Technology, Inc., Senior Subordinated Note, 10.500%, 5/01/2009 1,518,555 37,190,000 Anadarko Petroleum Corp., 5.950%, 9/15/2016 37,634,346 27,460,000 Anadarko Petroleum Corp., 6.450%, 9/15/2036 28,048,440 1,015,000 Arrow Electronics, Inc., 6.875%, 6/01/2018 1,037,332 8,000,000 ASIF Global Financing, 144A, 2.380%, 2/26/2009, (SGD) 4,896,358 8,500,000 AT&T, Inc., 6.150%, 9/15/2034(c) 8,228,961 17,574,841 Atlas Air, Inc., Series 1998-1, Class 1B, 7.680%, 1/02/2014(h) 18,453,583 1,078,922 Atlas Air, Inc., Series 1999-1, Class A1, 7.200%, 1/02/2019 1,070,830 376,285 Atlas Air, Inc., Series 1999-1, Class A2, 6.880%, 7/02/2009 364,996 12,740,207 Atlas Air, Inc., Series 1999-1, Class B, 7.630%, 1/02/2015(h) 13,249,815 3,745,702 Atlas Air, Inc., Series 1999-1, Class C, 8.770%, 1/02/2011(h) 3,240,032 5,323,737 Atlas Air, Inc., Series 2000-1, Class B, 9.057%, 1/02/2014(h) 5,909,348 4,050,532 Atlas Air, Inc., Series C, 8.010%, 1/02/2010(h) 3,260,678 23,105,000 Avnet, Inc., 6.000%, 9/01/2015 22,544,288 5,220,000 Avnet, Inc., 6.625%, 9/15/2016 5,312,796 22,125,000 BAC Capital Trust VI, 5.625%, 3/08/2035 20,516,866 17,310,000,000 Barclays Financial LLC, 144A, 4.060%, 9/16/2010, (KRW) 18,156,063 529,000,000 Barclays Financial LLC, 144A, 4.100%, 3/22/2010, (THB) 13,422,363 1,006,000,000 Barclays Financial LLC, 144A, 4.160%, 2/22/2010, (THB) 25,601,381 21,340,000,000 Barclays Financial LLC, 144A, 4.460%, 9/23/2010, (KRW) 22,608,560 337,000,000 Barclays Financial LLC, 144A, 5.500%, 11/01/2010, (THB) 8,931,823 15,195,000 BellSouth Corp., 6.000%, 11/15/2034(c) 14,262,984 19,671,000 Borden, Inc., 7.875%, 2/15/2023 16,130,220 6,560,000 Borden, Inc., 8.375%, 4/15/2016 5,904,000 8,372,000 Borden, Inc., 9.200%, 3/15/2021 7,785,960 2,685,000 Bowater, Inc., 6.500%, 6/15/2013(c) 2,382,938 2,840,000 Centex Corp., 5.250%, 6/15/2015(c) 2,653,193 17,740,000 Chesapeake Energy Corp., 6.500%, 8/15/2017 16,631,250 425,000 Cincinnati Bell, Inc., 8.375%, 1/15/2014 429,250
See accompanying notes to financial statements. 36 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------- United States -- continued $ 3,055,000 CIT Group, Inc., 6.000%, 4/01/2036 $ 2,974,699 2,500,000 CIT Group, Inc., Series E, Senior Note, (MTN), 5.500%, 12/01/2014, (GBP) 4,666,464 18,650,000 Citibank NA, 144A, 15.000%, 7/02/2010, (BRL) 9,319,939 1,675,000 Colorado Interstate Gas Co., 5.950%, 3/15/2015 1,601,838 38,780,000 Comcast Corp., 5.650%, 6/15/2035 35,183,543 34,570,000 Comcast Corp., 6.450%, 3/15/2037 34,586,697 20,175,000 Comcast Corp., 6.500%, 11/15/2035 20,315,519 3,910,660 Continental Airlines, Inc., Series 1997-4, Class 4B, 6.900%, 1/02/2017 3,750,099 2,744,779 Continental Airlines, Inc., Series 1998-1, Class 1B, 6.748%, 3/15/2017 2,676,160 7,594,570 Continental Airlines, Inc., Series 1999-1, Class B, 6.795%, 8/02/2018 7,389,924 2,830,444 Continental Airlines, Inc., Series 1999-1, Class C, 6.954%, 8/02/2009 2,710,150 4,496,470 Continental Airlines, Inc., Series 1999-2, Class B, 7.566%, 3/15/2020 4,485,229 7,841,002 Continental Airlines, Inc., Series 2000-2, Class B, 8.307%, 4/02/2018 7,605,772 3,031,961 Continental Airlines, Inc., Series 2001-1, Class B, 7.373%, 12/15/2015 3,001,642 349,193 Continental Airlines, Inc., Series 96-A, 6.940%, 10/15/2013 348,924 2,886,433 Continental Airlines, Inc., Series 971A, 7.461%, 4/01/2015 2,886,433 6,225,000 Corning, Inc., 5.900%, 3/15/2014(c) 6,348,921 6,220,000 Corning, Inc., 6.200%, 3/15/2016 6,362,450 650,000 Corning, Inc., 6.750%, 9/15/2013 694,862 1,000,000 Corning, Inc., 6.850%, 3/01/2029 1,046,981 2,810,000 Corning, Inc., 7.250%, 8/15/2036 2,992,737 400,000 CSC Holdings, Inc., Senior Note, 7.875%, 2/15/2018 415,000 250,000 CSC Holdings, Inc., Series B, Senior Note, 8.125%, 7/15/2009 258,750 250,000 CSC Holdings, Inc., Series B, Senior Note, 8.125%, 8/15/2009 259,063 2,145,000 Cummins, Inc., 7.125%, 3/01/2028 2,195,959 8,558,000 Dillard's, Inc., 6.625%, 1/15/2018(c) 8,151,495 1,685,000 Dillard's, Inc., 7.130%, 8/01/2018 1,651,300 1,500,000 Dillard's, Inc., 7.750%, 7/15/2026 1,443,750 425,000 Dillard's, Inc., 7.875%, 1/01/2023 418,625 3,125,000 Dillard's, Inc., Class A, 7.000%, 12/01/2028 2,855,469
Principal Amount+ Description Value (a) - ------------------------------------------------------------------------------ United States -- continued $ 8,180,000 Dominion Resources, Inc., Senior Note, Series B, 5.950%, 6/15/2035 $ 7,942,723 4,335,000 DR Horton, Inc., 5.625%, 9/15/2014 4,087,068 1,625,000 DR Horton, Inc., 6.500%, 4/15/2016 1,594,502 16,160,000 DR Horton, Inc., Guaranteed Note, 5.625%, 1/15/2016 15,014,078 31,875,000 DR Horton, Inc., Senior Note, 5.250%, 2/15/2015 29,101,811 9,830,000 Dynegy Holdings, Inc., 7.125%, 5/15/2018 8,994,450 7,735,000 Dynegy Holdings, Inc., 7.625%, 10/15/2026 7,058,188 7,455,000 Dynegy Holdings, Inc., 8.375%, 5/01/2016(c) 7,585,463 3,705,000 Edison Mission Energy Corp., Senior Note, 7.730%, 6/15/2009 3,806,888 260,000 El Paso Corp, 6.375%, 2/01/2009 259,350 14,705,000 El Paso Corp., 6.95%, 6/01/2028 13,822,700 1,965,000 El Paso Corp., 7.000%, 5/15/2011 1,977,281 925,000 El Paso Corp., 7.750%, 6/15/2010 957,375 750,000 El Paso Corp., Senior Note, (MTN), 7.800%, 8/01/2031(c) 768,750 1,600,000 El Paso Energy Corp., 6.750%, 5/15/2009(c) 1,608,000 1,000,000 El Paso Energy Corp., (MTN), 7.750%, 1/15/2032(c) 1,025,000 5,330,000 Embarq Corp., 7.995%, 6/01/2036 5,643,953 5,000,000 FHLMC, 3.220%, 6/20/2007, (SGD) 3,138,045 29,200,000 FNMA, 2.290%, 2/19/2009, (SGD) 17,879,335 17,816,000 Ford Motor Co., 6.375%, 2/01/2029(c) 13,027,950 31,929,000 Ford Motor Co., 6.625%, 10/01/2028(c) 23,827,016 26,070,000 Ford Motor Credit Co., 5.700%, 1/15/2010 24,084,691 10,685,000 Ford Motor Credit Co., 7.000%, 10/01/2013(c) 9,913,949 15,465,000 Ford Motor Credit Co., 7.250%, 10/25/2011 14,584,670 9,905,000 Ford Motor Credit Co., 8.625%, 11/01/2010 9,867,272 3,100,000 General Electric Capital Corp., 6.125%, 5/17/2012, (GBP) 6,046,314 30,350,000 General Electric Capital Corp., 6.625%, 2/04/2010, (NZD) 19,522,878 36,745,000 General Electric Capital Corp., 6.750%, 9/26/2016, (NZD) 24,159,240 222,777,000 General Electric Capital Corp., 6.500%, 9/28/2015, (NZD) 142,146,473 500,000 General Electric Capital Corp., Series E, (MTN), 1.725%, 6/27/2008, (SGD) 305,318
See accompanying notes to financial statements. 37 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------------- United States -- continued $ 10,375,000 Georgia-Pacific Corp., 7.250%, 6/01/2028 $ 9,700,625 1,845,000 Georgia Gulf Corp., 144A, 10.750%, 10/15/2016 1,817,325 10,040,000 Georgia-Pacific Corp., 7.375%, 12/01/2025 9,487,800 38,410,000 Georgia-Pacific Corp., 7.750%, 11/15/2029 36,873,600 6,840,000 Georgia-Pacific Corp., 8.000%, 1/15/2024 6,737,400 11,455,000 Georgia-Pacific Corp., 8.875%, 5/15/2031 11,913,200 8,000,000 GMAC LLC, 6.243%, 3/20/2007(d) 7,972,992 6,625,000 GMAC LLC, 6.457%, 7/16/2007(d) 6,587,774 820,000 GMAC LLC, 8.000%, 11/01/2031 857,376 4,650,000 GMAC LLC, (MTN), 6.750%, 12/01/2014(c) 4,539,586 5,321,000 GMAC LLC, Series E, (MTN), 7.500%, 12/01/2006, (NZD) 3,453,388 4,085,000 Goodyear Tire & Rubber Co., 7.000%, 3/15/2028 3,421,188 1,845,000 Goodyear Tire & Rubber Co., 9.000%, 7/01/2015(c) 1,872,675 2,590,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note, 7.750%, 12/15/2013 2,408,700 5,790,000 GTE Corp., 6.940%, 4/15/2028 5,996,767 185,000 Hawaiian Telcom Communications, Inc., 12.500%, 5/01/2015(c) 194,250 1,000,000 HCA, Inc., Senior Note, 5.750%, 3/15/2014 785,000 2,740,000 HCA, Inc., 6.500%, 2/15/2016 2,192,000 12,525,000 HCA, Inc., 7.050%, 12/01/2027 8,988,128 7,642,000 HCA, Inc., 7.500%, 12/15/2023 5,925,614 12,355,000 HCA, Inc., 7.500%, 11/06/2033 9,636,900 5,820,000 HCA, Inc., (MTN), 7.580%, 9/15/2025 4,485,777 15,847,000 HCA, Inc., 7.690%, 6/15/2025 12,370,659 3,685,000 HCA, Inc., (MTN), 7.750%, 7/15/2036 2,854,069 7,885,000 Hercules, Inc., Subordinated Note, 6.500%, 6/30/2029 6,357,281 16,050,000 HSBC Bank USA, 144A, 3.310%, 8/25/2010 16,165,560 4,215,000 IMC Global, Inc., 7.300%, 1/15/2028 3,667,050 2,570,000 IMC Global, Inc., 7.375%, 8/01/2018 2,361,188 640,000 JC Penney Co., Inc., 7.125%, 11/15/2023(c) 708,301 2,865,000 Jefferson Smurfit Corp., 7.500%, 6/01/2013 2,642,963
Principal Amount+ Description Value (a) - --------------------------------------------------------------------------------------- United States -- continued $709,038,100,000 JPMorgan Chase & Co., 144A Zero Coupon, 3/28/2011, (IDR) $ 50,105,205 2,545,000 K. Hovnanian Enterprises, Inc., Guaranteed Note, 6.375%, 12/15/2014(c) 2,277,775 6,180,000 K. Hovnanian Enterprises, Inc., 7.500%, 5/15/2016(c) 5,770,575 6,440,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.250%, 1/15/2016(c) 5,667,200 1,630,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.500%, 1/15/2014 1,491,450 765,000 K N Capital Trust III, 7.630%, 4/15/2028 716,396 4,300,000 K N Energy, Inc., 6.670%, 11/01/2027 3,876,080 10,975,000 KB Home, 7.250%, 6/15/2018 10,521,173 7,515,000 Kellwood Co., 7.625%, 10/15/2017 6,982,607 11,288,000 Kinder Morgan, Inc., Senior Note, 5.150%, 3/01/2015 10,142,742 1,650,000 Koppers Holdings, Inc, (step to 9.875% on 11/15/2009), 0.000%, 11/15/2014(i) 1,212,750 22,525,000 Lennar Corp., 144A, 6.500%, 4/15/2016 22,646,545 1,600,000 Lennar Corp., Series B, Class A, Guaranteed Note, 5.600%, 5/31/2015 1,521,595 30,795,000 Level 3 Communications, Inc., 2.875%, 7/15/2010 31,064,456 380,000 Level 3 Communications, Inc., Senior Note, 11.500%, 3/01/2010(c) 390,450 22,100,000 Lucent Technologies, Inc., 6.450%, 3/15/2029 19,669,000 1,105,000 Lucent Technologies, Inc., 6.500%, 1/15/2028 983,450 8,310,000 Lyondell Chemical Co., 8.000%, 9/15/2014 8,413,875 1,250,000 McDonalds Corp., Series E, (MTN), 3.628%, 10/10/2010, (SGD) 786,483 4,185,000 Methanex Corp., Senior Note, 6.000%, 8/15/2015 4,006,485 13,405,000 Michigan Tobacco Settlement Finance Authority, Taxable Turbo Series A, 7.309%, 6/01/2034 13,867,204 1,000,000 Midamerican Energy Holdings Co., 144A, 6.125%, 4/01/2036 1,010,803 1,153,000 Missouri Pacific Railroad Co., 5.000%, 1/01/2045 923,159 2,730,000 Nektar Therapeutics, 144A, 3.250%, 9/28/2012 2,668,575 28,790,000 NGC Corp. Capital Trust I, Series B, 8.316%, 6/01/2027 26,198,900 3,346,000 New England Telephone & Telegraph Co., 7.875%, 11/15/2029 3,631,584 2,500,000 NRG Energy, Inc., 7.250%, 2/01/2014 2,481,250 5,000,000 NRG Energy, Inc., 7.375%, 2/01/2016 4,968,750 2,275,000 Owens & Minor, Inc., 6.350%, 4/15/2016 2,294,331
