-----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, JdJtYCy/ZppaN6DZa5Tk4DvsL6p38XZKnS36jUXzM4wuVptb0rWQKEyrqH2E+hPR ibRumUxwh+/UmZj5iz/fJQ== 0001193125-07-014292.txt : 20070126 0001193125-07-014292.hdr.sgml : 20070126 20070126164858 ACCESSION NUMBER: 0001193125-07-014292 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20070126 DATE AS OF CHANGE: 20070126 EFFECTIVENESS DATE: 20070201 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-11101 FILM NUMBER: 07557249 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 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: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 07557250 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 485BPOS 1 d485bpos.txt IXIS ADVISOR FUNDS TRUST II Registration Nos. 2-11101 811-00242 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 130 [x] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 61 [x] (Check appropriate box or boxes) 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) Registrant's Telephone Number, including Area Code (617) 449-2810 Coleen Downs Dinneen, Esq. IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Name and address of agent for service) Copy to: John Loder, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110 Approximate Date of Proposed Public Offering It is proposed that this filing will become effective (check appropriate box): [ ]immediately upon filing pursuant to paragraph (b) [x]On February 1, 2007 pursuant to paragraph (b) [ ]60 days after filing pursuant to paragraph (a)(1) [ ]on (date) pursuant to paragraph (a)(1) [ ]75 days after filing pursuant to paragraph (a)(2) [ ]on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ]This post-effective amendment designates a new effective date for a previously filed post-effective amendment. [LOGO] IXIS ADVISOR FUNDS
WHAT'S INSIDE Goals, Strategies & Risks Page 2 Fund Fees & Expenses..... Page 24 More About Risk.......... Page 27 Management Team.......... Page 29 Fund Services............ Page 33 Financial Performance.... Page 52
IXIS Advisor Income and Tax Free Income Funds [LOGO] LOOMIS SAYLES & COMPANY, L.P. Loomis Sayles Core Plus Bond Fund Loomis Sayles High Income Fund Loomis Sayles Investment Grade Bond Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Massachusetts Tax Free Income Fund Loomis Sayles Municipal Income Fund Loomis Sayles Strategic Income Fund Prospectus February 1, 2007 The Securities and Exchange Commission has not approved or disapproved any Fund's shares or determined whether this Prospectus is truthful or complete. Any representation to the contrary is a crime. For general information on the Funds or any of their services and for assistance in opening an account, contact your financial representative or call IXIS Advisor Funds. IXIS Advisor Funds P.O. Box 219579 Kansas City, MO 64121-9579 800-225-5478 www.ixisadvisorfunds.com Table of Contents Goals, Strategies & Risks Loomis Sayles Core Plus Bond Fund..................... 2 Loomis Sayles High Income Fund........................ 5 Loomis Sayles Investment Grade Bond Fund.............. 8 Loomis Sayles Limited Term Government and Agency Fund 12 Loomis Sayles Massachusetts Tax Free Income Fund..... 15 Loomis Sayles Municipal Income Fund.................. 18 Loomis Sayles Strategic Income Fund.................. 21 Fund Fees & Expenses Fund Fees & Expenses................................. 24 More About Risk More About Risk...................................... 27 Management Team Meet the Funds' Investment Adviser................... 29 Meet the Funds' Portfolio Managers................... 31 Fund Services Investing in the Funds............................... 33 How Sales Charges Are Calculated..................... 34 It's Easy to Open an Account......................... 37 Buying Shares........................................ 39 Selling Shares....................................... 41 Selling Shares in Writing............................ 42 Exchanging Shares.................................... 43 Restrictions on Buying, Selling and Exchanging Shares 43 How Fund Shares Are Priced........................... 46 Dividends and Distributions.......................... 47 Tax Consequences..................................... 47 Compensation to Securities Dealers................... 49 Additional Investor Services......................... 50 Financial Performance Financial Performance................................ 52 Glossary of Terms Glossary of Terms.................................... 62
If you have any questions about any of the terms used in this Prospectus, please refer to the "Glossary of Terms." To learn more about the possible risks of investing in the Funds, please refer to the section "More About Risk." This section details the risks of practices in which the Funds may engage. Please read this section carefully before you invest. Fund shares are not bank deposits and are not guaranteed, endorsed or insured by the Federal Deposit Insurance Corporation or any other government agency, and are subject to investment risks, including possible loss of the principal invested. [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Core Plus Bond Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Peter W. Palfrey and Richard G. Raczkowski Category: Corporate Income
Ticker Symbol: Class A Class B Class C ----------------------- NEFRX NERBX NECRX
Investment Goal The Fund seeks a high level of current income consistent with what the Fund considers reasonable risk. It invests primarily in corporate and U.S. government bonds. Principal Investment Strategies Under normal market conditions, the Fund will invest primarily in U.S. corporate and U.S. government bonds, which include U.S. government sponsored agency debenture and pass-through securities among other things. It will adjust to changes in the relative strengths of the U.S. corporate or U.S. government bond markets by shifting the relative balance between the two. The Fund will invest at least 80% of its net assets (plus any borrowings made for investments purposes) in bond investments. The term "bond investments" includes debt securities of any maturity. In accordance with applicable Securities and Exchange Commission ("SEC") requirements, the Fund will notify shareholders prior to any change to such policy taking effect. In addition, the Fund normally will invest at least 80% of its assets in investment-grade securities (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P") or Fitch Investor Services, Inc. ("Fitch"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles), including cash and cash equivalent securities and will generally maintain an average effective maturity of ten years or less. The Fund may also invest up to 20% of its assets, at the time of purchase, in bonds rated below investment grade (also known as "junk bonds"), or if unrated, of comparable quality as determined by Loomis Sayles. Loomis Sayles follows a total return-oriented investment approach in selecting securities for the Fund. It takes into account economic and market conditions as well as issuer-specific data, such as: .. Fixed charge coverage .. The relationship between cash flows and debt service obligations .. The experience and perceived strength of management .. Price responsiveness of the security to interest rate changes .. Earnings prospects .. Debt as a percentage of assets .. Borrowing requirements, debt maturity schedules and liquidation value In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook for the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. Next, the analysts conduct a thorough review of individual securities to identify what they consider attractive values in the high quality bond market. This value analysis uses quantitative tools such as internal and external computer systems and software. .. Loomis Sayles continuously monitors an issuer's creditworthiness to assess whether the obligation remains an appropriate investment for the Fund. It may relax its emphasis on quality with respect to a given security if it believes that the issuer's financial outlook is solid. This may create an opportunity for higher returns. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. Fund holdings are generally diversified across industry groups such as utilities or telecommunications, which tend to move independently of the ebbs and flows in economic growth. The Fund may also: .. Invest in Rule 144A securities and structured notes. .. Invest in foreign securities, including those in emerging markets, and related currency transactions. Loomis Sayles may elect not to hedge currency risk, which may cause the Fund to incur losses that would not have been incurred had the risk been hedged. .. Invest in futures. .. Invest in mortgage-related securities, including mortgage dollar rolls. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list - -------------------------------------------------------------------------------- 2 Principal Investment Strategies - continued of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Derivative securities risk: Derivative securities are subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives (which may include options futures, swap contracts and other transactions) may give rise to leverage risk and can have a significant impact on the Fund's exposure to securities markets values, interest rates or the currency exchange rate. Derivative securities are subject to credit risk and liquidity risk. Fixed-income securities risk: Fixed-income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities may be subject to these risks to a greater extent than other fixed-income securities. Lower-quality fixed-income securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Foreign securities risk: Foreign securities are subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Mortgage-related securities risk: In addition to the risks associated with investments in fixed-income securities generally, mortgage-related securities are subject to the risk that the securities may be prepaid and result in the reinvestment of the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. A dollar roll involves potential risks of loss that in addition to those related to the securities underlying the transactions. The Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. There is no assurance that the Fund's use of cash that it receives from a dollar roll will provide a return that exceeds borrowing costs. For additional information, see the section "More About Risk." - -------------------------------------------------------------------------------- 3 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of two broad measures of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that it served as subadviser to the Fund, a function it assumed in June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance might have been different had the current advisory arrangements and investment policies been in place for all periods shown. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Classes B and C shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total return) (up triangle) Highest Quarterly Return: Third Quarter 1997, up 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 4.29% ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (down triangle) Lowest Quarterly 11.05% 8.01% -0.34% 7.39% 7.24% 2.84% 8.49% 5.10% 1.10% 5.34% Return: Second Quarter 2004, down 2.83%
The table below shows how the average annual total returns for Class A, Class B and Class C shares of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods compare to those of the Lehman Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. They are also compared to the Lehman U.S. Credit Index, an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, U.S. investment-grade corporate debt and foreign debentures that meet specified maturity, liquidity and quality requirements. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Aggregate Bond Index and Lehman U.S. Credit Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years Loomis Sayles Core Plus Bond Fund Class A - Return Before Taxes 0.58% 3.58% 5.08% Return After Taxes on Distributions* -1.01% 1.75% 2.71% Return After Taxes on Distributions & Sales of Fund Shares* 0.35% 1.95% 2.85% Class B - Return Before Taxes -0.43% 3.44% 4.80% Class C - Return Before Taxes 3.56% 3.78% 4.79% Lehman Aggregate Bond Index** 4.33% 5.06% 6.24% Lehman U.S. Credit Index** 4.26% 5.90% 6.56%
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of each index do not reflect a deduction for fees, expenses or taxes. For information about Fund expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 4 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles High Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Matthew J. Eagan, Kathleen C. Gaffney and Elaine M. Stokes Category: Corporate Income
Ticker Symbol: Class A Class B Class C ----------------------- NEFHX NEHBX NEHCX
Investment Goal The Fund seeks high current income plus the opportunity for capital appreciation to produce a high total return. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 65% of its assets in lower-quality fixed-income securities (commonly known as "junk bonds"). Junk bonds are generally rated below investment grade quality. To be considered below investment grade quality none of the major ratings (such as Moody's, Standard & Poor's and Fitch) must have rated the securities in one of its top four rating categories or, if the security is unrated, Loomis Sayles must have determined it to be of comparable quality. The Fund will normally invest at least 80% of its assets in U.S. corporate or U.S. dollar-denominated foreign fixed-income securities. The Fund may also invest up to 20% of its assets in foreign currency-denominated fixed-income securities, including those in emerging markets and related currency hedging transactions. Loomis Sayles may elect not to hedge currency risk, which may cause the Fund to incur losses that would not have been incurred had the risk been hedged. Loomis Sayles performs its own extensive credit analyses to determine the creditworthiness and potential for capital appreciation of a security. The Fund's management minimizes both market timing and interest rate forecasting. Instead, it uses a strategy based on gaining a thorough understanding of industry and company dynamics as well as individual security characteristics such as the following: .. Issuer debt and debt maturity schedules .. Earnings prospects .. Responsiveness to changes in interest rates .. Experience and perceived strength of management .. Borrowing requirements and liquidation value .. Market price in relation to cash flow, interest and dividends In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Loomis Sayles utilizes the skills of its in-house team of more than 40 research analysts to cover a broad universe of industries, companies and markets. The Fund's portfolio managers take advantage of these extensive resources to identify securities that meet the Fund's investment criteria. .. Loomis Sayles employs a selection strategy that focuses on a value-driven, bottom-up approach to identify securities that provide an opportunity for both generous yields and capital appreciation. Loomis Sayles analyzes an individual company's potential for positive financial news to determine if it has growth potential. Examples of positive financial news include an upward turn in the business cycle, improvement in cash flows, rising profits or the awarding of new contracts. .. Loomis Sayles emphasizes in-depth credit analysis, appreciation potential and diversification in its bond selection. Each bond is evaluated to assess the ability of its issuer to pay interest and, ultimately, principal (which helps the Fund generate an ongoing flow of income). Loomis Sayles also assesses a bond's relation to market conditions within its industry and favors bonds whose prices may benefit from positive business developments. .. Loomis Sayles seeks to diversify the Fund's holdings to reduce the inherent risk in lower-quality fixed-income securities. The Fund may also: .. Invest in structured notes, zero-coupon, pay-in-kind and Rule 144A securities. .. Invest in derivative securities, including futures. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). - -------------------------------------------------------------------------------- 5 Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Derivative securities risk: Derivative securities are subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives (which may include options, futures, swap contracts and other transactions) may give rise to leverage risk, and can have a significant impact on the Fund's exposure to securities markets values, interest rates or the currency exchange rate. Derivative securities are subject to credit risk and liquidity risk. Fixed-income securities risk: Fixed-Income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Foreign securities risk: Foreign securities are subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. For additional information, see the section "More About Risk." Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Classes B and C shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total Return)+ (up triangle) Highest Quarterly Return: Second Quarter 2003, 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 up 9.95% ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (down triangle) Lowest Quarterly 15.37% -1.70% 4.00% -16.09% -10.65% -8.86% 27.91% 10.35% 5.04% 13.86% Return: Fourth Quarter 2000, down 11.32%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest High Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. - -------------------------------------------------------------------------------- 6 Evaluating the Fund's Past Performance - continued The table below shows how annual total returns for Class A, Class B and Class C shares of the Fund (before and after taxes for Class A) for the one-year, five-year, ten-year and since Class C inception periods compare to those of the Lehman High Yield Composite Index, a market-weighted, unmanaged index of fixed-rate, non-investment-grade debt. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman High Yield Composite Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Since Class C Average Annual Total Returns+ Inception (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years (3/2/98) Loomis Sayles High Income Fund Class A - Return Before Taxes 8.80% 8.01% 2.66% -- Return After Taxes on Distributions* 6.09% 5.18% -0.76% -- Return After Taxes on Distributions & Sales of Fund Shares* 5.65% 5.08% 0.09% -- Class B - Return Before Taxes 8.15% 7.88% 2.37% -- Class C - Return Before Taxes 11.94% 8.17% -- 0.94% Lehman High Yield Composite Index** 11.85% 10.18% 6.59% 5.70%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest High Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of the index do not reflect a deduction for fees, expenses or taxes. The returns for the index are calculated from April 1, 1998 for Class C shares. For information about Fund expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 7 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Investment Grade Bond Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Matthew J. Eagan, Daniel J. Fuss, Kathleen C. Gaffney, Steven Kaseta and Elaine M. Stokes Category: Corporate Income
Ticker Symbol: Class A Class B Class C ----------------------- LIGRX LGBBX LGBCX
Investment Goal The Fund seeks high total investment return through a combination of current income and capital appreciation. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets (plus any borrowings made for investment purposes) in investment-grade fixed-income securities (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P") or Fitch Investor Services, Inc. ("Fitch"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis Sayles). In accordance with applicable Securities and Exchange Commission ("SEC") requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Although the Fund invests primarily in investment-grade fixed-income securities, it may invest up to 10% of its assets in lower-quality fixed-income securities (also known as "junk bonds"). The Fund may invest in fixed-income securities of any maturity. The Fund will not invest in equity securities of any kind or make any equity investment. In deciding which securities to buy and sell, Loomis Sayles will consider, among other things, the financial strength of the issuer, current interest rates, Loomis Sayles' expectations regarding future changes in interest rates, and comparisons of the level of risk associated with particular investments with Loomis Sayles' expectations concerning the potential return of those investments. Three themes typically drive the Fund's investment approach. First, Loomis Sayles generally seeks fixed-income securities of issuers whose credit profiles it believes are improving. Second, the Fund makes significant use of non-market related securities, which are securities that may not have a direct correlation with changes in interest rates. Loomis Sayles believes that the Fund may generate positive returns by having a portion of the Fund's assets invested in non-market related securities, rather than by relying primarily on changes in interest rates to produce returns for the Fund. Third, Loomis Sayles analyzes different sectors of the economy and differences in the yields ("spreads") of various fixed-income securities in an effort to find securities that it believes may produce attractive returns for the Fund in comparison to their risk. Loomis Sayles generally prefers securities that are protected against calls (early redemption by the issuer). The Fund may also: .. Invest any portion of its assets in securities of Canadian issuers and up to 20% of its assets in securities of other foreign issuers, including emerging markets securities. The Fund may invest without limit in obligations of supranational entities (e.g., the World Bank). .. Invest in corporate securities, U.S. Government securities, and commercial paper. .. Invest in zero coupon securities, mortgage-backed securities including mortgage dollar rolls, stripped mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, when-issued securities, and convertible securities. .. Engage in foreign currency hedging transactions, repurchase agreements, swap transactions and securities lending. Loomis Sayles may elect not to hedge currency risk, which may cause the Fund to incur losses that would not have been incurred had the risk been hedged. .. Invest in Rule 144A securities and structured notes. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). - -------------------------------------------------------------------------------- 8 Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Derivative securities risk: Derivative securities are subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives (which include options, futures, swap contracts and other transactions) may give rise to leverage risk, and can have a significant impact on the Fund's exposure to secutirties markets values, interest rates or the currency exchange rate. Derivatives are also subject to credit risk and liquidity risk. Fixed-income securities risk: Fixed-Income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly known as "junk bonds") may be subject to these risks to a greater extent than other fixed-income securities. These securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Foreign securities risk: Foreign securities are subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Non-U.S. Shareholders: A significant majority of Class J shares are held by customers of a limited number of Japanese brokerage firms. Economic, regulatory, political or other developments affecting Japanese investors or brokerage firms, including decisions to invest in investment products other than the Fund, could result in a substantial number of redemptions within a relatively limited period of time. If such redemptions were to occur, the Fund would likely be required to dispose of securities that the Fund's adviser would otherwise prefer to hold, which would result in costs to the Fund and its shareholders such as increased brokerage commissions and other transaction costs, market impact costs and taxes on realized gains. In addition, the decreased size of the Fund would likely cause its total expense ratio to increase. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Mortgage-related securities risk: In addition to the risks associated with investments in fixed-income securities generally, mortgage-related securities are subject to the risk that the securities may be prepaid and result in the reinvestment of the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. A dollar roll involves potential risks of loss in addition to those related to securities underlying the transactions. The Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. There is no assurance that the Fund's use of cash that it receives from a dollar roll will provide a return that exceeds borrowing costs. For additional information, see the section "More About Risk." - -------------------------------------------------------------------------------- 9 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Classes B and C shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total return)+ (up triangle) Highest Quarterly Return: Second Quarter 2003, 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 up 9.08% ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (down triangle) Lowest Quarterly 14.29% 2.96% 3.65% 10.97% 5.65% 10.60% 19.33% 9.45% 2.06% 7.73% Return: Second Quarter 2004, down 3.99%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of Retail Class shares of the Fund, which were converted to Class A shares on September 12, 2003. The prior Retail Class performance has been restated to reflect expenses of Class A shares. During the period from December 18, 2000 to January 31, 2002 (during which time Retail Class shares were not outstanding), performance shown for Class A shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the higher expenses paid by Class A shares. The restatement of the Fund's performance to reflect Class A expenses is based on the net expenses of Class A shares after taking into effect the Fund's expense cap arrangements at the time of the conversion. - -------------------------------------------------------------------------------- 10 Evaluating the Fund's Past Performance - continued The table below shows how average annual total returns for Class A, Class B and Class C shares of the Fund (before and after taxes for an Class A) for the one-year, five-year and ten-year periods compare to those of the Lehman U.S. Government/Credit Index, an unmanaged index of publicly traded bonds, including U.S. government bonds, U.S. Treasury securities and corporate bonds. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and return after taxes on distributions and sales of Fund shares. The Lehman U.S. Government/Credit Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns+ (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years Loomis Sayles Investment Grade Bond Fund Class A - Return Before Taxes 2.91% 8.68% 8.05% Return After Taxes on Distributions* 0.93% 6.23% 5.42% Return After Taxes on Distributions & Sales of Fund Shares* 1.85% 6.06% 5.31% Class B - Returns Before Taxes 1.90% 8.48% 7.59% Class C - Returns Before Taxes 5.90% 8.76% 7.59% Lehman U.S. Government/Credit Index** 3.78% 5.17% 6.26%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of Retail Class shares of the Fund, which were converted to Class A shares on September 12, 2003. The prior Retail Class performance has been restated to reflect expenses and sales loads of Class A shares. During the period from December 18, 2000 to January 31, 2002 (during which time Retail Class shares were not outstanding), performance shown for Class A shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the higher expenses and sales loads paid by Class A shares. Class B and Class C shares have been based on prior Institutional Class performance, restated to reflect the expenses and sales loads of the Fund's Class B and Class C shares, respectively. The restatement of the Fund's performance to reflect Classes A, Class B, and Class C expenses is based on the net expenses of these classes after taking into effect the Fund's expense cap arrangements at the time of the conversion. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of the index do not reflect a deduction for fees, expenses or taxes. For information about Fund expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 11 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Limited Term Government and Agency Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: John Hyll and Clifton V. Rowe Category: Government Income
Ticker Symbol: Class A Class B Class C ----------------------- NEFLX NELBX NECLX
Investment Goal The Fund seeks a high current return consistent with preservation of capital. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies The Fund will, under normal market conditions, invest at least 80% of its net assets (plus any borrowing for investment purposes) in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. In accordance with applicable Securities and Exchange Commission ("SEC") requirements, the Fund will notify shareholders prior to any change to such policy taking effect. Loomis Sayles follows a total return-oriented investment approach in selecting securities for the Fund. It seeks securities that give the Fund's portfolio the following characteristics, although not all securities selected will have these characteristics and Loomis Sayles may look for other characteristics if market conditions change: .. Average credit rating of "AAA" by Standard & Poor's Ratings Group ("S&P") or Fitch Investor Services, Inc. ("Fitch"), or "Aaa" by Moody's Investors Service, Inc. ("Moody's"). .. Effective duration range of two to four years. In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook on the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by the U.S. and foreign governments as well as the Federal Reserve Bank. .. The analysts also conduct a thorough review of individual securities to identify what they consider attractive values in the U.S. government security marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. Loomis Sayles continuously monitors an issuer's creditworthiness to assess whether the obligation remains an appropriate investment for the Fund. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. It emphasizes securities that tend to perform particularly well in response to interest rate changes, such as U.S. Treasury securities in a declining interest rate environment and mortgage-backed or U.S. government agency securities in a steady or rising interest rate environment. .. Loomis Sayles seeks to increase the opportunity for higher yields while maintaining the greater price stability that intermediate-term bonds have compared to bonds with longer maturities. The Fund may also: .. Invest in investment-grade corporate notes and bonds (those rated BBB or higher by S&P or Fitch, or Baa or higher by Moody's). .. Invest in zero-coupon bonds, Rule 144A securities and structured notes. .. Invest in foreign bonds denominated in U.S. dollars and related foreign currency transactions. .. Invest in asset-backed securities (if rated AAA by S&P or Fitch or Aaa by Moody's). .. Invest in mortgage-related and asset-backed securities, including mortgage dollar rolls. .. Invest in futures. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment objective. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). - -------------------------------------------------------------------------------- 12 Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Agency securities risk: Agency securities are subject to security risk. Agencies of the U.S. government are guaranteed as to the payment of principal and interest of the relevant entity but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. Please see the SAI for details. Derivative securities risk: Derivative securities are subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk and can have a significant impact on the Fund's exposure to securities markets values, interest rates or the currency exchange rate. Derivative securities are also subject to credit risk and liquidity risk. Fixed-income securities risk: Fixed-income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Foreign securities risk: Foreign securities are subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risk are also associated with foreign securities. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Mortgage-related and Asset-backed securities risk: In addition to the risks associated with investments in fixed-income securities generally, mortgage-related and asset-backed securities are subject to prepayment risks, the risk that the securities may be prepaid and result in the reinvestment of the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. For additional information, see the section "More About Risk." - -------------------------------------------------------------------------------- 13 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by the previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance might have been different had the current advisory arrangements and investment policies been in place for all periods shown. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Classes B and C shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total return)+ 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (up triangle) Highest Quarterly Return: Third - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Quarter 1998, up 4.63% 7.27% 6.46% -0.67% 8.34% 6.86% 8.18% 1.50% 2.00% 1.18% 3.80% (down triangle) Lowest Quarterly Return: Second Quarter 2004, down 1.76%
+ The returns shown for periods prior to September 15, 2003 reflect the results of the CDC Nvest Limited Term U.S. Government Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns for Class A, Class B and Class C shares of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods compare to those of the Lehman 1-5 Year Government Bond Index, a market-weighted index of bonds issued by the U.S. government and its agencies with maturities between one and five years. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman 1-5 Year Government Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns+ (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years Loomis Sayles Limited Term Government and Agency Fund Class A - Return Before Taxes 0.70% 2.67% 4.12% Return After Taxes on Distributions* -0.73% 1.25% 2.23% Return After Taxes on Distributions & Sales of Fund Shares* 0.43% 1.44% 2.33% Class B - Return Before Taxes -1.93% 2.22% 3.73% Class C - Return Before Taxes 2.06% 2.57% 3.74% Lehman 1-5 Year Government Bond Index** 4.01% 3.35% 5.09%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest Limited Term U.S. Government Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of the index do not reflect a deduction for fees, expenses or taxes. For information about Fund expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 14 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Massachusetts Tax Free Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Robert Payne and Martha A. Strom Category: Tax Free Income
Ticker Symbol: Class A Class B --------------- NEFMX NEMBX
Investment Goal The Fund seeks to maintain a high level of current income exempt from federal and Massachusetts personal income taxes. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies The Fund typically invests in a mix of Massachusetts municipal bonds, including general obligation bonds and issues secured by specific revenue streams. The Fund will normally invest at least 80% of its net assets (plus any borrowings made for investment purposes) in investments the income of which is exempt from federal and Massachusetts income tax (which may include securities of issuers located outside of Massachusetts so long as the income of such securities is exempt from federal and Massachusetts income tax). The Fund will not change such policy without shareholder approval. Additionally, at least 85% of the Fund's assets will consist of investment grade securities (those rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Fitch Investor Services, Inc. ("Fitch"), or Baa or higher by Moody's Investors Service, Inc. ("Moody's") or securities that are non-rated but are considered to be of comparable quality by Loomis Sayles). To achieve this goal, the Fund maintains policies that provide that (1) at least 90% of its net assets are invested in debt obligations on which the interest is exempt from federal income tax (other than the alternative minimum tax ("AMT")) and Massachusetts personal income tax ("Massachusetts Tax-Exempt Securities") and (2) not more than 20% of its assets are invested in securities on which the interest is subject to AMT for individuals. Loomis Sayles follows a conservative total return-oriented investment approach in selecting securities for the Fund. It takes into account economic and market conditions as well as issuer-specific data, and attempts to construct a portfolio with the following characteristics: .. Average credit rating of A (as rated by S&P, Fitch or Moody's) .. Average maturity of between 15 and 25 years In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. The Fund's portfolio managers work closely with municipal bond analysts to develop an outlook on the economy from research provided by various Wall Street firms as well as specific forecasting services. .. The analysts also conduct a thorough review of individual securities to identify what they consider attractive values in the Fund's investment universe. This value analysis uses quantitative tools such as internal and external computer systems and software. .. The Fund's portfolio managers and analysts then perform a careful and continuous credit analysis to identify the range of the credit quality spectrum they believe most likely to provide the Fund with the highest level of tax free income consistent with overall credit quality. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. The portfolio managers primarily invest in general obligation bonds and revenue bonds issued by the Massachusetts government and its agencies. The Fund may also: .. Invest up to 15% of its assets in lower-quality bonds (i.e., none of the major rating agencies (such as Moody's, Standard & Poor's and Fitch) have rated the securities in one of its top four rating categories or, considered to be of comparable quality by Loomis Sayles if unrated). .. Invest in futures. .. Invest in zero-coupon bonds, Rule 144A securities and structured notes. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the - -------------------------------------------------------------------------------- 15 Principal Investment Strategies - continued information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Derivative securities risk: Derivative securities are subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to securities markets values, interest rates or the currency exchange rate. Derivative securities are subject to credit risk and liquidity risk. Fixed-income securities risk: Fixed-income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Non-diversification risk: Compared with other mutual funds, the Fund may invest a greater percentage of its assets in a particular issuer and may invest in fewer issuers. Therefore, the Fund may have more risk because changes in the value of a single security or the impact of a single economic, political or regulatory occurrence may have a greater adverse impact on the Fund's net asset value. State specific risk: Weakness in the local or national economy and other economic or regulatory events impacting Massachusetts generally could adversely affect the credit ratings and creditworthiness of Massachusetts municipal securities in which the Fund invests and the ability of issuers to make principal and interest payments. For additional information, see the section "More About Risk." - -------------------------------------------------------------------------------- 16 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as the subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by a previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance might have been different had the current advisory arrangements and investment policies been in place for all periods shown. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Class B shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total return) (up triangle) Highest Quarterly 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Return: Third Quarter 2002, up - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 4.82% 9.32% 4.92% -4.21% 9.27% 3.21% 8.12% 5.04% 4.16% 3.37% 4.60% (down triangle) Lowest Quarterly Return: Second Quarter 2004, down 3.00%