See accompanying notes to financial statements. 38 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Principal Amount+ Description Value (a) - ------------------------------------------------------------------------------ United States -- continued $ 225,000 Owens-Illinois, Inc., Senior Note, 7.500%, 5/15/2010 $ 225,000 39,943,000 Owens-Illinois, Inc., Senior Note, 7.800%, 5/15/2018(c) 37,945,850 3,000,000 Pemex Project Funding Master Trust, 8.625%, 12/01/2023(c) 3,607,500 4,350,000 Pemex Project Funding Master Trust, 9.500%, 9/15/2027(c) 5,676,750 1,920,000 Pioneer Natural Resource, 5.875%, 7/15/2016(c) 1,797,903 3,165,000 Pulte Homes, Inc., 5.200%, 2/15/2015(c) 2,963,779 41,615,000 Pulte Homes, Inc., 6.000%, 2/15/2035(c) 37,520,625 8,835,000 Pulte Homes, Inc., 6.375%, 5/15/2033 8,267,342 11,580,000 Qwest Capital Funding, Inc., 6.500%, 11/15/2018 10,479,900 950,000 Qwest Capital Funding, Inc., 7.250%, 2/15/2011 950,000 17,305,000 Qwest Capital Funding, Inc., 7.750%, 2/15/2031 16,699,325 36,410,000 Qwest Capital Funding, Inc., Guaranteed Note, 6.875%, 7/15/2028(c) 32,586,950 2,025,000 Qwest Capital Funding, Inc., Guaranteed Note, 7.000%, 8/03/2009(c) 2,035,125 5,640,000 Qwest Capital Funding, Inc., Guaranteed Note, 7.625%, 8/03/2021(c) 5,463,750 20,420,000 Qwest Corp., 6.875%, 9/15/2033 18,633,250 2,785,000 Qwest Corp., 7.250%, 9/15/2025 2,697,969 6,100,000 SLM Corp., 6.500%, 6/15/2010, (NZD) 3,908,741 2,550,000 Southern Natural Gas Co., 7.350%, 2/15/2031 2,642,371 4,000,000 St. Paul Travelers Cos, Inc. (The), 6.750%, 6/20/2036 4,309,532 1,810,000 Sungard Data Systems, Inc., 9.125%, 8/15/2013 1,873,350 2,595,000 Sungard Data Systems, Inc., 10.250%, 8/15/2015 2,672,850 690,000 Tenet Healthcare Corp., 6.875%, 11/15/2031(c) 540,788 2,925,000 Tenet Healthcare Corp., 9.250%, 2/01/2015 2,815,313 3,267,000 Tennessee Gas Pipeline Co., Senior Note, 7.000%, 10/15/2028(c) 3,253,814 11,145,000 Time Warner, Inc., 6.625%, 5/15/2029 11,142,637 4,795,000 Time Warner, Inc., 6.950%, 1/15/2028(c) 4,942,475 3,150,000 Time Warner, Inc., 7.625%, 4/15/2031 3,479,711 2,025,000 Time Warner, Inc., 7.700%, 5/01/2032 2,261,394 496,687 Tiverton Power Associates, LP, 144A, 9.000%, 7/15/2018(g) 474,336
Principal Amount+ Description Value (a) - ------------------------------------------------------------------------------------------- United States -- continued $ 4,245,000 Toll Brothers Financial Corp., 5.150%, 5/15/2015(c) $ 3,773,308 7,330,000 Toys R US, Inc., 7.375%, 10/15/2018 5,305,088 1,000,000 Travelers Property Casualty Corp., 6.375%, 3/15/2033 1,018,634 315,000 TXU Corp., 5.550%, 11/15/2014 297,605 2,225,000 TXU Corp., 6.550%, 11/15/2034(c) 2,095,670 288,680,000 U.S. Treasury Bond, 5.375%, 2/15/2031(c) 311,796,917 17,265,000 U.S. Treasury Note, 3.000%, 2/15/2008(c) 16,855,630 214,405,000 U.S. Treasury Note, 3.250%, 8/15/2007(c) 211,289,481 210,595,000 U.S. Treasury Note, 3.875%, 7/31/2007(c) 208,735,867 4,160,000 United Rentals North America, Inc., Senior Subordinated Note, 7.000%, 2/15/2014(c) 3,910,400 51,815,000 Verizon Global Funding Corp., 5.850%, 9/15/2035 48,817,969 3,365,000 Verizon Maryland, Inc., 5.125%, 6/15/2033 2,728,985 12,050,000 Verizon New York, Inc., Series B, 7.375%, 4/01/2032 12,560,149 32,790,000 Viacom, Inc., 144A, 6.875%, 4/30/2036 32,415,801 600,000 Williams Cos., Inc., 7.875%, 9/01/2021 627,000 965,000 Williams Cos., Inc., Senior Note, 7.750%, 6/15/2031 965,000 8,600,000 Williams Cos., Inc., Series A, 7.500%, 1/15/2031 8,492,500 10,070,000 Woolworth Corp., 8.500%, 1/15/2022 9,516,150 18,050,000 Xerox Capital Trust I, Guaranteed Note, 8.000%, 2/01/2027 18,411,000 1,730,000 Xerox Corp., (MTN), 7.200%, 4/01/2016 1,816,500 --------------- 2,623,827,400 --------------- Uruguay -- 0.1% 1,595,000 Republic of Uruguay, 7.625%, 3/21/2036 1,591,013 2,935,319 Republic of Uruguay, 7.875%, 1/15/2033(c)(f) 3,038,055 --------------- 4,629,068 --------------- Venezuela -- 0.6% 16,535,000 Cerro Negro Finance, Ltd., 144A, 7.900%, 12/01/2020 15,336,212 13,790,000 Petrozuata Finance, Inc., Series B, 144A, 8.220%, 4/01/2017 13,445,250 --------------- 28,781,462 --------------- Total Non-Convertible Bonds (Identified Cost $4,007,532,692) 4,170,637,949 --------------- Total Bonds and Notes (Identified Cost $4,242,188,018) 4,415,874,988 ---------------
See accompanying notes to financial statements. 39 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2006
Shares Description Value (a) - ----------------------------------------------------------------------------------------------- Common Stocks -- 5.3% Israel -- 0.0% 2,288 Teva Pharmaceutical Industries, Ltd., ADR $ 77,998 --------------- Philippines -- 0.2% 240,975 Philippine Long Distance Telephone Co., Sponsored GDR, Convertible 10,496,871 --------------- United States -- 5.1% 200,925 Apartment Investment & Management Co., Class A 10,932,329 889,730 Associated Estates Realty Corp., (REIT) 13,764,123 2,238,800 Bristol-Myers Squibb Co. 55,790,896 137,000 Camden Property Trust, (REIT) 10,413,370 53,260 Chesapeake Energy Corp.(c) 1,543,475 2,309,175 ConAgra Foods, Inc. 56,528,604 41,343 Corning, Inc.(h) 1,009,183 182,500 Developers Diversified Realty Corp., (REIT) 10,176,200 282,500 Duke Energy Corp. 8,531,500 460,000 Equity Residential Properties Trust, (REIT) 23,266,800 477,725 KB Home(c) 20,924,355 549,450 Lennar Corp., Class A 24,862,612 117,700 Simon Property Group, Inc., (REIT) 10,665,974 202,221 Vertex Pharmaceuticals, Inc.(c)(h) 6,804,737 --------------- 255,214,158 --------------- Total Common Stocks (Identified Cost $222,671,993) 265,789,027 --------------- Shares - ----------------------------------------------------------------------------------------------- Preferred Stocks -- 1.4% United States -- 1.4% 249,825 AES Trust III, Convertible, 6.750%, 10/15/2029(c) 12,216,442 107,725 CMS Energy Trust I, Convertible, 7.750%, 7/15/2027 5,372,784 113,750 El Paso Energy Capital Trust I, 4.750%, 3/31/2028 4,234,913 393 Entergy New Orleans, Inc., 4.750%, 12/31/2045(g) 18,471 42,700 Felcor Lodging Trust, Inc., (REIT) Convertible, 1.950%, 12/31/2049 1,063,657 15,600 Lucent Technologies Capital Trust I, Convertible, 7.750%, 3/15/2017 15,941,250 62,475 Newell Financial Trust I, 5.250%, 12/01/2027 2,858,231 455,100 Owens-Illinois, Inc., Convertible, 4.750%, 12/31/2049 15,951,255 800 Pacific Gas & Electric Co., Series G, 4.800%, 12/12/2006 16,648 263,275 Six Flags, Inc., 7.125%, 8/15/2009(c) 5,607,758 352,925 Travelers Property Casualty, Convertible, 4.500%, 4/15/2032(c) 8,689,014 10,198 United Rentals Trust I, Convertible, 6.500%, 8/01/2028 476,757 --------------- Total Preferred Stocks (Identified Cost $69,406,683) 72,447,180 --------------- Shares - ----------------------------------------------------------------------------------------------- Closed-End Investment Companies -- 0.4% 1,368,400 Managed High Income Portfolio, Inc. 8,525,132 110,211 Morgan Stanley Emerging Markets Debt Fund, Inc.(c) 1,114,233 1,755,800 High Income Opportunity Fund, Inc. 11,184,444 --------------- Total Closed-End Investment Companies (Identified Cost $20,353,073) 20,823,809 ---------------
Shares/ Principal Amount+ Description Value (a) - ---------------------------------------------------------------------------------------------------------- Short-Term Investments -- 21.4% 918,797,771 State Street Securities Lending Quality Trust(j) $ 918,797,771 $ 161,229,725 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/29/06 at 3.45% to be repurchased at $161,276,079 on 10/02/06, collateralized by $26,745,000 U.S. Treasury Note, 3.375% due 11/15/2008 valued at $26,721,003 and collateralized by $138,635,000 U.S. Treasury Note, 3.875% due 5/15/2009 valued at $140,124,612, including accrued interest (Note 2f) 161,229,725 --------------- Total Short-Term Investments (Identified Cost $1,080,027,496) 1,080,027,496 --------------- Total Investments -- 116.0% (Identified Cost $5,634,647,263)(e) 5,854,962,500 Other assets less liabilities--(16.0)% (808,806,255) --------------- Total Net Assets -- 100% $ 5,046,156,245 =============== + Principal amount is in U.S. dollars unless otherwise noted. (a) See Note 2a of Notes to Financial Statements. (b) Illiquid security. At September 30, 2006, the value of these securities amounted to $13,738,700 or 0.3% of net assets. (c) All or a portion of this security was on loan to brokers at September 30, 2006. (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). (e) Federal Tax Information: At September 30, 2006, the net unrealized appreciation on investments based on cost of $5,641,868,896 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost $ 259,411,296 Aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value (46,317,692) --------------- Net unrealized appreciation $ 213,093,604 =============== (f) All or a portion of interest payment is paid-in-kind. (g) Non-income producing security due to default or bankruptcy filing. (h) Non-income producing security. (i) Step Bond: Coupon is a fixed rate for an initial period and then resets at a specified date and rate. (j) Represents investment of security lending collateral. 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, 2006, the total value of these securities amounted to $364,917,612 or 7.2% of total net assets. ADR An American Depositary Receipt is a certificate issued by a custodian bank representing the right to receive securities of the foreign issuer described. The values of ADR's are significantly influenced by trading on exchanges not located in the United States. FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association GDR A 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 GDRs are significantly influenced by trading on exchanges not located in the United States.