The table below shows how the average annual total returns for Class A and Class B shares of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods compare to those of the Lehman Municipal Bond Index, an unmanaged index of bonds issued by states, municipalities and other government entities having maturities of more than one year. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Municipal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years Loomis Sayles Massachusetts Tax Free Income Fund Class A - Return Before Taxes 0.13% 4.14% 4.27% Return After Taxes on Distributions* 0.12% 4.13% 4.24% Return After Taxes on Distributions & Sales of Fund Shares* 1.40% 4.10% 4.26% Class B - Return Before Taxes -1.18% 3.98% 4.02% Lehman Municipal Bond Index** 4.84% 5.53% 5.76%
* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other class of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of the index do not reflect a deduction for fees, expenses or taxes. For information about the Fund's expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 17 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Municipal Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Robert Payne and Martha A. Strom Category: Tax Free Income
Ticker Symbol: Class A Class B --------------- NEFTX NETBX
Investment Goal The Fund seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital. The Fund invests primarily in debt securities of municipal issuers ("municipal securities"), which pay interest that is exempt from regular federal income tax but may be subject to the federal alternative minimum tax. Principal Investment Strategies Under normal market conditions, the Fund will invest at least 80% of its net assets (plus borrowings made for investment purposes) in municipal investments the income from which is exempt from federal income tax (other than the alternative minimum tax). The Fund will not change such policy without shareholder approval. The Fund may invest not more than 20% of its net assets in debt obligations on which the interest is subject to the alternative minimum tax for individuals. It will invest at least 85% of its assets in investment-grade bonds (those rated BBB or higher by Standard & Poor's Ratings Group ("S&P") Fitch Investor Services, Inc. ("Fitch"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or are non-rated but are considered to be of comparable quality by Loomis Sayles), and the other 15% may be invested in lower-quality bonds (commonly known as "junk bonds"). Junk bonds are generally rated below investment grade quality. To be considered below investment grade quality none of the major ratings agencies must have rated the securities in its top four rating categories or, if the security is unrated, Loomis Sayles must have determined it to be of comparable quality. The Fund's portfolio managers will generally shift assets among investment-grade bonds depending on economic conditions and outlook in order to increase appreciation potential. Loomis Sayles follows a total return-oriented investment approach in selecting securities for the Fund. It takes into account economic conditions and market conditions as well as issuer-specific data, such as: .. Revenue projections and spending requirements/forecasts .. Earnings prospects and cash flow .. Debt as a percentage of assets and cash flow .. Borrowing requirements, debt maturity schedules and reserve requirements .. The relationship between cash flows and dividend obligations .. The experience and perceived strength of management .. Price responsiveness of the security to interest rate changes In selecting investments for the Fund, Loomis Sayles employs the following strategies: .. Its research analysts work closely with the Fund's portfolio managers to develop an outlook for the economy from research produced by various Wall Street firms and specific forecasting services or from economic data released by U.S. and foreign governments as well as the Federal Reserve Bank. .. The analysts also conduct a thorough review of individual securities to identify what they consider attractive values in the municipal marketplace. This value analysis uses quantitative tools such as internal and external computer systems and software. .. The Fund's portfolio managers and analysts then perform a careful and continuous credit analysis to identify the range of the credit quality spectrum they believe most likely to provide the Fund with the highest level of tax-free income consistent with overall quality. .. Loomis Sayles seeks to balance opportunities for yield and price performance by combining macroeconomic analysis with individual security selection. The portfolio managers primarily invest in general obligation bonds and revenue bonds nationwide and across a variety of municipal sectors. This use of multi-state and multi-sector diversification helps provide increased protection against local economic downturns or bond rating downgrades. The Fund may also: .. Invest in "private activity" bonds, which may subject a shareholder to an alternative minimum tax. .. Invest in futures. .. Invest in zero-coupon bonds, Rule 144A securities and structured notes. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment goal. - -------------------------------------------------------------------------------- 18 Principal Investment Strategies - continued A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Derivative securities risk: Derivative securities are subject to changes in the underlying securities or indices on which such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk, and can have a significant impact on the Fund's exposure to securities markets values, interest rates or the currency exchange rate. Derivative securities are also subject to credit risk and liquidity risk. Fixed-income securities risk: Fixed-income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Municipal securities risk: Weakness in the local or national economy and other economic or regulatory events impacting municipal issuers generally could adversely affect the credit ratings and creditworthiness of the issuers of the municipal securities in which the Fund invests and the ability of issuers to make principal and interest payments. For additional information, see the section "More About Risk." - -------------------------------------------------------------------------------- 19 Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The Fund's current adviser assumed that function on September 1, 2003. Prior to that, it served as the subadviser to the Fund, a role it assumed in June 2001. This chart and table reflect results achieved by a previous subadviser under different investment policies for periods prior to June 2001. The Fund's performance might have been different had the current advisory arrangements and investment policies been in place for all periods shown. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Class B shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total return)+ 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 8.58% 5.73% -2.38% 8.76% 3.00% 7.31% 4.63% 4.35% 3.36% 5.29% (up triangle) Highest Quarterly Return: Third Quarter 2006, up 3.85% (down triangle) Lowest Quarterly Return: Second Quarter 2004, down 2.62%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest Municipal Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. The table below shows how the average annual total returns for Class A and Class B shares of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods compare to those of the Lehman Municipal Bond Index, an unmanaged index of bonds issued by states, municipalities and other governmental entities having maturities of more than one year. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charge that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Municipal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns+ (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years Loomis Sayles Municipal Income Fund Class A - Before Taxes 0.57% 4.02% 4.34% Return After Taxes on Distributions* 0.48% 3.99% 4.32% Return After Taxes on Distributions & Sales of Fund Shares* 1.73% 4.01% 4.36% Class B - Return Before Taxes -0.49% 3.89% 3.97% Lehman Municipal Bond Index** 4.84% 5.53% 5.76%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest Municipal Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other class of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of the index do not reflect a deduction for fees, expenses or taxes. For information about the Fund's expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 20 [GRAPHIC] Goals, Strategies & Risks Loomis Sayles Strategic Income Fund Adviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles") Managers: Matthew J. Eagan, Daniel J. Fuss, Kathleen C. Gaffney and Elaine M. Stokes Category: Corporate Income
Ticker Symbol: Class A Class B Class C ----------------------- NEFZX NEZBX NECZX
Investment Goal The Fund seeks high current income with a secondary objective of capital growth. The Fund's investment goal may be changed without shareholder approval. Principal Investment Strategies Under normal market conditions, the Fund will invest substantially all of its assets in income producing securities (including lower-quality securities, or "junk bonds") with a focus on U.S. corporate bonds, convertible securities, foreign debt instruments, including those in emerging markets and related foreign currency hedging transactions, and U.S. government securities. The Fund may invest up to 35% of its assets in preferred stocks and dividend-paying common stocks. The portfolio managers may shift the Fund's assets among various types of income-producing securities based upon changing market conditions. Loomis Sayles performs its own extensive credit analyses to determine the creditworthiness and potential for capital appreciation of a security. The Fund's management uses a flexible approach to identify securities in the global marketplace with the following characteristics, although not all of the securities selected will have these attributes: .. Discounted share price compared to economic value .. Undervalued credit ratings with strong or improving credit profiles .. Yield premium relative to its benchmark In selecting investments for the Fund, Loomis Sayles generally employs the following strategies: .. Loomis Sayles utilizes the skills of its in-house team of more than 40 research analysts to cover a broad universe of industries, companies and markets. The Fund's portfolio managers take advantage of these extensive resources to identify securities that meet the Fund's investment criteria. .. Loomis Sayles seeks to buy bonds that offer a positive yield advantage over the market and, in its view, have room to increase in price. It may also invest to take advantage of what the portfolio managers believe are temporary disparities in the yield of different segments of the market for U.S. government securities. .. Loomis Sayles provides the portfolio managers with maximum flexibility to find investment opportunities in a wide range of markets, both domestic and foreign. This flexible approach provides the Fund with access to a wide array of investment opportunities. The three key sectors that the portfolio managers focus upon are U.S. corporate issues (including convertible securities), foreign bonds and U.S. government securities. .. The Fund's portfolio managers maintain a core of the Fund's investments in corporate bond issues and shift its assets among other income-producing securities as opportunities develop. The Fund generally seeks to maintain a high level of diversification as a form of risk management. The Fund may also: .. Invest in Rule 144A securities, structured notes, zero-coupon bonds and pay-in-kind bonds. .. Invest in mortgage-related securities and stripped securities. .. Invest in futures. .. For temporary defensive purposes, hold any portion of its assets in cash and/or invest in money market instruments or high quality debt securities as Loomis Sayles deems appropriate. The Fund may miss certain investment opportunities if it uses defensive strategies and thus may not achieve its investment goal. A "snapshot" of the Fund's investments may be found in the current annual or semiannual report. In addition, a list of the Fund's full portfolio holdings, which is updated monthly after an aging period of at least 30 days, is available on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information" and then "Portfolio Holdings"). These holdings will remain accessible on the website until the Fund files its Form N-CSR or Form N-Q with the SEC for the period that includes the date of the information. In addition, a list of the Fund's top 10 holdings as of the month-end is generally available within 5 days after the month-end on the Fund's website at www.ixisadvisorfunds.com (click on "Fund Information," then "Our fund line-up," then the name of the Fund and scroll down to "Portfolio Highlights"). Principal Investment Risks The principal risks of investing in the Fund are described below. There are other circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund. Derivative Securities: Derivative securities are subject to changes in the underlying securities or indices on which - -------------------------------------------------------------------------------- 21 Principal Investment Risks - continued such transactions are based. There is no guarantee that the use of derivatives for hedging purposes will be effective or that suitable transactions will be available. Even a small investment in derivatives may give rise to leverage risk and can have a significant impact on the Fund's exposure to securities markets values, interest rates or the currency exchange rate. Derivative securities are also subject to credit risk and liquidity risk. Equity securities risk: You may lose money on your investment due to unpredictable drops in a stock's value or periods of below-average performance in a given stock or in the stock market as a whole. Fixed-income securities risk: Fixed-income securities are subject to credit risk, interest rate risk and liquidity risk. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. This means that you may lose money on your investment due to unpredictable drops in a security's value or periods of below-average performance in a given security or in the securities market as a whole. Lower-quality fixed-income securities (commonly referred to as "junk bonds") and zero-coupon bonds may be subject to these risks to a greater extent than other fixed-income securities. Junk bonds are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. Rule 144A securities and structured notes may be more illiquid than other fixed-income securities. Foreign securities risk: Foreign securities are subject to foreign currency fluctuations, higher volatility than U.S. securities and limited liquidity. Political, economic and information risks are also associated with foreign securities. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. Management risk: The risk that a strategy used by the Fund's portfolio management may fail to produce the intended result. Market risk: The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. Mortgage-related securities risk: In addition to the risks associated with investments in fixed-income securities generally, mortgage-related securities are subject to the risk that the securities may be prepaid and result in the reinvestment of the prepaid amounts in securities with lower yields than the prepaid obligations. The Fund may also incur a loss when there is a prepayment of securities that were purchased at a premium. Stripped securities are more sensitive to changes in the prevailing interest rates and the rate of principal payments on the underlying assets than regular mortgage-related securities. For additional information, see the section "More About Risk." Evaluating the Fund's Past Performance The bar chart and table shown below give an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one-year, five-year and ten-year periods compare with those of two broad measures of market performance. The Fund's past performance (before and after taxes) does not necessarily indicate how the Fund will perform in the future. The bar chart shows the Fund's total returns for Class A shares for each of the last ten calendar years. The returns for Classes B and C shares differ from the Class A returns shown in the bar chart to the extent their respective expenses differ. The chart does not reflect any sales charge that you may be required to pay when you buy or redeem the Fund's shares. A sales charge will reduce your return. [CHART] (total return)+ (up triangle) Highest Quarterly Return: Second Quarter 2003, 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 up 12.43% - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (down triangle) Lowest Quarterly 9.33% -1.73% 12.17% 0.68% -0.14% 15.47% 34.84% 12.93% 3.74% 11.85% Return: Third Quarter 1998, down 10.57%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest Strategic Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. - -------------------------------------------------------------------------------- 22 Evaluating the Fund's Past Performance - continued The table below shows how the average annual total returns for Class A, Class B and Class C shares of the Fund (before and after taxes for Class A) for the one-year, five-year and ten-year periods compare to those of the Lehman Aggregate Bond Index, an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. They are also compared to the Lehman U.S. Universal Bond Index, an unmanaged index representing a blend of the Lehman Aggregate, High Yield and Emerging Market Indices, among other indices. You may not invest directly in an index. The Fund's total returns reflect, on a class by class basis, its expenses and the maximum sales charges that you may be required to pay when you buy or redeem the Fund's shares. Class A total returns have also been calculated to reflect return after taxes on distributions only and also return after taxes on distributions and sales of Fund shares. The Lehman Aggregate Bond Index and the Lehman U.S. Universal Bond Index returns have not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments.
Average Annual Total Returns+ (for the periods ended December 31, 2006) Past 1 Year Past 5 Years Past 10 Years Loomis Sayles Strategic Income Fund Class A - Return Before Taxes 6.82% 14.26% 8.97% Return After Taxes on Distributions* 4.92% 11.83% 5.87% Return After Taxes on Distributions & Sales of Fund Shares* 4.41% 10.90% 5.70% Class B - Return Before Taxes 6.02% 14.21% 8.65% Class C - Return Before Taxes 10.02% 14.47% 8.66% Lehman Aggregate Bond Index** 4.33% 5.06% 6.24% Lehman U.S. Universal Bond Index** 4.97% 5.64% 6.40%
+ The returns shown for the periods prior to September 15, 2003 reflect the results of the CDC Nvest Strategic Income Fund, whose assets and liabilities were reorganized into the Fund on September 12, 2003. * After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans, qualified plans, education savings accounts such as 529 plans or individual retirement accounts. The after-tax returns are shown for only one class of the Fund. After-tax returns for the other classes of the Fund will vary. In some cases the after-tax returns may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. ** The returns of each index do not reflect a deduction for fees, expenses or taxes. For information about Fund expenses, see the section "Fund Fees & Expenses." - -------------------------------------------------------------------------------- 23 [GRAPHIC] Fund Fees & Expenses The following tables describe the fees and expenses that you may pay if you buy and hold shares of each Fund. Shareholder Fees (fees paid directly from your investment)
All Funds except Limited Term Government and Agency Fund and Massachusetts Tax Free Limited Term Government and Income Fund Agency Fund Class A Class B Class C Class A Class B Class C Maximum sales charge (load) imposed on purchases (as a percentage of offering price)(1)(2) 4.50% None None 3.00% None None Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable)(2) (3) 5.00% 1.00% (3) 5.00% 1.00% Redemption fees (Loomis Sayles Core Plus Bond Fund, Loomis Sayles High 2% of Income Fund and Loomis Sayles redemption Strategic Income Fund only) proceeds+* None* None* None* None* None* Redemption fees (all other Funds in the Prospectus) None* None* None* None* None* None*
Massachusetts Tax Free Income Fund Class A Class B Maximum sales charge (load) imposed on purchases (as a percentage of offering price)(1)(2) 4.25% None Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable)(2) (3) 5.00% Redemption fees None* None*
+ Will be charged on redemptions and exchanges of shares held for 60 days or less. For more information, see the section "Redemption Fees." (1) A reduced sales charge on Class A shares applies in some cases. See the sub-section "How Sales Charges Are Calculated" within the section "Fund Services." (2) Does not apply to reinvested distributions. (3) A 1.00% contingent deferred sales charge ("CDSC") applies with respect to certain purchases of Class A shares greater than $1,000,000 redeemed within 1 year after purchase, but not to any other purchases or redemptions of Class A shares. See the section "How Sales Charges Are Calculated" within the section "Fund Services." * Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight delivery. Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as a percentage of average daily net assets)
Core Plus Bond Fund/1/ High Income Fund/2/ Class A Class B Class C Class A Class B Class C Management fees 0.43% 0.43% 0.43% 0.60% 0.60% 0.60% Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* Other expenses 0.40%** 0.40%** 0.39%** 0.63%** 0.65%** 0.63%** Total Annual Fund Operating Expenses 1.08% 1.83% 1.82% 1.48% 2.25% 2.23% Fee Waiver and/or Expense Reimbursement 0.03% 0.03% 0.02% 0.33%+ 0.35%+ 0.33%+ Net Expenses 1.05% 1.80% 1.80% 1.15%+ 1.90%+ 1.90%+
- -------------------------------------------------------------------------------- 24 [GRAPHIC] Fund Fees & Expenses (continued) Annual Fund Operating Expenses - continued
Investment Grade Limited Term Government Massachusetts Tax Free Bond Fund/3/ and Agency Fund/4/ Income Fund/5/ Class A Class B Class C Class A Class B Class C Class A Class B Management fees 0.40% 0.40% 0.40% 0.50% 0.50% 0.50% 0.60% 0.60% Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* 0.25% 1.00%* Other expenses 0.27%** 0.49%** 0.30%** 0.34%** 0.34%** 0.34%** 0.29% 0.29% Total Annual Fund Operating Expenses 0.92% 1.89% 1.70% 1.09% 1.84% 1.84% 1.14% 1.89% Fee Waiver and/or Expense Reimbursement 0.00% 0.19% 0.00% 0.09% 0.09% 0.09% 0.19% 0.19% Net Expenses 0.92% 1.70% 1.70% 1.00% 1.75% 1.75% 0.95% 1.70% Municipal Income Fund/6/ Strategic Income Fund/7/ Class A Class B Class A Class B Class C Management fees 0.50% 0.50% 0.59% 0.59% 0.59% Distribution and/or service (12b-1) fees 0.25% 1.00%* 0.25% 1.00%* 1.00%* Other expenses 0.24% 0.25% 0.21%** 0.21%** 0.21%** Total Annual Fund Operating Expenses 0.99% 1.75% 1.05% 1.80% 1.80% Fee Waiver and/or Expense Reimbursement 0.04% 0.05% 0.00% 0.00% 0.00% Net Expenses 0.95% 1.70% 1.05% 1.80% 1.80%
* Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the rules of the National Association of Securities Dealers, Inc. ** Other Expenses include expenses indirectly borne by the Fund through investments in certain pooled investment vehicles ("Acquired Fund Fees and Expenses") of less than 0.01% of the Fund's average daily net assets. The expense information shown in the table above may differ from the expense information disclosed in the Fund's financial highlights table because the financial highlights table reflects the operating expenses of the Fund and does not include Acquired Fund Fees and Expenses. + Fee Waiver and/or Expense Reimbursement and Net Expenses for the Loomis Sayles High Income Fund have been restated to reflect the current expense cap arrangement. 1 Loomis Sayles and IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), the Fund's advisory administrator, have given a binding undertaking to the Loomis Sayles Core Plus Bond Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 1.05%, 1.80%, and 1.80% annually of the Fund's average daily net assets for Class A, Class B and Class C shares, respectively. This undertaking is in effect through January 31, 2008 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. 2 Loomis Sayles has given a binding undertaking to the Loomis Sayles High Income Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 1.15%, 1.90% and 1.90% annually of the Fund's average daily net assets for Class A, Class B and Class C shares, respectively. This undertaking is in effect through January 31, 2008 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. 3 Loomis Sayles has given a binding undertaking to the Loomis Sayles Investment Grade Bond Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 0.95%, 1.70% and 1.70% annually of the Fund's average daily net assets for Class A, Class B and Class C shares, respectively. This undertaking is in effect through January 31, 2008, and is reevaluated on an annual basis. Without this undertaking, expenses for Class B shares would have been higher. 4 Loomis Sayles has given a binding undertaking to the Loomis Sayles Limited Term Government and Agency Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 1.00%, 1.75% and 1.75% annually of the Fund's average daily net assets for Class A, Class B and Class C shares, respectively. This undertaking is in effect through January 31, 2008, and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. 5 Loomis Sayles and IXIS Advisors, the Fund's advisory administrator, have given a binding undertaking to the Loomis Sayles Massachusetts Tax Free Income Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 0.95% and 1.70% annually of the Fund's average daily net assets for Class A and Class B shares, respectively. This undertaking is in effect through January 31, 2008 and is reevaluated on an annual basis. Without this undertaking, expenses would have been higher. 6 Loomis Sayles has given a binding undertaking to the Loomis Sayles Municipal Income Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 0.95% and 1.70% annually of the Fund's average daily net assets for Class A and Class B shares, respectively. This undertaking is in effect through January 31, 2008, and is reevaluated on an annual basis. Without this undertaking expenses would have been higher. 7 Loomis Sayles has given a binding undertaking to the Loomis Sayles Strategic Income Fund to limit the amount of the Fund's total annual fund operating expenses, exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to 1.25%, 2.00% and 2.00% annually of the Fund's average daily net assets for Class A, Class B and Class C shares, respectively. This undertaking is in effect through January 31, 2008 and is reevaluated on an annual basis. Loomis Sayles (or Loomis Sayles and IXIS Advisors, in the case of Loomis Sayles Core Plus Bond Fund and Loomis Sayles Massachusetts Tax Free Income Fund) will be permitted to recover, on a class by class basis, expenses it has - -------------------------------------------------------------------------------- 25 [GRAPHIC] Fund Fees & Expenses (continued) borne through the undertakings described above to the extent that a Fund's expenses in later periods fall below the annual rates set forth in the relevant undertaking. A Fund will not be obligated to pay any such deferred fees and expenses more than one year after the end of the fiscal year in which the fees and expenses were deferred. Example This example*, which is based upon the expenses shown in the "Annual Fund Operating Expenses" table, is intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes that: .. You invest $10,000 in a Fund for the time periods indicated; .. Your investment has a 5% return each year; .. The Fund's operating expenses remain the same; and .. All dividends and distributions are reinvested. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
Core Plus Bond Fund High Income Fund Class A Class B Class C Class A Class B Class C (1) (2) (1) (2) (1) (2) (1) (2) 1 year $ 552 $ 683 $ 183 $ 283 $ 183 $ 562 $ 693 $ 193 $ 293 $ 193 3 years $ 775 $ 873 $ 573 $ 571 $ 571 $ 866 $ 970 $ 670 $ 666 $ 666 5 years $1,016 $1,188 $ 988 $ 983 $ 983 $1,192 $1,373 $1,173 $1,165 $1,165 10 years** $1,705 $1,949 $1,949 $2,136 $2,136 $2,112 $2,363 $2,363 $2,539 $2,539 Investment Grade Bond Fund Limited Term Government and Agency Fund Class A Class B Class C Class A Class B Class C (1) (2) (1) (2) (1) (2) (1) (2) 1 year $ 540 $ 673 $ 173 $ 273 $ 173 $ 399 $ 678 $ 178 $ 278 $ 178 3 years $ 730 $ 876 $ 576 $ 536 $ 536 $ 628 $ 870 $ 570 $ 570 $ 570 5 years $ 936 $1,204 $1,004 $ 923 $ 923 $ 874 $1,187 $ 987 $ 987 $ 987 10 years** $1,530 $1,942 $1,942 $2,009 $2,009 $1,581 $1,955 $1,955 $2,151 $2,151
Massachusetts Tax Free Income Fund Municipal Income Fund Class A Class B Class A Class B (1) (2) (1) (2) 1 year $ 518 $ 673 $ 173 $ 543 $ 673 $ 173 3 years $ 754 $ 876 $ 576 $ 747 $ 846 $ 546 5 years $1,008 $1,204 $1,004 $ 969 $1,144 $ 944 10 years** $1,736 $2,000 $2,000 $1,605 $1,857 $1,857
Strategic Income Fund Class A Class B Class C (1) (2) (1) (2) 1 year $ 552 $ 683 $ 183 $ 283 $ 183 3 years $ 769 $ 866 $ 566 $ 566 $ 566 5 years $1,003 $1,175 $ 975 $ 975 $ 975 10 years** $1,675 $1,919 $1,919 $2,116 $2,116
(1) Assumes redemption at end of period. (2) Assumes no redemption at end of period. * The Examples do not reflect sales charges (loads) on reinvested dividends and other distributions. If these sales charges (loads) were included, your costs would be higher. The Examples for Core Plus Bond Fund, High Income Fund, Investment Grade Bond Fund (Class B), Limited Term Government and Agency Fund, Massachusetts Tax Free Income Fund and Municipal Income Fund are based on the Net Expenses for the 1-year period and on the Total Annual Fund Operating Expenses for the remaining years. The Examples for the Strategic Income Fund and Investment Grade Bond Fund (Class A and C) are based on the Total Annual Fund Operating Expenses for all periods. ** Class B shares automatically convert to Class A shares after 8 years; therefore, in years 9 and 10 Class B amounts are calculated using Class A expenses. - -------------------------------------------------------------------------------- 26 [GRAPHIC] More About Risk The Funds have principal investment strategies that come with inherent risks. The following is a list of risks to which each Fund may be subject because of its investment in various types of securities or engagement in various practices. Correlation Risk (All Funds) The risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Credit Risk (All Funds) The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Funds that invest in securities rated below investment-grade quality (i.e., below a rating of Baa by Moody's or below BBB by S&P or Fitch ), or that are unrated but judged to be of comparable quality by the Fund's adviser are subject to greater credit risk than funds that do not invest in such securities. Currency Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds) The risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Emerging Markets Risk (Core Plus Bond, High Income and Strategic Income Funds) The risk associated with investing in companies traded in developing securities markets, which may be smaller and have shorter operating histories than companies in developed markets. Emerging markets involve risks in addition to and greater than those generally associated with investing in developed foreign markets. The extent of economic development, political stability, market depth, infrastructure and capitalization, and regulatory oversight in emerging market economies is generally less than in more developed markets. Extension Risk (All Funds except Massachusetts Tax Free Income Fund and Municipal Income Fund) The risk that an unexpected rise in interest rates will extend the life of a mortgage- or asset-backed security beyond the expected prepayment time, typically reducing the security's value. Foreign Risk (All Funds except Massachusetts Tax Free Income Fund and Municipal Income Fund) The risk associated with investments in issuers located in foreign countries. A Fund's investments in foreign securities may experience more rapid and extreme changes in value than investments in securities of U.S. companies. In the event of a nationalization, expropriation or other confiscation, a Fund that invests in foreign securities could lose its entire investment. When a Fund invests in securities from issuers located in countries with emerging markets, it may face greater foreign risk since emerging market countries may be more likely to experience political and economic instability. The Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund's yield on those securities would be decreased. High Yield Risk (Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds) The risk associated with investing in lower quality fixed income securities (commonly known as "junk bonds") and unrated securities of similar quality, which may be subject to greater levels of interest rate, credit and liquidity risk than other securities. These securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. In addition, an economic downturn or period of rising interest rates could adversely affect the market of these securities and reduce a Fund's ability to sell them. Information Risk (All Funds) The risk that key information about a security is inaccurate or unavailable. Interest Rate Risk (All Funds) The risk of market losses attributable to changes in interest rates. In general, the prices of fixed-income securities rise when interest rates fall, and prices fall when interest rates rise. Leverage Risk (All Funds) The risk associated with securities or practices (e.g., borrowing) that multiply small index or market movements into larger changes in value. When a derivative security (a security whose value is based on another security or index) is used as a hedge against an offsetting position that a Fund also holds, any loss generated by the derivative security should be substantially offset by gains on the hedged instrument, and vice versa. To the extent that a Fund uses a derivative security for purposes other than as a hedge, or, if a Fund hedges imperfectly, that Fund is directly exposed to the risks of that derivative security and any loss generated by the derivative security will not be offset by a gain. Structured notes may be considered derivative securities and may be subject to this type of risk. Liquidity Risk (All Funds) The risk that certain securities or instruments may be difficult or impossible to sell at the time and at the price that the seller would like. This may result in a loss or may otherwise be costly to a Fund. These types of risks may also apply to derivatives, restricted securities, Section 4(2) Commercial Paper, structured notes and Rule 144A securities. Management Risk (All Funds) The risk that a strategy used by a Fund's portfolio management may fail to produce the intended result. Market Risk (All Funds) The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably, based upon a change in an issuer's financial condition as well as overall market and economic conditions. - -------------------------------------------------------------------------------- 27 [GRAPHIC] More About Risk (continued) Opportunity Risk (All Funds) The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are invested in less profitable investments. Options, Futures, Swap Contracts and Other Derivatives Risks (All Funds, except Investment Grade Bond Fund for options and futures) These transactions are subject to changes in the underlying security or groups of securities, index or other currency instrument or rate on which such transactions are based. It is important to note that even a small investment in these types of derivative securities may give rise to leverage risk and can have a significant impact on a Fund's exposure to stock market values, interest rates or currency exchange rates. The portfolio managers expect to use futures for the purpose of managing duration of the Fund's portfolio. Political Risk (All Funds) The risk of losses directly attributable to government or political actions. Prepayment Risk (All Funds except Massachusetts Tax Free Income Fund and Municipal Income Fund) The risk that unanticipated prepayments may occur, reducing the return from mortgage- or asset-backed securities, or real estate investment trusts. Small Capitalization Companies Risk (Core Plus Bond, High Income and Strategic Income Funds) These companies carry special risks, including narrower markets, more limited financial and management resources, less liquidity and greater volatility than large company securities. State Specific Risk (Massachusetts Tax Free Income Fund) This is the risk that political, economic, regulatory and other factors may affect issuers of Massachusetts municipal securities, their ability to meet their obligations and the economic condition of the facility or specific revenue source from whose revenues payments of obligations may be made. The ability of state, county, or local governments or other issuers of such securities to meet their obligations will depend primarily on the availability of tax and other revenues to those entities. The amounts of tax and other revenues available to issuers of Massachusetts municipal securities may be affected from time to time by economic, political and demographic conditions that specifically impact Massachusetts. In addition, the value of the Fund's shares may fluctuate more widely than the value of shares of a more diversified fund which invests in a number of different states. Valuation Risk (All Funds) The risk that a Fund has valued certain securities at a higher price than the price at which they can be sold. - -------------------------------------------------------------------------------- 28 [GRAPHIC] Management Team Meet the Funds' Investment Adviser The IXIS Advisor Funds family (as defined below) currently includes 23 mutual funds. The IXIS Advisor Funds family had combined assets of $11.3 billion as of December 31, 2006. IXIS Advisor Funds are distributed through IXIS Asset Management Distributors, L.P. (the "Distributor"). This Prospectus covers the IXIS Advisor Income and Tax Free Income Funds (the "Funds" or each a "Fund"), which, along with the IXIS Advisor Equity Funds, IXIS Advisor Diversified Portfolios, Loomis Sayles Global Markets Fund, Loomis Sayles Growth Fund, Loomis Sayles Research Fund and IXIS Cash Management Trust -- Money Market Series (the "Money Market Fund") constitute the "IXIS Advisor Funds." Adviser Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111, serves as adviser to the Funds. Loomis Sayles is a subsidiary of IXIS Asset Management US Group, L.P. (formerly, IXIS Asset Management North America, L.P.; herein referred to as "IXIS Asset Management US Group"), which is part of IXIS Asset Management Group. Founded in 1926, Loomis Sayles is one of America's oldest investment advisory firms with over $96 billion in assets under management as of December 31, 2006. Loomis Sayles is well known for its professional research staff, which is one of the largest in the industry. Loomis Sayles makes investment decisions for each of these Funds. IXIS Advisors, located at 399 Boylston Street, Boston, Massachusetts 02116, serves as the advisory administrator to the Loomis Sayles Core Plus Bond Fund and Loomis Sayles Massachusetts Tax Free Income Fund. IXIS Advisors is a subsidiary of IXIS Asset Management US Group, which is part of IXIS Asset Management Group, an international asset management group based in Paris, France. IXIS Asset Management Group is ultimately owned principally, directly and indirectly, by four large affiliated French financial services entities: Natixis (formerly Natexis Banques Populaires), an investment banking and financial services firm; the Caisse Nationale des Caisses d'Epargne ("CNCE"), a financial institution owned by French regional savings banks known as the Caisses d'Epargne and by CDC (as defined below); the Banque Federale des Banques Populaires; and by CNP Assurances, a large French life insurance company. In addition, the Caisse des Depots et Consignations ("CDC"), a public sector financial institution created by the French government in 1816, is a shareholder of both CNCE and CNP Assurances, although it is contemplated that its interest in CNCE will be repurchased by CNCE in the near future. IXIS Advisors provides certain administrative and oversight services to Loomis Sayles Core Plus Bond Fund and Loomis Sayles Massachusetts Tax Free Income Fund. IXIS Advisors does not determine what investments will be purchased or sold by the Funds. The aggregate advisory fees paid by the Funds during the fiscal year ended September 30, 2006, as a percentage of each Fund's average daily net assets, were 0.43% for Loomis Sayles Core Plus Bond Fund/1/, 0.60% for Loomis Sayles High Income Fund, 0.40% for Loomis Sayles Investment Grade Bond Fund, 0.50% for Loomis Sayles Limited Term Government and Agency Fund, 0.51% for Loomis Sayles Massachusetts Tax Free Income Fund (after waiver)/2/, 0.50% for Loomis Sayles Municipal Income Fund and 0.59% for Loomis Sayles Strategic Income Fund. A discussion of the factors considered by the Funds' Board of Trustees in approving the Funds' investment advisory contracts is available in the Funds' annual reports for the fiscal year ended September 30, 2006. /1/The advisory fee for the Loomis Sayles Core Plus Bond Fund consisted of a fee of 0.214% payable to Loomis Sayles, as investment adviser to the Fund and an advisory administration fee of 0.214% payable to IXIS Advisors, as advisory administrator to the Fund. /2/The advisory fee (after waiver) for the Loomis Sayles Massachusetts Tax Free Income Fund consists of a fee of 0.256% payable to Loomis Sayles, as investment adviser to the Fund, and an advisory administration fee of 0.256% payable to IXIS Advisors, as advisory administrator to the Fund. Portfolio Trades In placing portfolio trades, Loomis Sayles may use brokerage firms that market the Funds' shares or are affiliated with IXIS Asset Management US Group, Loomis Sayles' parent company. In placing trades, Loomis Sayles will seek to obtain the best combination of price and execution, which involves a number of judgmental factors. Such portfolio trades are subject to applicable regulatory restrictions and related procedures adopted by the Board of Trustees. - -------------------------------------------------------------------------------- 29 [GRAPHIC] Management Team Meet the Funds' Investment Adviser (continued) Securities Lending Each Fund may lend a portion of its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized. Please see "Investment Strategies" in the SAI for details. When a Fund lends portfolio securities, its investment performance will continue to reflect changes in the value of the securities loaned, and the Fund will also receive a fee or interest on the collateral. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent. A Fund may pay lending fees to the party arranging the loan. Transactions with Other Investment Companies Pursuant to SEC exemptive relief, each Fund may be permitted to invest its daily cash balances in shares of money market and short-term bond funds advised by IXIS Advisors (an affiliate of Loomis Sayles), or its affiliates ("Central Funds"). The Central Funds currently include the Money Market Fund, Institutional Daily Income Fund, Cortland Trust, Inc., and Short Term Income Fund, Inc. Each Central Fund is advised by Reich & Tang Asset Management, LLC ("Reich & Tang"), except for the Money Market Fund, which is advised by IXIS Advisors and subadvised by Reich & Tang. Because Loomis Sayles, IXIS Advisors and Reich & Tang are each subsidiaries of IXIS Asset Management US Group, the Funds and the Central Funds may be considered to be related companies comprising a "group of investment companies" under the Investment Company Act of 1940 (the "1940 Act"). Pursuant to such exemptive relief, the Funds may also borrow and lend money for temporary or emergency purposes directly to and from other Funds through an interfund credit facility. In addition to the Funds and the Central Funds, series of the following mutual fund groups may also be able to participate in the facility: IXIS Advisor Funds Trust I (except the CGM Advisor Targeted Equity Fund series), IXIS Advisor Funds Trust II, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, AEW Real Estate Income Fund, Harris Associates Investment Trust, Loomis Sayles Funds I and Loomis Sayles Funds II. The advisers and subadvisers to these mutual funds currently include IXIS Advisors, Reich & Tang, Loomis Sayles, AEW Management and Advisors, L.P., BlackRock Investment Management LLC ("BlackRock"), Dreman Value Management, LLC ("Dreman"), Hansberger Global Investors, Inc. ("Hansberger"), Harris Associates L.P., Vaughan Nelson Investment Management and Westpeak Global Advisors, L.P. Each of these advisers and subadvisers (except BlackRock and Dreman, and Hansberger) are subsidiaries of IXIS Asset Management US Group and are thus "affiliated persons" under the 1940 Act by reason of being under common control by IXIS Asset Management US Group. In addition, because the Funds, and other funds, are advised by firms that are affiliated with one another, they may be considered to be related companies comprising a "group of investment companies" under the 1940 Act. The Central Funds and AEW Real Estate Income Fund will participate in the Credit Facility only as lenders. Participation in such an interfund lending program would be voluntary for both borrowing and lending funds, and a Fund would participate in an interfund lending program only if the Board of Trustees determined that doing so would benefit a Fund. Should a Fund participate in such an interfund lending program, the Board of Trustees would establish procedures for the operation of the program by the advisers or an affiliate. The Funds may engage in the transactions described above without further notice to shareholders. - -------------------------------------------------------------------------------- 30 [GRAPHIC] Management Team Meet the Funds' Portfolio Managers The following persons have primary responsibility for the day-to-day management of each indicated Fund's portfolio since the date stated below. Associate Portfolio Managers are actively involved in formulating the overall strategy for the funds they manage but are not the primary decision makers. Except where noted each portfolio manager has been employed by Loomis Sayles for at least five years. Matthew J. Eagan Matthew J. Eagan has served as co-portfolio manager of the Loomis Sayles High Income Fund since May 2002 and has served as an associate portfolio manager of the Loomis Sayles Investment Grade Bond Fund since September 2006 and Loomis Sayles Strategic Income Fund since February 2007. Mr. Eagan, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1989 and joined Loomis Sayles in 1997. Mr. Eagan received a B.A. from Northeastern University and an M.B.A. from Boston University. He holds the designation of Chartered Financial Analyst. Mr. Eagan has over 17 years of investment experience. Daniel J. Fuss Daniel J. Fuss has served as portfolio manager of the Loomis Sayles Strategic Income Fund since May 1995 and has served as co-portfolio manager of the Loomis Sayles Investment Grade Bond Fund since its inception in December 1996. Mr. Fuss is Vice Chairman, Director and Managing Partner of Loomis Sayles. He began his investment career in 1958 and has been at Loomis Sayles since 1976. Mr. Fuss holds the designation of Chartered Financial Analyst. He received a B.S. and an M.B.A. from Marquette University and has over 48 years of investment experience. Kathleen C. Gaffney Kathleen C. Gaffney has been assisting Daniel Fuss as a portfolio manager of the Loomis Sayles Strategic Income Fund since April 1996, has served as co-portfolio manager of the Loomis Sayles High Income Fund since May 2002 and has served as an associate portfolio manager of the Loomis Sayles Investment Grade Bond Fund since September 2006. Ms. Gaffney, Vice President of Loomis Sayles, began her investment career in 1984 and joined Loomis Sayles in 1984. Ms. Gaffney holds the designation of Chartered Financial Analyst. She received a B.A. from the University of Massachusetts at Amherst and has over 22 years of investment experience. John Hyll John Hyll has served as co-portfolio manager of the Loomis Sayles Limited Term Government and Agency Fund since April 2003. Mr. Hyll, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in 1987. Mr. Hyll received a B.A. and an M.B.A. from Baldwin-Wallace College. He has over 23 years of investment experience. Steven J. Kaseta Steven J. Kaseta has served as co-portfolio manager of the Loomis Sayles Investment Grade Bond Fund since February 2002. Mr. Kaseta, Vice President of Loomis Sayles, began his investment career in 1982 and joined Loomis Sayles in 1994. He received an A.B. from Harvard University and an M.B.A. from the Wharton School at the University of Pennsylvania. Mr. Kaseta has over 24 years of investment experience. Peter W. Palfrey Peter W. Palfrey has served as co-portfolio manager of the Loomis Sayles Core Plus Bond Fund since May 1999 (including service until May 2001 with Back Bay Advisors, the former subadviser of the Core Plus Bond Fund). Mr. Palfrey, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1983 and joined Loomis Sayles in 2001. Mr. Palfrey holds the designation of Chartered Financial Analyst. He received his B.A. from Colgate University and has over 23 years of investment experience. Robert Payne Robert Payne has co-managed the Loomis Sayles Massachusetts Tax Free Income Fund and Loomis Sayles Municipal Income Fund since January 2003. Mr. Payne, Vice President and Portfolio Manager of Loomis Sayles, began his investment career in 1967 and joined Loomis Sayles in 1982. He received a B.S. from the University of Utah and has over 38 years of investment experience. Richard G. Raczkowski Richard G. Raczkowski has served as a co-portfolio manager of the Loomis Sayles Core Plus Bond Fund since May 1999 (including service until May 2001 with Back Bay Advisors, the former subadviser of the Core Plus Bond Fund). Mr. Raczkowski, Portfolio Manager and Vice President of Loomis Sayles, began his investment career in 1985 and joined Loomis Sayles in 2001. He received a B.A. from the University of Massachusetts and an M.B.A. from Northeastern University and has over 22 years of investment experience. Clifton V. Rowe Clifton V. Rowe has served as co-portfolio manager of the Loomis Sayles Limited Term Government and Agency Fund since June 2001. Mr. Rowe, Portfolio Manager and Vice President of Loomis Sayles, began his investment - -------------------------------------------------------------------------------- 31 [GRAPHIC] Management Team Meet the Funds' Portfolio Managers(continued) career in 1992 and joined Loomis Sayles in 1992. Prior to becoming a Portfolio Manager, he served as a Trader from 1999 until 2001. He holds the designation of Chartered Financial Analyst. Mr. Rowe received a B.B.A. from James Madison University, an MBA from the University of Chicago and has over 14 years of investment experience. Elaine M. Stokes Elaine M. Stokes has served as associate portfolio manager of the Loomis Sayles Investment Grade Bond Fund since September 2006, the Loomis Sayles High Income Fund since February 2007, and Loomis Sayles Strategic Income Fund since February 2007. Ms. Stokes, Vice President of Loomis Sayles, began her investment career in 1987 and joined Loomis Sayles in 1988. She received a B.S. from St. Michael's College and has over 19 years of investment experience. Martha A. Strom Martha A. Strom has co-managed the Loomis Sayles Massachusetts Tax Free Income Fund and Loomis Sayles Municipal Income Fund since January 2002. Ms. Strom, Vice President and Portfolio Manager of the Municipal Bond Investment Team of Loomis Sayles, began her investment career in 1988. Following a five-year period with Nuveen Investments where she was Assistant Vice President and Fixed-Income Research Analyst, Ms. Strom rejoined Loomis Sayles in 2001. Ms. Strom received a B.S. from Boston University and has over 18 years of investment management experience. Please see the Funds' SAI for information on Portfolio Manager compensation, other accounts under management by the Portfolio Managers and the Portfolio Managers' ownership of securities in the Funds. - -------------------------------------------------------------------------------- 32 [GRAPHIC] Fund Services Investing in the Funds Choosing a Share Class Each Fund offers Class A, Class B and Class C shares to the public, except Loomis Sayles Massachusetts Tax Free Income Fund and Loomis Sayles Municipal Income Fund which only offer Class A and Class B shares. Each class has different costs associated with buying, selling and holding Fund shares, which allows you to choose the class that best meets your needs. Which class is best for you depends upon the size of your investment and how long you intend to hold your shares. Class B shares, Class C shares and certain shareholder features may not be available to you if you hold your shares in a street name account. Your financial representative can help you decide which class of shares is most appropriate for you. Class A Shares .. You pay a sales charge when you buy Class A shares. There are several ways to reduce this charge. See the section "How Sales Charges Are Calculated." .. You pay lower annual expenses than Class B and Class C shares, giving you the potential for higher returns per share. .. You do not pay a sales charge on orders of $1 million or more, but you may pay a charge on redemptions if you redeem these shares within one year of purchase. Class B Shares .. You do not pay a sales charge when you buy Class B shares. All of your money goes to work for you right away. .. You pay higher annual expenses than Class A shares. .. You will pay a charge on redemptions if you sell your shares within six years of purchase, as described in the section "How Sales Charges Are Calculated." .. Your Class B shares will automatically convert into Class A shares after eight years, which reduces your annual expenses. .. Investors will not be permitted to purchase $100,000 or more of Class B shares as a single investment per account. There may be certain exceptions to this restriction for omnibus accounts and other nominee accounts. Investors may want to consider the lower operating expense of Class A shares in such instances. You may pay a charge on redemptions if you redeem Class A shares within one year of purchase. Class C Shares .. You do not pay a sales charge when you buy Class C shares. All of your money goes to work for you right away. .. You pay higher annual expenses than Class A shares. .. You may pay a charge on redemptions if you sell your shares within one year of purchase. .. Your Class C shares will not automatically convert into Class A shares. If you hold your shares for longer than eight years, you'll pay higher expenses than shareholders of other classes. .. Investors will not be permitted to purchase $1 million or more of Class C shares as a single investment per account. There may be certain exceptions to this restriction for omnibus and other nominee accounts. Investors may want to consider the lower operating expense of Class A shares in such instances. You may pay a charge on redemptions if you redeem Class A shares within one year of purchase. For information about the Funds' expenses, see the section "Fund Fees & Expenses" in this Prospectus. Certificates Certificates will not be issued for any class of shares. - -------------------------------------------------------------------------------- 33 [GRAPHIC] Fund Services How Sales Charges Are Calculated Class A Shares The price that you pay when you buy Class A shares (the "offering price") is their net asset value plus a sales charge (sometimes called a "front-end sales charge") which varies depending upon the size of your purchase:
Class A Sales Charges** All Funds Except Limited Term Government and Agency Fund and Massachusetts Tax Free Income Fund As a % of As a % of Your Investment offering price your investment Less than $100,000 4.50% 4.71% $ 100,000 - $249,999 3.50% 3.63% $ 250,000 - $499,999 2.50% 2.56% $ 500,000 - $999,999 2.00% 2.04% $1,000,000 or more* 0.00% 0.00%
Class A Sales Charges** Limited Term Government and Agency Fund As a % of As a % of Your Investment offering price your investment Less than $100,000 3.00% 3.09% $ 100,000 - $249,999 2.50% 2.56% $ 250,000 - $499,999 2.00% 2.04% $ 500,000 - $999,999 1.25% 1.27% $1,000,000 or more* 0.00% 0.00%
Class A Sales Charges** Massachusetts Tax Free Income Fund As a % of As a % of Your Investment offering price your investment Less than $50,000 4.25% 4.44% $ 50,000 - $ 99,000 4.00% 4.17% $ 100,000 - $249,999 3.50% 3.63% $ 250,000 - $499,999 2.50% 2.56% $ 500,000 - $999,999 2.00% 2.04% $1,000,000 or more* 0.00% 0.00%
Due to rounding, the actual sales charge for a particular transaction may be higher or lower than the rates listed above. * For purchases of Class A shares of the Fund of $1 million or more, there is no front-end sales charge, but a CDSC of 1.00% may apply to redemptions of your shares within one year of the date of purchase. See the section "How the CDSC is Applied to Your Shares." ** Not imposed on shares that are purchased with reinvested dividends or other distributions. If you invest in Class A shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure that you obtain the proper "breakpoint" discount. It will be necessary at the time of purchase to inform the Distributor and the financial intermediary of the existence of other accounts in which there are holdings eligible to be aggregated to meet sales load breakpoints. You may be required to provide certain records and information, such as account statements, with respect to all of your accounts which hold shares, including accounts with other financial intermediaries and your family members' and other related party accounts, in order to verify your eligibility for a reduced sales charge. If the Distributor is not notified that you are eligible for a reduced sales charge, the Distributor will be unable to ensure that the reduction is applied to your account. Additional information concerning sales load breakpoints is available from your financial intermediary, by visiting the Funds' website at www.ixisadvisorfunds.com (click on "sales charges" at the bottom of the home page) or in the Funds' SAI. Reducing Front-End Sales Charges There are several ways you can lower your sales charge for Class A shares, including: .. Letter of Intent -- By signing a Letter of Intent, you may purchase Class A shares of any IXIS Advisor Fund over a 13-month period but pay sales charges as if you had purchased all shares at once. This program can save you money if you plan to invest $100,000 or more over 13 months. Purchases of Class B and Class C shares may be used toward meeting the letter of intent. .. Cumulative Purchase Discount -- You may be entitled to a reduced sales charge if your "total investment" reaches a breakpoint for a reduced sales charge. The total investment is determined by adding the amount of your current purchase in the Fund, including the applicable - -------------------------------------------------------------------------------- 34 sales charge, to the current public offering price of all series and classes of shares of the IXIS Advisor Funds held by you in one or more accounts. If your total investment exceeds a sales charge breakpoint in the table above, the lower sales charge applies to the entire amount of your current purchase in the Fund. .. Combining Accounts -- allows you to combine shares of multiple IXIS Advisor Funds and classes for purposes of calculating your sales charge. Individual Accounts: You may elect to combine your purchase(s) and your total investment, as defined above, with the purchases and total investment of your spouse, parents, children, siblings, grandparents, grandchildren, in-laws (of those previously mentioned), individual fiduciary accounts, sole proprietorships, single trust estates and any other individuals acceptable to the Distributor. Certain Retirement Plan Accounts: The Distributor may, in its discretion, combine the purchase(s) and total investment of all qualified participants in the same retirement plan for purposes of determining the availability of a reduced sales charge. In most instances, individual accounts may not be linked with certain retirement plan accounts for the purposes of calculating sales charges. SIMPLE IRA contributions will automatically be linked with those of other participants in the same SIMPLE IRA Plan (Class A shares only). SIMPLE IRA accounts may not be linked with any other IXIS Advisor Fund account for rights of accumulation. Please refer to the SAI for more detailed information on combining accounts. The above-listed ways to reduce front-end sales charges may not apply to the Money Market Fund unless shares are purchased through an exchange from another IXIS Advisor Fund. Eliminating Front-End Sales Charges and CDSCs Class A shares may be offered without front-end sales charges or a CDSC to the following individuals and institutions: .. Any government entity that is prohibited from paying a sales charge or commission to purchase mutual fund shares; .. Selling brokers, sales representatives, registered investment advisers, financial planners or other intermediaries under arrangements with the Distributor; .. Fund Trustees, former trustees and other individuals who are affiliated with any IXIS Advisor Fund or Money Market Fund (this also applies to any spouse, parents, children, siblings, grandparents, grandchildren and in-laws of those mentioned); .. Participants in certain Retirement Plans with at least $1 million or more in total plan assets or with 100 eligible employees; .. Non-discretionary and non-retirement accounts of bank trust departments or trust companies, but only if they principally engage in banking or trust activities; .. Investments of $5 million or more in Limited Term Government and Agency Fund by corporations purchasing shares for their own account, credit unions, or bank trust departments and trust companies with discretionary accounts which they hold in a fiduciary capacity; and .. Investments of $25,000 or more in IXIS Advisor Funds (including the Money Market Fund) by clients of an adviser or subadviser to any IXIS Advisor Fund (including the Money Market Fund). In order to receive Class A shares without a front-end sales charge or a CDSC, you must notify the Fund of your eligibility at the time of purchase. Repurchasing Fund Shares You may apply proceeds from redeeming Class A shares of the Funds to repurchase Class A shares of any IXIS Advisor Fund without paying a front-end sales charge. To qualify, you must reinvest some or all of the proceeds within 120 days after your redemption and notify IXIS Advisor Funds in writing (directly or through your financial representative) at the time of reinvestment that you are taking advantage of this privilege. You may reinvest your proceeds either by returning the redemption check or by sending a new check for some or all of the redemption amount. Please note: for federal income tax purposes, a redemption is a sale that involves tax consequences, even if the proceeds are later reinvested. Please consult your tax adviser to discuss how a redemption would affect you. If you repurchase Class A shares of $1 million or more within 30 days after you redeem such shares, the Distributor will rebate the amount of the CDSC charged on the redemption if the Fund is notified in writing at the time of the repurchase. Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class A shares will generally be eliminated in the following cases: (1) to make distributions from a retirement plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. Please see the SAI for more information on eliminating or reducing front-end sales charges and the CDSC. - -------------------------------------------------------------------------------- 35 [GRAPHIC] Fund Services How Sales Charges Are Calculated (continued) Class B Shares The offering price of Class B shares is their net asset value, without a front-end sales charge. However, there is a CDSC on shares that you sell within six years of the anniversary date of their acquisition. The amount of the CDSC, if any, declines each year that you own your shares (except in the 3/rd/ and 4/th/ years, which have the same CDSC). The holding period for purposes of timing the conversion to Class A shares and determining the CDSC will continue to run after an exchange to Class B shares of another IXIS Advisor Fund (except the Money Market Fund). The CDSC equals the following percentages of the dollar amounts subject to the charge:
Class B Contingent Deferred Sales Charges Year Since Purchase CDSC on Shares Being Sold 1st 5.00% 2nd 4.00% 3rd 3.00% 4th 3.00% 5th 2.00% 6th 1.00% thereafter 0.00%
Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class B shares will generally be eliminated in the following cases: (1) to make distributions from a Retirement Plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. Please see the SAI for more information on eliminating or reducing front-end sales charges and the CDSC. Class C Shares The offering price of Class C shares is their net asset value, without a front-end sales charge. Class C shares are subject to a CDSC of 1.00% on redemptions made within one year of the anniversary date of their acquisition. The holding period for determining the CDSC will continue to run after an exchange to Class C shares of another IXIS Advisor Fund (except the Money Market Fund).
Class C Contingent Deferred Sales Charges Year Since Purchase CDSC on Shares Being Sold 1st 1.00% thereafter 0.00%
Eliminating the CDSC As long as the Distributor is notified at the time you sell, the CDSC for Class C shares will generally be eliminated in the following cases: (1) to make distributions from a retirement plan (a plan termination or total plan redemption may incur a CDSC); (2) to make payments through a systematic withdrawal plan; or (3) due to shareholder death or disability. Please see the SAI for more information on eliminating or reducing front-end sales charges and the CDSC. How the CDSC is Applied to Your Shares The CDSC is a sales charge you pay when you redeem certain Fund shares. The CDSC: .. is calculated based on the number of shares you are selling; .. is based on either your original purchase price or the current net asset value of the shares being sold, whichever is lower; .. is deducted from the proceeds of the redemption unless you request, at the time of the redemption, that it be deducted from the amount remaining in your account; and .. applies to redemptions made through the anniversary date of their acquisition for years one through six, as applicable. A CDSC will not be charged on: .. increases in net asset value above the purchase price; or .. shares you acquired by reinvesting your dividends or capital gains distributions. To keep your CDSC as low as possible, each time that you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these shares available to meet your request, we will sell the shares with the lowest CDSC. Exchanges into Shares of the Money Market Fund If you exchange Class B or Class C shares of a Fund into shares of the Money Market Fund, the holding period for purposes of determining the CDSC for Class B and Class C shares and conversion into Class A shares stops until you exchange back into shares of another IXIS Advisor Fund. If you choose to redeem those Money Market Fund shares, a CDSC may apply. - -------------------------------------------------------------------------------- 36 [GRAPHIC] Fund Services It's Easy to Open an Account To Open an Account with IXIS Advisor Funds: 1.Read this Prospectus carefully. Except to the extent otherwise permitted by the Distributor, the Funds will only accept accounts from U.S. citizens with a U.S. address or resident aliens with a U.S. address and a U.S. taxpayer identification number. 2.Determine how much you wish to invest. The following chart shows the investment minimums for various types of accounts:
Minimum Minimum Type of Account Initial Purchase Subsequent Purchase Any account other than those listed below $2,500 $100 For shareholders participating in IXIS Advisor Funds' Investment Builder Program $1,000 $50* For Traditional IRA, Roth IRA, Rollover IRA, SEP-IRA and Keogh plans using the IXIS Advisor Funds' prototype document $1,000 $100 Coverdell Education Savings Accounts $500 $100 For SIMPLE IRA** and 403(b)(7) plans using IXIS Advisor Funds' prototype document $0 $0
* Shareholders with accounts participating in IXIS Advisor Funds' Investment Builder Program prior to May 1, 2005 may continue to make subsequent purchases of $25 into those accounts. ** Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available replacing Salary Reduction Simplified Employee Pension ("SARSEP") plans. SARSEP plans established prior to January 1, 1997, are subject to the same minimums as SIMPLE IRAs. Effective October 1, 2006, IXIS Advisor Funds no longer offers SIMPLE IRAs. SIMPLE IRA plans established prior to October 1, 2006 may remain active and continue to add new employees. The Distributor, in its sole discretion, may lower investment minimums for accounts associated with wrap-fee programs sponsored by certain broker-dealers and investment advisers and for accounts associated with certain other defined contribution plans not using the IXIS Advisor Funds' prototype document. 3.Complete the appropriate parts of the account application, carefully following the instructions. If you have any questions, please call your financial representative or IXIS Advisor Funds at 800-225-5478. For more information on IXIS Advisor Funds' investment programs, refer to the section "Additional Investor Services" in this Prospectus. 4.Use the following sections as your guide for purchasing shares. Minimum Balance Policy Each Fund, on an annual basis, may deduct a minimum balance fee of $20 for accounts that fall below the minimum amount required to establish an account, as described above. The minimum balance fee is assessed by the automatic redemption of shares in the account in an amount sufficient to pay the fee. The valuation of account balances and the deduction of the fee generally occurs during the third week in September of each calendar year, although they may occur at another date in the year. The fee will not be deducted from Fund positions opened after June 30th of the calendar year in which the fee is assessed. Certain accounts, such as accounts that fall below the minimum as a result of the automatic conversion from Class B shares to Class A shares, accounts using the IXIS Advisor Funds' prototype document (including IRAs, Keogh plans, 403(b)(7) plans and Coverdell Education Savings Accounts) and accounts associated with defined contribution plans, are excepted from the minimum balance fee. In its discretion, each Fund may also close an account and send the account holder the proceeds if the account falls below the minimum amount required to establish an account. It is expected that accounts maintained by intermediaries through the National Securities Clearing Corporation ("NSCC") may be liquidated rather than assessed a fee, if the account balance falls below such minimum. The valuation of account balances and the liquidation itself generally occur during October of each calendar year, although they may occur at another date in the year. Any account opened after June 30th of a calendar year will not be subject to the liquidation for that calendar year. Certain accounts, such as accounts associated with wrap-fee programs or defined contribution plans are exempt from the liquidation. - -------------------------------------------------------------------------------- 37 [GRAPHIC] Fund Services It's Easy to Open an Account (continued) Self-Servicing Your Account Buying or selling shares is easy with the services described below: IXIS Advisor Funds Personal Access Line(R) 800-225-5478, press 1 IXIS Advisor Funds Web Site www.ixisadvisorfunds.com You have access to your account 24 hours a day by calling the Personal Access Line(R) from a touch-tone telephone or by visiting us online. Using these customer service options, you may: . purchase, exchange or redeem shares in your existing accounts (certain restrictions may apply); . review your account balance, recent transactions, Fund prices and recent performance; . order duplicate account statements; and . obtain tax information. Please see the following pages for other ways to buy, exchange or sell your shares. - -------------------------------------------------------------------------------- 38 [GRAPHIC] Fund Services Buying Shares
Opening an Account Adding to an Account Through Your Investment Dealer . Call your investment dealer for information about opening or adding to an account. Dealers may also charge you a processing or service fee in connection with the purchase of fund shares. By Mail . Make out a check in U.S. dollars for the . Make out a check in U.S. dollars for the investment amount, payable to "IXIS investment amount, payable to "IXIS [GRAPHIC] Advisor Funds." Third party checks, Advisor Funds." Third party checks, "starter" checks and credit card "starter" checks and credit card convenience checks will not be accepted. convenience checks will not be accepted. . Mail the check with your completed . Complete the investment slip from an application to IXIS Advisor Funds, P.O. Box account statement or include a letter 219579, Kansas City, MO 64121-9579. specifying the Fund name, your class of . Shares purchased by check may not be shares, your account number and the available immediately for redemption. See registered account name(s). the section "Selling Restrictions." . Shares purchased by check may not be available immediately for redemption. See the section "Selling Restrictions." By Exchange (See the section "Exchanging Shares" for more details.) . Call your investment dealer or IXIS . Call your investment dealer or IXIS Advisor Funds at 800-225-5478 or visit Advisor Funds at 800-225-5478 or visit [GRAPHIC] www.ixisadvisorfunds.com to 1) obtain a www.ixisadvisorfunds.com to request an current prospectus for the Fund into which exchange. you are exchanging and 2) request an exchange. By Wire . Opening an account by wire is not . Visit www.ixisadvisorfunds.com to add available. shares to your account by wire. Instruct [GRAPHIC] your bank to transfer funds to State Street Bank & Trust Company, ABA #011000028, and DDA #99011538. . Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer. Through Automated Clearing House ("ACH") . Although you cannot open an account . Call IXIS Advisor Funds at 800-225-5478 through ACH, you may add this feature by or visit www.ixisadvisorfunds.com to add [GRAPHIC] selecting it on your account application. shares to your account through ACH. . Ask your bank or credit union whether it is . If you have not signed up for the ACH a member of the ACH system. system, please call IXIS Advisor Funds or visit www.ixisadvisorfunds.com for a Service Options Form. A medallion signature guarantee may be required to add this privilege. . Shares purchased through ACH may not be available immediately for redemption. See the section "Selling Restrictions."
- -------------------------------------------------------------------------------- 39 [GRAPHIC] Fund Services Buying Shares (continued)
Opening an Account Adding to an Account Automatic Investing Through Investment Builder . Although you cannot open an account . If you have not signed up for Investment through Investment Builder, you may add Builder, please call IXIS Advisor Funds at [GRAPHIC] this feature by selecting it on your 800-225-5478 or visit application. www.ixisadvisorfunds.com for a Service . Ask your bank or credit union whether it is Options Form. A medallion signature a member of the ACH system. guarantee may be required to add this privilege. . See the section "Additional Investor Services."