See accompanying notes to financial statements. 40 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (CONTINUED) Investments as of September 30, 2006 MTN Medium Term Note REIT Real Estate Investment Trust Key to Abbreviations: ARS Argentine Peso AUD Australian Dollar BRL Brazilian Real CAD Canadian Dollar EUR Euro GBP British Pound IDR Indonesian Rupiah KRW South Korean Won MXN Mexican Peso NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht ZAR South African Rand
Holdings at September 30, 2006 as a Percentage of Net Assets (unaudited) Sovereigns 20.8% Treasuries 14.8 Pharmaceuticals 4.8 Telecommunications 4.3 Technology 3.9 Banking 3.9 Non-Captive Diversified 3.8 Home Construction 3.0 Automotive 2.5 Electric 2.4 Wirelines 2.4 Media Cable 2.0 Other, less than 2% each 26.0
See accompanying notes to financial statements. 41 This Page Intentionally Left Blank 42 STATEMENTS OF ASSETS AND LIABILITIES September 30, 2006
Limited Term Government Core Plus Bond Fund High Income Fund and Agency Fund --------------------- --------------------- ----------------------- --------------------- --------------------- --------------------- ASSETS Investments at cost $ 248,083,804 $ 41,962,229 $ 136,790,696 Net unrealized appreciation (depreciation) (754,978) 2,713,347 (1,200,622) --------------------- --------------------- --------------------- Investments at value (a) 247,328,826 44,675,576 135,590,074 Cash -- -- -- Foreign currency at value (identified cost $10,395, $4,983, $0, $0, $0 and $5,156,176) 10,370 4,954 -- Receivable for Fund shares sold 950,225 191,714 106,655 Receivable for securities sold 1,308,416 -- 7,803,020 Dividends and interest receivable 2,357,932 616,822 695,412 Tax reclaims receivable -- -- -- Securities lending income receivable 982 773 616 --------------------- --------------------- --------------------- TOTAL ASSETS 251,956,751 45,489,839 144,195,777 --------------------- --------------------- --------------------- LIABILITIES Collateral on securities loaned, at value (Note 2) 27,548,560 4,281,021 4,765,375 Payable for securities purchased 1,174,802 1,119,410 -- Payable for delayed delivery security purchased (Note 2) 1,636,230 -- 7,703,595 Payable for Fund shares redeemed 273,701 30,140 385,806 Dividends payable 323,575 89,967 125,799 Management fees payable (Note 4) 238,280 41,934 102,150 Deferred Trustees' fees (Note 4) 224,228 60,777 195,814 Administrative fees payable (Note 4) 10,827 1,898 6,779 Other accounts payable and accrued expenses 311,096 56,599 87,267 --------------------- --------------------- --------------------- TOTAL LIABILITIES 31,741,299 5,681,746 13,372,585 --------------------- --------------------- --------------------- NET ASSETS $ 220,215,452 $ 39,808,093 $ 130,823,192 ===================== ===================== ===================== NET ASSETS CONSIST OF: Paid-in capital $ 243,662,207 $ 120,108,640 $ 158,791,054 Undistributed (overdistributed) net investment income 784,748 (82,641) (152,331) Accumulated net realized gain (loss) on investments and foreign currency transactions (23,475,813) (82,931,659) (26,614,909) Net unrealized appreciation (depreciation) on investments and foreign currency translations (755,690) 2,713,753 (1,200,622) --------------------- --------------------- --------------------- NET ASSETS $ 220,215,452 $ 39,808,093 $ 130,823,192 ===================== ===================== ===================== COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets $ 91,463,649 $ 29,068,770 $ 114,179,702 ===================== ===================== ===================== Shares of beneficial interest 8,141,254 5,708,763 10,383,892 ===================== ===================== ===================== Net asset value and redemption price per share $ 11.23 $ 5.09 $ 11.00 ===================== ===================== ===================== Offering price per share (100/[100-maximum sales charge] of net asset value) (Note 1) $ 11.76 $ 5.33 $ 11.34 ===================== ===================== ===================== Class B shares: (redemption price per share is equal to net asset value less any applicable contingent deferred sales charge) (Note 1) Net assets $ 109,782,403 $ 7,282,537 $ 9,952,407 ===================== ===================== ===================== Shares of beneficial interest 9,768,684 1,429,290 906,625 ===================== ===================== ===================== Net asset value and offering price per share $ 11.24 $ 5.10 $ 10.98 ===================== ===================== ===================== Class C shares: (redemption price per share is equal to net asset value less any applicable contingent deferred sales charge) (Note 1) Net assets $ 6,983,062 $ 3,456,786 $ 4,230,279 ===================== ===================== ===================== Shares of beneficial interest 620,950 678,783 384,772 ===================== ===================== ===================== Net asset value and offering price per share $ 11.25 $ 5.09 $ 10.99 ===================== ===================== ===================== Class Y shares: Net assets $ 11,986,338 $ -- $ 2,460,804 ===================== ===================== ===================== Shares of beneficial interest 1,062,133 -- 223,070 ===================== ===================== ===================== Net asset value, offering and redemption price per share $ 11.29 $ -- $ 11.03 ===================== ===================== ===================== (a) Including securities on loan with market values of: $ 26,982,787 $ 4,193,476 $ 4,684,867 ===================== ===================== =====================
See accompanying notes to financial statements. 43
Massachusetts Tax Free Municipal Strategic Income Fund Income Fund Income Fund --------------------- --------------------- --------------------- --------------------- --------------------- $ 71,290,504 $ 93,649,888 $ 5,634,647,263 4,226,844 3,808,434 220,315,237 --------------------- --------------------- --------------------- 75,517,348 97,458,322 5,854,962,500 -- -- 13,071,087 -- -- 5,144,472 3,471 4,830 78,983,240 -- -- 762,449 1,180,175 1,560,034 57,655,639 -- -- 3,332 -- -- 62,054 --------------------- --------------------- --------------------- 76,700,994 99,023,186 6,010,644,773 --------------------- --------------------- --------------------- -- -- 918,797,771 1,567,552 -- 28,400,810 -- -- -- 88,455 23,278 4,853,283 61,600 98,629 8,692,007 43,967 79,659 2,242,974 69,885 134,859 229,477 3,677 4,893 235,000 42,459 46,021 1,037,206 --------------------- --------------------- --------------------- 1,877,595 387,339 964,488,528 --------------------- --------------------- --------------------- $ 74,823,399 $ 98,635,847 $ 5,046,156,245 ===================== ===================== ===================== $ 72,798,951 $ 94,283,248 $ 4,865,381,828 13,263 177,784 3,854,962 (2,215,659) 366,381 (43,380,774) 4,226,844 3,808,434 220,300,229 --------------------- --------------------- --------------------- $ 74,823,399 $ 98,635,847 $ 5,046,156,245 ===================== ===================== ===================== $ 72,478,537 $ 93,448,200 $ 2,782,887,259 ===================== ===================== ===================== 4,346,993 12,380,067 190,666,685 ===================== ===================== ===================== $ 16.67 $ 7.55 $ 14.60 ===================== ===================== ===================== $ 17.41 $ 7.91 $ 15.29 ===================== ===================== ===================== $ 2,344,862 $ 5,187,647 $ 179,926,633 ===================== ===================== ===================== 140,950 686,491 12,276,776 ===================== ===================== ===================== $ 16.64 $ 7.56 $ 14.66 ===================== ===================== ===================== $ -- $ -- $ 1,812,277,782 ===================== ===================== ===================== -- -- 123,711,940 ===================== ===================== ===================== $ -- $ -- $ 14.65 ===================== ===================== ===================== $ -- $ -- $ 271,064,571 ===================== ===================== ===================== -- -- 18,575,716 ===================== ===================== ===================== $ -- $ -- $ 14.59 ===================== ===================== ===================== $ -- $ -- $ 904,049,930 ===================== ===================== =====================
44 STATEMENTS OF OPERATIONS For the Year Ended September 30, 2006
Limited Term Government Core Plus Bond Fund High Income Fund and Agency Fund --------------------- --------------------- ----------------------- --------------------- --------------------- --------------------- INVESTMENT INCOME Dividends $ -- $ 145,302 $ -- Interest 12,569,121 2,985,590 6,684,798 Securities lending income (Note 2) 50,426 24,165 22,572 Less net foreign taxes withheld -- (626) -- --------------------- --------------------- --------------------- 12,619,547 3,154,431 6,707,370 --------------------- --------------------- --------------------- Expenses Management fees (Note 4) 984,263 235,740 728,190 Service fees - Class A (Note 4) 239,223 66,667 315,317 Service and distribution fees - Class B (Note 4) 1,182,431 92,594 121,713 Service and distribution fees - Class C (Note 4) 59,983 33,638 48,846 Trustees' fees and expenses (Note 4) 44,358 19,872 37,558 Administrative fees (Note 4) 136,903 23,472 86,859 Custodian fees and expenses 35,255 20,351 27,226 Transfer agent fees and expenses - Class A 225,532 46,707 168,849 Transfer agent fees and expenses - Class B 279,638 16,974 16,248 Transfer agent fees and expenses - Class C 13,883 5,980 6,534 Transfer agent fees and expenses - Class Y 14,972 -- 1,028 Audit fees 40,211 46,645 36,846 Legal fees 9,136 9,672 6,768 Shareholder reporting expenses 53,200 10,558 34,746 Registration fees 42,039 35,756 50,853 Expense recapture - Class A (Note 4) -- -- -- Expense recapture - Class B (Note 4) -- -- -- Expense recapture - Class Y (Note 4) 5,495 -- -- Miscellaneous expenses 21,291 11,993 14,644 --------------------- --------------------- --------------------- Total expenses 3,387,813 676,619 1,702,225 Less reimbursement/waiver (Note 4) (73,029) (64,092) (70,282) --------------------- --------------------- --------------------- Net expenses 3,314,784 612,527 1,631,943 --------------------- --------------------- --------------------- Net investment income 9,304,763 2,541,904 5,075,427 --------------------- --------------------- --------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net (251,820) 587,425 (845,533) Foreign currency transactions - net 1,762 1,458 -- Change in unrealized appreciation (depreciation) on: Investments - net (1,340,093) 286,870 (145,704) Foreign currency translations - net (6,684) (1,728) -- --------------------- --------------------- --------------------- Total net realized and unrealized gain (loss) on investments and foreign currency transactions (1,596,835) 874,025 (991,237) --------------------- --------------------- --------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,707,928 $ 3,415,929 $ 4,084,190 ===================== ===================== =====================
See accompanying notes to financial statements. 45
Massachusetts Tax Municipal Strategic Free Income Fund Income Fund Income Fund --------------------- --------------------- --------------------- --------------------- --------------------- $ -- $ -- $ 13,671,838 3,718,192 4,950,148 175,170,351 -- -- 1,176,781 -- -- (160,354) --------------------- --------------------- --------------------- 3,718,192 4,950,148 189,858,616 --------------------- --------------------- --------------------- 457,744 510,697 18,365,690 183,746 241,651 4,219,448 27,924 63,570 1,539,392 -- -- 11,663,416 22,399 30,051 178,734 45,404 61,500 1,899,235 18,139 19,788 319,102 51,742 56,754 1,672,790 1,959 3,735 147,457 -- -- 1,147,912 -- -- 94,584 36,867 34,917 44,211 3,035 3,523 160,390 13,783 8,434 464,041 17,077 25,509 321,188 756 -- -- 36 -- -- -- -- -- 10,033 10,511 115,144 --------------------- --------------------- --------------------- 890,644 1,070,640 42,352,734 (92,157) (20,044) -- --------------------- --------------------- --------------------- 798,487 1,050,596 42,352,734 --------------------- --------------------- --------------------- 2,919,705 3,899,552 147,505,882 --------------------- --------------------- --------------------- 345,282 1,173,164 5,784,381 -- -- 431,141 (133,389) (395,083) 138,128,460 -- -- 191,413 --------------------- --------------------- --------------------- 211,893 778,081 144,535,395 --------------------- --------------------- --------------------- $ 3,131,598 $ 4,677,633 $ 292,041,277 ===================== ===================== =====================
46 STATEMENTS OF CHANGES IN NET ASSETS
Core Plus Bond Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2006 2005 --------------------- --------------------- --------------------- --------------------- FROM OPERATIONS: Net investment income $ 9,304,763 $ 9,537,622 Net realized gain (loss) on investments and foreign currency transactions (250,058) 4,343,339 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (1,346,777) (8,333,391) --------------------- --------------------- Net increase in net assets resulting from operations 7,707,928 5,547,570 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (5,268,788) (5,451,945) Class B (5,666,228) (5,851,384) Class C (281,535) (254,068) Class Y (518,162) (529,060) --------------------- --------------------- Total distributions (11,734,713) (12,086,457) --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 8) (28,217,204) (26,672,030) --------------------- --------------------- Redemption fees Class A 707 578 Class B 886 727 Class C 42 32 Class Y 61 53 --------------------- --------------------- 1,696 1,390 --------------------- --------------------- Net increase (decrease) in net assets (32,242,293) (33,209,527) --------------------- --------------------- NET ASSETS Beginning of the year 252,457,745 285,667,272 --------------------- --------------------- End of the year $ 220,215,452 $ 252,457,745 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ 784,748 $ 2,160,307 ===================== =====================
High Income Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2006 2005 --------------------- --------------------- --------------------- --------------------- FROM OPERATIONS: Net investment income $ 2,541,904 $ 2,727,688 Net realized gain (loss) on investments and foreign currency transactions 588,883 1,697,305 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations 285,142 (251,326) --------------------- --------------------- Net increase in net assets resulting from operations 3,415,929 4,173,667 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (1,818,161) (1,635,303) Class B (563,592) (908,339) Class C (204,085) (182,735) Class Y -- -- --------------------- --------------------- Total distributions (2,585,838) (2,726,377) --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 8) (2,428,478) (5,264,082) --------------------- --------------------- Redemption fees Class A 866 3,017 Class B 337 1,868 Class C 116 370 Class Y -- -- --------------------- --------------------- 1,319 5,255 --------------------- --------------------- Net increase (decrease) in net assets (1,597,068) (3,811,537) --------------------- --------------------- NET ASSETS Beginning of the year 41,405,161 45,216,698 --------------------- --------------------- End of the year $ 39,808,093 $ 41,405,161 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ (82,641) $ (64,686) ===================== =====================