- -------------------------------------------------------------------------------- 40 [GRAPHIC] Fund Services Selling Shares To Sell Some or All of Your Shares Certain restrictions may apply. Investments made by check or through ACH may not be available immediately for redemption. See the section "Restrictions on Buying, Selling and Exchanging Shares." Through Your Investment Dealer . Call your investment dealer for information. Dealers may also charge you a processing or service fee in connection with the redemption of fund shares. By Mail . Write a letter to request a redemption. Specify the name of your fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be [GRAPHIC] redeemed and the method by which you wish to receive your proceeds. Additional materials may be required. See the section "Selling Shares in Writing." . The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. . Mail your request by regular mail to IXIS Advisor Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or by registered, express or certified mail to IXIS Advisor Funds, 330 West 9th Street, Kansas City, MO 64105-1514. . Your proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you within three business days after the request is received in good order. By Exchange (See the section "Exchanging Shares" for more details.) . Obtain a current prospectus for the fund into which you are exchanging by calling your investment dealer or IXIS Advisor Funds at 800-225-5478 or by visiting [GRAPHIC] www.ixisadvisorfunds.com. . Call IXIS Advisor Funds or visit www.ixisadvisorfunds.com to request an exchange. By Wire . Complete the "Bank Information" section on your account application. . Call IXIS Advisor Funds at 800-225-5478, visit www.ixisadvisorfunds.com or indicate in your [GRAPHIC] redemption request letter (see above) that you wish to have your proceeds wired to your bank. . Proceeds (less any applicable CDSC and/or redemption fee) will generally be wired on the next business day. A wire fee will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. Through Automated Clearing House . Ask your bank or credit union whether it is a member of the ACH system. . Complete the "Bank Information" section on your account application. [GRAPHIC] . If you have not signed up for the ACH system on your application, please call IXIS Advisor Funds at 800-225-5478 or visit www.ixisadvisorfunds.com for a Service Options Form. A medallion signature guarantee may be required to add this privilege. . Call IXIS Advisor Funds at 800-225-5478 or visit www.ixisadvisorfunds.com to request an ACH redemption. Proceeds (less any applicable CDSC and/or redemption fee) will generally arrive at your bank within three business days. By Telephone . Call IXIS Advisor Funds at 800-225-5478 to choose the method you wish to use to redeem your shares. You may receive your proceeds by mail, by wire or through ACH (see above). [GRAPHIC]
- -------------------------------------------------------------------------------- 41 [GRAPHIC] Fund Services Selling Shares (continued) By Systematic Withdrawal Plan (See the section "Additional Investor Services" for more details.) . Call IXIS Advisor Funds at 800-225-5478 or your financial representative for more information. . Because withdrawal payments may have tax consequences, you should consult your tax adviser [GRAPHIC] before establishing such a plan. By Check (for Class A shares of Limited Term Government and Agency Fund and Massachusetts Tax Free Income Fund only) . Select the checkwriting option on your application and complete the signature card. . To add this privilege to an existing account, call IXIS Advisor Funds at 800-225-5478 or visit [GRAPHIC] www.ixisadvisorfunds.com for a Service Options Form. . Each check must be written for $500 or more. . You may not close your account by withdrawal check. Please call your financial representative or IXIS Advisor Funds to close an account.
Selling Shares in Writing If you wish to redeem your shares in writing, all owners of the shares must sign the redemption request in the exact names in which the shares are registered and indicate any special capacity in which they are signing. In certain situations, you will be required to make your request to sell shares in writing. In these instances, a letter of instruction signed by the authorized owner is necessary. In certain situations, we also may require a medallion signature guarantee or additional documentation. A medallion signature guarantee protects you against fraudulent orders and is necessary if: .. your address of record or bank account information has been changed within the past 30 days; .. you are selling more than $100,000 worth of shares and you are requesting the proceeds by check; .. a proceeds check for any amount is either mailed to an address other than the address of record or not payable to the registered owner(s); or .. the proceeds are sent by check, wire, or in some circumstances ACH to a bank account whose owner(s) do not match the owner(s) of the fund account. A notary public cannot provide a medallion signature guarantee. The Funds will only accept medallion signature guarantees bearing the STAMP2000 Medallion imprint. A medallion signature guarantee can be obtained from one of the following sources: .. a financial representative or securities dealer; .. a federal savings bank, cooperative, or other type of bank; .. a savings and loan or other thrift institution; .. a credit union; or .. a securities exchange or clearing agency. In some situations additional documentation may be necessary. Please contact your financial representative or IXIS Advisor Funds regarding documentation requirements. - -------------------------------------------------------------------------------- 42 [GRAPHIC] Fund Services Exchanging Shares In general, you may exchange shares of your Fund for shares of the same class of another IXIS Advisor or Loomis Sayles Fund that offers such class of shares, without paying a sales charge or a CDSC (see the sections "Buying Shares" and "Selling Shares") subject to certain restrictions noted below. For exchanges into the Money Market Fund, the holding period for determining the CDSC for Class B and Class C Shares and conversion into class A shares if applicable, will stop and will resume only when an exchange into an applicable Fund occurs. Class A shares of a Fund acquired in connection with certain deferred compensation plans offered by New England Life Insurance Company ("NELICO") and its affiliates, their directors, senior officers, agents or general agents may be exchanged, with the consent of NELICO, for Class Y shares of the same Fund or any other Fund that offers Class Y shares. The exchange must be for the minimum to open an account (or the total net asset value of your account, whichever is less), or $100 if made under the Automatic Exchange Plan (see the section "Additional Investor Services"). All exchanges are subject to the eligibility requirements of the fund into which you are exchanging and any other limits on sales of or exchanges into that fund. The exchange privilege may be exercised only in those states where shares of such funds may be legally sold. For federal income tax purposes, an exchange of fund shares for shares of another fund is generally treated as a sale on which gain or loss may be recognized. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Before requesting an exchange into any other fund, please read its prospectus carefully. Please refer to the SAI for more detailed information on exchanging Fund shares. Restrictions on Buying, Selling and Exchanging Shares Frequent purchases and redemptions of Fund shares by shareholders may present certain risks for other shareholders in a Fund. This includes the risk of diluting the value of Fund shares held by long-term shareholders, interfering with the efficient management of a Fund's portfolio, and increasing brokerage and administrative costs. Funds investing in securities that require special valuation processes (such as foreign securities, high yield securities, or small cap securities) may also have increased exposure to these risks. Each Fund discourages excessive, short-term trading that may be detrimental to the Fund and its shareholders. The Funds' Board of Trustees has adopted the following policies with respect to frequent purchases and redemptions of Fund shares. Each Fund reserves the right to suspend or change the terms of purchasing or exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any purchase or exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Fund's other shareholders or possibly disruptive to the management of the Fund. Limits on Frequent Trading. Without limiting the right of the Fund and the Distributor to refuse any purchase or exchange order, the Fund and the Distributor may (but are not obligated to) restrict purchases and exchanges for the accounts of "market timers." With respect to exchanges, an account may be deemed to be one of a market timer if (i) more than two exchange purchases of any Fund are made for the account over a 90-day interval as determined by the Fund; or (ii) the account makes one or more exchange purchases of any Fund over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. With respect to new purchases of a Fund, an account may be deemed to be one of a market timer if (i) more than twice over a 90-day interval as determined by the Fund, there is a purchase in a Fund followed by a subsequent redemption; or (ii) there are two purchases into a Fund by an account, each followed by a subsequent redemption over a 90-day interval as determined by the Fund in an aggregate amount in excess of 1% of the Fund's total net assets. The preceding are not exclusive lists of activities that the Fund and the Distributor may consider to be "market timing." Notwithstanding the above, certain financial intermediaries, such as retirement plan administrators, may monitor and restrict the frequency of purchase and redemption transactions in a manner different from that described above. The policies of these intermediaries may be more or less restrictive than the generally applicable policies described above. Please contact your financial representative for additional information regarding their policies for limiting the frequent trading of Fund shares. Trade Activity Monitoring. Trading activity is monitored selectively on a daily basis in an effort to detect excessive short-term trading activities. If the Fund or the Distributor believes that a shareholder or financial intermediary has engaged in market timing or other excessive, short-term trading activity, it may, in its discretion, request that the shareholder or financial intermediary stop such activities or refuse to process purchases or exchanges in the accounts. In its discretion, the Fund or the Distributor may restrict or prohibit transactions by such identified shareholders or intermediaries. In making such judgments, the Fund and the Distributor seek to act in a manner that they believe is consistent - -------------------------------------------------------------------------------- 43 [GRAPHIC] Fund Services Restrictions on Buying, Selling and Exchanging Shares (continued) with the best interests of all shareholders. The Fund and the Distributor also reserve the right to notify financial intermediaries of your trading activity. Because the Fund and the Distributor will not always be able to detect market timing activity, investors should not assume the Fund will be able to detect or prevent all market timing or other trading practices that may disadvantage the Fund. For example, the ability of the Fund and the Distributor to monitor trades that are placed by omnibus or other nominee accounts is severely limited in those instances in which the broker, retirement plan administrator or fee-based program sponsor maintains the record of a Fund's underlying beneficial owners. Certain Funds also seek to prevent excessive and disruptive trading practices through the assessment of redemption fees on shares redeemed or exchanged within a given period after their purchase. See the section "Redemption Fees" for more information. Purchase Restrictions Each Fund is required by federal regulations to obtain certain personal information from you and to use that information to verify your identity. The Funds may not be able to open your account if the requested information is not provided. Each Fund reserves the right to refuse to open an account, close an account and redeem your shares at the then current price or take other such steps that the Fund deems necessary to comply with federal regulations if your identity cannot be verified. Selling Restrictions The table below describes restrictions placed on selling shares of any Fund described in this Prospectus: Restriction Situation Each Fund may suspend . When the New York the right of redemption Stock Exchange (the or postpone payment for "Exchange") is closed more than 7 days: (other than a weekend/holiday) . During an emergency . During any other period permitted by the SEC Each Fund reserves the . With a notice of a right to suspend dispute between account services or registered owners or refuse transaction death of a registered requests: owner . With suspicion/evidence of a fraudulent act Each Fund may pay the . When it is detrimental redemption for a Fund to make pricarketable cash payments as securities in lieu of determined in the sole cash or may take up to discretion of the 7 days to pay a adviser redemption request in order to raise capital: The Fund may withhold . When redemptions are redemption proceeds for made within 10 10 days: calendar days of purchase by check or ACH If you hold certificates representing your shares, they must be sent with your request for it to be honored. It is recommended that certificates be sent by registered mail. Although most redemptions are made in cash, as described in the SAI, each Fund reserves the right to redeem shares in kind. Redemption Fees For Class A shares of Core Plus Bond Fund, High Income Fund and Strategic Income Fund Shareholders will be charged a 2% redemption fee if they redeem, including redeeming by exchange, Class A shares of the Fund within 60 days of their acquisition (including acquisition by exchange). The redemption fee is intended to offset the costs to the 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, although there may be a delay between the time the fee is deducted from such proceeds and when it is paid to the Fund. - -------------------------------------------------------------------------------- 44 The "first-in, first-out" (FIFO) method is used to determine the holding period of redeemed or exchanged shares, which means that if you acquired shares on different days, the shares acquired first will be redeemed or exchanged first for purposes of determining whether the redemption fee applies. A new holding period begins with each purchase or exchange. The Funds currently do not impose a redemption fee on a redemption of: .. shares acquired by reinvestment of dividends or distributions of a Fund; or .. shares held in an account of certain retirement plans or profit sharing plans or purchased through certain intermediaries; or .. shares redeemed as part of a systematic withdrawal plan; or .. shares redeemed due to the death or disability of the shareholder; or .. shares redeemed by a Fund due to the shareholder's failure to satisfy the Funds' minimum balance policy or in connection with the merger or liquidation of the Fund; or .. shares redeemed to return an excess contribution in an IXIS/Loomis-sponsored retirement plan, such as an IRA or 403(b)(7) plan, or to effect a required minimum distribution from such a retirement plan. The redemption fee also does not apply to changes of account registration or transfers within the same Fund or to shares converted from one share class to another share class of the same Fund. In these transactions, subject to systematic limitations, the redemption fee aging period will carry over to the acquired shares, such that if the acquired shares are redeemed or exchanged before the expiration of the aging period, a redemption fee will be applied. The Funds may modify or eliminate these waivers at any time. In addition, the Funds may modify the way the redemption fee is applied, including the amount of the redemption fee and/or the length of time shares must be held before the redemption fee is no longer applied, for certain categories of investors or for shareholders investing through financial intermediaries which apply the redemption fee in a manner different from that described above. The ability of a Fund to assess a redemption fee on transactions by underlying shareholders of omnibus and other accounts maintained by brokers, retirement plan accounts and fee-based program accounts may be limited. - -------------------------------------------------------------------------------- 45 [GRAPHIC] Fund Services How Fund Shares Are Priced "Net asset value" is the price of one share of a Fund without a sales charge, and is calculated each business day using this formula: Net Asset Value = Total market value of securities + Cash and other assets - Liabilities ------------------------------------------------- Number of outstanding shares
The net asset value of Fund shares is determined according to this schedule: .. A share's net asset value is determined at the close of regular trading on the Exchange on the days the Exchange is open for trading. This is normally 4:00 p.m. Eastern time. Generally, a Fund's shares will not be priced on the days on which the Exchange is closed for trading. However, in Loomis Sayles's discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if Loomis Sayles in its discretion determines that there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares. This may occur, for example, if the Exchange is closed but the fixed-income markets are open for trading. In addition, a Fund's shares will not be priced on the holidays listed in the SAI. See the section "Net Asset Value and Public Offering Price" in the SAI for more details. .. The price you pay for purchasing, redeeming or exchanging a share will be based upon the net asset value next calculated by each Fund's custodian (plus or minus applicable sales charges as described earlier in this Prospectus) after your order is received "in good order." .. Requests received by the Fund after the Exchange closes will be processed based upon the net asset value determined at the close of regular trading on the next day that the Exchange is open.* .. A Fund significantly invested in foreign securities may have net asset value changes on days when you cannot buy or sell its shares. * Under limited circumstances, the Distributor may enter into contractual agreements pursuant to which orders received by your investment dealer before the close of the Exchange and transmitted to the Distributor prior to 9:30 a.m. on the next business day are processed at the net asset value determined on the day the order was received by your investment dealer. Generally, during times of substantial economic or market change, it may be difficult to place your order by phone. During these times, you may deliver your order in person to the Distributor or send your order by mail as described in the sections "Buying Shares" and "Selling Shares." Generally, Fund securities are valued as follows: .. Equity securities -- market price or as provided by a pricing service if market price is unavailable. .. Debt securities (other than short-term obligations) -- based upon pricing service valuations, which determine valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. .. Short-term obligations (remaining maturity of 60 days or less) -- amortized cost (which approximates market value). .. Securities traded on foreign exchanges -- market price on the foreign exchange, unless the Fund believes that an occurrence after the close of that exchange will materially affect the security's value. In that case, the security may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by the Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. .. Options -- last sale price, or if not available, last offering price. .. Futures -- unrealized gain or loss on the contract using current settlement price. When a settlement price is not used, futures contracts will be valued at their fair value as determined by or pursuant to procedures approved by the Board of Trustees. .. All other securities -- fair market value as determined by the adviser of the Fund pursuant to procedures approved by the Board of Trustees. As described above, if market prices are not readily available for a security, securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes is more likely to result in a price that reflects fair value (which is the amount that a Fund might reasonably expect to receive from a current sale of the security in the ordinary course of business). A Fund may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuer's security from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets). Fair value pricing may require subjective determinations about the value of a security, and fair values used to determine a Fund's net asset value may differ from quoted or published prices, or from prices that are used by others, for the same securities. In addition, the use of fair value pricing may not always result in adjustments to the prices of securities held by a Fund. - -------------------------------------------------------------------------------- 46 [GRAPHIC] Fund Services Dividends and Distributions The Funds generally distribute most or all of their net investment income (other than capital gains) in the form of dividends. Each Fund, except the Investment Grade Bond Fund, declares dividends for each class daily and pays them monthly. The Investment Grade Bond Fund declares and pays dividends for each class monthly. Each Fund expects to distribute substantially all net realized long- and short-term capital gains annually, after applying any available capital loss carryovers. To the extent permitted by law, the Funds may adopt a different schedule as long as payments are made at least annually. Distributions will automatically be reinvested in shares of the same class of the distributing Fund at net asset value, unless you select one of the following alternatives: . Participate in the Dividend Diversification Program, which allows you to have all dividends and distributions automatically invested at net asset value in shares of the same class of another IXIS Advisor Fund registered in your name. Certain investment minimums and restrictions may apply. For more information about this program, see the section entitled "Additional Investor Services." . Receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional shares of the same class of the Fund, or in the same class of another IXIS Advisor Fund. . Receive all distributions in cash. For more information or to change your distribution option, contact IXIS Advisor Funds in writing or call 800-225-5478. If you earn more than $10 annually in taxable income from an IXIS Advisor Fund held in a non-retirement plan account, you will receive a Form 1099 to help you report the prior calendar year's distributions on your federal income tax return. This information will also be reported to the Internal Revenue Service. Be sure to keep this Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. Tax Consequences Except as noted, the discussion below addresses only the U.S. federal income tax consequences of an investment in the Funds and does not address any foreign, state or local tax consequences. Each Fund intends to meet all requirements under Subchapter M of the Internal Revenue Code (the "Code") necessary to qualify for treatment as a "regulated investment company" and thus does not expect to pay any federal income tax on income and capital gains distributed to shareholders. Taxation of Distributions from the Funds. For federal income tax purposes, distributions of investment income (other than exempt-interest dividends described below) are generally taxable as ordinary income. Taxes on distributions of capital gains are determined by how long a Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions of net capital gains (that is the excess of net long-term capital gains over net short-term capital losses) from the sale of investments that a Fund owned for more than one year and that are properly designated by a Fund as capital gain dividends ("Capital Gain Dividends") will be taxable as long-term capital gains. Distributions of gains from the sale of investments that a Fund owned for one year or less will be taxable as ordinary income. For taxable years beginning on or before January 1, 2011, distributions of investment income designated by a Fund as derived from "qualified dividend income" will be taxed in the hands of individuals at the reduced long-term capital gain rates described below, provided holding period and other requirements are met at both the shareholder and Fund level. "Qualified dividend income" generally includes dividends from domestic and some foreign corporations. It does not include income from fixed-income securities. The Funds do not expect a significant portion of their distributions to be treated as qualified dividend income. For taxable years beginning before January 1, 2011, long-term capital gain rates applicable to individuals have generally been temporarily reduced to 15%, with lower rates applying to taxpayers in the 10% and 15% rate brackets. For more information, see the SAI under "Income Dividends, Capital Gain Distributions and Tax Status." Distributions are taxable to shareholders even if they are paid from income or gains earned by a Fund before a shareholder's investment (and thus were included in the price the shareholder paid). Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized or realized but not distributed. Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares. - -------------------------------------------------------------------------------- 47 [GRAPHIC] Fund Services Tax Consequences (continued) The Massachusetts Tax Free Income Fund and the Municipal Income Fund also intend to meet all the requirements of the Code necessary to ensure that they are qualified to pay "exempt interest dividends." Fund distributions designated as exempt-interest dividends are not generally subject to federal income tax, but may be subject to state and local taxes. In addition, an investment in the Massachusetts Tax Free Income Fund or the Municipal Income Fund may result in liability for federal alternative minimum tax, both for individual and corporate shareholders. In the case of Massachusetts Tax Free Income Fund, distributions are not generally subject to Massachusetts state income tax to the extent they derive from Massachusetts obligations and provided that the Fund identifies such distributions in written notice to shareholders within 60 days from the end of the taxable year. The Massachusetts Tax Free Income Fund and Municipal Income Fund may, however, invest a portion of their assets in securities that generate income that is not exempt from federal or state taxes. If you receive social security or railroad benefits, you should consult your tax adviser to determine what effect, if any, an investment in the Massachusetts Tax Free Income Fund or the Municipal Income Fund may have on the federal taxation of your benefits. Sales or Exchanges of Fund Shares. The redemption, sale or exchange of a Fund's shares (including an exchange of Fund shares for shares of another IXIS Advisor Fund or Money Market Fund) is a taxable event and may result in the recognition of a gain or loss. Gain or loss, if any, recognized on the redemption, sale, exchange or other disposition of a Fund's shares will be taxed as a long-term capital gain or loss if the shares are capital assets in the shareholder's hands and if the shareholder held the shares for more than one year. Taxation of Certain Investments. A Fund's investments in foreign securities may be subject to foreign withholding and other taxes. In that case, the Fund's yield on those securities would be decreased. We do not expect shareholders to be entitled to claim a credit or deduction with respect to foreign taxes unless a Fund invests more than 50% of its assets in foreign securities. In addition, a Fund's investments in foreign securities or foreign currencies may increase or accelerate a Fund's recognition of ordinary income and may affect the timing or amount of the Fund's distributions. Because certain of the Funds invest in foreign securities, shareholders should consult their tax advisers about consequences of their investments under foreign laws. Dividends derived from interest on securities issued by the U.S. government or its agencies or instrumentalities may be exempt from state and local income taxes. Each Fund advises shareholders of the proportion of any Fund's dividends that are derived from such interest. A Fund's investments in certain debt obligations, mortgage-backed securities, asset-backed securities and derivatives may cause that Fund to recognize taxable income in excess of the cash generated by such obligations. Thus, a Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. Income generated by investments in fixed-income securities is not eligible for treatment as qualified dividend income. Non-U.S. Shareholders. Capital gain dividends and exempt-interest dividends generally will not be subject to withholding of federal income tax. However, distributions properly designated as exempt-interest dividends may be subject to backup withholding as discussed below. In general, dividends (other than Capital Gain Dividends and exempt-interest dividends) paid to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate). However, effective for taxable years of a Fund beginning before January 1, 2008, the Fund generally will not be required to withhold any amounts with respect to distributions of (i) U.S.-source interest income that would not be subject to U.S. federal income tax if earned directly by an individual foreign person, and (ii) net short-term capital gains in excess of net long-term capital losses, in each case to the extent such distributions are properly designated by the Fund. The Funds, except the Investment Grade Bond Fund, do not intend to make such designations. The Investment Grade Bond Fund intends to make such designations. Backup Withholding. Each Fund is required in certain circumstances to apply backup withholding on taxable dividends, redemption proceeds and certain other payments that are paid to any shareholder (including a shareholder who is neither a citizen nor a resident of the U.S.) who does not furnish the Fund certain information and certifications or who is otherwise subject to backup withholding. The backup withholding rules may also apply to distributions that are properly designated as exempt-interest dividends. The backup withholding rate is 28% for amounts paid on or before December 31, 2010 and will be 31% for amounts paid after December 31, 2010. Backup withholding will not, however, be applied to payments that have been subject to the 30% withholding tax on shareholders who are neither citizens nor residents of the United States. - -------------------------------------------------------------------------------- 48 You should consult your tax adviser for more information on your own situation, including possible foreign, state or local taxes. Special tax considerations for Massachusetts Tax Free Income Fund Distributions from investment income and capital gains, including exempt-interest dividends, may be subject to Massachusetts corporate excise tax. For state tax purposes, gains realized by the Fund on the sale of certain tax-exempt securities that are designated by the Fund as tax-exempt retain their tax-exempt character when distributed to individual shareholders. The Massachusetts personal income tax statute taxes gains from the sale or exchange of capital assets held for more than one year at a rate of 5.3%. Shareholders should consult their tax advisors with respect to the Massachusetts personal income tax treatment of capital gain distributions from the Fund. Special tax considerations for Municipal Income Fund The federal exemption for "exempt-interest dividends" does not necessarily result in exemption from state and local taxes. Distributions of these dividends may be exempt from local and state taxation to the extent they are derived from the state and locality in which you reside. You should check the consequences under your local and state tax laws before investing in the Fund. Compensation to Securities Dealers As part of their business strategies, the Funds pay securities dealers and the financial institutions (collectively, "dealers") that sell their shares. This compensation originates from two sources: sales charges (front-end or deferred) and 12b-1 fees (comprising the annual service and/or distribution fees paid under a plan adopted pursuant to Rule 12b-1 under the 1940 Act). The sales charges, some or all of which may be paid to dealers, are detailed in the section "How Sales Charges Are Calculated." Each class of Fund shares pays an annual service fee of 0.25% of its average daily net assets. In addition to a service fee, each Fund's Class B shares pay an annual distribution fee of 0.75% of their average daily net assets for 8 years (at which time they automatically convert into Class A shares). Class C shares are subject to an annual distribution fee of 0.75% of their average daily net assets. Generally, the 12b-1 fees are paid to securities dealers on a quarterly basis. The Distributor retains the first year of such fees for Class B and Class C shares. Some or all of such fees may also be paid to financial institutions that finance the payment of commissions or similar charges on Class B shares. Because these distribution fees are paid out of the Funds' assets on an ongoing basis, over time these fees for Class B and Class C shares will increase the cost of your investment and may cost you more than paying the front-end sales charge on Class A shares. The Distributor and its affiliates may, out of their own resources, make payments in addition to the payments described above to dealers which satisfy certain criteria established from time to time by the Distributor. Payments may vary based on sales, the amount of assets a dealer's clients have invested in the Funds, and other factors. These payments may also take the form of sponsorship of seminars or informational meetings or payments for attendance by persons associated with a dealer at informational meetings. The Distributor and its affiliates may also make payments for recordkeeping and other transfer agency-related services to dealers that sell Fund shares. The payments described in this section, which may be significant to the dealers, may create an incentive for a dealer or its representatives to recommend or sell shares of a particular Fund or share class over other mutual funds or share classes. Additionally, these payments may result in the Fund's inclusion on a sales list, including a preferred or select sales list, or in other sales programs. Please see the SAI for additional information about payments made by the Distributor and its affiliates to dealers. Please also contact your dealer for details about payments it may receive. - -------------------------------------------------------------------------------- 49 [GRAPHIC] Fund Services Additional Investor Services Retirement Plans IXIS Advisor Funds offer a range of retirement plans, including Coverdell Education Savings Accounts, IRAs, SEPs, SARSEPs*, SIMPLE IRAs**, 403(b) plans and other pension and profit sharing plans. Refer to the section "It's Easy to Open an Account" for investment minimums. For more information about our Retirement Plans, call us at 800-225-5478. Investment Builder Program This is IXIS Advisor Funds' automatic investment plan. Once you meet the Fund minimum, you may authorize automatic monthly transfers of $50 or more per Fund from your bank checking or savings account to purchase shares of one or more IXIS Advisor Funds. To join the Investment Builder Program, please refer to the section "Buying Shares." Dividend Diversification Program This program allows you to have all dividends and any other distributions automatically invested in shares of the same class of another IXIS Advisor Fund or the Money Market Fund, subject to the eligibility requirements of that other fund and to state securities law requirements. Shares will be purchased at the selected fund's net asset value without a front-end sales charge or CDSC on the dividend record date. Before establishing a Dividend Diversification Program into any other IXIS Advisor Fund or the Money Market Fund, please read its prospectus carefully. Automatic Exchange Plan IXIS Advisor Funds have an automatic exchange plan under which shares of a class of an IXIS Advisor Fund are automatically exchanged each month for shares of the same class of another IXIS Advisor Fund or the Money Market Fund. There is no fee for exchanges made under this plan, but there may be a sales charge in certain circumstances. Please see the section "Exchanging Shares" above and refer to the SAI for more information on the Automatic Exchange Plan. Systematic Withdrawal Plan This plan allows you to redeem shares and receive payments from your Fund on a regular schedule. Redemption of shares that are part of the Systematic Withdrawal Plan is not subject to a CDSC. However, the amount or percentage you specify in the plan may not exceed, on an annualized basis, 10% of the value of your Fund account based upon the value of your Fund account on the day you establish your plan. For information on establishing a Systematic Withdrawal Plan, please refer to the section "Selling Shares." IXIS Advisor Funds Personal Access Line(R) This automated customer service system allows you to have access to your account 24 hours a day by calling 800-225-5478, and pressing 1. With a touch-tone telephone, you can obtain information about your current account balance, recent transactions, Fund prices and recent performance. You may also use Personal Access Line(R) to purchase, exchange or redeem shares in any of your existing accounts. Certain restrictions may apply. IXIS Advisor Funds Web Site Visit us at www.ixisadvisorfunds.com to review your account balance and recent transactions, to view daily prices and performance information or to order duplicate account statements and tax information. You may also go online to purchase, exchange or redeem shares in your existing accounts. Certain restrictions may apply. * Effective January 1, 1997, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA became available, replacing SARSEP plans. SARSEP plans established prior to January 1, 1997, may remain active and continue to add new employees. **Effective October 1, 2006, IXIS Advisor Funds no longer offers SIMPLE IRAs. SIMPLE IRA plans established prior to October 1, 2006 may remain active and continue to add new employees. - -------------------------------------------------------------------------------- 50 This page left blank intentionally. - -------------------------------------------------------------------------------- 51 [GRAPHIC] Financial Performance The financial highlights table is intended to help you understand each Fund's financial performance for the last five years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the return that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with each Fund's financial statements, is included in each Fund's annual report to shareholders. The annual reports are incorporated by reference into the SAI, which are available free of charge upon request from the Distributor. For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ---------------------------------------- --------------------------- Net asset 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) -- 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 and 5.59% to 5.52% for Class C. 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. - -------------------------------------------------------------------------------- 52
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 $ 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. * 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. - -------------------------------------------------------------------------------- 53 [GRAPHIC] Financial Performance For a share outstanding throughout each period.
Income (loss) from investment operations: Less distributions: ---------------------------------------- -------------------------------------------------- Net asset value, Dividends Distributions beginning Net Net realized Total from from from net of investment and unrealized investment net investment realized Total Redemption period income gain (loss) operations income capital gains distributions fee --------- ---------- -------------- ---------- -------------- ------------- ------------- ---------- HIGH INCOME FUND* Class C 9/30/2006 $ 4.98 $0.30(c) $ 0.11 $ 0.41 $(0.30) $ -- $(0.30) $0.00(f) 9/30/2005 4.83 0.29(c) 0.15 0.44 (0.29) -- (0.29) 0.00(f) 9/30/2004 4.65 0.30(c) 0.18 0.48 (0.30) -- (0.30) 0.00(f) 9/30/2003(e) 4.12 0.23(c) 0.53 0.76 (0.23) -- (0.23) -- 12/31/2002 4.94 0.36(c) (0.82) (0.46) (0.36) -- (0.36) -- 12/31/2001(d) 6.22 0.61 (1.26) (0.65) (0.63) -- (0.63) -- INVESTMENT GRADE BOND FUND Class A 9/30/2006 $11.71 $0.51(c) $ 0.10 $ 0.61 $(0.75) $(0.22) $(0.97) $ -- 9/30/2005 11.84 0.49(c) 0.29 0.78 (0.74) (0.17) (0.91) -- 9/30/2004 11.54 0.52(c) 0.45 0.97 (0.60) (0.07) (0.67) -- 9/30/2003 10.23 0.58(c) 1.46 2.04 (0.59) (0.14) (0.73) -- 9/30/2002(m)(l) 10.18 0.39(c) 0.04 0.43 (0.38) -- (0.38) -- Class B 9/30/2006 11.67 0.42(c) 0.10 0.52 (0.66) (0.22) (0.88) -- 9/30/2005 11.82 0.41(c) 0.27 0.68 (0.66) (0.17) (0.83) -- 9/30/2004 11.53 0.43(c) 0.45 0.88 (0.52) (0.07) (0.59) -- 9/30/2003(k) 11.21 0.02(c) 0.30 0.32 -- -- -- -- Class C 9/30/2006 11.66 0.42(c) 0.11 0.53 (0.67) (0.22) (0.89) -- 9/30/2005 11.81 0.40(c) 0.28 0.68 (0.66) (0.17) (0.83) -- 9/30/2004 11.53 0.43(c) 0.45 0.88 (0.53) (0.07) (0.60) -- 9/30/2003(k) 11.21 0.02(c) 0.30 0.32 -- -- -- --
(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. (b)Computed on an annualized basis for periods less than one year. (c)Per share net investment income has been calculated using the average shares outstanding during the period. (d)As required, effective January 1, 2001, the Fund adopted the provisions of 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 the 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. (e)For the nine months ended September 30, 2003. (f)Amounts round to less than $0.01. (g)Includes expense recapture of 0.06%, and 0.09% for Class A and Class C, respectively. - -------------------------------------------------------------------------------- 54
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 (%)(i) (000's) (%)(b) (%)(b)(j) (%)(b) rate (%) --------- ------ ----------- -------- --------- -------------- --------- $ 5.09 8.6(a) $ 3,457 2.23(h) 2.07 5.96 41 4.98 9.3(a) 3,554 2.47(h) 2.33 5.82 42 4.83 10.5(a) 2,608 2.40 N/A 6.22 51 4.65 18.8(a) 2,858 2.46 N/A 6.89 41 4.12 (9.5)(a) 2,605 2.33 N/A 8.10 114 4.94 (11.5)(a) 4,153 2.22 N/A 10.54 65 $11.35 5.6(a) $152,054 0.92(g) 0.92(g) 4.59 35 11.71 6.8(a) 39,168 1.14 0.95 4.21 28 11.84 8.8(a) 9,506 1.67 0.93 4.52 29 11.54 20.6(a) 1,128 4.67 0.80 5.21 34 10.23 4.3 11 191.59 0.80 5.85 39 11.31 4.8(a) 5,525 1.89 1.70 3.75 35 11.67 5.9(a) 3,443 2.18 1.70 3.47 28 11.82 7.9(a) 1,797 2.42 1.70 3.77 29 11.53 2.9(a) 160 7.81 1.70 5.83 34 11.30 4.9(a) 82,863 1.70(g) 1.70(g) 3.79 35 11.66 5.9(a) 27,992 1.97 1.70 3.45 28 11.81 7.9(a) 9,191 2.42 1.70 3.74 29 11.53 2.9(a) 3 7.81 1.70 4.35 34
(h)Represents the total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. (i)Total returns would have been lower had the adviser not reduced its advisory fees and/or borne other operating expenses, if applicable. Periods less than one year are not annualized. (j)The adviser has agreed to reimburse/waive a portion of the Fund's expenses during the period. Without this reimbursement/waiver, if any, the Fund's ratio of operating expenses would have been higher. (k)From commencement of class operations on September 12, 2003 through September 30, 2003. (l)From commencement of class operations on January 31, 2002 through September 30, 2002. (m)As required effective October 1, 2001, the Fund adopted the provisions of AICPA Audit and Accounting Guide, Audits of Investment Companies and began amortizing premium on debt securities and reclassifying paydown gains and losses to interest income for financial statement purposes only. For the year ended September 30, 2002, the effect of this change per share for Class A net investment income and net realized and unrealized gain (loss) was less than $0.01. The ratio of net investment income to average net assets for Class A decreased from 5.88% to 5.85% on an annualized basis. * 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. - -------------------------------------------------------------------------------- 55 [GRAPHIC] Financial Performance 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 --------- ---------- -------------- ---------- -------------- ------------- ---------- 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) --
(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 Limited Term Government and Agency Fund was to decrease net investment income per share by $0.04 for Class A, B, and C, 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, and 4.25% to 3.89% for Class C. (e)For the nine months ended September 30, 2003. - -------------------------------------------------------------------------------- 56
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 (%) --------- ------ ----------- -------- -------- -------------- --------- $11.00 3.2(f) $114,180 1.09(g) 1.04(h) 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(f) 9,952 1.84(g) 1.79(h) 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(f) 4,230 1.84(g) 1.79(h) 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
(f)Had certain expenses not been reduced during the period, total return would have been lower. (g)Represents the total expenses prior to advisory fee waiver and/or reimbursement of a portion of the Fund's expenses. (h)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. * 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 and Class C shares which were reorganized into Class A, Class B and Class C shares, respectively, of the Loomis Sayles Limited Term Government and Agency Fund, effective September 12, 2003. Prior to September 1, 2003, the predecessor Fund was advised by CDC IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles & Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003, had a December 31 fiscal year end. The Fund's current fiscal year end is September 30. - -------------------------------------------------------------------------------- 57 [GRAPHIC] Financial Performance 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 Net asset of investment and unrealized investment net investment Total value, end period income gain (loss) operations income distributions of period --------- ---------- -------------- ---------- -------------- ------------- ---------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2006 $16.62 $0.64 $ 0.05 $0.69 $(0.64) $(0.64) $16.67 9/30/2005 16.58 0.60 0.04 0.64 (0.60) (0.60) 16.62 9/30/2004 16.41 0.61 0.17 0.78 (0.61) (0.61) 16.58 9/30/2003(f) 16.40 0.49 0.01 0.50 (0.49) (0.49) 16.41 12/31/2002 15.82 0.67 0.59 1.26 (0.68) (0.68) 16.40 12/31/2001(d) 16.06 0.75 (0.24) 0.51 (0.75) (0.75) 15.82 Class B 9/30/2006 16.58 0.51 0.06 0.57 (0.51) (0.51) 16.64 9/30/2005 16.54 0.46 0.05 0.51 (0.47) (0.47) 16.58 9/30/2004 16.37 0.49 0.18 0.67 (0.50) (0.50) 16.54 9/30/2003(f) 16.36 0.41 0.01 0.42 (0.41) (0.41) 16.37 12/31/2002 15.78 0.57 0.58 1.15 (0.57) (0.57) 16.36 12/31/2001(d) 16.03 0.64 (0.24) 0.40 (0.65) (0.65) 15.78 MUNICIPAL INCOME FUND Class A 9/30/2006 $ 7.48 $0.28 $ 0.07 $0.35 $(0.28) $(0.28) $ 7.55 9/30/2005 7.47 0.28 0.01 0.29 (0.28) (0.28) 7.48 9/30/2004 7.41 0.29 0.06 0.35 (0.29) (0.29) 7.47 9/30/2003(f) 7.43 0.23 (0.02) 0.21 (0.23) (0.23) 7.41 12/31/2002 7.25 0.34 0.18 0.52 (0.34) (0.34) 7.43 12/31/2001(d) 7.39 0.36 (0.14) 0.22 (0.36) (0.36) 7.25 Class B 9/30/2006 7.49 0.23 0.07 0.30 (0.23) (0.23) 7.56 9/30/2005 7.48 0.22 0.01 0.23 (0.22) (0.22) 7.49 9/30/2004 7.41 0.24 0.07 0.31 (0.24) (0.24) 7.48 9/30/2003(f) 7.44 0.19 (0.03) 0.16 (0.19) (0.19) 7.41 12/31/2002 7.25 0.29 0.19 0.48 (0.29) (0.29) 7.44 12/31/2001(d) 7.39 0.31 (0.14) 0.17 (0.31) (0.31) 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. - -------------------------------------------------------------------------------- 58
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. (h)Includes expense recapture of less than 0.01%. - -------------------------------------------------------------------------------- 59 [GRAPHIC] Financial Performance 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) --
(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. - -------------------------------------------------------------------------------- 60
Ratios to average net assets: ---------------------------- Net asset Net assets, Net value, Total end of Gross Net investment Portfolio end of return period Expenses Expenses income turnover period (%)(a) (000's) (%)(b) (%)(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
(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. * 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 and Class C shares, which were reorganized into Class A, Class B and Class C 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. - -------------------------------------------------------------------------------- 61 Glossary of Terms Bottom-up analysis -- The analysis of potential performance of individual stocks before considering the impact of economic trends. Such companies may be identified from research reports, stock screens or personal knowledge of the products and services. Capital gain distributions -- Payments to a Fund's shareholders of net profits earned from selling securities in a Fund's portfolio. Capital gain distributions are usually paid once a year. Credit rating -- Independent evaluation of a bond's creditworthiness. This measurement is usually calculated through an index compiled by companies such as Standard & Poor's Rating Service, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Services, Inc. ("Fitch"). Bonds with a credit rating of BBB or higher by S&P or Fitch, or Baa or higher by Moody's, are generally considered investment-grade. Derivative -- A financial instrument whose value and performance are based on the value and performance of another security or financial instrument. Diversification -- The strategy of investing in a wide range of securities representing different market sectors to reduce the risk if an individual company or one sector suffers losses. Dividend yield -- The current or estimated annual dividend divided by the market price per share of a security. Duration -- An estimate of how much a bond's price fluctuates with changes in comparable interest rates. Earnings growth -- A pattern of increasing rates of growth in earnings per share from one period to another, which usually causes a stock's price to rise. Income distributions -- Payments to a Fund's shareholders resulting from the net interest or dividend income earned by a Fund's portfolio. Inflation -- A general increase in prices coinciding with a fall in the real value of money, as measured by the Consumer Price Index. Interest rate -- Rate of interest charged for the use of money, usually expressed at an annual rate. Market capitalization -- Market price multiplied by number of shares outstanding. Whether a company is considered a "large," "medium" or "small" capitalization company for any particular Fund will depend upon the company's market capitalization at the time of measurement and the index being used and/or the guidelines used by the portfolio manager. Maturity -- The final date on which the payment of a debt instrument (e.g., bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds generally have maturities of up to 5 years; intermediate-term bonds between 5 and 15 years; and long-term bonds over 15 years. Net assets -- A Fund's assets minus its liabilities. With respect to the Funds that have a policy to invest 80% of their net assets in particular kinds of securities, "net assets" as used in such policies means net assets plus borrowings made for investment purposes. Net asset value (NAV) per share -- The market value of one share of a Fund on any given day without taking into account any front-end sales charge or CDSC. It is determined by dividing a Fund's total net assets by the number of shares outstanding. Rule 144A securities -- Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless a manager has determined, under guidelines established by a Fund's trustees, that a particular issue of Rule 144A securities is liquid. Structured Notes -- Structured notes are debt obligations whose principal and/or interest payments are determined by reference to changes in some external factor or factors, such as an interest rate or a commodities or securities index. Top-down approach -- The method in which an investor first looks at trends in the general economy, and next selects industries and then companies that the investor believes should benefit from those trends. Total return -- The change in value of an investment in a Fund over a specific time period expressed as a percentage. Total returns assume all distributions are reinvested in additional shares of a Fund. Value investing -- A relatively conservative investment approach that focuses on companies that may be temporarily out of favor or whose earnings or assets are not fully reflected in their stock prices. Value stocks will tend to have a lower price-to-earnings ratio than growth stocks. Volatility -- The general variability of a portfolio's value resulting from price fluctuations of its investments. In most cases, the more diversified a portfolio is, the less volatile it will be. Yield -- The rate at which a Fund earns income, expressed as a percentage. Mutual fund yield calculations are standardized, based upon a formula developed by the SEC. - -------------------------------------------------------------------------------- 62 If you would like more information about the Funds, the following documents are available free upon request: Annual and Semiannual Reports -- Provide additional information about each Fund's investments. Each report includes a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. Statement of Additional Information (SAI) -- Provides more detailed information about the Funds and their investment limitations and policies. Each SAI has been filed with the SEC and is incorporated into this Prospectus by reference. To order a free copy of the Funds' annual or semiannual report or their SAIs, to request other information about the Funds and to make shareholder inquiries generally, contact your financial representative, or the Funds at: IXIS Asset Management Distributors, L.P., 399 Boylston Street, Boston, MA 02116 Telephone: 800-225-5478 The Funds' annual and semiannual reports and SAIs are available on the Funds' website at: www.ixisadvisorfunds.com Important Notice Regarding Delivery of Shareholder Documents: In our continuing effort to reduce your fund's expenses and the amount of mail that you receive from us, we will combine mailings of prospectuses, annual or semiannual reports and proxy statements to your household. If more than one family member in your household owns the same fund or funds described in a single prospectus, report or proxy statement, you will receive one mailing unless you request otherwise. Additional copies of our prospectuses, reports or proxy statements may be obtained at any time by calling 800-225-5478. If you are currently receiving multiple mailings to your household and would like to receive only one mailing or if you wish to receive separate mailings for each member of your household in the future, please call us at the telephone number listed above and we will resume separate mailings within 30 days of your request. Your financial representative or IXIS Advisor Funds will also be happy to answer your questions or to provide any additional information that you may require. (Investment Company Act File No. 811-04323) (Investment Company Act File No. 811-00242) (Investment Company Act File No. 811-06241) Information about the Funds, including their reports and SAI, can be reviewed and copied at the Public Reference Room of the SEC in Washington, D.C. Text-only copies of the Funds' reports and SAI are available free from the EDGAR Database on the SEC's Internet site at: www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. Portfolio Holdings -- A description of the Funds' policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Funds' SAI. IXIS Asset Management Distributors, L.P. ("IXIS Distributors"), and other firms selling shares of IXIS Advisor Funds are members of the National Association of Securities Dealers, Inc. ("NASD"). As a service to investors, the NASD has asked that we inform you of the availability of a brochure on its Public Disclosure Program. The program provides access to information about securities firms and their representatives. Investors may obtain a copy by contacting the NASD at 800-289-9999 or by visiting its Web site at www.NASD.com. IXIS Distributors distributes the IXIS Advisor Funds and Loomis Sayles Funds. If you have a complaint concerning IXIS Distributors or any of its representatives or associated persons, please direct it to IXIS Asset Management Distributors, L.P., Attn: Director of Compliance, 399 Boylston Street - 6/th/ Floor, Boston, MA 02116 or call us at 617-449-2828. [LOGO] STATEMENT OF ADDITIONAL INFORMATION -- PART I February 1, 2007 LOOMIS SAYLES CORE PLUS BOND FUND LOOMIS SAYLES HIGH INCOME FUND LOOMIS SAYLES INVESTMENT GRADE BOND FUND LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND LOOMIS SAYLES MUNICIPAL INCOME FUND LOOMIS SAYLES STRATEGIC INCOME FUND This Statement of Additional Information contains specific information which may be useful to investors but which is not included in the Prospectuses of the IXIS Advisor Funds listed above (the "Funds" and each a "Fund"). Certain information about the Funds and other IXIS Advisor Funds is included in Part II of this Statement of Additional Information (together with this document the "Statement"). This Statement is not a prospectus and is only authorized for distribution when accompanied or preceded by the IXIS Advisor Income and Tax Free Income Funds Class A, Class B and Class C Prospectus or the IXIS Advisor Income Funds Class Y Prospectus of the Funds each dated February 1, 2007, as from time to time revised or supplemented (the "Prospectus" or "Prospectuses"). This Statement should be read together with the Prospectuses. Investors may obtain the Prospectuses without charge from IXIS Asset Management Distributors, L.P. (the "Distributor"), Prospectus Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling IXIS Advisor Funds at 800-225-5478 or by visiting the Funds' website at www.ixisadvisorfunds.com. The Funds' financial statements and accompanying notes that appear in the Funds' annual reports are incorporated by reference into Part I of this Statement. Each Fund's annual and semiannual reports contain additional performance information and are available upon request and without charge by calling 800-225-5478 or by visiting the Funds' website at www.ixisadvisorfunds.com. Table of Contents PAGE ---- PART I INVESTMENT RESTRICTIONS................................................... iii FUND CHARGES AND EXPENSES................................................. xii OWNERSHIP OF FUND SHARES.................................................. xix PART II THE TRUSTS................................................................ 3 INVESTMENT STRATEGIES AND RISKS........................................... 4 TEMPORARY DEFENSIVE POSITIONS............................................. 27 PORTFOLIO TURNOVER........................................................ 27 PORTFOLIO HOLDINGS INFORMATION............................................ 28 MANAGEMENT OF THE TRUSTS.................................................. 29 INVESTMENT ADVISORY AND OTHER SERVICES.................................... 37 PORTFOLIO MANAGEMENT INFORMATION.......................................... 47 PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 52 DESCRIPTION OF THE TRUSTS................................................. 55 VOTING RIGHTS............................................................. 56 SHAREHOLDER AND TRUSTEE LIABILITY......................................... 57 HOW TO BUY SHARES......................................................... 57 REDEMPTIONS............................................................... 58 SHAREHOLDER SERVICES...................................................... 60 NET ASSET VALUE........................................................... 66 REDUCED SALES CHARGES..................................................... 67 TAXES..................................................................... 69 PERFORMANCE INFORMATION................................................... 75 FINANCIAL STATEMENTS...................................................... 75 APPENDIX A................................................................ A-1 ii INVESTMENT RESTRICTIONS The following is a description of restrictions on the investments to be made by the Funds. The restrictions marked with an asterisk (*) are fundamental policies that may not be changed without the vote of a majority of the outstanding voting securities of the relevant Fund (as defined in the Investment Company Act of 1940, as amended, (the "1940 Act")). The other restrictions set forth below are not fundamental policies and may be changed by the relevant Trust's Board of Trustees. Except in the case of restrictions marked with a dagger (+) below, the percentages set forth below and the percentage limitations set forth in the Prospectuses apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. Loomis Sayles Core Plus Bond Fund (the "Core Plus Bond Fund") will not: *(1)Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. *(2)Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(3)With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer (in each case excluding U.S. government securities, cash and cash equivalents and the securities of other investment companies); provided, however, this limitation does not apply to government securities as defined in the 1940 Act. *(4)Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities and engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(5)Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(6)Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(7)Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(8)Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (9)Write, purchase or sell options or warrants, except that the Fund may (a) acquire warrants or rights to subscribe to securities of companies issuing such warrants or rights or of parents or subsidiaries of such iii companies, provided that such warrants or other rights to subscribe are attached to, or part of a unit offering, other securities, and (b) write, purchase or sell put or call options on securities, securities indexes or futures contracts. *(10)Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. +(11)Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). (12)Invest, under normal circumstances, less than 80% of its net assets (plus borrowings made for investment purposes) in bond investments. The term "bond investments" includes debt securities of any maturity. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the Securities and Exchange Commission ("SEC"). (13)Invest, under normal circumstances, less than 80% of its assets in investment-grade securities those rated BBB or higher by Standard and Poor's Rating Group ("S&P")or Fitch Investor Services, Inc. ("Fitch"), or Baa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality as determined by Loomis, Sayles & Company, L.P. ("Loomis Sayles"). (14)Invest more than 20% of its assets, at the time of purchase, in bonds rated below BBB by S&P or Fitch and below Baa by Moody's (also known as "junk bonds") or, if unrated, of comparable quality as determined by Loomis Sayles. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (11) above. In restriction (12), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. Loomis Sayles High Income Fund (the "High Income Fund") will not: *(1)Buy more than 10% of the voting securities or more than 10% of all of the securities of any issuer, or invest to control or manage any company. *(2)Purchase securities on "margin," except for short-term credits as needed to clear securities purchases. *(3)Invest in securities issued by other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter or dealer commission or profit, other than a customary brokerage commission, is involved and only if immediately thereafter not more than 10% of the value of its total assets would be invested in such securities. *(4)Purchase securities, other than shares of the Fund, from or sell portfolio securities to its directors or officers, or firms they are affiliated with as principals, except as permitted by the regulations of the SEC. *(5)Purchase or sell commodities or commodity contracts, or write, purchase or sell options, except that the Fund may (a) buy or sell futures contracts on securities or on securities indices and (b) write, purchase or sell put or call options on securities, on securities indices or on futures contracts of the type referred to in clause (a) of this restriction. iv *(6)Make loans, except loans of portfolio securities and except to the extent that the purchase of notes, repurchase agreements, bonds, or other evidences of indebtedness or deposits with banks or other financial institutions may be considered loans. *(7)Make short sales of securities or maintain a short position. *(8)Purchase or sell real estate, provided that the Fund may invest in securities secured by real estate or interests therein or in securities issued by companies that invest in real estate or interests therein. *(9)Purchase or sell interests in oil and gas or other mineral exploration or development programs, provided that the Fund may invest in securities issued by companies which do invest in or sponsor such programs. *(10)Underwrite the securities of other issuers. *(11)Invest more than 10% of the value of its total assets, in the aggregate, in repurchase agreements maturing in more than seven days and restricted securities. *(12)Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water, and telephone companies will be considered as being in separate industries). *(13)Borrow money, except as a temporary measure for extraordinary or emergency purposes, up to an amount not in excess of 33 1/3% of its total assets. *(14)Issue senior securities. For the purpose of this restriction, none of the following is deemed to be a senior security: any borrowing permitted by restriction (13) above; any collateral arrangements with respect to options, forward contracts, futures contracts, swap contracts and other similar contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts or similar contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of Loomis Sayles Funds II's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom. +(15)Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (15) above. Loomis Sayles Investment Grade Bond Fund (the "Investment Grade Bond Fund") will not: (1)Invest in companies for the purpose of exercising control or management. *(2)Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. *(3)Invest in oil, gas or other mineral leases, rights or royalty contracts or in real estate, commodities or commodity contracts. (This restriction does not prevent the Fund from engaging in transactions in futures contracts relating to securities indices, interest rates or financial instruments or options, or from investing in issuers that invest or deal in the foregoing types of assets or from purchasing securities that are secured by real estate.) *(4)Make loans, except that the Fund may lend its portfolio securities to the extent permitted under the 1940 Act. (For purposes of this investment restriction, neither (i) entering into repurchase agreements nor (ii) v purchasing debt obligations in which the Fund may invest consistent with its investment policies is considered the making of a loan.) (5)With respect to 75% of its assets, purchase any security (other than U.S. government securities) if, as a result, more than 5% of the Fund's assets (taken at current value) would then be invested in securities of a single issuer. (6)With respect to 75% of its assets, acquire more than 10% of the outstanding voting securities of an issuer. (7)Pledge, mortgage, hypothecate or otherwise encumber any of its assets, except that the Fund may pledge assets having a value not exceeding 10% of its assets to secure borrowings permitted by restrictions (9) and (10) below. (For purposes of this restriction, collateral arrangements with respect to options, futures contracts, and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge or other encumbrance of assets.) *(8)Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries). *(9)Borrow in excess of 10% of its assets (taken at cost) or 5% of its assets (taken at current value) whichever is lower, nor borrow any money except as a temporary measure for extraordinary or emergency purposes. (10)Purchase securities on margin (except such short term credits as are necessary for clearance of transactions) or make short sales (except where, by virtue of ownership of other securities, it has the right to obtain, without payment of additional consideration, securities equivalent in kind and amount to those sold). (11)Participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with Loomis, Sayles & Company, L.P. ("Loomis Sayles") or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.) (12)Purchase any illiquid security, including any security that is not readily marketable, if, as a result, more than 15% of the Fund's net assets (based on current value) would then be invested in such securities. (13)Write or purchase puts, calls, or combinations of both, except that the Fund may (1) acquire warrants or rights to subscribe to securities of companies issuing such warrants or rights, or of parents or subsidiaries of such companies, (2) purchase and sell put and call options on securities, and (3) write, purchase and sell put and call options on currencies and enter into currency forward contracts. *(14)Issue senior securities. (For purposes of this restriction, none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restriction (7) above; any borrowing permitted by restriction (9) above; any collateral arrangements with respect to options, futures contracts, and options on futures contracts and with respect to initial and variation margin; and the purchase or sale of options, forward contracts, futures contracts, or options on futures contracts.) (15)Invest, under normal circumstances, less than 80% of its net assets (plus borrowings made for investment purposes) in investment grade fixed-income securities. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. (16)Invest in equity stocks or make any other equity investments. The Fund intends, based on the views of the SEC to restrict its investments in repurchase agreements maturing in more than seven days, together with other investments in illiquid securities, to the percentage permitted by restriction (12) above. vi In restriction (15), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. For purposes of the foregoing restrictions, the Fund does not consider a swap contract on one or more securities, indices, currencies or interest rates to be a commodity or a commodity contract, nor, consistent with the position of the staff of the SEC, does the Fund consider such swap contracts to involve the issuance of a senior security, provided the Fund designates on its records or segregates with its custodian liquid assets (marked to market on a daily basis) sufficient to meet its obligations under such contracts. In connection with the offering of its shares in Japan, the Fund has undertaken to the Japanese Securities Dealers Association: (1) that the Fund will not invest more than 15% of the Fund's net assets in securities that are not traded on a recognized exchange; (2) portfolio securities of the Fund may not be purchased from or sold or loaned to any Trustee of the Trust, Loomis Sayles acting as investment adviser of the Fund, or any affiliate thereof or any of their directors, officers or employees, or any major shareholder thereof (meaning a shareholder who holds to the actual knowledge of Loomis Sayles, on his/her own account whether in his/her own or other name (as well as a nominee's name), 15% or more of the total issued outstanding shares of such a company), acting as principal or for their own account unless the transaction is made within the investment restrictions set forth in the Fund's Prospectus and Statement of Additional Information and either (i) at a price determined by current publicly available quotations (including a dealer quotation) or (ii) at competitive prices or interest rates prevailing from time to time on internationally recognized securities markets or internationally recognized money markets (including a dealer quotation); and (3) that the Fund will not, together with other registered investment companies managed by Loomis Sayles, acquire more than 50% of the voting shares of any issuer. If the undertaking is violated, the Fund will, promptly after discovery, take such action as may be necessary to cause the violation to cease, which shall be the only obligation of the Fund and the only remedy in respect of the violation. This undertaking will remain in effect as long as shares of the Fund are qualified for offer or sale in Japan and such undertaking is required by the Japanese Securities Dealers Association as a condition of such qualification. Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term Government and Agency Fund") will not: *(1)Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(2)Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. *(3)Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities and engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(4)Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. vii *(5)Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(6)Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(7)Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(8)Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (9)Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to financial instruments or indices thereof and currencies and with respect to futures contracts on financial instruments or indices thereof. +(10)Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). (11)Invest, under normal circumstances, less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in investments issued or guaranteed by the U.S. government, its agencies or instrumentalities. Prior to any change to such policy adopted by the Board of Trustees of the Fund, the Fund will provide notice to shareholders as required by Rule 35d-1 under the 1940 Act, as such Rule may be interpreted from time to time by the staff of the SEC. Although the Fund may from time to time make short sales, issue senior securities, borrow money or pledge its assets to the extent permitted by the investment restrictions set forth above, the Fund has no current intention of engaging in such investment techniques. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (10) above. In restriction (11), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. Loomis Sayles Massachusetts Tax Free Income Fund (the "Massachusetts Tax Free Income Fund") will not: *(1)Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities, engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(2)Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(3)Act as underwriter, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. viii *(4)Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(5)Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into foreign exchange contracts and swap agreements and other financial transactions not requiring the delivery of physical commodities. *(6)Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. (7)Purchase securities restricted as to resale, if, as a result, such investments would exceed 5% of the value of the Fund's net assets. *(8)Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. *(9)With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided, however, this limitation does not apply to government securities as defined in the 1940 Act. (10)Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. *(11)Invest, under normal circumstances, less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in investments the income of which is exempt from federal and Massachusetts state income tax. (12)Invest less than 90% of its net assets in debt obligations on which the interest is exempt from federal income tax (other than the alternative minimum tax) and Massachusetts personal income tax. (13)Invest more than 20% of its assets in securities on which the interest is subject to the alternative minimum tax for individuals. In restriction (11), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. The Fund may invest more than 25% of the value of its total assets in private activity bonds, the interest from which is exempt from both federal and state personal income taxes, but not more than 25% in bonds backed by non-governmental users in any one industry. However, the income from certain private activity bonds is an item of tax preference for purposes of the federal alternative minimum tax, and it is a non-fundamental policy of the Fund that distributions from interest income on such private activity bonds, together with distributions of interest income on investments other than Tax Exempt Securities (as described under "Investment Strategies " in Part II of this Statement), will normally not exceed 10% of the total amount of the Fund's income distributions. ix The Fund will not purchase an investment if, immediately after and as a result of such purchase, less than 85% of the Fund's assets would consist of securities rated AAA, AA, A or BBB by Standard & Poor's or Fitch, or Aaa, Aa, A, or Baa by Moody's or are non-rated but are considered to be of comparable quality by Loomis Sayles. Loomis Sayles Municipal Income Fund (the "Municipal Income Fund") will not: *(1)With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would then be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer; provided, however, this limitation does not apply to government securities as defined in the 1940 Act. *(2)Purchase any securities (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents. For purposes of this restriction with regard to bank obligations, bank obligations are considered to be one industry, and asset-backed securities are not considered to be bank obligations. (3)Invest more than 25% of its total assets (taken at current value) in private activity bonds that are based, directly or indirectly, on the credit of private entities in any one industry or in securities of private issuers in any one industry. (In the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries). *(4)Make short sales of securities, maintain a short position or purchase securities on margin, except that the Fund may obtain short-term credits as necessary for the clearance of security transactions, and the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute "senior securities" under the 1940 Act. *(5)Borrow money except for temporary or emergency purposes; provided, however, that the Fund may loan securities and engage in reverse repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3% of its total assets taken at cost. *(6)Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; provided, however, that this restriction does not apply to repurchase agreements or loans of portfolio securities. *(7)Purchase or sell commodities, except that the Fund may purchase and sell futures contracts and options, may enter into swap agreements and other financial transactions not requiring the delivery of physical commodities. *(8)Purchase or sell real estate, although it may purchase securities of issuers that deal in real estate, securities that are secured by interests in real estate, and securities that represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. *(9)Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. (10)Write, purchase, or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with regard to futures contracts. *(11)Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. x +(12)Invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). *(13)Invest, under normal circumstances, less than 80% of the Fund's net assets (plus borrowings made for investment purposes) in municipal investments the income from which is exempt from federal income tax (other than the alternative minimum tax). (14)Invest more than 20% of the Fund's net assets in debt obligations on which the interest is subject to the alternative minimum tax for individuals. The Fund may invest more than 25% of its assets in private activity bonds, subject to limitation (3) above. In restriction (13), the 80% policy is applied at the time of investment. However, if the Fund no longer meets the 80% policy (due to changes in the value of its portfolio holdings or other circumstances beyond its control), it must make future investments in a manner that would bring the Fund into compliance with the 80% requirement, but would not be required to sell portfolio holdings that have increased in value. Loomis Sayles Strategic Income Fund (the "Strategic Income Fund") will not: *(1)Purchase any security (other than U.S. government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries, and each foreign country's government (together with subdivisions thereof) will be considered to be a separate industry). (2)Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin). (3)With respect to 75% of its total assets, purchase any security if, as a result, more than 5% of its total assets (based on current value) would be invested in the securities of a single issuer or acquire more than 10% of the outstanding voting securities of any issuer (in each case excluding U.S. government securities, cash and cash equivalents and the securities of other investment companies). *(4)Borrow money in excess of 25% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes. (5)Pledge more than 25% of its total assets (taken at cost). (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge of assets). *(6)Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities. *(7)Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may buy and sell futures contracts and related options. (This restriction does not prevent the Fund from purchasing securities of companies investing in the foregoing). *(8)Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. xi (9)Except to the extent permitted by rule or order of the SEC, participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with any investment adviser of the Fund or accounts under any such investment adviser's management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction). (10)Write, purchase or sell options, except that the Fund may (a) write, purchase and sell put and call options on securities, securities indices, currencies, futures contracts, swap contracts and other similar instruments and (b) enter into currency forward contracts. +(11)Invest more than 15% of its net assets (taken at current value) in illiquid securities (excluding Rule 144A securities and certain Section 4(2) commercial paper deemed to be liquid under guidelines established by the Trust's trustees). *(12)Issue senior securities. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restrictions (2) or (5) above; any borrowing permitted by restriction (4) above; any collateral arrangements with respect to forward contracts, options, futures contracts, swap contracts or other similar contracts and options on futures contracts, swap contracts or other similar contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts or other similar contracts or options on futures contracts, swap contracts or other similar contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of the Trust's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom.) The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid and thus subject to restriction (11) above. FUND CHARGES AND EXPENSES ADVISORY FEES Pursuant to separate advisory agreements, Loomis Sayles has agreed, subject to the supervision of the Board of Trustees of the relevant Trust, to manage the investment and reinvestment of the assets of each Fund and to provide a range of administrative services to each Fund except the Core Plus Bond Fund and Massachusetts Tax Free Income Fund. For the services described in the advisory agreements, each Fund has agreed to pay Loomis Sayles an advisory fee at the annual rate set forth in the following table:
Advisory Fee Payable by Fund to Loomis Sayles Fund Date of Agreement (as a % of average daily net assets of the Fund) - ---- ---------------------- ------------------------------------------------ Core Plus Bond Fund September 1, 2003 0.2500% of the first $100 million 0.1875% of amounts in excess of $100 million High Income Fund September 12, 2003 0.600% amended July 1, 2004 Investment Grade Bond Fund October 30, 2000 0.400% Limited Term Government and September 12, 2003 0.500% Agency Fund amended March 21, 2005 Massachusetts Tax Free September 1, 2003 0.300% of the first $100 million Income Fund 0.250% of amounts in excess of $100 million Municipal Income Fund September 12, 2003 0.500% of the first $100 million 0.375% of amounts in excess of $100 million Strategic Income Fund September 12, 2003 0.650% of the first $200 million amended July 1, 2005 0.600% of the next $1.8 billion 0.550% of amounts in excess of $2 billion
xii The following table shows the total advisory fees paid by the Funds for the last three fiscal years:
Advisory Fees/1/ ----------------------------------------------------- Core Plus Bond Fund 10/01/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $630,219 $569,296 $492,131 High Income Fund 10/01/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $330,146 $260,872 $235,740 Investment Grade Bond Fund 10/01/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $1,506,744 $1,551,924 $1,714,761 Amount Waived....................... $43,823 $323,993 -- Total Paid.......................... $1,462,921 $1,227,931 1,714,761 Limited Term Government and Agency Fund 10/01/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $773,694 $785,427 $728,190 Massachusetts Tax Free Income Fund 10/01/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $265,074 $247,582 $228,872 Amount Waived....................... -- -- $28,465 Total Paid.......................... $265,074 $247,582 $200,407 Municipal Income Fund 10/10/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $606,254 $558,306 $510,697 Strategic Income Fund 10/01/03 -9/30/04 10/01/04 -9/30/05 10/01/05 -9/30/06 ----------------- ----------------- ----------------- Total Advisory Fee..................... $3,264,555 $7,659,002 $18,365,690
/1/ This table does not reflect any fees paid under the Advisory Administration agreements described later in this Statement. xiii The table below shows the class level and other expenses of the Funds that were reimbursed for the fiscal years September 30, 2004, September 30, 2005 and September 30, 2006.