Limited Term Government and Agency Fund -------------------------------------------- Year Ended Year Ended September 30, September 30, 2006 2005 --------------------- --------------------- --------------------- --------------------- FROM OPERATIONS: Net investment income $ 5,075,427 $ 3,584,070 Net realized gain (loss) on investments and foreign currency transactions (845,533) (6,238) Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (145,704) (1,789,947) --------------------- --------------------- Net increase in net assets resulting from operations 4,084,190 1,787,885 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (4,997,550) (3,733,934) Class B (381,270) (285,636) Class C (153,472) (135,224) Class Y (105,197) (65,428) --------------------- --------------------- Total distributions (5,637,489) (4,220,222) --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 8) (32,402,336) 39,221,920 --------------------- --------------------- Redemption fees Class A -- -- Class B -- -- Class C -- -- Class Y -- -- --------------------- --------------------- -- -- --------------------- --------------------- Net increase (decrease) in net assets (33,955,635) 36,789,583 --------------------- --------------------- NET ASSETS Beginning of the year 164,778,827 127,989,244 --------------------- --------------------- End of the year $ 130,823,192 $ 164,778,827 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME $ (152,331) $ (134,584) ===================== =====================
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, 2006 2005 2006 2005 - --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- $ 2,919,705 $ 2,935,764 $ 3,899,552 $ 4,158,144 345,282 447,715 1,173,164 1,495,771 (133,389) (258,210) (395,083) (1,327,773) - --------------------- --------------------- --------------------- --------------------- 3,131,598 3,125,269 4,677,633 4,326,142 - --------------------- --------------------- --------------------- --------------------- (2,838,521) (2,824,718) (3,654,019) (3,981,690) (86,605) (111,486) (192,325) (243,518) -- -- -- -- -- -- -- -- - --------------------- --------------------- --------------------- --------------------- (2,925,126) (2,936,204) (3,846,344) (4,225,208) - --------------------- --------------------- --------------------- --------------------- (5,608,072) (5,825,158) (12,060,212) (11,124,657) - --------------------- --------------------- --------------------- --------------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - --------------------- --------------------- --------------------- --------------------- -- -- -- -- - --------------------- --------------------- --------------------- --------------------- (5,401,600) (5,636,093) (11,228,923) (11,023,723) - --------------------- --------------------- --------------------- --------------------- 80,224,999 85,861,092 109,864,770 120,888,493 - --------------------- --------------------- --------------------- --------------------- $ 74,823,399 $ 80,224,999 $ 98,635,847 $ 109,864,770 ===================== ===================== ===================== ===================== $ 13,263 $ 17,655 $ 177,784 $ 140,917 ===================== ===================== ===================== =====================
Strategic Income Fund - -------------------------------------------- Year Ended Year Ended September 30, September 30, 2006 2005 - --------------------- --------------------- - --------------------- --------------------- $ 147,505,882 $ 54,660,282 6,215,522 21,963,471 138,319,873 27,533,778 - --------------------- --------------------- 292,041,277 104,157,531 - --------------------- --------------------- (93,282,911) (31,992,206) (7,447,638) (6,262,718) (55,187,294) (21,270,824) (7,523,452) (1,531,716) - --------------------- --------------------- (163,441,295) (61,057,464) - --------------------- --------------------- 2,980,503,923 1,154,844,870 - --------------------- --------------------- 110,642 32,202 9,525 6,890 75,367 25,315 9,065 1,499 - --------------------- --------------------- 204,599 65,906 - --------------------- --------------------- 3,109,308,504 1,198,010,843 - --------------------- --------------------- 1,936,847,741 738,836,898 - --------------------- --------------------- $ 5,046,156,245 $ 1,936,847,741 ===================== ===================== $ 3,854,962 $ 13,786,896 ===================== =====================
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 9/30/2006 $ 11.41 $ 0.50(c) $ (0.07) $ 0.43 $ (0.61) $ (0.61) $ 0.00(g) 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) -- Class B 9/30/2006 11.41 0.41(c) (0.05) 0.36 (0.53) (0.53) 0.00(g) 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) -- Class C 9/30/2006 11.42 0.41(c) (0.05) 0.36 (0.53) (0.53) 0.00(g) 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) -- Class Y 9/30/2006 11.46 0.51(c) (0.04) 0.47 (0.64) (0.64) 0.00(g) 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) -- HIGH INCOME FUND* Class A 9/30/2006 $ 4.98 $ 0.34(c) $ 0.11 $ 0.45 $ (0.34) $ (0.34) $ 0.00(g) 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) -- Class B 9/30/2006 4.98 0.30(c) 0.12 0.42 (0.30) (0.30) 0.00(g) 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) --
(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, if applicable, 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 $0.01 for Class A, $0.02 for Class B, and $0.01 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 $0.01 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. (e)Represents the total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. See accompanying notes to financial statements. 49
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 (%) - ---------- --------- ----------- --------- --------- -------------- --------- $ 11.23 4.0(h) $ 91,464 1.08(e) 1.05(i) 4.46 91 11.41 2.4(h) 105,111 1.18(e) 1.13(i) 3.93 64 11.69 5.3(h) 120,009 1.22(e) 1.19(i) 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 11.24 3.3(h) 109,782 1.83(e) 1.80(i) 3.72 91 11.41 1.6(h) 132,221 1.93(e) 1.88(i) 3.18 64 11.70 4.6(h) 148,556 1.97(e) 1.94(i) 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 11.25 3.3(h) 6,983 1.82(e) 1.80(i) 3.63 91 11.42 1.6(h) 6,065 1.93(e) 1.88(i) 3.17 64 11.71 4.6(h) 6,162 1.98(e) 1.94(i) 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 11.29 4.3 11,986 0.80(j) N/A 4.58 91 11.46 2.7(h) 9,060 0.99(e) 0.88(i) 4.18 64 11.74 5.5(h) 10,941 0.98(e) 0.94(i) 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 $ 5.09 9.4(h) $ 29,069 1.48(e) 1.31(i) 6.70 41 4.98 10.3(h) 25,817 1.72(e) 1.58(i) 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 5.10 8.8(h) 7,283 2.25(e) 2.08(i) 6.00 41 4.98 9.3(h) 12,034 2.47(e) 2.33(i) 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
(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. (i)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or waive its management fee during the period. Without this reimbursement/waiver, expenses would have been higher. See Note 4. (j)Includes expense recapture of 0.06%. See Note 4. * 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 period income gain (loss) operations income distributions ---------- ---------- -------------- ---------- -------------- ------------- HIGH INCOME FUND* (continued) Class C 9/30/2006 $ 4.98 $ 0.30(c) $ 0.11 $ 0.41 $ (0.30) $ (0.30) 9/30/2005 4.83 0.29(c) 0.15 0.44 (0.29) (0.29) 9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) (0.30) 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) LIMITED TERM GOVERNMENT AND AGENCY FUND** Class A 9/30/2006 $ 11.09 $ 0.39(c) $ (0.05) $ 0.34 $ (0.43) $ (0.43) 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) Class B 9/30/2006 11.07 0.31(c) (0.05) 0.26 (0.35) (0.35) 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) Class C 9/30/2006 11.08 0.31(c) (0.05) 0.26 (0.35) (0.35) 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) Class Y 9/30/2006 11.13 0.43(c) (0.06) 0.37 (0.47) (0.47) 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)
Redemption fee ---------- HIGH INCOME FUND* (continued) Class C 9/30/2006 $ 0.00(f) 9/30/2005 0.00(f) 9/30/2004 0.00(f) 9/30/2003(e) -- 12/31/2002 -- 12/31/2001(d) -- LIMITED TERM GOVERNMENT AND AGENCY FUND** Class A 9/30/2006 $ -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(e) -- 12/31/2002 -- 12/31/2001(d) -- Class B 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(e) -- 12/31/2002 -- 12/31/2001(d) -- Class C 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(e) -- 12/31/2002 -- 12/31/2001(d) -- Class Y 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(e) -- 12/31/2002 -- 12/31/2001(d) --
(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, if applicable, 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 $0.01 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 $0.04 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. (e)For the nine months ended September 30, 2003. (f)Amounts round to less than $0.01. (g)Represents total expenses prior to waiver of a portion of the Class's transfer agent expenses. 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 (%) - ---------- --------- ----------- --------- --------- -------------- --------- $ 5.09 8.6(h) $ 3,457 2.23(i) 2.07(j) 5.96 41 4.98 9.3(h) 3,554 2.47(i) 2.33(j) 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 $ 11.00 3.2(h) $ 114,180 1.09(i) 1.04(j) 3.57 50 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 10.98 2.4(h) 9,952 1.84(i) 1.79(j) 2.79 50 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 10.99 2.5(h) 4,230 1.84(i) 1.79(j) 2.81 50 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 11.03 3.4 2,461 0.74 N/A 3.89 50 11.13 1.2(h) 2,533 1.59(g) 1.02(j) 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
(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. (j)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or waive its management fee during the period. Without this reimbursement/waiver, expenses would have been higher. See Note 4. * The financial information 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 value, Dividends beginning Net Net realized Total from from of investment and unrealized investment net investment Total period income gain (loss) operations income distributions ---------- ---------- -------------- ---------- -------------- ------------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2006 $ 16.62 $ 0.64 $ 0.05 $ 0.69 $ (0.64) $ (0.64) 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) Class B 9/30/2006 16.58 0.51 0.06 0.57 (0.51) (0.51) 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) MUNICIPAL INCOME FUND Class A 9/30/2006 $ 7.48 $ 0.28 $ 0.07 $ 0.35 $ (0.28) $ (0.28) 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) Class B 9/30/2006 7.49 0.23 0.07 0.30 (0.23) (0.23) 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)
Net asset value, end of period ---------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2006 $ 16.67 9/30/2005 16.62 9/30/2004 16.58 9/30/2003(f) 16.41 12/31/2002 16.40 12/31/2001(d) 15.82 Class B 9/30/2006 16.64 9/30/2005 16.58 9/30/2004 16.54 9/30/2003(f) 16.37 12/31/2002 16.36 12/31/2001(d) 15.78 MUNICIPAL INCOME FUND Class A 9/30/2006 $ 7.55 9/30/2005 7.48 9/30/2004 7.47 9/30/2003(f) 7.41 12/31/2002 7.43 12/31/2001(d) 7.25 Class B 9/30/2006 7.56 9/30/2005 7.49 9/30/2004 7.48 9/30/2003(f) 7.41 12/31/2002 7.44 12/31/2001(d) 7.25
(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, if applicable, 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. See accompanying notes to financial statements. 53
Ratios to average net assets: ------------------------------------------- Net assets, Total end of Gross Net Net investment Portfolio return period Expenses Expenses income turnover (%) (a) (000's) (%) (b) (%) (b) (%) (b) rate (%) --------- ----------- --------- --------- -------------- --------- 4.2(e) $ 72,479 1.14(c)(h) 1.02(g) 3.86 8 3.9(e) 77,018 1.22(c) 1.22(g) 3.59 5 4.9 81,427 1.33 N/A 3.74 21 3.1 86,368 1.38 N/A 3.99 9 8.1 92,053 1.34 N/A 4.19 33 3.2(e) 89,376 1.35(c) 1.33(g) 4.67 60 3.5(e) 2,345 1.89(c)(h) 1.77(g) 3.10 8 3.1(e) 3,207 1.97(c) 1.97(g) 2.84 5 4.2 4,435 2.00 N/A 3.08 21 2.6 6,185 2.03 N/A 3.34 9 7.4 6,742 1.99 N/A 3.54 33 2.5(e) 8,313 2.00(c) 1.98(g) 4.03 60 4.8(e) $ 93,448 0.99(c) 0.97(g) 3.83 14 3.9 102,255 1.07 N/A 3.65 29 4.9 111,801 1.11 N/A 4.00 35 2.9 126,906 1.10 N/A 4.14 42 7.3 133,005 1.06 N/A 4.67 33 3.0 137,852 1.07 N/A 4.89 80 4.0(e) 5,188 1.75(c) 1.72(g) 3.07 14 3.1 7,610 1.82 N/A 2.90 29 4.2 9,087 1.86 N/A 3.25 35 2.2 10,884 1.85 N/A 3.39 42 6.7 12,326 1.81 N/A 3.92 33 2.2 14,549 1.82 N/A 4.14 80
(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. (g)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or waive its management fee during the period. Without this reimbursement/waiver, expenses would have been higher. See Note 4. (h)Includes expense recapture of less than 0.01%. See Note 4. 54 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 (c) gain (loss) operations income distributions fee ---------- ---------- -------------- ---------- -------------- ------------- ---------- STRATEGIC INCOME FUND* Class A 9/30/2006 $ 14.17 $ 0.71 $ 0.53 $ 1.24 $ (0.81) $ (0.81) $ 0.00(g) 9/30/2005 13.57 0.66 0.70 1.36 (0.76) (0.76) 0.00(g) 9/30/2004 12.57 0.75 1.11 1.86 (0.86) (0.86) 0.00(g) 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) -- Class B 9/30/2006 14.22 0.61 0.52 1.13 (0.69) (0.69) 0.00(g) 9/30/2005 13.60 0.56 0.71 1.27 (0.65) (0.65) 0.00(g) 9/30/2004 12.59 0.65 1.10 1.75 (0.74) (0.74) 0.00(g) 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) -- Class C 9/30/2006 14.22 0.61 0.51 1.12 (0.69) (0.69) 0.00(g) 9/30/2005 13.60 0.55 0.72 1.27 (0.65) (0.65) 0.00(g) 9/30/2004 12.58 0.64 1.11 1.75 (0.73) (0.73) 0.00(g) 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) -- Class Y 9/30/2006 14.17 0.76 0.51 1.27 (0.85) (0.85) 0.00(g) 9/30/2005 13.57 0.70 0.70 1.40 (0.80) (0.80) 0.00(g) 9/30/2004 12.58 0.78 1.11 1.89 (0.90) (0.90) 0.00(g) 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) --
(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, if applicable, 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, 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 (%) - ---------- --------- ----------- --------- --------- -------------- --------- $ 14.60 9.0 $2,782,887 1.05 N/A 5.01 21 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(h) 1.28(i) 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 14.66 8.2 179,927 1.79 N/A 4.26 21 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(h) 2.03(i) 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 14.65 8.1 1,812,278 1.79 N/A 4.24 21 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(h) 2.03(i) 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 14.59 9.3 271,065 0.78 N/A 5.30 21 14.17 10.5 50,369 0.91 N/A 4.98 14 13.57 15.5(e) 10,833 1.08(h) 1.00(i) 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