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Fund 9/30/04 9/30/05 9/30/06 - ---- ----------------- ----------------- ----------------- Loomis Sayles Core Plus Bond Fund........................... $ 74,236 $154,449 $73,029 Loomis Sayles High Income Fund.............................. -- $ 61,643 $64,092 Loomis Sayles Investment Grade Bond Fund.................... $195,840 -- $38,905 Loomis Sayles Limited Term Government and Agency Fund....... -- -- $70,282 Loomis Sayles Massachusetts Tax Free Income Fund............ -- $ 3,589 $35,227 Loomis Sayles Municipal Income Fund......................... -- -- $20,044 Loomis Sayles Strategic Income Fund......................... $ 5,434 -- --
Loomis Sayles and IXIS Advisors (in the case of the Core Plus Bond Fund and Massachusetts Tax Free Income Fund) have given a binding undertaking (for all classes of the Funds in the table below) to reduce the advisory fees and, if necessary, to bear certain expenses related to operating the Funds in order to limit their expenses, exclusive of acquired fund fees and expenses, brokerage expenses, interest expense, taxes and organizational and extraordinary expenses to the annual rates indicated below. The undertaking is binding on Loomis Sayles and IXIS Advisors (in the case of the Core Plus Bond Fund and Massachusetts Tax Free Income Fund) for a period of one-year from the date shown, and is reevaluated on an annual basis. Loomis Sayles, and IXIS Advisors as applicable, will be permitted to recover, on a class by class, expenses it has borne through the undertaking described above to the extent that a Fund's expenses in later periods fall below the annual rate set forth in the relevant undertaking. A Fund will not be obligated to pay any such deferred fees more than one year after the end of the fiscal year in which the fee was deferred.
Fund Expense Limit Date of Undertaking ---- ------------- ------------------- Core Plus Bond Fund.................... February 1, 2007 Class A............................. 1.05% Class B............................. 1.80% Class C............................. 1.80% Class Y............................. 0.80% High Income Fund....................... February 1, 2007 Class A............................. 1.15% Class B............................. 1.90% Class C............................. 1.90% Investment Grade Bond Fund............. February 1, 2007 Class A............................. 0.95% Class B............................. 1.70% Class C............................. 1.70% Class Y............................. 0.55% Limited Term Government and Agency Fund February 1, 2007 Class A............................. 1.00% Class B............................. 1.75% Class C............................. 1.75% Class Y............................. 0.75% Massachusetts Tax Free Income Fund..... February 1, 2007 Class A............................. 0.95% Class B............................. 1.70% Municipal Income Fund.................. February 1, 2007 Class A............................. 0.95% Class B............................. 1.70% Strategic Income Fund.................. February 1, 2007 Class A............................. 1.25% Class B............................. 2.00% Class C............................. 2.00% Class Y............................. 1.00%
xiv Advisory Administration Agreement Pursuant to separate advisory administration agreements, Core Plus Bond Fund and Massachusetts Tax Free Income Fund have retained IXIS Advisors to provide certain administrative and oversight services to these Funds. For the services described in the advisory administration agreements, IXIS Advisors receives fees at the annual rates set forth in the following table:
Advisory Administration Fee Payable by Fund to IXIS Advisors Fund Date of Agreement (as a % of average daily net assets of the Fund) - ---- ----------------- --------------------------------------------------- Core Plus Bond Fund..................... September 1, 2003 0.2500% of the first $100 million 0.1875% of amounts in excess of $100 million Massachusetts Tax Free Income Fund...... September 1, 2003 0.300% of the first $100 million 0.250% of amounts in excess of $100 million
For the fiscal years ended September 30, 2004, September 30, 2005 and September 30, 2006, the following table shows the advisory administration fees paid by Core Plus Bond Fund and Massachusetts Tax Free Income Fund to IXIS Advisors:
Fund 10/01/03 - 9/30/04 10/01/04 - 9/30/05 10/01/05 - 9/30/06 - ---- ------------------ ------------------ ------------------ Core Plus Bond Fund............... $630,219 $569,296 $492,132 Massachusetts Tax Free Income Fund $265,074 $247,581 $228,872 Amount Waived.................. -- -- $ 28,465 Total Paid..................... $265,074 $247,581 $200,407
Brokerage Commissions In fiscal year 2004, High Income Fund, Investment Grade Bond Fund and Strategic Income Fund paid $611, $5, and $33,464, respectively, in brokerage commissions. In fiscal year 2005, High Income Fund, Investment Grade Bond Fund, and Strategic Income Fund paid $680, $0, and $93,462, respectively. In fiscal year 2006, High Income Fund, Investment Grade Bond Fund, and Strategic Income Fund paid $1,411, $0, and $173,859, respectively. For a description of how transactions in portfolio securities are effected and how the Funds' adviser selects brokers, see the section entitled "Portfolio Transactions and Brokerage" in Part II of this Statement. xv Regular Broker-Dealers The table below contains the aggregate value of securities of each Fund's regular broker-dealers+? (or the parent of the regular broker-dealers) held by each Fund, if any, as of the close of the fiscal year ending September 30, 2006. Aggregate Value of Securities of each Regular Broker or Dealer (or its Parent) held Fund Regular Broker-Dealer by Fund ---- ------------------------------- -------------- Core Plus Bond Fund........... Bank of America Securities $ 1,649,450 HSBC Securities $ 1,135,278 State Street Brokerage Services $ 1,252,462 Greenwich Capital Markets LLC $ 1,796,987 Countrywide Securities $ 4,018,520 Citigroup Global Markets $ 715,769 High Income Fund.............. Barclays Bank $ 668,718 JPMorgan Securities, Inc. $ 101,502 HBSC Securities $ 503,600 Citibank N.A. $ 494,731 Investment Grade Bond Fund.... Barclays Bank $12,618,496 JPMorgan Securities, Inc. $ 9,853,028 Citibank N.A. $ 4.927,324 HBSC Securities $ 4,532,400 Bank of America $ 3,029,915 Strategic Income Fund......... Barclays Bank $88,720,190 JPMorgan Securities, Inc. $50,105,205 Citibank N.A. $ 9,319,930 HBSC Securities $16,165,560 + "Regular Broker-Dealers" are defined by the SEC as: (a) one of the 10 brokers or dealers that received the greatest dollar amount of brokerage commissions by virtue of direct or indirect participation in the company's portfolio transactions during the company's most recent fiscal year; (b) one of the 10 brokers or dealers that engaged as principal in the largest dollar amount of portfolio transactions of the investment company during the company's most recent fiscal year; or (c) one of the 10 brokers or dealers that sold the largest dollar amount of securities of the investment company during the company's most recent fiscal year. Sales Charges and 12b-1 Fees As explained in Part II of this Statement, the Class A, Class B and Class C shares (except in the case of the Massachusetts Tax Free Income Fund and the Municipal Income Fund, which do not offer Class C Shares) of each Fund pay the Distributor fees under plans adopted pursuant to Rule 12b-1 under the 1940 Act ("Plans"). The following table shows the amounts of Rule 12b-1 fees paid by the Funds under the Plans during the past three fiscal years. All amounts paid under the Plans during the last fiscal year were paid as compensation to the Distributor. Compensation payable under the Plans may be paid regardless of the Distributor's expenses. The anticipated benefits to the Funds of the Plans include the ability to attract and maintain assets. xvi Fund 10/1/03-9/30/04 10/1/04-9/30/05 10/1/05-9/30/06 ---- --------------- --------------- --------------- Core Plus Bond Fund Class A.................... $ 312,845 $ 279,297 $ 239,223 Class B.................... $1,547,638 $1,420,420 $ 1,182,431 Class C.................... $ 68,011 $ 62,026 $ 59,983 Total $1,928,494 $1,761,743 $ 1,481,637 High Income Fund Class A.................... $ 62,823 $ 61,987 $ 66,667 Class B.................... $ 208,830 $ 155,393 $ 92,594 Class C.................... $ 27,615 $ 31,446 $ 33,638 Total $ 299,268 $ 248,826 $ 192,889 Limited Term Government and Agency Fund Class A.................... $ 361,411 $ 318,965 $ 315,317 Class B.................... $ 116,983 $ 131,049 $ 121,713 Class C.................... $ 76,233 $ 62,191 $ 48,846 Total $ 554,627 $ 512,205 $ 485,876 Massachusetts Tax Free Income Fund Class A.................... $ 271,068 $ 196,494 $ 183,746 Class B.................... $ 51,109 $ 39,296 $ 27,924 Total $ 322,177 $ 235,790 $ 211,670 Fund 10/1/03-9/30/04 10/1/04-9/30/05 10/1/05-9/30/06 ---- --------------- --------------- --------------- Municipal Income Fund Class A.................... $ 295,653 $ 268,285 $ 241,651 Class B.................... $ 100,731 $ 82,344 $ 63,570 Total $ 396,384 $ 350,629 $ 305,221 Strategic Income Fund Class A.................... $ 590,762 $1,531,878 $ 4,219,448 Class B.................... $1,251,818 $1,366,616 $ 1,539,392 Class C.................... $1,593,979 $4,824,725 $11,663,416 Total $3,436,559 $7,723,219 $17,422,256 Fund 10/1/03-9/30/04 10/1/04-9/30/05 10/1/05-9/30/06 ---- --------------- --------------- --------------- Investment Grade Bond Fund Class A.................... $ 14,567 $ 59,185 $ 204,367 Class B.................... $ 10,253 $ 27,503 $ 41,770 Class C.................... $ 44,550 $ 168,309 $ 481,084 Total $ 69,370 $ 254,997 $ 727,221 xvii During the fiscal year ended September 30, 2006, the Distributor's expenses relating to the Fund's 12b-1 plans were as follows (Class B compensation to investment dealers excludes advanced commissions sold to a third party):
Advertising/ Printing and Mailing of Interest, Prospectuses carrying to other Compensation or than Compensation to Compensation other Other current to Broker- to Sales finance Distribution Fund shareholders Underwriters Dealers Personnel charges Cost - ---- ------------ ------------ ------------ ------------ --------- ------------ Core Plus Bond Fund......... $ 26,924 $ 51,246 $ 401,352 $ 56,405 $0 $ 181,076 High Income Fund......... $ 14,527 $ 7,913 $ 112,258 $ 7,905 $0 $ 97,194 Investment Grade Bond Fund......... $ 73,323 $ 222,898 $ 952,685 $ 242,201 $0 $ 508,774 Limited Term Government and Agency Fund......... $ 14,325 $ 6,805 $ 380,364 $ 7,773 $0 $ 95,893 Massachusetts Tax Free Income Fund.. $ 8,780 $ 1,749 $ 175,142 $ 1,844 $0 $ 58,468 Municipal Income Fund.. $ 9,118 $ 3,069 $ 244,082 $ 3,724 $0 $ 61,296 Strategic Income Fund.. $1,054,279 $3,786,843 $19,075,866 $3,958,696 $0 $7,178,470
xviii OWNERSHIP OF FUND SHARES As of January 5, 2007, to the Trusts' knowledge, the following persons owned of record or beneficially 5% or more of the outstanding shares of the indicated classes of the Funds set forth below.* Ownership Fund Shareholder and Address Percentage ---- ------------------------------------------------------- ---------- Core Plus Bond Fund/1/ (Class A) MLPF&S For The Sole Benefit 12.39% Of It's Customers Attn Fund Administration ML#98484 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 (Class B) MLPF&S For The Sole Benefit 76.33% Of It's Customers Attn Fund Administration ML#97CJ0 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FF 32246-6484 (Class C) MLPF&S For The Sole Benefit 51.65% Of It's Customers Attn Fund Administration ML#97UD1 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Citigroup Global Markets Inc. 5.63% House Account Attn Andrew Gott 4 Fl 11155 Red Run Blvd Ownings Mills MD 21117-3256 (Class Y) MLPF&S For The Sole Benefit 40.51% Of It's Customers Attn Fund Administration ML#97PN8 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Charles Schwab & Co Inc 31.09% Special Custody Account For Bnft Cust Attn Mutual Funds 101 Montgomery St San Francisco, CA 94104-4122 Metropolitan Life Ins Co/SA DC 25.86% 8515 E Orchard Rd #2T2 Greenwood Vlg CO 80111-5002 xix Ownership Fund Shareholder and Address Percentage ---- ------------------------------------------------------ ---------- High Income Fund (Class B) MLPF&S For The Sole Benefit 9.68% Of It's Customers Attn Fund Administration ML#97CJ3 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 (Class C) Citigroup Global Markets Inc. 14.41% House Account Attn Andrew Gott 11155 Red Run Blvd Owings Mills MD 21117-3256 MLPF&S For The Sole Benefit 14.04% Of It's Customers Attn Fund Administration ML#97UA1 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Investment Grade Bond Fund/2/ (Class A) Merrill Lynch Pierce 13.97% Fenner & Smith Inc Merrill Lynch Financial Data Svcs Attn: Service Team 4800 Deer Lake Dr East 3rd Flr Jacksonville, FL 32246-6484 Citigroup Global Markets Inc. 11.63% House Account Attn Andrew Gott 11155 Red Run Blvd Owings Mills MD 21117-3256 (Class B) Merrill Lynch Pierce 21.97% Fenner & Smith Inc Merrill Lynch Financial Data Svcs Attn: Service Team 4800 Deer Lake Dr East 3rd Flr Jacksonville, FL 32246-6484 (Class C) Merrill Lynch Pierce 57.57% Fenner & Smith Inc Merrill Lynch Financial Data Svcs Attn: Service Team 4800 Deer Lake Dr East 3rd Flr Jacksonville, FL 32246-6484 Citigroup Global Markets Inc. 7.53% House Account Attn Andrew Gott 11155 Red Run Blvd Owings Mills MD 21117-3256 xx Ownership Fund Shareholder and Address Percentage ---- ------------------------------------------------------ ---------- Investment Grade Bond Fund (Class Y) Merrill Lynch Pierce 25.84% Fenner & Smith Inc Merrill Lynch Financial Data Svcs Attn: Service Team 4800 Deer Lake Dr East 3/rd/ Flr Jacksonville FL 32246-6484 Charles Schwab & Co Inc 13.70% Attn Mutual Fund Dept 101 Montgomery St San Francisco CA 94104-4151 Pershing LLC 13.28% PO Box 2052 Jersey City NJ 07303-2052 JPM Chase Bank NA FBO 8.45% 500 Stanton Christiana Rd Newark DE 19713-2107 Strafe & Co FAO 6.59% Everest Reinsurance Retire Plan PO Box 160 Westerville OH 43086-0160 Limited Term Government and Agency Fund (Class A) First Clearing LLC 8.62% Community First Trust Co 135 Section Line Rd 3rd Floor C 1 Hot Springs, AR 71913-6431 Treasurer County of Lake 5.18% 255 No. Forbes Street RM 215 Lakeport CA 95453-4747 (Class B) MLPF&S For The Sole Benefit 5.49% Of It's Customers Attn Fund Administration ML#97CH9 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 (Class C) MLPF&S For The Sole Benefit 29.81% Of It's Customers Attn Fund Administration ML#97UA3 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Citigroup Global Markets Inc. 17.58% House Account Attn Andrew Gott 11155 Red Run Blvd Owings Mills MD 21117-3256 xxi Ownership Fund Shareholder and Address Percentage ---- ------------------------------------------------------ ---------- Limited Term Government and Agency Fund (Class C) The Bank of New York as Funds 14.02% Custodian for the City of Forsyth Georgia 100 Ashford Ctr N Ste 520 Atlanta, GA 30338-4865 Raymond James & Assoc Inc 7.06% FBO Szulman Ana 880 Carillon Pkwy St. Petersburg FL 33716-1100 (Class Y) Asbestos Workers Local #84 80.30% Pension Plan Attn Lee Q Barnes Administrator 36 East Warner Road Akron, OH 44319-1864 Loan Collateral Account 10.16% Comerica Bank Southeastern Michigan Chapter Neca 25180 Lahser Rd P.O. Box 385 Southfield, MI 48033-5866 MLPF&S For The Sole Benefit 5.85% Of It's Customers Attn Fund Administration ML#97RA7 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Massachusetts Tax Free Income Fund (Class B) RBC Dain Rauscher FBO 15.02% Barbara W Rubin Ttee Barbara W Rubin Living Trust 24 Pearl St E Bridgewater, MA 02333-1742 MLPF&S For The Sole Benefit 9.26% Of It's Customers Attn Fund Administration ML#97CJ1 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Pershing LLC 7.51% P.O. Box 2052 Jersey City, NJ 07303-2052 Craig B Warner 5.32% 5411 Peppermill Ct Sarasota FL 34241-7185 xxii Ownership Fund Shareholder and Address Percentage ---- ------------------------------------------------------ ---------- Municipal Income Fund (Class B) MLPF&S For The Sole Benefit 11.69% Of It's Customers Attn Fund Administration Ml#97CH7 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Richard L Schnabel 5.01% Bonnilee R Schnabel Jt Ten 9800 Wenonga Rd Leawood KS 66206-2443 Strategic Income Fund/3/ (Class A) MLPF&S For The Sole Benefit 20.45% Of It's Customers Attn Fund Administration Ml#97GM7 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Charles Schwab & Co Inc 18.15% Special Custody Account For The Exclusive Benefit of Customers Attn: Mutual Funds 101 Montgomery Street San Francisco, CA 94104-4151 (Class B) MLPF&S For The Sole Benefit 38.11% Of It's Customers Attn Fund Administration Ml#97GM8 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 (Class C) MLPF&S For The Sole Benefit 61.02% Of Its Customers Attn Fund Administration Ml#97UB1 4800 Deer Lake Dr East - 2nd Fl Jacksonville, FL 32246-6484 Citigroup Global Markets Inc. 12.14% House Account Attn Andrew Gott 11155 Red Run Blvd Owings Mills MD 21117-3256 (Class Y) MLPF&S For The Sole Benefit 70.93% Of It's Customers Attn Fund Administration Ml#97UR8 4800 Deer Lake Dr E Fl 2 Jacksonville, FL 32246-6484 * Such ownership may be beneficially held by individuals or entities other than the owner listed. To the extent that any listed shareholder beneficially owns more than 25% of a Fund, it may be deemed to "control" such Fund within the meaning of the xxiii 1940 Act. The effect of such control may be to reduce the ability of other shareholders of the Fund to take actions requiring the affirmative vote of holders of a plurality or majority of the Fund's shares without the approval of the controlling shareholder. /1/ As of January 5, 2007, Merrill Lynch Pierce Fenner & Smith Inc., MLPF&S for the Sole Benefit of It's Customers, Attn: Fund Administration ML#98484, 4800 Deer Lake Dr East 2/nd/ Flr, Jacksonville Fl 32246-6484 owned 46.30% of the Loomis Sayles Core Plus Bond Fund and therefore may be presumed to "control" the Fund, as that term is defined in the Investment Company Act of 1940. However, such ownership may be beneficially held by individuals or entities other than Merrill Lynch Pierce Fenner & Smith. /2/ As of January 5, 2007, Merrill Lynch Pierce Fenner & Smith Inc., Merrill Lynch Financial Data Svcs, Attn: Service Team, 4800 Deer Lake Dr East 3/rd/ Flr, Jacksonville Fl 32246-6484 owned 28.88% of the Loomis Sayles Investment Grade Bond Fund and therefore may be presumed to "control" the Fund, as that term is defined in the Investment Company Act of 1940. However, such ownership may be beneficially held by individuals or entities other than Merrill Lynch Pierce Fenner & Smith. /3/ As of January 5, 2007, Merrill Lynch Pierce Fenner & Smith Inc., MLPF&S for the Sole Benefit of It's Customers, Attn: Fund Administration ML#98484, 4800 Deer Lake Dr East 2/nd/ Flr, Jacksonville Fl 32246-6484 owned 38.81% of the Loomis Sayles Strategic Income Fund and therefore may be presumed to "control" the Fund, as that term is defined in the Investment Company Act of 1940. However, such ownership may be beneficially held by individuals or entities other than Merrill Lynch Pierce Fenner & Smith. xxiv [LOGO] STATEMENT OF ADDITIONAL INFORMATION -- PART II February 1, 2007 IXIS ADVISOR FUNDS TRUST I Loomis Sayles Core Plus Bond Fund ("Core Plus Bond Fund") IXIS ADVISOR FUNDS TRUST II Loomis Sayles Massachusetts Tax Free Income Fund ("Massachusetts Tax Free Income Fund") LOOMIS SAYLES FUNDS II Loomis Sayles Global Markets Fund ("Global Markets Fund") Loomis Sayles Growth Fund ("Growth Fund") Loomis Sayles High Income Fund ("High Income Fund") Loomis Sayles Investment Grade Bond Fund ("Investment Grade Bond Fund") Loomis Sayles Limited Term Government and Agency Fund ("Limited Term Government and Agency Fund") Loomis Sayles Municipal Income Fund ("Municipal Income Fund") Loomis Sayles Research Fund ("Research Fund") Loomis Sayles Strategic Income Fund ("Strategic Income Fund") This Statement of Additional Information contains information which may be useful to investors but which is not included in the Prospectuses of the series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II or Loomis Sayles Funds II listed above (collectively the "Funds," with each series being known as a "Fund"). Certain data applicable to particular funds is found in Part I of this Statement of Additional Information (together with this document, the "Statement"). This Statement is not a prospectus and is authorized for distribution only when accompanied or preceded by the IXIS Advisor Income and Tax Free Funds Classes A, B and C Prospectus, the IXIS Advisor Income Funds Class Y Prospectus, the IXIS Advisor Equity Funds Class A, B and C Prospectus or the IXIS Advisor Equity Funds Class Y Prospectus, each dated February 1, 2007, as from time to time revised or supplemented (the "Prospectus" or "Prospectuses"). Investors may obtain the Prospectuses without charge from IXIS Advisor Funds, P.O. Box 219579, Kansas City, MO 64121-9579, by calling IXIS Advisor Funds at 800-225-5478 or by visiting the Funds' website at www.ixisadvisorfunds.com. The Funds' financial statements and accompanying notes that appear in the Funds' annual reports are incorporated by reference into this Statement. Each Fund's annual and semiannual reports contain additional performance information and are available upon request and without charge by calling 800-225-5478 or by visiting the Funds' website at www.ixisadvisorfunds.com. TABLE OF CONTENTS PART II THE TRUSTS................................................................ 3 INVESTMENT STRATEGIES AND RISKS........................................... 4 TEMPORARY DEFENSIVE POSITIONS............................................. 27 PORTFOLIO TURNOVER........................................................ 27 PORTFOLIO HOLDINGS INFORMATION............................................ 28 MANAGEMENT OF THE TRUSTS.................................................. 29 INVESTMENT ADVISORY AND OTHER SERVICES.................................... 37 PORTFOLIO MANAGEMENT INFORMATION.......................................... 47 PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 52 DESCRIPTION OF THE TRUSTS................................................. 55 VOTING RIGHTS............................................................. 56 SHAREHOLDER AND TRUSTEE LIABILITY......................................... 57 HOW TO BUY SHARES......................................................... 57 REDEMPTIONS............................................................... 58 SHAREHOLDER SERVICES...................................................... 60 NET ASSET VALUE........................................................... 66 REDUCED SALES CHARGES..................................................... 67 TAXES..................................................................... 69 PERFORMANCE INFORMATION................................................... 75 FINANCIAL STATEMENTS...................................................... 75 APPENDIX A................................................................ A-1 2 THE TRUSTS IXIS Advisor Funds Trust I is registered with the Securities and Exchange Commission (the "SEC") as an open-end management investment company and is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (a "Declaration of Trust") dated June 7, 1985, as amended and restated on June 2, 2005, and is a "series" company as described in Section 18(f)(2) of the Investment Company Act of 1940 (the "1940 Act"). Each series of the Trust is diversified. The name of the Trust has changed several times since its organization as noted below: Trust Name Date ---------- ------------------------------------- The New England Life Government June 1985 to August 1986 Securities Trust The New England Funds September 1986 to March 1994 New England Funds Trust I April 1994 to December 2000 Nvest Funds Trust I January 2001 to April 2001 CDC Nvest Funds Trust I May 2001 to April 2005 IXIS Advisor Funds Trust I May 2005 to present IXIS Advisor Funds Trust I has eight (8) separate portfolios. Seven of the portfolios have a different fiscal year end and information regarding these portfolios can be found in the IXIS Advisor Funds Statement of Additional Information dated May 1, 2006. Loomis Sayles Core Plus Bond Fund is a successor to a corporation that was organized in 1973 and reorganized as a series of IXIS Advisor Funds Trust I. The Fund commenced operations on November 7, 1973. Prior to September 15, 2003, the name of the Fund was "CDC Nvest Bond Income Fund." IXIS Advisor Funds Trust II is registered with the SEC as an open-end management investment company and is organized as a Massachusetts business trust under the laws of Massachusetts pursuant to a Declaration of Trust dated May 6, 1931, as amended and restated on June 2, 2005, and consisted of a single Fund until January 1989, when the Trust was reorganized as a "series" company as described in Section 18(f)(2) of the 1940 Act. Each series of the Trust is diversified. The name of the Trust has changed several times since its organization as noted below: Trust Name Date ---------- ------------------------------------- Investment Trust of Boston May 1931 to November 1988 Investment Trust of Boston Funds December 1988 to April 1992 TNE Funds Trust April 1992 to March 1994 New England Funds Trust II April 1994 to January 2000 Nvest Funds Trust II January 2000 to April 2001 CDC Nvest Funds Trust II May 2001 to April 2005 IXIS Advisor Funds Trust II May 2005 to present IXIS Advisor Funds Trust II has two (2) separate portfolios. One of the portfolios has a different fiscal year end and information regarding this portfolio can be found in the IXIS Advisor Funds Statement of Additional Information dated May 1, 2006. The Loomis Sayles Massachusetts Tax Free Income Fund is a successor to an investment company that was organized in 1984 and reorganized as a series of the Trust in January 1989. Prior to September 15, 2003, the name of the Fund was "CDC Nvest Massachusetts Tax Free Income Fund." Loomis Sayles Funds II is registered with the SEC as an open-end management investment company and is organized as a Massachusetts business trust under the laws of Massachusetts by an Agreement and Declaration of Trust (a "Declaration of Trust") dated February 20, 1991, as amended and restated on July 21, 2005, and is a "series" company as described in Section 18(f)(2) of the 1940 Act. Each series of the Trust is diversified. Prior to July 1, 2003, Loomis Sayles Funds II was named "Loomis Sayles Funds." Loomis Sayles Funds II has twelve (12) separate portfolios. The Loomis Sayles Global Markets Fund was organized in Massachusetts and commenced operations on May 1, 1996 and was converted to a multi-class structure on February 1, 2006. Prior to February 1, 2006, the name of the Fund was "Loomis Sayles Worldwide Fund." The Loomis Sayles Growth Fund was organized in Massachusetts and commenced operations on May 16, 1991 and was converted to a multi-class structure on September 12, 2003. The Loomis Sayles High Income Fund commenced operations on February 22, 1984 and was reorganized from IXIS Advisor Funds Trust I into Loomis Sayles Funds II 3 on September 12, 2003. Prior to September 15, 2003, the name of the Fund was "CDC Nvest High Income Fund." The Loomis Sayles Investment Grade Bond Fund was organized in Massachusetts and commenced operations on December 31, 1996 and was converted to a multi-class structure on September 12, 2003. The Loomis Sayles Limited Term Government and Agency Fund commenced operations on January 3, 1989 and was reorganized from IXIS Advisor Funds Trust I into Loomis Sayles Funds II on September 12, 2003. Prior to February 1, 2004, the name of the Fund was "Loomis Sayles Limited Term U.S. Government Fund" and prior to September 15, 2003, the name of the Fund was "CDC Nvest Limited Term U.S. Government Fund." The Loomis Sayles Municipal Income Fund is the successor of NEL Tax Exempt Bond Funds, Inc. which commenced operations in 1977 and was reorganized from IXIS Advisor Funds Trust I into Loomis Sayles Funds II on September 12, 2003. Prior to September 15, 2003, the Municipal Income Fund was named "CDC Nvest Municipal Income Fund." The Loomis Sayles Research Fund was organized in Massachusetts and commenced operations on July 31, 2000 and was converted to a multi-class structure on September 12, 2003. The Loomis Sayles Strategic Income Fund was organized in 1995 and commenced operations on May 1, 1995, and was reorganized from IXIS Advisor Funds Trust I into Loomis Sayles Funds II on September 12, 2003. Prior to September 15, 2003, the name of the Fund was "CDC Nvest Strategic Income Fund." INVESTMENT STRATEGIES AND RISKS Investment Restrictions The following is a list of certain investment strategies, including particular types of securities or instruments or specific practices, that may be used by the adviser of a Fund in managing the Fund. Each Fund's primary strategies are detailed in its Prospectus. The list of securities or other instruments under each category below is not intended to be an exclusive list of securities, instruments and practices for investment, and unless a strategy, practice or security is specifically prohibited by the investment restrictions listed in the prospectus, under "Investment Restrictions" in Part I of this Statement, or under applicable law, each Fund may engage in each of the strategies and invest in each security and instrument listed below. The adviser may invest in a general category listed below and, where applicable, with particular emphasis on a certain type of security, but investment is not limited to the categories listed below or the securities specifically enumerated under each category. The adviser may invest in some securities under a given category as a primary strategy and in other securities under the same category as a secondary strategy. However, no Fund is required to engage in a particular transaction or invest in any security or instrument even if to do so might benefit the Fund. Fund Securities Practices - ---- --------------------------------- ------------------------ Core Plus Bond Debt Securities (Asset-backed When-issued Securities Fund Securities, Collateralized Futures Contracts Mortgage Obligations, Mortgage Illiquid Securities Dollar Rolls, Pay-in-Kind Options Securities, Structured Notes, Swap Contracts Stripped Securities, Zero-Coupon When-issued Securities Securities, Convertible Securities, Inflation Linked Bonds, Real Estate Investment Trusts) Equity Securities (Investment Companies) Foreign Securities (Depositary Receipts, Currency Transactions) Global Markets Debt Securities (Convertible Futures Contracts Fund Securities, Lower Quality Debt Options Securities, U.S. Government Swap Contracts Securities, Structured Notes, Illiquid Securities Stripped Securities, Mortgage Repurchase Agreements Backed Securities, Inflation Securities Lending Linked Bonds) Equity Securities (Investment Companies) Foreign Securities (Supranational Entities, Warrants) Growth Fund Debt Securities (U.S. Government When-issued Securities Securities, Zero-Coupon Futures Contracts Securities, Inflation Linked Options Bonds) Swap Contracts Equity Securities (Growth Stocks, Private Placements REITs, Small Capitalization Companies, Value Stocks, Investment Companies) Foreign Securities (Currency Transactions) High Income Fund Debt Securities (Asset-backed When-issued Securities Securities, Collateralized Illiquid Securities Mortgage Obligations, Convertible Options Securities, Stripped Securities, Swap Contracts Structured Notes, Step Coupon Securities, U.S. Government Securities, Mortgage Backed Securities, Inflation Linked Bonds, Real Estate Investment Trusts) Equity Securities (Investment Companies) Foreign Securities (Currency Transactions) 4 Fund Securities Practices - ---- --------------------------------- ------------------------ Investment Grade Debt Securities (Asset-backed Options Bond Fund Securities, Stripped Securities, Mortgage Backed Securities, Pay-in-Kind Bonds, Inflation Linked Bonds) Limited Term Debt Securities (Collateralized When-issued Securities Government and Mortgage Obligations, Mortgage Futures Contracts Agency Fund Dollar Rolls, Stripped Options Securities, Pay-in-Kind Bonds, Illiquid Securities Asset Backed Securities, Mortgage Swap Contracts Backed Securities, Convertible Securities, Inflation Linked Bonds, Real Estate Investment Trust) Equity Securities (Investment Companies) Foreign Securities (Currency Transactions) Massachusetts Tax Debt Securities (Mortgage-Related Insurance on Portfolio Free Income Fund Securities, Stripped Securities, Holdings Pay-in-Kind Securities, Tax When-issued Securities Exempt Securities, U.S. Options Government Securities, Illiquid Securities Pay-in-Kind Bonds, Mortgage Reverse Repurchase Backed Securities, Asset Backed Agreements Securities, Convertible Swap Contracts Securities, Inflation Linked Bonds, Real Estate Investment Trusts) Equity Securities (Investment Companies) Municipal Income Debt Securities (Tax Exempt Insurance on Portfolio Fund Securities, Stripped Securities, Holdings U.S. Government Securities, When-issued Securities Pay-in-Kind Bonds, Mortgage Options Backed Securities, Asset Backed Illiquid Securities Securities, Convertible Swap Contracts Securities, Inflation Linked Bonds, Real Estate Investment Trusts) Equity Securities (Investment Companies) Research Fund Debt Securities (Collateralized When-Issued Securities Mortgage Obligations, U.S. Private Placements Government Securities, Zero-Coupon Securities, Inflation Linked Bonds) Equity Securities (Mid Capitalization Companies, Small Capitalization Companies, Investment Companies) Strategic Income Debt Securities (Asset-backed Initial Public Offerings Fund Securities, Bank Loans, Futures Contracts Collateralized Mortgage When-issued Securities Obligations, Step Coupon Options Securities, Inflation Linked Swap Contracts Bonds, Real Estate Investment Illiquid Securities Trusts) Short Sales Equity Securities (Investment Reverse Repurchase Companies) Agreements Foreign Securities (Currency Transactions) Investment Strategies TYPES OF SECURITIES Debt Securities Each of the Funds may invest in debt securities. Debt securities are used by issuers to borrow money. The issuer usually pays a fixed, variable or floating rate of interest and must repay the amount borrowed at the maturity of the security. Some debt securities, such as zero-coupon securities, do not pay interest but are sold at a discount from their face values. Debt securities include corporate bonds, government securities and mortgage and other asset-backed securities. Debt securities include a broad array of short-, medium- and long-term obligations issued by the U.S. or foreign governments, government or international agencies and instrumentalities, and corporate 5 issuers of various types. Some debt securities represent uncollateralized obligations of their issuers; in other cases, the securities may be backed by specific assets (such as mortgages or other receivables) that have been set aside as collateral for the issuer's obligation. Debt securities generally involve an obligation of the issuer to pay interest or dividends on either a current basis or at the maturity of the securities, as well as the obligation to repay the principal amount of the security at maturity. Risks. Debt securities are subject to market risk and credit risk. Credit risk relates to the ability of the issuer to make payments of principal and interest and includes the risk of default. Sometimes, an issuer may make these payments from money raised through a variety of sources, including, with respect to issuers of municipal securities, (i) the issuer's general taxing power, (ii) a specific type of tax such as a property tax, or (iii) a particular facility or project such as a highway. The ability of an issuer to make these payments could be affected by general economic conditions, issues specific to the issuer, litigation, legislation or other political events, the bankruptcy of the issuer, war, natural disasters, terrorism or other major events. U.S. government securities do not involve the credit risks associated with other types of fixed-income securities; as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate and municipal debt securities. Market risk is the risk that the value of the security will fall because of changes in market rates of interest. (Generally, the value of debt securities falls when market rates of interest are rising.) Some debt securities also involve prepayment or call risk. This is the risk that the issuer will repay a Fund the principal on the security before it is due, thus depriving the Fund of a favorable stream of future interest payments. Because interest rates vary, it is impossible to predict the income of a Fund that invests in debt securities for any particular period. Fluctuations in the value of a Fund's investments in debt securities will cause the Fund's net asset value to increase or decrease. Adjustable Rate Mortgage Security ("ARM") An ARM, like a traditional mortgage security, is an interest in a pool of mortgage loans that provides investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. ARMs have interest rates that are reset at periodic intervals, usually by reference to some interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, these securities are still subject to changes in value based on changes in market interest rates or changes in the issuer's creditworthiness. Because the interest rates are reset only periodically, changes in the interest rate on ARMs may lag behind changes in prevailing market interest rates. Also, some ARMs (or the underlying mortgages) are subject to caps or floors that limit the maximum change in interest rate during a specified period or over the life of the security. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods. Because of the resetting of interest rates, ARMs are less likely than non-adjustable rate securities of comparable quality and maturity to increase significantly in value when market interest rates fall. Asset-Backed Securities The securitization techniques used to develop mortgage securities are also being applied to a broad range of other assets. (Mortgage-backed securities are a type of asset-backed security.) Through the use of trusts and special purpose vehicles, assets, such as automobile and credit card receivables, are being securitized in pass-through structures similar to mortgage pass-through structures or in a pay-through structure similar to a collateralized mortgage obligation structure (described below). Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, a Fund will ordinarily reinvest the prepaid amounts in securities the yields of which reflect interest rates prevailing at the time. Therefore, a Fund's ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. 6 Bank Loans The Loomis Sayles Strategic Income Fund may invest in bank loans, which include senior secured and unsecured floating rate loans made by U.S. banks and other financial institutions to corporate customers. Typically, these loans hold the most senior position in a borrower's capital structure, may be secured by the borrower's assets and have interest rates that reset frequently. These loans generally will not be rated investment-grade by the rating agencies. Economic downturns generally lead to higher non-payment and default rates and a senior loan could lose a substantial part of its value prior to a default. However, as compared to junk bonds, senior floating rate loans are typically senior in the capital structure and are often secured by collateral of the borrower. The Fund's investments in loans are subject to credit risk, and even secured bank loans may not be adequately collateralized. The interest rates of bank loans reset frequently, and thus bank loans are subject to interest rate risk. Most bank loans, like most investment-grade bonds, are not traded on any national securities exchange. Bank loans generally have less liquidity than investment-grade bonds and there may be less public information available about them. The Fund may participate in the primary syndicate for a loan or it may also purchase loans from other lenders (sometimes referred to as loan assignments). The Fund may also acquire a participation interest in another lender's portion of the senior loan. Collateralized Mortgage Obligations ("CMOs") CMOs are securities backed by a portfolio of mortgages or mortgage securities held under indentures. The underlying mortgages or mortgage securities are issued or guaranteed by the U.S. government or an agency or instrumentality thereof. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMO first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMO held by a Fund would have the same effect as the prepayment of mortgages underlying a mortgage pass-through security. CMOs and other asset-backed and mortgage-backed securities may be considered derivative securities. CMOs involve risks similar to those described under "Mortgage-Related Securities" below. Convertible Securities Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. Convertible securities are generally subject to the same risks as non-convertible fixed income securities, but usually provide a lower yield than comparable fixed-income securities. Many convertible securities are relatively illiquid. Fixed Income Securities Fixed income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed income securities include securities issued by federal, state, local, and foreign governments and related agencies, and by a wide range of private or corporate issuers. Fixed income securities include, among others, bonds, debentures, notes, bills, and commercial paper. Because interest rates vary, it is impossible to predict the income of a Fund for any particular period. The net asset value of a Fund's shares will vary as a result of changes in the value of the securities in the Fund's portfolio. Investment Grade Fixed Income Securities To be considered investment grade quality, at least one major rating agency (such as Fitch, Moody's or Standard & Poor's) must have rated the security in one of its top four rating categories at the time a Fund acquires the security or, if the security is unrated, Loomis Sayles must have determined it to be of comparable quality. 7 Lower Quality Fixed Income Securities Lower quality fixed income securities ("junk bonds") are below investment grade quality. To be considered below investment grade quality, none of the major rating agencies must have rated the security in one of its top four rating categories at the time a Fund acquires the security or, if the security is unrated, Loomis Sayles must have determined it to be of comparable quality. Lower quality fixed income securities are subject to greater credit risk and market risk than higher quality fixed income securities. Lower quality fixed income securities are considered predominantly speculative with respect to the ability of the issuer to make timely principal and interest payments. If a Fund invests in lower quality fixed income securities, a Fund's achievement of its objective may be more dependent on Loomis Sayles' own credit analysis than is the case with funds that invest in higher quality fixed income securities. The market for lower quality fixed income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market, or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower quality fixed income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Lower quality fixed income securities may be in poor standing or in default and typically have speculative characteristics. For more information about the ratings services' descriptions of the various rating categories, see Appendix A. A Fund may continue to hold fixed income securities that are downgraded in quality subsequent to their purchase if Loomis Sayles believes it would be advantageous to do so. Mortgage Dollar Rolls Certain Funds may enter into mortgage dollar rolls. A dollar roll involves the sale of a security by a Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. A Fund will designate on its records or segregate with its custodian bank assets determined to be liquid in an amount sufficient to meet its obligations under the transactions. A dollar roll involves potential risks of loss that are different from those related to the securities underlying the transactions. A Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. Since the counterparty in the transaction is required to deliver a similar, but not identical, security to the Fund, the security that the Fund is required to buy under the dollar roll may be worth less than an identical security. There is no assurance that a Fund's use of the cash that it receives from a dollar roll will provide a return that exceeds borrowing costs. Mortgage-Related Securities Certain Funds may invest in mortgage-related securities, such as Government National Mortgage Association ("GNMA") or Federal National Mortgage Association ("FNMA") certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if a Fund purchases these assets at a premium, a faster-than-expected prepayment rate will tend to reduce yield to maturity, and a slower-than-expected prepayment rate may have the opposite effect of increasing yield to maturity. If a Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will tend to increase, and slower-than-expected prepayments tend to reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by a Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. In addition, an increase in interest rates would also increase the inherent volatility of a Fund by increasing the average life of the Fund's portfolio securities. Pay-in-Kind Securities Certain Funds may invest in pay-in-kind securities. Pay-in-kind securities pay dividends or interest in the form of additional securities of the issuer, rather than in cash. These securities are usually issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived 8 credit quality of the issuer. The market prices of pay-in-kind securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. Rule 144A Securities and Section 4(2) Commercial Paper Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act. A Fund may also purchase commercial paper issued under Section 4(2) of the Securities Act. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of a Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless the adviser has determined, under guidelines established by the Trust's Board of Trustees, that the particular issue is liquid. Step-Coupon Securities Certain Funds may invest in step-coupon securities. Step-coupon securities trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. Market values of these types of securities generally fluctuate in response to changes in interest rates to a greater degree than do conventional interest-paying securities of comparable term and quality. Under many market conditions, investments in such securities may be illiquid, making it difficult for a Fund to dispose of them or determine their current value. "Stripped" Securities Certain Funds may invest in stripped securities, which are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. government or foreign government securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). Stripped securities commonly have greater market volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated payments of principal, a Fund may fail to recoup fully its investments in IOs. The staff of the SEC has indicated that it views stripped mortgage securities as illiquid unless the securities are issued by the U.S. government or its agencies and are backed by fixed-rate mortgages. The Funds intend to abide by the staff's position. Stripped securities may be considered derivative securities. Structured Notes Certain Funds may invest in a broad category of instruments known as "structured notes." These instruments are debt obligations issued by industrial corporations, financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal or interest that are determined by reference to changes in some external factor or factors, or the principal and interest rate may vary from the stated rate because of changes in these factors. For example, the issuer's obligations could be determined by reference to changes in the value of a commodity (such as gold or oil) or commodity index, a foreign currency, an index of securities (such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases, the issuer's obligations are determined by reference to changes over time in the difference (or "spread") between two or more external factors (such as the U.S. prime lending rate and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuer's obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate goes up, the issuer's interest payment obligations are reduced). In some cases, the issuer's obligations may be determined by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill rate). In some cases, the issuer's obligations remain fixed (as with a traditional debt instrument) so long as an external factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some specified maximum), but if the external factor or factors change by more than the specified amount, the issuer's obligations may be sharply reduced. 9 Structured notes can serve many different purposes in the management of a mutual fund. For example, they can be used to increase a Fund's exposure to changes in the value of assets that the Fund would not ordinarily purchase directly (such as commodities or stocks traded in a market that is not open to U.S. investors). They can also be used to hedge the risks associated with other investments a Fund holds. For example, if a structured note has an interest rate that fluctuates inversely with general changes in a country's stock market index, the value of the structured note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect of stock market movements on the value of the Fund's portfolio as a whole. Risks. Structured notes involve special risks. As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its payment obligations. This risk is in addition to the risk that the issuer's obligations (and thus the value of a Fund's investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of traditional debt instruments. Volatility will be especially high if the issuer's obligations are determined by reference to some multiple of the change in the external factor or factors. Many structured notes have limited or no liquidity, so that a Fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured notes depends in significant part on the accuracy of the adviser's analysis of the issuer's creditworthiness and financial prospects, and of the adviser's forecast as to changes in relevant economic and financial market conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with investments in foreign securities (described below) apply. Structured notes may be considered derivative securities. Tax Exempt Securities The Funds, especially the Municipal Income Fund and the Massachusetts Tax Free Income Fund (the "Tax Free Income Funds"), may invest in "Tax Exempt Securities," which term refers to debt securities the interest from which is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund's portfolio manager to be reliable), exempt from federal income tax and, in the case of the Massachusetts Tax Free Income Fund, exempt from Massachusetts state personal income taxes (other than the possible incidence of any alternative minimum taxes). Tax Exempt Securities include debt obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions (for example, counties, cities, towns, villages and school districts) and authorities to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which certain Tax Exempt Securities may be issued include the refunding of outstanding obligations, obtaining funds for federal operating expenses, or obtaining funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. In addition, certain types of private activity bonds have been or may be issued by public authorities or on behalf of state or local governmental units to finance privately operated housing facilities, sports facilities, convention or trade facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Such obligations are included within the term "Tax Exempt Securities" if the interest paid thereon, is, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by the Fund's portfolio manager to be reliable), exempt from federal income tax and, in the case of the Massachusetts Tax Free Income Fund, exempt from Massachusetts state personal income taxes. The ability of the Tax Free Income Funds to invest in securities other than tax-exempt securities is limited by a requirement of the Internal Revenue Code (the "Code"), that, in order to be qualified to pay exempt-interest dividends, at least 50% of the value of such Fund's total assets be invested in obligations the interest on which is exempt from federal income tax at the end of each calendar quarter. Funds that invest in certain tax-exempt bonds or certain private activity bonds may not be a desirable investment for "substantial users" of facilities financed by such obligations or bonds or for "related persons" of substantial users. You should contact your financial adviser or attorney for more information if you think you may be a "substantial user" or a "related person" of a substantial user. There are variations in the quality of Tax Exempt Securities, both within a particular classification and between classifications, depending on numerous factors (see Appendix A). 10 The two principal classifications of tax-exempt bonds are general obligation bonds and limited obligation (or revenue) bonds. General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues and not from any particular fund or source. The characteristics and method of enforcement of general obligation bonds vary according to the law applicable to the particular issuer, and payment may be dependent upon an appropriation by the issuer's legislative body. Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities, or in some cases from the proceeds of a special excise or other specific revenue source such as the user of the facility. Tax-exempt private activity bonds are in most cases revenue bonds and generally are not payable from the unrestricted revenues of the issuer. The credit and quality of such bonds are usually directly related to the credit standing of the corporate user of the facilities. Principal and interest on such bonds are the responsibilities of the corporate user (and any guarantor). The yields on Tax Exempt Securities are dependent on a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the Tax Exempt Securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue. Further, information about the financial condition of an issuer of tax-exempt bonds may not be as extensive as that made available by corporations whose securities are publicly traded. The ratings of Moody's and S&P represent their opinions as to the quality of the Tax Exempt Securities, which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax Exempt Securities with the same maturity, interest rate and rating may have different yields while Tax Exempt Securities of the same maturity and interest rates with different ratings may have the same yield. Subsequent to its purchase by a Fund, an issue of Tax Exempt Securities or other investments may cease to be rated or the rating may be reduced below the minimum rating required for purchase by the Fund. Neither event will require the elimination of an investment from the Fund's portfolio, but the Fund's adviser will consider such an event as part of its normal, ongoing review of all the Fund's portfolio securities. The Tax Free Income Funds do not currently intend to invest in so-called "moral obligation" bonds, in which repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation," meets the investment criteria established for investments by such Fund. Securities in which a Tax Free Income Fund may invest, including Tax Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of issuers to meet their obligations for the payment of interest and principal on their Tax Exempt Securities may be materially affected or that their obligations may be found to be invalid and unenforceable. Such litigation or conditions may from time to time have the effect of introducing uncertainties in the market for tax-exempt bonds or certain segments thereof, or materially affecting the credit risk with respect to particular bonds. Adverse economic, legal or political developments might affect all or a substantial portion of the Fund's Tax Exempt Securities in the same manner. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on debt obligations issued by states and their political subdivisions and similar proposals may well be introduced in the future. If such a proposal were enacted, the availability of Tax-Exempt Securities for investment by the Tax Free Income Funds and the value of such Funds' portfolios could be materially affected, in which event such Funds would reevaluate their investment objectives and policies and consider changes in their structure or dissolution. All debt securities, including tax-exempt bonds, are subject to credit and market risk. Generally, for any given change in the level of interest rates, prices for longer maturity issues tend to fluctuate more than prices for shorter maturity issues. The Commonwealth of Massachusetts and certain of its cities and towns and public bodies have from time to time encountered financial difficulties that have adversely affected their respective credit standings and borrowing abilities. Such difficulties could, of course, affect outstanding obligations of such entities, including obligations held by the Massachusetts Tax Free Income Fund. 11 U.S. Government Securities The Funds may invest in some or all of the following U.S. government securities: U.S. Treasury Bills - Direct obligations of the U.S. Treasury that are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the U.S. government. U.S. Treasury Notes and Bonds - Direct obligations of the U.S. Treasury issued in maturities that vary between one and 30 years, with interest normally payable every six months. These obligations are backed by the full faith and credit of the U.S. government. Treasury Inflation-Protected Securities ("TIPS") - Fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. Although repayment of the original bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will fluctuate. "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee which represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Rural Housing Service or guaranteed by the Veterans Administration. The Government National Mortgage Association ("GNMA") guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. It is generally understood that a guarantee by GNMA is backed by the full faith and credit of the United States. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as the Funds) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed through to the registered holder (such as the Funds, which reinvest any prepayments) of Ginnie Maes along with regular monthly payments of principal and interest. "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers. Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. government. "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the U.S. government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but Freddie Macs are not backed by the full faith and credit of the U.S. government. Risks. U.S. government securities generally do not involve the credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate fixed-income securities. Like other debt securities, however, the values of U.S. government securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in a Fund's net asset value. Since the magnitude of these fluctuations will generally be greater at times when a Fund's average maturity is longer, under certain market conditions a Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. Securities such as Fannie Maes and Freddie Macs are guaranteed as to the payment of principal and interest by the relevant entity (e.g., FNMA or FHLMC) but are not backed by the full faith and credit of the U.S. government. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities. FNMA and FHLMC have each been the subject of investigations by federal regulators over certain accounting matters. Such investigations, and any resulting restatements of financial statements, may adversely affect the guaranteeing entity and, as a result, the payment of principal or interest on these types of securities. 12 Please see "Mortgage-Related Securities" above for additional information on these securities. The values of TIPS generally fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of TIPS. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of TIPS. If inflation is lower than expected during the period a Fund holds TIPS, the Fund may earn less on the TIPS than on a conventional bond. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in TIPS may not be protected to the extent that the increase is not reflected in the bonds' inflation measure. There can be no assurance that the inflation index for TIPS will accurately measure the real rate of inflation in the prices of goods and services. Zero-Coupon Securities Certain Funds may invest in zero-coupon securities. Zero-coupon securities are debt obligations that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligations. These securities are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero-coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. In order to satisfy a requirement for qualification as a "regulated investment company" under the Code, a Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero-coupon securities. Because a Fund will not, on a current basis, receive cash payments from the issuer of a zero-coupon security in respect of accrued original issue discount, in some years the Fund may have to distribute cash obtained from other sources in order to satisfy the 90% distribution requirement under the Code. Such cash might be obtained from selling other portfolio holdings of the Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment considerations might otherwise make it undesirable for a Fund to sell such securities at such time. Equity Securities Equity securities are securities that represent an ownership interest (or the right to acquire such an interest) in a company and may include common and preferred stocks, securities exercisable for, or convertible into, common or preferred stocks (such as warrants, convertible debt securities and convertible preferred stock) and other equity-like interests in an entity. Equity securities may take the form of stock in a corporation, limited partnership interests, interests in limited liability companies, real estate investment trusts (REITs) or other trusts and other similar securities. Common stocks represent an equity or ownership interest in an issuer. Preferred stocks represent an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over holders of preferred stock, whose claims take precedence over the claims of those who own common stock. While offering greater potential for long-term growth, equity securities generally are more volatile and more risky than some other forms of investment, particularly debt securities. Therefore, the value of your investment in a Fund that invests in equity securities may sometimes decrease. A Fund may invest in equity securities of companies with relatively small market capitalizations. Securities of such companies may be more volatile than the securities of larger, more established companies and the broad equity market indices. See "Small Capitalization Companies" below. A Fund's investments may include securities traded "over-the-counter" as well as those traded on a securities exchange. Some securities, particularly over-the-counter securities, may be more difficult to sell under some market conditions. 13 Market Capitalizations Certain Funds may invest in companies with small, medium or large market capitalizations. The market capitalization ranges allowable for investments of each Fund are defined in reference to the benchmark of the specific Fund. Large capitalization companies are generally large companies that have been in existence for a number of years and are well established in their market. Mid capitalization companies are generally medium size companies that are not as established as large capitalization companies and may be more volatile. Small Capitalization Companies -- Certain Funds may invest in companies with relatively small market capitalizations. Such investments may involve greater risk than is usually associated with more established companies. These companies often have sales and earnings growth rates that exceed those of companies with larger market capitalization. Such growth rates may in turn be reflected in more rapid share price appreciation. However, companies with smaller market capitalization often have limited product lines, markets or financial resources and may be dependent upon a relatively small management group. These securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger market capitalization or market averages in general. The net asset value of funds that invest in companies with relatively small market capitalizations therefore may fluctuate more widely than market averages. Warrants and Rights Certain Funds may invest in warrants and rights. A warrant is an instrument that gives the holder a right to purchase a given number of shares of a particular security at a specified price until a stated expiration date. Buying a warrant generally can provide a greater potential for profit or loss than an investment of equivalent amounts in the underlying common stock. The market value of a warrant does not necessarily move with the value of the underlying securities. If a holder does not sell the warrant, it risks the loss of its entire investment if the market price of the underlying security does not, before the expiration date, exceed the exercise price of the warrant . Assume the warrant cost $10 and the exercise price is $100. If the price of the underlying security is $105 on the expiration date, the Fund could exercise the warrant and sell for a $5 profit. It would lose $5 on the entire transaction, but the original warrant purchase price should not affect the decision to exercise or result in loss of the entire investment. Investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying securities) with respect to the assets of the issuer. A right is a privilege granted to existing shareholders of a corporation to subscribe for shares of a new issue of common stock before it is issued. Rights normally have a short life, usually two to four weeks, are freely transferable and entitle the holder to buy the new common stock at a lower price than the public offering price. Real Estate Investment Trusts (REITs) Certain Funds may invest in REITs. REITs are pooled investment vehicles that invest primarily in either real estate or real-estate-related loans. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code and failing to maintain their exemptions from registration under the 1940 Act. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than more widely held securities. A Fund's investment in a REIT may require the Fund to accrue and distribute income not yet received or may result in the Fund making distributions that constitute a return of capital to Fund shareholders for federal income tax purposes. In addition, distributions by a Fund from REITs will not qualify for the corporate dividends-received deduction or, generally, for treatment as qualified dividend income. 14 Investment Companies Certain Funds may invest in other investment companies. Investment companies, including companies such as "iShares," "SPDRs" and "VIPERs," are essentially pools of securities. Investing in other investment companies involves substantially the same risks as investing directly in the underlying securities, but may involve additional expenses at the investment company level, such as investment advisory fees and operating expenses. In some cases, investing in an investment company may involve the payment of a premium over the value of the assets held in that investment company's portfolio. As an investor in another investment company, a Fund will bear its ratable share of the investment company's expenses, including advisory fees, and the Fund's shareholders will bear such expenses indirectly, in addition to similar fees and expenses of the Fund. Despite the possibility of greater fees and expenses, investment in other investment companies may be attractive nonetheless for several reasons, especially in connection with foreign investments. Because of restrictions on direct investment by U.S. entities in certain countries, investing indirectly in such countries (by purchasing shares of another fund that is permitted to invest in such countries) may be the most practical and efficient way for a Fund to invest in such countries. In other cases, when a Fund's adviser desires to make only a relatively small investment in a particular country, investing through another fund that holds a diversified portfolio in that country may be more effective than investing directly in issuers in that country. Foreign Securities Certain Funds may invest in foreign securities. In addition to the risks associated with investing in securities generally, such investments present additional risks not typically associated with investments in comparable securities of U.S. issuers. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of a Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Because a Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund's assets and the Fund's income available for distribution. In addition, although a Fund's income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after a Fund's income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of such dividend, the Fund could be required to liquidate portfolio securities to pay such dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time a Fund incurs expenses or other obligations in U.S. dollars and the time such expenses or obligations are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than those in the United States, and judgments against foreign entities may be more difficult to obtain and enforce. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. Depositary Receipts Certain Funds may invest in foreign equity securities by purchasing "depositary receipts." Depositary receipts are instruments issued by a bank that represent an interest in equity securities held by arrangement with the bank. Depositary receipts can be either "sponsored" or "unsponsored." Sponsored depositary receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depositary receipts are arranged without involvement by the issuer of the underlying equity securities and, therefore, less information about the issuer of the underlying equity securities may be available and price may be more volatile than sponsored depositary receipts. American Depositary Receipts ("ADRs") are depositary receipts that are bought and sold in the United States and are typically issued by a U.S. bank or trust company which evidence ownership of underlying securities by a foreign corporation. European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") are depositary receipts that are typically issued by foreign banks or trust companies which evidence ownership of underlying securities issued by either a foreign or United States corporation. All depositary receipts, including those denominated in U.S. dollars, will be subject to foreign currency exchange risk. 15 Emerging Markets Investments in foreign securities may include investments in emerging or developing countries, whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments generally) may include, among others, greater political uncertainties, an economy's dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, very limited numbers of potential buyers for such securities, less developed custodial and deposit systems and delays and disruptions in securities settlement procedures. In determining whether to invest in securities of foreign issuers, the adviser of the Fund may consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax laws may reduce a Fund's net income available for distribution to shareholders. Supranational Entities Certain Funds may invest in obligations of supranational entities. A supranational entity is an entity designated or supported by national governments to promote economic reconstruction, development or trade amongst nations. Examples of supranational entities include the International Bank for Reconstruction and Development (also known as the World Bank) and the European Investment Bank. Obligations of supranational entities are subject to the risk that the governments on whose support the entity depends for its financial backing or repayment may be unable or unwilling to provide that support. Obligations of a supranational entity that are denominated in foreign currencies will also be subject to the risks associated with investments in foreign currencies, as described below under "Foreign Currency." Foreign Currency Transactions Most foreign securities in a Fund's portfolio will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Similarly, any income on such securities is generally paid to the Fund in foreign currencies. The value of these foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of a Fund's portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of a Fund's income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of a Fund's assets and on the net investment income available for distribution may be favorable or unfavorable. A Fund may incur costs in connection with conversions between various currencies. In addition, a Fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars. Certain Funds may engage in currency transactions. To protect against a change in the foreign currency exchange rate between the date on which a Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, to gain exposure to one or more foreign currencies or to "lock in" the equivalent of a dividend or interest payment in another currency, a Fund might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate. If conditions warrant, a Fund may also enter into contracts with banks or broker-dealers to purchase or sell foreign currencies at a future date ("forward contracts"). A Fund will maintain cash or other liquid assets eligible for purchase by the Fund either "earmarked" on the Fund's records or in a segregated account with the custodian in an amount at least equal to the lesser of (i) the difference between the current value of the Fund 's liquid holdings that settle in the relevant currency and the Fund's outstanding obligations under currency forward contracts, or (ii) the current amount, if any, that would be required to be paid to enter into an offsetting forward currency contract which would have the effect of closing out the original forward contract. A Fund's use of currency transactions may be limited by tax considerations. The adviser may decide not to engage in currency transactions and there is no assurance that any currency strategy used by a Fund will succeed. In addition, suitable currency transactions may not be available in all circumstances and there can be no assurance that a Fund will engage in these transactions when they would be beneficial. A Fund may also purchase or sell foreign currency futures contracts traded on futures exchanges. Foreign currency futures contract transactions involve risks similar to those of other futures transactions. See "Futures Contracts," "Options" and "Swap Contracts" below. 16 Money Market Instruments (All Funds) Each Fund may seek to minimize risk by investing in money market instruments, which are high-quality, short-term securities. Although changes in interest rates can change the market value of a security, a Fund expects those changes to be minimal with respect to these securities, which are often purchased for defensive purposes. Money market obligations of foreign banks or of foreign branches or subsidiaries of U.S. banks may be subject to different risks than obligations of domestic banks, such as foreign economic, political and legal developments and the fact that different regulatory requirements apply. TYPES OF PRACTICES Derivative Instruments Certain Funds may, but are not required to, use a number of derivative instruments for risk management purposes or as part of their investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodities, and related indexes. The adviser may decide not to employ any of these strategies and there is no assurance that any derivatives strategy used by a Fund will succeed. In addition, suitable derivative transactions may not be available in all circumstances and there can be no assurance that a Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial. Examples of derivative instruments that a Fund may use include options contracts, futures contracts, options on futures contracts, zero-strike warrants and options, swap agreements and debt-linked and equity-linked securities. Repurchase Agreements (All Funds) The Funds may enter into repurchase agreements, by which a Fund purchases a security and obtains a simultaneous commitment from the seller to repurchase the security at an agreed-upon price and date. The resale price is in excess of the purchase price and reflects an agreed-upon market interest rate unrelated to the coupon rate on the purchased security. Such transactions afford a Fund the opportunity to earn a return on temporarily available cash at relatively low market risk. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the U.S. government, the obligation of the seller is not guaranteed by the U.S. government and there is a risk that the seller may fail to repurchase the underlying security. In such event, a Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, a Fund may be subject to various delays and risks of loss, including (i) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (ii) possible reduced levels of income and lack of access to income during this period and (iii) inability to enforce rights and the expenses involved in the attempted enforcement. Reverse Repurchase Agreements Certain Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement a Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker or dealer, in return for cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed-upon rate. The ability to use reverse repurchase agreements may enable, but does not ensure the ability of, the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous. When effecting reverse repurchase agreements, assets of the applicable Fund in a dollar amount sufficient to make payment of the obligations to be purchased are segregated on the applicable Fund's records at the trade date and maintained until the transaction is settled. .. Dollar Rolls. Dollar rolls are a special type of reverse repurchase agreement in which the portfolio instrument transferred by the Fund is a mortgage -related security. The Fund gives up the cash flows during the transaction period but has use of the cash proceeds. 