(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. (i)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or waive its management fee during the period. Without this reimbursement/waiver, expenses would have been higher. See Note 4. * 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, 2006 1. Organization. IXIS Advisor Funds Trust I, IXIS Advisor 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. Information presented in these financial statements pertains to certain fixed income funds of the Trusts; the financial statements for the other funds of the Trusts are presented in separate reports. The following funds (individually, a "Fund" and collectively, the "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 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 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 to a fund 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 transfer agent fees applicable to such class). In addition, each Class 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 sixty days or less) are generally valued at market price on the basis of valuations furnished to the Funds by a pricing service recommended by the investment adviser's pricing committee and approved 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. Equity securities, including closed-end investment companies, for which market quotations are readily available are valued at market value, as reported by pricing services recommended by the investment adviser's pricing committee and approved by the Board of Trustees. Such pricing services generally use the security's last sale price on the exchange or market where primarily traded or, if there is no reported sale during the day, the closing bid price. Securities traded on the NASDAQ National Market are valued at the NASDAQ Official Closing Price ("NOCP"), or if lacking an NOCP, at the most recent bid quotation on the NASDAQ National Market. Broker-dealer bid quotations may also be used to value debt and equity securities where a pricing service does not price a security or where a pricing service does not provide a reliable price for the security. In instances where broker-dealer bid quotations are not available, certain securities held by the Funds may be valued on the basis of a price provided by a principal market maker. The prices provided by the principal market makers may differ from the value that would be realized if the securities were sold. Short-term obligations with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by the Funds' investment adviser using consistently applied procedures under the general supervision of the Board of Trustees. Investments in other open-end investment companies are valued at their net asset value each day. 57 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 Certain Funds may hold securities traded in foreign markets. Foreign securities are valued at the market price in the foreign market. However, if events occurring after the close of the foreign market (but before the close of regular trading on the New York Stock Exchange) are believed to materially affect the value of those securities, such securities are fair valued pursuant to procedures approved by the Board of Trustees. When fair valuing 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 foreign market and before the Funds calculate their net asset values. 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 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. Investment income is recorded net of foreign taxes withheld when applicable. 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 of 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, other than investment securities, at the end of the fiscal period, resulting from changes in exchange rates. Each Fund may use foreign currency exchange contracts to facilitate transactions in foreign-denominated investments. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. 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 annually 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, premium amortization 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, post-October capital loss deferrals and wash sales. Distributions from net investment income and short-term capital gains are considered to be ordinary income for tax purposes. 58 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 The tax characterization of distributions is determined on an annual basis. The tax character of distributions paid to shareholders during the years ended September 30, 2006 and 2005 was as follows:
2006 Distributions Paid From: 2005 Distributions Paid From: - - ------------------------------------ ---------------------------------- Exempt Exempt Ordinary Interest Ordinary Interest Fund Income Dividends Total Income Dividends Total - ---- ------ --------- ----- ------ --------- ----- Core Plus Bond Fund $ 11,734,713 $ -- $ 11,734,713 $12,086,457 $ -- $12,086,457 High Income Fund 2,585,838 -- 2,585,838 2,726,377 -- 2,726,377 Limited Term Government and Agency Fund 5,637,489 -- 5,637,489 4,220,222 -- 4,220,222 Massachusetts Tax Free Income Fund 19,311 2,905,815 2,925,126 11,120 2,925,084 2,936,204 Municipal Income Fund 52,251 3,794,093 3,846,344 105,537 4,119,671 4,225,208 Strategic Income Fund 163,441,295 -- 163,441,295 61,057,464 -- 61,057,464
As of September 30, 2006, 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 $ 1,306,048 $ 70,994 $ 178,496 $ 148,336 $ 418,263 $ 13,368,246 Undistributed long-term capital gains 470,510 Capital loss carryforward: Expires September 30, 2007 -- -- (9,755,614) (804,173) -- -- Expires September 30, 2008 -- (12,726,943) (4,165,768) (116,500) -- -- Expires September 30, 2009 -- (43,374,721) (4,128,091) -- -- (7,292,580) 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) -- -- -- Expires September 30, 2013 -- -- -- (154,156) -- -- Expires September 30, 2014 (181,728) -- (2,770,324) -- -- -- ------------ ------------ ------------ ----------- ---------- ------------ Total capital loss carryforward (21,142,683) (82,928,298) (22,102,133) (2,078,269) -- (36,159,166) Deferred net capital losses (post October 2005) (1,656,378) -- (4,268,354) -- -- -- Unrealized appreciation (depreciation) (1,432,443) 2,710,393 (1,445,042) 4,089,454 3,704,306 213,078,596 ------------ ------------ ------------ ----------- ---------- ------------ Total accumulated earnings (losses) $(22,925,456) $(80,146,911) $(27,637,033) $ 2,159,521 $4,593,079 $190,287,676 ============ ============ ============ =========== ========== ============ Capital loss carryforward utilized in the current year $ -- $ 562,793 $ -- $ 345,715 $ 703,737 $ 3,204,308
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. The repurchase agreements are tri-party arrangements whereby the collateral is held at the custodian bank in a segregated account for the benefit of the Fund and on behalf of the counterparty. 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. 59 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 g. Securities Lending. The Funds have entered into an agreement with State Street Bank and Trust Company ("State Street Bank"), as 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. Thereafter, the value of the collateral must remain at least 102% of the market value of loaned securities for U.S. equities and U.S. corporate debt; at least 105% of the market value of loaned securities for non-U.S. equities; and at least 100% of the market value of loaned securities for U.S. government securities, sovereign debt issued by non-U.S. governments and non-U.S. corporate debt. In the event that the market value of the collateral falls below the required percentages described above, the borrower will deliver additional collateral on the next business day. As with other extensions of credit, the Funds may bear the risk of loss with respect to the investment of the collateral. 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 State Street Bank as lending agent. 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, 2006 were as follows:
Market Value of Value of Collateral Fund Securities on Loan Received ---- ------------------ ------------------- Core Plus Bond Fund $ 26,982,787 $ 27,548,560 High Income Fund 4,193,476 4,281,021 Limited Term Government and Agency Fund 4,684,867 4,765,375 Strategic Income Fund 904,049,930 918,797,771
h. 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. i. Indemnifications. Under the Trusts' 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. j. New Accounting Pronouncements. In July, 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB Statement 109 ("FIN 48") was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on each Fund's net assets and results of operations. In addition, in September, 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact, if any, the adoption of SFAS 157 will have on the Funds' financial statements. 3. Purchases and Sales of Securities. For the year ended September 30, 2006, purchases and sales of securities (excluding short-term investments and including paydowns) were as follows:
U.S. Government/Agency Securities Other Securities - - --------------------------------- ---------------- Fund Purchases Sales Purchases Sales - ---- ------- - ------- - Core Plus Bond Fund $111,883,545 $117,897,937 $ 92,284,709 $112,191,868 High Income Fund 1,134,167 346,234 14,248,403 19,414,126 Limited Term Government and Agency Fund 64,302,418 101,723,034 7,833,462 3,569,262 Massachusetts Tax Free Income Fund -- -- 6,217,013 11,681,322 Municipal Income Fund -- -- 14,286,165 25,470,040 Strategic Income Fund 715,481,187 387,109,045 2,694,592,372 250,925,436
60 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 4. Management Fees and Other Transactions with Affiliates. a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as 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%
IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), 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%
Management and advisory administration fees are presented in the Statements of Operations as management fees. Loomis Sayles has given binding undertakings to the Funds to defer its management fees and/or reimburse certain expenses associated with these Funds to limit their operating expenses. These undertakings are in effect until January 31, 2007 and will be reevaluated on an annual basis. For the period from February 1, 2006 to September 30, 2006, the expense limits as a percentage of average daily net assets under the expense limitation agreements were as follows:
Expense Limit as a Percentage of Average Daily Net Assets - ------------------------------- Fund Class A Class B Class C Class Y ---- ------- ------- ------- ------- Core Plus Bond Fund 1.05% 1.80% 1.80% 0.80% High Income Fund 1.25% 2.00% 2.00% -- Limited Term Government and Agency Fund 1.00% 1.75% 1.75% 0.75% Massachusetts Tax Free Income Fund 0.95% 1.70% -- -- Municipal Income Fund 0.95% 1.70% -- -- Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
Prior to February 1, 2006, 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 1.05% 1.80% 1.80% 0.80% High Income Fund 1.45% 2.20% 2.20% -- Limited Term Government and Agency Fund -- -- -- -- Massachusetts Tax Free Income Fund 1.15% 1.90% -- -- Municipal Income Fund -- -- -- -- Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
61 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 Loomis Sayles and IXIS Advisors have agreed to equally bear the fee waivers and/or expense reimbursements for the Core Plus Bond Fund and Massachusetts Tax Free Income Fund. For the year ended September 30, 2006, the management fees and waivers of management fees for each Fund were as follows:
Percentage of Average Gross Waiver of Net Daily Net Assets Management Management Management ---------------- Fund Fee Fee Fee Gross Net - ---- ----------- ---------- ----------- ------ ------ Core Plus Bond Fund $ 492,131 $ -- $ 492,131 0.214% 0.214% High Income Fund 235,740 -- 235,740 0.600% 0.600% Limited Term Government and Agency Fund 728,190 -- 728,190 0.500% 0.500% Massachusetts Tax Free Income Fund 228,872 28,465 200,407 0.300% 0.256% Municipal Income Fund 510,697 -- 510,697 0.495% 0.495% Strategic Income Fund 18,365,690 -- 18,365,690 0.585% 0.585%
For the year ended September 30, 2006, the advisory administration fees and waivers for each Fund were as follows:
Percentage of Waiver of Average Advisory Advisory Net Advisory Daily Net Assets Administration Administration Administration ---------------- Fund Fee Fee Fee Gross Net - ---- -------------- -------------- -------------- ------ ------ Core Plus Bond Fund $492,132 $ -- $492,132 0.214% 0.214% Massachusetts Tax Free Income Fund 228,872 28,465 200,407 0.300% 0.256%
For the year ended September 30, 2006, in addition to the waiver of management fees and/or advisory administration fees, expenses have been reimbursed as follows:
Fund Reimbursement ---- ------------- Core Plus Bond Fund $73,029 High Income Fund 64,092 Limited Term Government and Agency Fund 70,282 Massachusetts Tax Free Income Fund 35,227 Municipal Income Fund 20,044
Loomis Sayles and IXIS Advisors shall be permitted to recover management fees/advisory administration fees waived and/or expenses borne under the expense limitation agreements on a Class by Class basis in later periods to the extent a Class' expenses fall below a Class' expense limits, provided, however, that a Class is not obligated to pay such deferred fees/expenses more than one year after the end of the fiscal year in which the fee/expense was deferred. The amounts subject to possible reimbursement under the expense limitation agreements at September 30, 2006 were as follows:
Expenses Subject to Possible Reimbursement until September 30, 2007 - - ------------------------------------------------ Fund Class A Class B Class C Class Y Total - ---- ------- ------- ------- ------- ----- Core Plus Bond Fund $31,145 $40,795 $1,089 -- $73,029 High Income Fund 42,950 15,738 5,404 -- 64,092 Limited Term Government and Agency Fund 61,913 6,019 2,350 -- 70,282 Massachusetts Tax Free Income Fund 88,881 3,276 -- -- 92,157 Municipal Income Fund 18,551 1,493 -- -- 20,044
Certain officers and directors of Loomis Sayles and IXIS Advisors are also Trustees of the Funds. Loomis Sayles and IXIS Advisors are both limited partnerships whose sole general partner is indirectly owned by IXIS Asset Management US Group, L.P. ("IXIS US Group") (formerly IXIS Asset Management North America, L.P.), which is part of IXIS Asset Management Group, an international asset management group based in Paris, France. 62 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 b. Administrative Fees. IXIS Advisors provides certain administrative services for the Funds and has subcontracted with State Street Bank to serve as sub-administrator. IXIS Advisors is a limited partnership whose sole general partner, IXIS Asset Management Distribution Corporation, is an indirect wholly-owned subsidiary of IXIS US Group. Pursuant to an agreement among 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 ("IXIS Advisor Funds Trusts"), Loomis Sayles Funds I, Loomis Sayles Funds II ("Loomis Sayles Funds Trusts") and IXIS Advisors, 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, which is reevaluated on an annual basis. For the year ended September 30, 2006, amounts paid to IXIS Advisors for administrative fees were as follows:
Administrative Fund Fees ---- ---- Core Plus Bond Fund $ 136,903 High Income Fund 23,472 Limited Term Government and Agency Fund 86,859 Massachusetts Tax Free Income Fund 45,404 Municipal Income Fund 61,500 Strategic Income Fund 1,899,235
c. Service and Distribution Fees. The Trusts have entered into a distribution agreement with IXIS Asset Management Distributors, L.P. ("IXIS Distributors"), a wholly-owned subsidiary of IXIS US Group. Pursuant to this agreement, IXIS Distributors serves as principal underwriter of the funds of the Trusts. 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 Distributors 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 not to exceed 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, 2006, the Funds paid the following service and distribution fees:
Service Fees Distribution Fees - - ------------------------------ --------------------- Fund Class A Class B Class C Class B Class C - ---- ------- ------- ------- ------- ------- Core Plus Bond Fund $ 239,223 $295,608 $ 14,996 $ 886,823 $ 44,987 High Income Fund 66,667 23,149 8,409 69,445 25,229 Limited Term Government and Agency Fund 315,317 30,429 12,212 91,284 36,634 Massachusetts Tax Free Income Fund 183,746 6,982 -- 20,942 -- Municipal Income Fund 241,651 15,893 -- 47,677 -- Strategic Income Fund 4,219,448 384,848 2,915,854 1,154,544 8,747,562
63 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 d. Commissions. The Funds have been informed that commissions (including CDSC) on Fund shares paid to IXIS Distributors by investors in shares of the Funds during the year ended September 30, 2006 were as follows:
Fund Commission ---- ---------- Core Plus Bond Fund $ 104,447 High Income Fund 76,029 Limited Term Government and Agency Fund 71,751 Massachusetts Tax Free Income Fund 25,430 Municipal Income Fund 64,488 Strategic Income Fund 7,296,525
e. Trustees Fees and Expenses. The Funds do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of IXIS Advisors, IXIS Distributors, IXIS US Group, Loomis Sayles or their affiliates. The Chairperson of the Board receives a retainer fee at the annual rate of $200,000. The Chairperson does not receive any meeting attendance fees for Board of Trustees meetings or committee meetings that she attends. Each Independent Trustee (other than the Chairperson) receives, in the aggregate, a retainer fee at the annual rate of $55,000. Each Independent Trustee also receives a meeting attendance fee of $6,000 for each meeting of the Board of Trustees that he or she attends in person and $3,000 for each meeting of the Board of Trustees that he or she attends telephonically. In addition, each committee chairman receives an additional retainer fee at the annual rate of $10,000. Each Contract Review and Governance Committee member is compensated $4,000 for each Committee meeting that he or she attends in person and $2,000 for each meeting that he or she attends telephonically. Each Audit Committee member is compensated $5,000 for each Committee meeting that he or she attends in person and $2,500 for each meeting that he or she attends telephonically. These fees are allocated among the funds in 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. Prior to January 1, 2006, each committee member was compensated $4,000 for each Audit Committee meeting that he or she attended in person and $2,000 for each such meeting he or she attended telephonically. Prior to November 18, 2005, the Trusts had co-chairmen of the Board who each received an annual retainer of $25,000. In addition, during the period October 1, 2005 to November 18, 2005, each co-chairman received an additional one-time payment of $25,000 as compensation for their services as chairmen. 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 the Funds' assets to pay their portion of the annual salary for 2005 of an employee of IXIS Advisors who supported the Funds' Chief Compliance Officer. For the period from October 1, 2005 to December 31, 2005, each Fund's portion of such expense was approximately $575. 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 are 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 to 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, participate in a $75,000,000 committed line of credit provided by State Street Bank. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.09% per annum, payable at the end of each calendar quarter, is accrued and apportioned among the participating funds based on their average daily unused portion of the line of credit. For the year ended September 30, 2006, the Funds had no borrowings under this agreement. 64 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 6. 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, 2006, the Fund had the following concentrations by revenue source in excess of 10% as a percentage of the Fund's net assets: Colleges and Universities 33.0%, Water and Sewerage 13.3%, State Appropriations 12.2% and Hospitals 11.2%. 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 13.5%, 10.8%, and 7.4% of its net assets, respectively, at September 30, 2006. At September 30, 2006, Municipal Income Fund had more than 10% of its net assets invested in the following: New York State and City Obligations 17.6%. 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. 7. 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. 65 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 8. 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 September 30, 2006 ----------------------------------- Core Plus Bond Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 1,382,171 $ 15,380,850 Issued in connection with the reinvestment of distributions 372,669 4,153,500 ---------------- ----------------- 1,754,840 19,534,350 Redeemed (2,825,473) (31,498,913) ---------------- ----------------- Net change (1,070,633) $ (11,964,563) ---------------- ----------------- Class B: Issued from the sale of shares 2,443,291 $ 27,246,501 Issued in connection with the reinvestment of distributions 124,023 1,383,392 ---------------- ----------------- 2,567,314 28,629,893 Redeemed (4,382,113) (48,867,417) ---------------- ----------------- Net change (1,814,799) $ (20,237,524) ---------------- ----------------- Class C: Issued from the sale of shares 217,848 $ 2,421,818 Issued in connection with the reinvestment of distributions 13,202 147,350 ---------------- ----------------- 231,050 2,569,168 Redeemed (141,074) (1,577,745) ---------------- ----------------- Net change 89,976 $ 991,423 ---------------- ----------------- Class Y: Issued from the sale of shares 531,672 $ 5,901,516 Issued in connection with the reinvestment of distributions 36,711 411,038 ---------------- ----------------- 568,383 6,312,554 Redeemed (296,854) (3,319,094) ---------------- ----------------- Net change 271,529 $ 2,993,460 ---------------- ----------------- Increase (decrease) from capital share transactions (2,523,927) $ (28,217,204) ================ =================
Year Ended September 30, 2005 ----------------------------------- Core Plus Bond Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 1,388,801 $ 16,079,888 Issued in connection with the reinvestment of distributions 374,646 4,342,323 ---------------- ----------------- 1,763,447 20,422,211 Redeemed (2,814,749) (32,644,448) ---------------- ----------------- Net change (1,051,302) $ (12,222,237) ---------------- ----------------- Class B: Issued from the sale of shares 3,051,314 $ 35,378,116 Issued in connection with the reinvestment of distributions 138,384 1,605,875 ---------------- ----------------- 3,189,698 36,983,991 Redeemed (4,304,577) (49,860,073) ---------------- ----------------- Net change (1,114,879) $ (12,876,082) ---------------- ----------------- Class C: Issued from the sale of shares 117,915 $ 1,367,189 Issued in connection with the reinvestment of distributions 12,453 144,537 ---------------- ----------------- 130,368 1,511,726 Redeemed (125,755) (1,458,081) ---------------- ----------------- Net change 4,613 $ 53,645 ---------------- ----------------- Class Y: Issued from the sale of shares 294,003 $ 3,417,059 Issued in connection with the reinvestment of distributions 36,213 421,543 ---------------- ----------------- 330,216 3,838,602 Redeemed (471,320) (5,465,958) ---------------- ----------------- Net change (141,104) $ (1,627,356) ---------------- ----------------- Increase (decrease) from capital share transactions (2,302,672) $ (26,672,030) ================ =================
66 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 8. Capital Shares (continued). Year Ended September 30, 2006 ----------------------------------- High Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 1,613,908 $ 8,110,484 Issued in connection with the reinvestment of distributions 225,645 1,132,995 ---------------- ----------------- 1,839,553 9,243,479 Redeemed (1,315,469) (6,579,692) ---------------- ----------------- Net change 524,084 $ 2,663,787 ---------------- ----------------- Class B: Issued from the sale of shares 139,925 $ 704,223 Issued in connection with the reinvestment of distributions 49,894 250,269 ---------------- ----------------- 189,819 954,492 Redeemed (1,175,776) (5,886,573) ---------------- ----------------- Net change (985,957) $ (4,932,081) ---------------- ----------------- Class C: Issued from the sale of shares 245,364 $ 1,234,623 Issued in connection with the reinvestment of distributions 16,606 83,348 ---------------- ----------------- 261,970 1,317,971 Redeemed (296,889) (1,478,155) ---------------- ----------------- Net change (34,919) $ (160,184) ---------------- ----------------- Increase (decrease) from capital share transactions (496,792) $ (2,428,478) ================ =================
Year Ended September 30, 2005 ----------------------------------- High Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 1,843,627 $ 9,144,401 Issued in connection with the reinvestment of distributions 201,974 1,002,839 ---------------- ----------------- 2,045,601 10,147,240 Redeemed (1,968,099) (9,761,214) ---------------- ----------------- Net change 77,502 $ 386,026 ---------------- ----------------- Class B: Issued from the sale of shares 127,125 $ 632,910 Issued in connection with the reinvestment of distributions 79,627 395,537 ---------------- ----------------- 206,752 1,028,447 Redeemed (1,513,258) (7,517,536) ---------------- ----------------- Net change (1,306,506) $ (6,489,089) ---------------- ----------------- Class C: Issued from the sale of shares 304,056 $ 1,494,195 Issued in connection with the reinvestment of distributions 17,043 84,652 ---------------- ----------------- 321,099 1,578,847 Redeemed (147,783) (739,866) ---------------- ----------------- Net change 173,316 $ 838,981 ---------------- ----------------- Increase (decrease) from capital share transactions (1,055,688) $ (5,264,082) ================ =================
67 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 8. Capital Shares (continued). Year Ended September 30, 2006 ----------------------------------- Limited Term Government and Agency Fund Shares Amount - ---------------------------------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 555,196 $ 6,089,078 Issued in connection with the acquisition of Loomis Sayles Government Securities Fund -- -- Issued in connection with the reinvestment of distributions 317,378 3,476,250 ---------------- ----------------- 872,574 9,565,328 Redeemed (3,237,220) (35,466,514) ---------------- ----------------- Net change (2,364,646) $ (25,901,186) ---------------- ----------------- Class B: Issued from the sale of shares 74,303 $ 814,813 Issued in connection with the acquisition of Loomis Sayles Government Securities Fund -- -- Issued in connection with the reinvestment of distributions 29,021 317,417 ---------------- ----------------- 103,324 1,132,230 Redeemed (562,347) (6,150,376) ---------------- ----------------- Net change (459,023) $ (5,018,146) ---------------- ----------------- Class C: Issued from the sale of shares 63,287 $ 692,417 Issued in connection with the reinvestment of distributions 8,700 95,297 ---------------- ----------------- 71,987 787,714 Redeemed (202,763) (2,222,285) ---------------- ----------------- Net change (130,776) $ (1,434,571) ---------------- ----------------- Class Y: Issued from the sale of shares 16,475 $ 181,528 Issued in connection with the acquisition of Loomis Sayles Government Securities Fund -- -- Issued in connection with the reinvestment of distributions 9,128 100,325 ---------------- ----------------- 25,603 281,853 Redeemed (30,025) (330,286) ---------------- ----------------- Net change (4,422) $ (48,433) ---------------- ----------------- Increase (decrease) from capital share transactions (2,958,867) $ (32,402,336) ================ =================
Year Ended September 30, 2005 ----------------------------------- Limited Term Government and Agency Fund Shares Amount - ---------------------------------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 1,025,368 $ 11,507,822 Issued in connection with the acquisition of Loomis Sayles Government Securities Fund 4,449,445 49,566,819 Issued in connection with the reinvestment of distributions 223,935 2,506,659 ---------------- ----------------- 5,698,748 63,581,300 Redeemed (2,390,415) (26,770,920) ---------------- ----------------- Net change 3,308,333 $ 36,810,380 ---------------- ----------------- Class B: Issued from the sale of shares 90,600 $ 1,011,141 Issued in connection with the acquisition of Loomis Sayles Government Securities Fund 834,917 9,275,925 Issued in connection with the reinvestment of distributions 20,684 230,974 ---------------- ----------------- 946,201 10,518,040 Redeemed (476,529) (5,324,127) ---------------- ----------------- Net change 469,672 $ 5,193,913 ---------------- ----------------- Class C: Issued from the sale of shares 67,790 $ 759,450 Issued in connection with the reinvestment of distributions 7,387 82,688 ---------------- ----------------- 75,177 842,138 Redeemed (174,813) (1,960,779) ---------------- ----------------- Net change (99,636) $ (1,118,641) ---------------- ----------------- Class Y: Issued from the sale of shares 206,094 $ 2,316,707 Issued in connection with the acquisition of Loomis Sayles Government Securities Fund 356 3,981 Issued in connection with the reinvestment of distributions 5,628 63,325 ---------------- ----------------- 212,078 2,384,013 Redeemed (357,795) (4,047,745) ---------------- ----------------- Net change (145,717) $ (1,663,732) ---------------- ----------------- Increase (decrease) from capital share transactions 3,532,652 $ 39,221,920 ================ =================
68 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 8. Capital Shares (continued). Year Ended September 30, 2006 ----------------------------------- Massachusetts Tax Free Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 116,584 $ 1,927,090 Issued in connection with the reinvestment of distributions 128,646 2,122,198 ---------------- ----------------- 245,230 4,049,288 Redeemed (533,421) (8,795,072) ---------------- ----------------- Net change (288,191) $ (4,745,784) ---------------- ----------------- Class B: Issued from the sale of shares 3,138 $ 51,637 Issued in connection with the reinvestment of distributions 3,663 60,307 ---------------- ----------------- 6,801 111,944 Redeemed (59,258) (974,232) ---------------- ----------------- Net change (52,457) $ (862,288) ---------------- ----------------- Increase (decrease) from capital share transactions (340,648) $ (5,608,072) ================ ================= Year Ended September 30, 2006 ----------------------------------- Municipal Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 462,407 $ 3,433,795 Issued in connection with the reinvestment of distributions 334,961 2,490,096 ---------------- ----------------- 797,368 5,923,891 Redeemed (2,091,235) (15,530,757) ---------------- ----------------- Net change (1,293,867) $ (9,606,866) ---------------- ----------------- Class B: Issued from the sale of shares 53,879 $ 401,621 Issued in connection with the reinvestment of distributions 15,598 116,046 ---------------- ----------------- 69,477 517,667 Redeemed (399,386) (2,971,013) ---------------- ----------------- Net change (329,909) $ (2,453,346) ---------------- ----------------- Increase (decrease) from capital share transactions (1,623,776) $ (12,060,212) ================ =================
Year Ended September 30, 2005 ----------------------------------- Massachusetts Tax Free Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 108,967 $ 1,818,083 Issued in connection with the reinvestment of distributions 124,767 2,082,631 ---------------- ----------------- 233,734 3,900,714 Redeemed (509,747) (8,484,290) ---------------- ----------------- Net change (276,013) $ (4,583,576) ---------------- ----------------- Class B: Issued from the sale of shares 3,203 $ 53,537 Issued in connection with the reinvestment of distributions 4,326 72,024 ---------------- ----------------- 7,529 125,561 Redeemed (82,197) (1,367,143) ---------------- ----------------- Net change (74,668) $ (1,241,582) ---------------- ----------------- Increase (decrease) from capital share transactions (350,681) $ (5,825,158) ================ ================= Year Ended September 30, 2005 ----------------------------------- Municipal Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 417,124 $ 3,133,149 Issued in connection with the reinvestment of distributions 359,731 2,701,656 ---------------- ----------------- 776,855 5,834,805 Redeemed (2,060,532) (15,468,783) ---------------- ----------------- Net change (1,283,677) $ (9,633,978) ---------------- ----------------- Class B: Issued from the sale of shares 91,090 $ 683,767 Issued in connection with the reinvestment of distributions 20,236 152,169 ---------------- ----------------- 111,326 835,936 Redeemed (309,437) (2,326,615) ---------------- ----------------- Net change (198,111) $ (1,490,679) ---------------- ----------------- Increase (decrease) from capital share transactions (1,481,788) $ (11,124,657) ================ =================
69 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2006 8. Capital Shares (continued). Year Ended September 30, 2006 ----------------------------------- Strategic Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 138,264,882 $ 1,969,973,470 Issued in connection with the reinvestment of distributions 4,434,461 63,237,389 ---------------- ----------------- 142,699,343 2,033,210,859 Redeemed (20,978,934) (298,257,925) ---------------- ----------------- Net change 121,720,409 $ 1,734,952,934 ---------------- ----------------- Class B: Issued from the sale of shares 4,378,474 $ 62,611,798 Issued in connection with the reinvestment of distributions 254,799 3,636,750 ---------------- ----------------- 4,633,273 66,248,548 Redeemed (2,489,164) (35,488,933) ---------------- ----------------- Net change 2,144,109 $ 30,759,615 ---------------- ----------------- Class C: Issued from the sale of shares 76,685,324 $ 1,097,132,921 Issued in connection with the reinvestment of distributions 1,024,379 14,656,353 ---------------- ----------------- 77,709,703 1,111,789,274 Redeemed (7,823,598) (111,619,466) ---------------- ----------------- Net change 69,886,105 $ 1,000,169,808 ---------------- ----------------- Class Y: Issued from the sale of shares 16,186,079 $ 231,166,734 Issued in connection with the reinvestment of distributions 92,338 1,318,567 ---------------- ----------------- 16,278,417 232,485,301 Redeemed (1,256,435) (17,863,735) ---------------- ----------------- Net change 15,021,982 $ 214,621,566 ---------------- ----------------- Increase (decrease) from capital share transactions 208,772,605 $ 2,980,503,923 ================ =================
Year Ended September 30, 2005 ----------------------------------- Strategic Income Fund Shares Amount - -------------------------------------------------------------- ---------------- ----------------- Class A: Issued from the sale of shares 50,308,376 $ 706,576,467 Issued in connection with the reinvestment of distributions 1,468,469 20,639,715 ---------------- ----------------- 51,776,845 727,216,182 Redeemed (8,154,982) (114,434,654) ---------------- ----------------- Net change 43,621,863 $ 612,781,528 ---------------- ----------------- Class B: Issued from the sale of shares 3,250,360 $ 45,753,417 Issued in connection with the reinvestment of distributions 252,300 3,556,640 ---------------- ----------------- 3,502,660 49,310,057 Redeemed (2,831,055) (39,810,800) ---------------- ----------------- Net change 671,605 $ 9,499,257 ---------------- ----------------- Class C: Issued from the sale of shares 37,693,843 $ 531,354,799 Issued in connection with the reinvestment of distributions 386,067 5,441,310 ---------------- ----------------- 38,079,910 536,796,109 Redeemed (3,055,156) (42,960,385) ---------------- ----------------- Net change 35,024,754 $ 493,835,724 ---------------- ----------------- Class Y: Issued from the sale of shares 3,058,044 $ 42,955,389 Issued in connection with the reinvestment of distributions 30,007 421,552 ---------------- ----------------- 3,088,051 43,376,941 Redeemed (332,834) (4,648,580) ---------------- ----------------- Net change 2,755,217 $ 38,728,361 ---------------- ----------------- Increase (decrease) from capital share transactions 82,073,439 $ 1,154,844,870 ================ =================
70 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 portfolios 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 Loomis Sayles Strategic Income Fund, each a series of Loomis Sayles Funds II (collectively, "the Funds"), at September 30, 2006, 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, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts November 22, 2006 71 2006 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited) Corporate Dividends Received Deduction. For the fiscal year ended September 30, 2006, a percentage of dividends distributed by the Funds listed below qualify for the dividends received deduction for corporate shareholders. These percentages are as follows:
Qualifying Fund Percentage ---- ---------- High Income Fund 5.45% Strategic Income Fund 5.72%
Qualified Dividend Income. For the fiscal year ended September 30, 2006, the Funds below will designate up to the maximum amount allowable pursuant to the Internal Revenue Code as qualified dividend income eligible for reduced tax rates. These lower rates range from 5% to 15% depending on an individual's tax bracket. If the Funds pay a distribution during calendar year 2006, complete information will be reported in conjunction with Form 1099-DIV.
Fund ---- - High Income Fund Strategic Income Fund
Tax Exempt Income. For the fiscal year ended September 30, 2006, a percentage of dividends distributed by the Funds listed below qualify as tax exempt income for Federal income tax purposes. These percentages are as follows:
Qualifying Fund Percentage ---- ---------- Massachusetts Tax Free Income Fund 99.34% Municipal Income Fund 98.62%
72 TRUSTEE AND OFFICER INFORMATION The tables below provide 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 Trusts' Statements of Additional Information include additional information about the Trustees of the Trusts and are available by calling Loomis Sayles at 800-314-2029.
Position(s) Held with the Number of Portfolios in Trusts, 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, Douglas Dillon Professor and 38 (3/23/40) since 1984 for IXIS Advisor Director of the Belfer Center Director, Taubman Centers, Funds Trust I, (including its for Science and International Inc. (real estate investment predecessors) since 1995 Affairs, John F. Kennedy trust) for IXIS Advisor Funds School of Government, Trust II and since 2003 Harvard University Loomis Sayles Funds II Contract Review and Governance Committee Member Charles D. Baker Trustee, President and Chief Executive 38 (11/13/56) since 2005 Officer, Harvard Pilgrim None Contract Review and Health Care (health plan) Governance Committee Member Edward A. Benjamin Trustee, Retired 38 (5/30/38) since 2003 for IXIS Advisor Director, Precision Optics Funds Trust I, IXIS Advisor Corporation (optics Funds Trust II, and since manufacturer) 2002 for Loomis Sayles Funds II Chairman of the Contract Review and Governance Committee Member Daniel M. Cain Trustee, President and Chief Executive 38 (2/24/45) since 1996 for IXIS Advisor Officer, Cain Brothers & Director, Sheridan Funds Trust I and IXIS Company, Incorporated Healthcare Inc. (physician Advisor Funds Trust II and (investment banking) practice management) since 2003 for Loomis Sayles Funds II Chairman of the Audit Committee Paul G. Chenault + Trustee, Retired; Trustee, First Variable 38 (9/12/33) since 2003 for IXIS Advisor Life (variable life insurance) Director, Mailco Office Funds Trust I and IXIS Products, Inc. (mailing Advisor Funds Trust II and equipment) since 2000 for Loomis Sayles Funds II Contract Review and Governance Committee Member
73 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trusts, 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, Retired 38 (4/5/32) since 1993 for IXIS Advisor None Funds Trust I, since 1975 for IXIS Advisor Funds Trust II and since 2003 for Loomis Sayles Funds II Contract Review and Governance Committee Member Richard Darman Trustee, Partner, The Carlyle Group 38 (5/10/43) since 1996 for IXIS Advisor (investments); formerly, Director and Chairman of Funds Trust I and IXIS Professor, John F. Kennedy Board of Directors, AES Advisor Funds Trust II and School of Government, Corporation (international since 2003 for Loomis Harvard University power company) Sayles Funds II Contract Review and Governance Committee Member Sandra O. Moose Trustee, since 1982 for President, Strategic Advisory 38 (2/17/42) IXIS Advisor Funds Trust I Services (management Director, Verizon (including its predecessors) consulting); formerly, Senior Communications; since 1993 for IXIS Advisor Vice President and Director, Director, Rohm and Haas Funds Trust II; and since The Boston Consulting Group, Company (specialty 2003 for Loomis Sayles Inc. (management consulting) chemicals); Funds II Director, AES Corporation Chairperson of the Board (international power of Trustees since November company) 2005 Ex officio member of the Audit Committee and Contract Review and Governance Committee John A. Shane+ Trustee, President, Palmer Service 38 (2/22/33) since 1982 for IXIS Advisor Corporation (venture capital Director, Gensym Funds Trust I (including its organization) Corporation (software and predecessors) since 1995 technology service provider); for IXIS Advisor Funds Director and Chairman of the Trust II and since 2003 for Board, Abt Associates Inc. Loomis Sayles Funds II (research and consulting Audit Committee Member firm)
74 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trusts, 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 Cynthia L. Walker Trustee, Executive Dean for 38 (7/25/56) since 2005 Administration (formerly, None Audit Committee Member Dean for Finance and CFO), Harvard Medical School INTERESTED TRUSTEES Robert J. Blanding/1/ Trustee, President, Chairman, Director, 38 (4/14/47) since 2003 for IXIS Advisor and Chief Executive Officer, None 555 California Street Funds Trust I and IXIS Loomis, Sayles & Company, San Francisco, CA 94104 Advisor Funds Trust II, L.P.; President and Chief Chief Executive Officer and Executive Officer for Loomis Trustee since 2002 for Sayles Funds I; Chief Executive Loomis Sayles Funds II Officer for Loomis Sayles Funds II John T. Hailer/2/ President, Chief Executive President and Chief Executive 38 (11/23/60) Officer and Trustee since Officer, IXIS Asset None 2000 for IXIS Advisor Management Advisors, L.P., Funds Trust I and IXIS IXIS Asset Management Advisor Funds Trust II, Distributors, L.P. and IXIS President and Trustee since Asset Management Global 2003 for Loomis Sayles Associates, L.P.; Executive Funds II Vice President, Loomis Sayles Funds I; President and Chief Executive Officer, AEW Real Estate Income Fund, IXIS Advisor Cash Management Trust, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS Advisor Funds Trust III and IXIS Advisor Funds Trust IV
* Each Trustee serves until retirement, resignation or removal from the Board of Trustees. The current retirement age is 72, but the retirement policy was suspended for the calendar year 2005. At a meeting held on August 26, 2005, the trustees voted to lift the suspension of the retirement policy and to designate 2006 as a transition period so that any trustees who are currently age 72 or older or who reach age 72 during the remainder of 2006 will not be required to retire until the end of calendar year 2006. The position of Chairperson of the Board is appointed for a two-year term. ** Each person listed above, except as noted, holds the same position(s) with the Trusts. Previous positions during the past five years with IXIS Asset Management Distributors, L.P. (the "Distributor"), IXIS Asset Management Advisors, L.P. ("IXIS Advisors") or Loomis, Sayles & Company, L.P. 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 (together the "IXIS Advisor Funds and Loomis Sayles Funds Trusts"). + Effective December 31, 2006, Messrs. Chenault, Cowan and Shane will be retiring as members of the IXIS Advisor Funds and Loomis Sayles Funds Trusts Board of Trustees. /1/ Mr. Blanding is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: President, Chairman, Director and Chief Executive Officer of Loomis Sayles. /2/ Mr. Hailer is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: Director and Executive Vice President of IXIS Asset Management Distribution Corporation ("IXIS Distribution Corporation"); and President and Chief Executive Officer of IXIS Asset Management Global Associates, L.P., IXIS Asset Management Advisors and IXIS Asset Management Distributors, L.P. 75 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trusts Term of Principal Occupation(s) Name and Date of Birth Office and Length of Time Served* During Past 5 Years** - ---------------------- --------------------------------- --------------------- OFFICERS OF THE TRUSTS Coleen Downs Dinneen Secretary, Clerk and Chief Legal Officer Senior Vice President, General (12/16/60) Since September 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. Daniel J. Fuss Executive Vice President for Vice Chairman and Director, Loomis, (9/27/33) Loomis Sayles Funds II Sayles & Company, L.P.; Prior to One Financial Center Since June 2003 2002, President and Trustee of Boston, MA 02111 Loomis Sayles Funds II Russell L. Kane Chief Compliance Officer, Chief Compliance Officer for Mutual (7/23/69) Since May 2006; Assistant Secretary Funds, Vice President, Associate Since June 2004 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.; formerly, Senior Counsel, Columbia Management Group. Michael C. Kardok Treasurer, Principal Financial and Senior Vice President, IXIS Asset (7/17/59) Accounting Officer Management Advisors, L.P. and IXIS Since October 2004 Asset Management Distributors, L.P.; formerly, Senior Director, PFPC Inc; formerly, Vice President--Division Manager, First Data Investor Services, Inc. Max J. Mahoney Anti-Money Laundering Officer Vice President, Deputy General (5/1/62) and Assistant Secretary Counsel, Assistant Secretary and Since August 2005 Assistant Clerk, IXIS Asset Management Distribution Corporation. Senior Vice President, Deputy General Counsel, Assistant Secretary, Assistant Clerk and Chief Compliance Officer--Investment Adviser, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P.; formerly, Senior Counsel, MetLife, Inc.; formerly, Associate Counsel, LPL Financial Services, Inc.
76 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trusts Term of Principal Occupation(s) Name and Date of Birth Office and Length of Time Served* During Past 5 Years** - ---------------------- --------------------------------- --------------------- OFFICERS OF THE TRUSTS continued John E. Pelletier Chief Operating Officer Executive Vice President and Chief (6/24/64) Since September 2004 Operating Officer (formerly, Senior Vice President, General Counsel, Secretary and Clerk), IXIS Asset Management Distribution Corporation, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P.; Executive Vice President, Chief Operating Officer and Director (formerly, President, Chief Operating Officer and Director), IXIS Asset Management Services Company.
* Each officer of the Trusts serves for an indefinite term in accordance with their current By-laws until the date his or her successor is elected and qualified, or until he or she sooner dies, retires, is removed or becomes disqualified. ** Each person listed above, except as noted, holds the same position(s) with the IXIS Advisor Funds and Loomis Sayles Funds Trusts. Previous positions during the past five years with the Distributor, IXIS Advisors or Loomis Sayles are omitted, if not materially different from a trustee's or officer's current position with such entity. 77 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. Ms. Cynthia L. Walker, Mr. Daniel M. Cain and Mr. John A. Shane are members of the audit committee and 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-related All other Audit fees fees Tax fees/1/ fees --------------- ------------- ------------- ----------- 2005 2006 2005 2006 2005 2006 2005 2006 ------- ------- ---- ------ ------ ------ ---- ------ Loomis Sayles Massachusetts Tax Free Income Fund..... $22,350 $26,935 -- $1,829 $8,304 $4,879 -- $2,755 - -------- 1. The tax fees consist of preparation of fiscal year-end distribution analysis, financial statement disclosures, and tax return (2005), review of year-end shareholder reporting (2005, 2006), and review of tax compliance (2005, 2006). Aggregate fees billed to the Registrant for non-audit services during 2005 and 2006 were $8,304 and $9,463, 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 ------------------ --------------- --------------- 2005 2006 2005 2006 2005 2006 ------- ------- ------- ------- ------- ------- Control Affiliates.......... $97,600 $17,250 $35,725 $96,900 $47,800 $45,800 Aggregate fees billed to Control Affiliates for non-audit services during 2005 and 2006 were $181,125 and $159,950, 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). (a) (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2), as herewith as exhibit (a)(2)(1) and (a)(2)(2), respectively. (a) (3) Not applicable. (b) Certifications 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, 2006 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, 2006 By: /s/ Michael C. Kardok --------------------------------- Name: Michael C. Kardok Title: Treasurer Date: November 28, 2006 EX-99.CODE 2 dex99code.txt CODE OF ETHICS PURSUANT TO SECTION 406 Exhibit (a)(1) 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 LOOMIS SAYLES FUNDS II Dated August, 2003 CODE OF ETHICS PURSUANT TO SECTION 406 OF THE SARBANES-OXLEY ACT OF 2002 FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Persons/Purpose of the Code This Code of Ethics (this "Code") pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 has been adopted by the registered investment companies (each a "Fund" and, collectively, the "Funds") listed on Exhibit A and applies to each Fund's Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer (the "Covered Persons," all covered persons are set forth in Exhibit B) for the purpose of promoting: . Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; . Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by the registrant . Compliance with applicable governmental laws, rules and regulations; . The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code of violations of the Code; and . Accountability for adherence to the Code. Each Covered Person should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to conflicts of interest. II. Covered Persons Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Person's private interest interferes with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Person's, or a member of the Covered Person's family or household, receives improper personal benefits as a result of the Covered Person's position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Persons and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (including the regulations thereunder, the "1940 Act") and the Investment Advisers Act of 1940 (including the regulations thereunder, the "Investment Advisers Act"). For example, Covered Persons may not engage in certain transactions with the Fund because of their status as "affiliated persons" of the Fund. The Funds and their investment advisers; subadvisers; distributors and administrators (each a "Service Provider" and, collectively, the "Service Providers") compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. See also Section V of this code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Funds and their Service Providers of which the Covered Persons are also officers or employees. As a result, this Code recognizes that the Covered Persons will, in the normal course of their duties (whether for the Funds or for a Service Provider, or for each), be involved in establishing policies and implementing decisions that will have different effects on the Service Providers and the Funds. The participation of the Covered Persons in such activities is inherent in the contractual relationships between the Funds and their Service Providers and is consistent with the performance by the Covered Persons of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the 1940 Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Trustees ("Boards") that the Covered Persons may also be officers or employees of one or more other investment companies covered by this or other codes and that such service, by itself, does not give rise to a conflict of interest. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not the subject of provisions of the 1940 Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Persons should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Person should not be placed improperly before the interest of a Fund. -2- Each Covered Person must not: . use his/her personal influence or personal relationships improperly to influence investment decisions or financial reporting by a Fund whereby the Covered Person would benefit personally to the detriment of the Fund; . cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Person rather than the benefit the Fund; or . retaliate against any other Covered Person or any employee of the Funds or their Service Providers for reports of potential violations that are made in good faith. There are some conflict of interest situations that should always be approved by the Chief Legal Officer ("CLO") of the Fund (or, with respect to activities of the CLO if he/she is a Covered Person, by the President ). These conflict of interest situations are listed below: . service on the board of directors or governing board of a publicly traded entity; . acceptance of any investment opportunity, gift, gratuity or other thing of more than nominal value from any person or entity that does business, or desires to do business, with the Fund. This restriction shall not apply to (i) gifts from a single giver so long as their aggregate annual value does not exceed the equivalent of $100 or (ii) attending business meals, business related conferences, sporting events and other entertainment events at the expense of a giver, so long as the expense is reasonable; . any ownership interest in, or any consulting relationship with, any entities doing business with a Fund, other than a Service Provider or an affiliate of a Service Provider. This restriction shall not apply to or otherwise limit the ownership of publicly traded securities so long as the Covered Person's ownership does not exceed more than 2% of the outstanding securities of the relevant class; and . a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Person's employment with a Service Provider or its affiliate. This restriction shall not apply to or otherwise limit (i) the ownership of publicly traded securities so long as the Covered Person's ownership does not exceed more than 2% of the particular class of security outstanding or (ii) the receipt by the Service Provider of research or other benefits in exchange for "soft dollars". -3- III. Disclosure and Compliance . Each Covered Person should familiarize himself with the disclosure requirements generally applicable to a Fund; . Each Covered Person should not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within or outside the Fund, including to the Fund's Board and auditors, and to governmental regulators and self-regulatory organizations; . Each Covered Person should, to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and . It is the responsibility of each Covered Person to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Person must: . upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Person), affirm in writing to the Funds that he/she has received, read, and understands the Code; . annually thereafter affirm to the Funds that he/she has complied with the requirements of the Code; and . notify the CLO of the Funds promptly if he/she knows of any violation of this Code (with respect to violations by the CLO if he/she is a Covered Person, the Covered Person shall report to the President). Failure to do so is itself a violation of this Code. The CLO of a Fund is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers other than those this Code states can be granted by the CLO, sought by the CLO or Covered Person will be considered by the relevant Fund's Audit Committee (the "Committee"). The Funds will follow these procedures in investigating and enforcing this Code: . the CLO will take all appropriate action to investigate any potential violations reported, which may include the use of internal or external counsel, accountants or other personnel; -4- . if, after such investigation, the CLO believes that no violation has occurred, the CLO is not required to take any further action; . any matter that the CLO believes is a violation will be reported to the Committee; . if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Person; . the Committee will be authorized to grant waivers, as it deems appropriate; and . any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds or the Funds' Service Providers govern or purport to govern the behavior or activities of the Covered Persons who are subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. The Funds and their Service Providers' codes of ethics under Rule 17j-1 under the 1940 Act and the Service Providers' more detailed compliance policies and procedures are separate requirements applying to the Covered Persons and others, and are not part of this Code. VI. Amendments Any amendments to this Code with respect to a Fund, other than administrative amendments to Exhibits A and B, must be approved or ratified by a majority vote of the Fund's Board, including a majority of independent trustees. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone except as permitted by the Board. -5- VIII. Internal Use The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. -6- Exhibit A Registered Investment Companies 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 Loomis Sayles Funds II -7- Exhibit B Persons Covered by this Code of Ethics Principal Executive Principal Financial Principal Trust Officer Officer Accounting Officer - ----- ------------------------ ------------------- ------------------ IXIS Advisor John. T. Hailer, Michael Kardok, Michael Kardok, Funds Trust I Trustee, President and Treasurer Treasurer Chief Executive Officer IXIS Advisor John. T. Hailer, Michael Kardok, Michael Kardok, Funds Trust II Trustee, President and Treasurer Treasurer Chief Executive Officer IXIS Advisor John. T. Hailer, Michael Kardok, Michael Kardok, Funds Trust Trustee, President and Treasurer Treasurer III Chief Executive Officer IXIS Advisor John. T. Hailer, Michael Kardok, Michael Kardok, Funds Trust IV Trustee, President and Treasurer Treasurer Chief Executive Officer IXIS Advisor John. T. Hailer, Michael Kardok, Michael Kardok, Cash Trustee, President and Treasurer Treasurer Management Chief Executive Officer Trust AEW Real John. T. Hailer, Michael Kardok, Michael Kardok, Estate Income Trustee, President and Treasurer Treasurer Fund Chief Executive Officer Loomis Sayles Robert J. Blanding, Michael Kardok, Michael Kardok, Funds I Trustee, President and Treasurer Treasurer Chief Executive Officer Loomis Sayles Robert J. Blanding, Michael Kardok, Michael Kardok, Funds II Trustee, Chief Executive Treasurer Treasurer Officer; John T. Hailer, Trustee, President -8- EX-99.CERT 3 dex99cert.txt SECTION 302 CERTIFICATIONS Exhibit (a)(2)(1) IXIS Advisor Funds Trust II Exhibit to SEC Form N-CSR Section 302 Certification I, John T. Hailer, certify that: 1. I have reviewed this report on Form N-CSR of IXIS Advisor Funds Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materials respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 28, 2006 /s/ John T. Hailer ----------------------------- John T. Hailer President and Chief Executive Officer Exhibit (a)(2)(2) IXIS Advisor Funds Trust II Exhibit to SEC Form N-CSR Section 302 Certification I, Michael C. Kardok, certify that: 1. I have reviewed this report on Form N-CSR of IXIS Advisor Funds Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materials respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 28, 2006 /s/ Michael C. Kardok ----------------------------- Michael C. Kardok Treasurer EX-99.906CT 4 dex99906ct.txt SECTION 906 CERTIFICATIONS Exhibit (b) IXIS Advisor Funds Trust II Section 906 Certification In connection with the report on Form N-CSR for the period ended September 30, 2006 for the Registrant (the "Report"), the undersigned each hereby certifies to the best of his knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: By: President and Chief Executive Officer Treasurer IXIS Advisor Funds Trust II IXIS Advisor Funds Trust II /s/ John T. Hailer /s/ Michael C. Kardok - --------------------------------------- ------------------------------------- John T. Hailer Michael C. Kardok Date: November 28, 2006 Date: November 28, 2006 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the IXIS Advisor Funds Trust II, and will be retained by the IXIS Advisor Funds Trust II and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----