17 When-issued Securities "When-issued" equity securities are traded on a price basis prior to actual issuance. Such purchases will only be made to achieve a Fund's investment objective and not for leverage. The when-issued trading period generally lasts from a few days to months, or a year or more; during this period dividends on equity securities are not payable. No dividend income accrues to the Fund prior to the time it takes delivery. A frequent form of when-issued trading occurs when corporate securities to be created by a merger of companies are traded prior to the actual consummation of the merger. When-issued securities may involve a risk of loss if the value of the securities falls below the price committed to prior to actual issuance. The Fund will either designate on its records or cause its custodian to establish a segregated account for each Fund when it purchases securities on a when-issued basis consisting of cash or liquid securities equal to the amount of the when-issued commitments. Securities transactions involving delayed deliveries or forward commitments are frequently characterized as when-issued transactions and are similarly treated by each Fund. Illiquid Securities Certain Funds may purchase illiquid securities. Illiquid securities are those that are not readily resalable, which may include securities whose disposition is restricted by federal securities laws. Investment in restricted or other illiquid securities involves the risk that a Fund may be unable to sell such a security at the desired time. Also, a Fund may incur expenses, losses or delays in the process of registering restricted securities prior to resale. Certain Funds may purchase Rule 144A securities, which are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act"). Certain Funds may also purchase commercial paper issued under Section 4(2) of the Securities Act. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of the Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless the adviser has determined, under guidelines established by each Trust's Board of Trustees, that the particular issue is liquid. Initial Public Offerings Certain Funds may purchase securities of companies that are offered pursuant to an initial public offering ("IPO"). An IPO is a company's first offering of stock to the public in the primary market, typically to raise additional capital. A Fund may purchase a "hot" IPO (also known as a "hot issue"), which is an IPO that is oversubscribed and, as a result, is an investment opportunity of limited availability. As a consequence, the price at which these IPO shares open in the secondary market may be significantly higher than the original IPO price. IPO securities tend to involve greater risk due, in part, to public perception and the lack of publicly available information and trading history. There is the possibility of losses resulting from the difference between the issue price and potential diminished value of the stock once traded in the secondary market. A Fund's investment in IPO securities may have a significant impact on the Fund's performance and may result in significant capital gains. Private Placements Certain Funds may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for these securities, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell the securities when its investment adviser believes that it is advisable to do so or may be able to sell the securities only at prices lower than if the securities were more widely held. At times, it also may be more difficult to determine the fair value of the securities for purposes of computing a Fund's net asset value. While private placements may offer opportunities for investment that are not otherwise available on the open market, the securities so purchased are often "restricted securities," which are securities that cannot be sold to the public without registration under the Securities Act, the availability of an exemption from registration (such as Rule 144 or Rule 144A under the Securities Act) or that are not readily marketable because they are subject to other legal or contractual delays or restrictions on resale. 18 The absence of a trading market can make it difficult to ascertain a market value for illiquid investments such as private placements. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for a Fund to sell them promptly at an acceptable price. A Fund may have to bear the extra expense of registering the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations typically are less readily available for these securities. The judgment of a Fund's investment adviser may at times play a greater role in valuing these securities than in the case of unrestricted securities. Generally speaking, restricted securities may be sold only to qualified institutional buyers, in a privately negotiated transaction to a limited number of purchasers, in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration, or in a public offering for which a registration statement is in effect under the Securities Act. A Fund may be deemed to be an underwriter for purposes of the Securities Act when selling restricted securities to the public so that the Fund may be liable to purchasers of the securities if the registration statement prepared by the issuer, or the prospectus forming a part of the registration statement, is materially inaccurate or misleading. Privatizations Certain Funds may participate in privatizations. In a number of countries around the world, governments have undertaken to sell to investors interests in enterprises that the government has historically owned or controlled. These transactions are known as "privatizations" and may in some cases represent opportunities for significant capital appreciation. In some cases, the ability of U.S. investors, such as the Funds, to participate in privatizations may be limited by local law, and the terms of participation for U.S. investors may be less advantageous than those for local investors. Also, there is no assurance that privatized enterprises will be successful, or that an investment in such an enterprise will retain its value or appreciate in value. Futures Contracts Certain Funds may enter into futures contracts. A futures contract is an agreement between two parties to buy and sell a particular commodity, instrument or index (e.g., an interest-bearing security) for a specified price on a specified future date. In the case of futures on an index, the seller and buyer agree to settle in cash, at a future date, based on the difference in value of the contract between the date it is opened and the settlement date. The value of each contract is equal to the value of the index from time to time multiplied by a specified dollar amount. When a trader, such as a Fund, enters into a futures contract, it is required to deposit with (or for the benefit of) its broker as "initial margin" an amount of cash or short-term high-quality securities (such as U.S. Treasury bills or high-quality tax exempt bonds acceptable to the broker) equal to approximately 2% to 5% of the delivery or settlement price of the contract (depending on applicable exchange rules). Initial margin is held to secure the performance of the holder of the futures contract. As the value of the contract changes, the value of futures contract positions increases or declines. At the end of each trading day, the amount of such increase and decline is received and paid respectively by and to the holders of these positions. The amount received or paid is known as "variation margin." If a Fund has a long position in a futures contract it will designate on the Fund's records or establish a segregated account with the Fund's custodian containing cash or liquid securities eligible for purchase by the Fund equal to the purchase price of the contract (less any margin on deposit). For short positions in futures contracts, a Fund will designate on the Fund's records or establish a segregated account with the custodian with cash or liquid securities eligible for purchase by the Fund that, when added to the amounts deposited as margin, equal the market value of the instruments or currency underlying the futures contracts. For futures contracts which are contractually required to settle in cash (rather than by delivery of the underlying security or commodity), the Fund may designate or segregate liquid assets in an amount equal to the Fund's daily marked-to-market of such contract. Although futures contracts by their terms require actual delivery and acceptance of securities (or cash in the case of index futures), in most cases the contracts are closed out before settlement. A futures sale is closed by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity and with the same delivery date. Similarly, the closing out of a futures purchase is closed by the purchaser selling an offsetting futures contract. 19 Gain or loss on a futures position is equal to the net variation margin received or paid over the time the position is held, plus or minus the amount received or paid when the position is closed, minus brokerage commissions and other transaction costs. Options Certain Funds may purchase options. An option on a futures contract obligates the writer, in return for the premium received, to assume a position in a futures contract (a short position if the option is a call and a long position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option generally will be accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying contract, the remaining term of the option, supply and demand and interest rates. An "American style" option allows exercise of the option at any time during the term of the option. A "European style" option allows an option to be exercised only at the end of its term. Options on futures contracts traded in the United States may only be traded on a U.S. board of trade licensed by the Commodity Futures Trading Commission (the "CFTC"). A call option on a futures contract written by a Fund is considered by the Fund to be covered if the Fund owns the security subject to the underlying futures contract or other securities whose values are expected to move in tandem with the values of the securities subject to such futures contract, based on historical price movement volatility relationships. A call option on a security written by a Fund is considered to be covered if the Fund owns a security deliverable under the option. A written call option is also covered if a Fund holds a call on the same futures contract or security as the call written where the exercise price of the call held is (a) equal to or less than the exercise price of the call written or (b) greater than the exercise price of the call written if the difference in cash or liquid securities eligible for purchase by the Fund is designated on the Fund's records or placed in a segregated account with its custodian. A put option on a futures contract written by a Fund, or a put option on a security written by the Fund, is covered if the Fund maintains cash or liquid securities eligible for purchase by the Fund with a value equal to the exercise price either in a segregated account with the Fund's custodian or designated on the Fund's records, or else holds a put on the same futures contract (or security, as the case may be) as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer of an option wishes to terminate its position, it may effect a closing purchase transaction by buying an option identical to the option previously written. The effect of the purchase is that the writer's position will be canceled. Likewise, the holder of an option may liquidate its position by selling an option identical to the option previously purchased. Closing a written call option will permit a Fund to write another call option on the portfolio securities used to cover the closed call option. Closing a written put option will permit a Fund to write another put option secured by the assets used to cover the closed put option. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any futures contract or securities subject to the option to be used for other Fund investments. If a Fund desires to sell particular securities covering a written call option position, it will close out its position or will designate from its portfolio comparable securities to cover the option prior to or concurrent with the sale of the covering securities. A Fund will realize a profit from closing out an option if the price of the offsetting position is less than the premium received from writing the option or is more than the premium paid to purchase the option; and the Fund will realize a loss from closing out an option transaction if the price of the offsetting option position is more than the premium received from writing the option or is less than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the covering securities, any loss resulting from the closing of a written call option position is expected to be offset in whole or in part by appreciation of such covering securities. Conversely, writing a call option limits the opportunity for gain on the securities under the option. 20 Since premiums on options having an exercise price close to the value of the underlying securities or futures contracts usually have a time value component (i.e., a value that diminishes as the time within which the option can be exercised grows shorter) an option writer may profit from the lapse of time even though the value of the futures contract (or security in some cases) underlying the option (and of the security deliverable under the futures contract) has not changed. Consequently, profit from option writing may or may not be offset by a decline in the value of securities covering the option. If the profit is not entirely offset, a Fund will have a net gain from the options transaction, and the Fund's total return will be enhanced. Likewise, the profit or loss from writing put options may or may not be offset in whole or in part by changes in the market value of securities acquired by a Fund when the put options are closed. As an alternative to purchasing call and put options on index futures, a Fund may purchase or sell call or put options on the underlying indices themselves. Such options would be used in a manner similar to the use of options on index futures. Certain Funds may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at a time when, in the case of a call warrant, the exercise price is less than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If a Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although a Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit a Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. Certain Funds may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, a Fund may buy put options on the foreign currency. If the value of the currency declines, the Fund will have the right to sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio. Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may buy call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to a Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent desired, a Fund could sustain losses on transactions in foreign currency options that would require the Fund to forego a portion or all of the benefits of advantageous changes in those rates. Certain Funds may also write options on foreign currencies. For example, to hedge against a potential decline in the U.S. dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, a Fund could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised and the diminution in value of portfolio securities be offset at least in part by the amount of the premium received. 21 Similarly, instead of purchasing a call option to hedge against a potential increase in the U.S. dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency which, if rates move in the manner projected, will expire unexercised and allow the Fund to hedge the increased cost up to the amount of the premium. If exchange rates do not move in the expected direction, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss, which may not be fully offset by the amount of the premium. Through the writing of options on foreign currencies, a Fund also may lose all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates. All call options written by a Fund on foreign currencies will be covered. A call option written on a foreign currency by the Fund is covered if the Fund owns the foreign currency underlying the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currencies held in its portfolio. A call option is also covered if the Fund has a call on the same foreign currency in the same principal amount as the call written if the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written, if the difference is maintained by the Fund in cash or liquid securities eligible to be purchased by the Fund in a segregated account with the Fund's custodian or designated on the Fund's records. For this purpose, a call option is also considered covered if the Fund owns securities denominated in (or which trade principally in markets where settlement occurs in) the same currency, which securities are readily marketable, and the Fund maintains in a segregated account with its custodian cash or liquid securities eligible to be purchased by the Fund in an amount that at all times at least equals the excess of (x) the amount of the Fund's obligation under the call option over (y) the value of such securities. . Swap Contracts. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. An index swap is an agreement to make or receive payments based on the different returns that would be achieved if a notional amount were invested in a specified basket of securities (such as the S&P 500 Index) or in some other investment (such as U.S. Treasury securities). The Fund will maintain at all times in a segregated account with its custodian or designated on the Fund's records cash or liquid securities eligible to be purchased by the Fund in amounts sufficient to satisfy its obligations under swap contracts. The High Income Fund may invest in publicly or privately issued interests in investment pools whose underlying assets are credit default, credit-linked, interest rate, currency exchange and/or equity-linked swap contracts (individually a "Swap" and all together "Swaps") and related underlying securities or securities loan agreements. Swaps are agreements between two or more parties to exchange sequences of cash flows over a period in the future. The pools' investment results may be designed to correspond generally to the performance of a specified securities index or "basket" of securities, or sometimes a single security. These types of pools are often used to gain exposure to multiple securities with less of an investment than would be required to invest directly in the individual securities. They may also be used to gain exposure to foreign securities markets without investing in the foreign securities themselves and/or the relevant foreign market. To the extent that the Fund invests in pools of Swaps and related underlying securities or securities loan agreements whose return corresponds to the performance of a foreign securities index or one or more of foreign securities, investing in such pools will involve risks similar to the risks of investing in foreign securities. See "Foreign Securities" above. In addition, the investing Fund bears the risk that the pool may default on its obligations under the swaps. The investing Fund also bears the risk that a counterparty of an underlying Swap, the issuer of a related underlying security or the counterparty of an underlying securities loan agreement may default on its obligations. Swaps are often used for many of the same purposes as, and share many of the same risks with, other derivative instruments such as, participation notes and zero-strike warrants and options and debt-linked and/or equity-linked securities. Interests in privately offered investment pools of Swaps may be considered illiquid and, except to the extent that such interests are issued under Rule 144A and deemed liquid, subject to the Fund's restrictions on investments in illiquid securities. Risks. The use of futures contracts, options and swap contracts involves risks. One risk arises because of the imperfect correlation between movements in the price of futures contracts and movements in the price of the securities that are the subject of the hedge. A Fund's hedging strategies will not be fully effective unless the Fund can compensate for such imperfect correlation. There is no assurance that the Fund will be able to effect such compensation. 22 Options, futures and swap contracts fall into the broad category of financial instruments known as "derivatives" and involve special risks. Use of options, futures or swaps for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. The correlation between the price movement of the futures contract and the hedged security may be distorted due to differences in the nature of the relevant markets. If the price of the futures contract moves more than the price of the hedged security, the relevant Fund would experience either a loss or a gain on the future that is not completely offset by movements in the price of the hedged securities. In an attempt to compensate for imperfect price movement correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the price movement volatility of the hedged securities is historically greater than the volatility of the futures contract. Conversely, a Fund may purchase or sell fewer contracts if the volatility of the price of hedged securities is historically less than that of the futures contracts. The price of index futures may not correlate perfectly with movement in the relevant index due to certain market distortions. One such distortion stems from the fact that all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the index and futures markets. Another market distortion results from the deposit requirements in the futures market being less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. A third distortion is caused by the fact that trading hours for foreign stock index futures may not correspond perfectly to hours of trading on the foreign exchange to which a particular foreign stock index future relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged. Price movement correlation also may be distorted by the illiquidity of the futures and options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in futures contracts or options because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, futures and options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, speculators trading spreads between futures markets may create temporary price distortions unrelated to the market in the underlying securities. Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. An exchange-traded option may be closed out only on a national securities or commodities exchange, which generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option with the result that a Fund would have to exercise the option in order to realize any profit. If a Fund is unable to effect a closing purchase transaction in a secondary market, it will be not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing 23 transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. Because the specific procedures for trading foreign stock index futures on futures exchanges are developing, additional or different margin requirements as well as settlement procedures may be applicable to foreign stock index futures at the time the relevant Funds purchase foreign stock index futures. The successful use of transactions in futures and options depends in part on the ability of a Fund's adviser to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent interest rates move in a direction opposite to that anticipated, a Fund may realize a loss on the transaction that is not fully or partially offset by an increase in the value of portfolio securities. In addition, whether or not interest rates move during the period that a Fund holds futures or options positions, the Fund will pay the cost of taking those positions (i.e., brokerage costs). As a result of these factors, a Fund's total return for such period may be less than if it had not engaged in the hedging transaction. Options trading involves price movement correlation risks similar to those inherent in futures trading. Additionally, price movements in options on futures may not correlate perfectly with price movements and/or movements of the relevant indices in the futures underlying the options. Like futures, options positions may become less liquid because of adverse economic circumstances. The securities covering written option positions are expected to offset adverse price movements if those options positions cannot be closed out in a timely manner, but there is no assurance that such offset will occur. Also, an option writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Futures and Options on Tax-Exempt Bonds and Bond Indices The Tax Free Income Funds may also purchase and sell interest rate futures contracts and tax-exempt bond index futures contracts and may write and purchase related options. Transactions involving futures and options on futures may help to reduce the volatility of the Tax Free Income Funds' net asset value, and the writing of options on futures may yield additional income for a Fund, but these results cannot be assured. Income from options and futures transactions is not tax-exempt. Short Sales Certain Funds may sell securities short "against the box," that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. In a short sale against the box, a Fund does not deliver from its portfolio securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must designate on its records or deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may also close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short. 24 Short sales may protect a Fund against risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend on the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Risks. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss, and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. Insurance on Portfolio Holdings The Tax Free Income Funds may obtain insurance on any of their portfolio holdings from a nationally recognized private insurer, which may include one or more of the following: Financial Guaranty Insurance Company, which is owned by FGIC Corporation, which in turn is owned by General Electric Credit Corporation; AMBAC Indemnity Corporation; Financial Security Assurance, Inc.; and Municipal Bond Investors Assurance Corporation, a wholly-owned subsidiary of MBIA Incorporated, the principal shareholders of which are: The Aetna Life & Casualty Company, Fireman's Fund Insurance Company, subsidiaries of the CIGNA Corporation and affiliates of the Continental Insurance Company. Insurance on individual securities, whether obtained by the issuer or a Tax Free Income Fund, is generally non-cancelable and runs for the life of the security. To the extent that a Tax Free Income Fund obtains insurance on any of its securities, the insurance must provide for the unconditional payment of scheduled principal and interest when due. In the event of a default by the issuer in the payment of principal or interest, the insurer will, within 30 days of notice of such default, provide to its agent or the trustee funds needed to make any such payments. Such agent or trustee will bear the responsibility of seeing that such funds are used to make such payments to the appropriate parties. Such insurance will not guarantee the market value of a security. Insurance on the Tax Free Income Funds' portfolio of securities will in some cases continue in the event the securities are sold by such Funds, while in other cases it may not. The Tax Free Income Funds have the option to procure individual secondary market insurance, which would continue to cover any such security after its sale by such Funds. Such guaranteed renewable insurance continues so long as the premiums for such insurance are paid and, in the judgment of such Funds' adviser, coverage should be continued. In the case of securities that are insured by a nationally recognized private insurer, default by the issuer is not expected to affect the market value of the security relative to other insured securities of the same maturity value and coupon and covered by the same insurer. Premiums for insurance may be payable in advance or may be paid periodically over the term of the security by the party then owning the security, and the costs will be reflected in the price of the security. The cost of insurance for longer-term securities, expressed in terms of income on the security, is likely to reduce such income by 10 to 60 basis points. Thus, a security yielding 10% might have a net insured yield of 9.9% to 9.4%. The impact of the cost of the Tax Free Income Funds' portfolio insurance on such Funds' net yield is somewhat less. The cost of insurance for shorter-term securities, which are generally lower yielding, is expected to be less. It should be noted that insurance raises the rating of a municipal security. Lower-rated securities generally pay a higher rate of interest than higher rated securities. Thus, while there is no assurance that this will always be the case, the Tax Free Income Funds may purchase lower-rated securities, which, when insured, will bear a higher rating, and may pay a higher net rate of interest than other equivalently rated securities that are not insured. Nationally recognized private insurers have certain eligibility standards as to the municipal securities they will insure. Such standards may be more or less strict than standards that would be applied for purchase of a security for the Funds. To the extent nationally recognized private insurers apply stricter standards, the Tax Free Income Funds will be restricted by such standards in the purchase and retention of municipal securities. The Internal Revenue Service (the "IRS") has issued revenue rulings indicating that (i) the fact that municipal 25 obligations are insured will not affect their tax-exempt status and (ii) insurance proceeds representing maturing interest on defaulted municipal obligations paid to certain municipal bond funds will be excludable from federal gross income under Section 103(a) of the Code. While operation of the Tax Free Income Funds and the terms of the insurance policies on such Funds' portfolio of securities may differ somewhat from those addressed by the revenue rulings, the Funds do not anticipate that any differences will be material or change the result with respect to the Funds. Insurers of the Tax Free Income Funds' municipal securities are subject to regulation by the department of insurance in each state in which they are qualified to do business. Such regulation, however, is no guarantee that an insurer will be willing or able to perform on its contract of insurance in the event a claim should be made thereunder at some time in the future. The Tax Free Income Funds' adviser reviews the financial condition of each insurer of their securities at least annually, and in the event of any material development, with respect to its continuing ability to meet its commitments to any contract of bond insurance. Securities Lending (All Funds) The Funds may lend from their total assets in the form of their portfolio securities to brokers, dealers or other financial institutions under contracts calling for collateral equal to at least the market value of the securities loaned, marked to market on a daily basis. The Funds will continue to benefit from interest or dividends on the securities loaned and may also earn a return from the collateral, which may include shares of a money market fund subject to any investment restrictions listed in Part I of this Statement. Under some securities lending arrangements a Fund may receive a set fee for keeping its securities available for lending. Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event (as determined by the adviser) affecting the investment occurs, such loans will be called, if possible, so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including fees to the party arranging the loans shipping fees and custodian and placement fees approved by the Boards of Trustees of the Trusts or persons acting pursuant to the direction of the Board. These transactions must be fully collateralized at all times, but involve some credit risk to the Fund if the borrower or the party (if any) guaranteeing the loan should default on its obligation and the Fund is delayed in or prevented from recovering the collateral. Short-Term Trading (All Funds) The Funds may, consistent with their investment objectives, engage in portfolio trading in anticipation of, or in response to, changing economic or market conditions and trends. These policies may result in higher turnover rates in the Fund's portfolio, which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit the adviser's investment discretion in managing a Fund's assets. The Funds anticipate that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. TEMPORARY DEFENSIVE POSITIONS Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the adviser of the Fund may employ a temporary defensive strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high-quality debt securities or money market instruments of U.S. or foreign issuers. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. The use of defensive strategies may prevent a Fund from achieving its goal. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, a Fund may temporarily hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market instruments. 26 PORTFOLIO TURNOVER A Fund's portfolio turnover rate for a fiscal year is calculated by dividing the lesser of purchases or sales of portfolio securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year, in each case excluding securities having maturity dates at acquisition of one year or less. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund, thereby decreasing the Fund's total return. The portfolio turnover rate for the fiscal year ended September 30, 2006 was significantly lower for the Loomis Sayles Municipal Income Fund compared to the prior fiscal year. The reason for the decrease in portfolio turnover from 2005 to 2006 was primarily due to a decrease in purchases. It is impossible to predict with certainty whether future portfolio turnover rates will be higher or lower than those experienced during past periods. Generally, each Fund intends to invest for long-term purposes. However, the rate of portfolio turnover will depend upon market and other conditions, and it will not be a limiting factor when an adviser believes that portfolio changes are appropriate. PORTFOLIO HOLDINGS INFORMATION The Funds have adopted policies to limit the disclosure of confidential portfolio holdings information and to ensure equal access to such information, except in certain circumstances as approved by the Board of Trustees. Generally, portfolio holdings information will not be disclosed until it is first posted on the Funds' website at www.ixisadvisorfunds.com. Generally, full portfolio holdings information will not be posted until it is aged for at least 30 days. A list of the Funds' top 10 holdings will generally be available on a monthly basis within 5 days after month end. Any holdings information that is released must clearly indicate the date of the information, and must state that due to active management, the Fund may or may not still invest in the securities listed. Portfolio characteristics, such as industry/sector breakdown, current yield, quality breakdown, duration, average price-earnings ratio and other similar information may be provided on a current basis. However, portfolio characteristics do not include references to specific portfolio holdings. The Board of Trustees has approved exceptions to the general policy on the sharing of portfolio holdings information as in the best interests of the Funds: (1)Disclosure of portfolio holdings posted on the Funds' website provided that information is shared no sooner than the next day following the day on which the information is posted. (2)Disclosure to firms offering industry-wide services, provided that the firm has entered into a confidentiality agreement with the Funds, their principal underwriter or an affiliate of the Funds' principal underwriter. Entities that receive information pursuant to this exception include Lipper (monthly disclosure of full portfolio holdings, provided 5 days after month-end); Vestek (daily disclosure of full portfolio holdings, provided the next business day); and FactSet (daily disclosure of full portfolio holdings, provided the next business day); (3)Disclosure to SG Constellation, as part of the Class B share financing program and subject to an agreement to protect the confidentiality and limit the use of the information except for the purposes provided (full portfolio holdings provided weekly); (4)Disclosure to ADP Investor Communication Services, Inc. as part of the proxy voting recordkeeping services provided to the Funds, and to vendors that provide proxy services, including proxy voting administration and research services, to advisers and subadvisers of the Funds (portfolio holdings of issuers as of record date for shareholder meetings); (5)Disclosure to employees of the Funds' advisers, subadvisers, principal underwriter, administrator, custodian fund accounting agent and independent accountant, as well as to broker dealers executing portfolio transactions for the Funds, provided that such disclosure is made for bona fide business purposes; and (6)Other disclosures made for non-investment purposes, but only if approved in writing in advance by an officer of the Funds. Such exceptions will be reported to the Board of Trustees. With respect to (6) above, approval will be granted only when the officer determines that the Funds have a legitimate business reason for sharing the portfolio holdings information and the recipients are subject to a duty of confidentiality, including a duty not to trade on the information. As of the date of this Statement, the only entities that receive information pursuant to this exception are GCom2 (quarterly, or more frequently as needed, disclosure 27 of full portfolio holdings) for the purpose of performing certain functions related to the production of the Funds' semiannual financial statements, quarterly Form N-Q filing and other related items, Electra Information Systems, Inc. (daily disclosure of full portfolio holdings) for the purpose of performing certain electronic reconciliations and Bloomberg (daily disclosure of full portfolio holdings, provided next business day), Lehman Point (periodic disclosure of full portfolio holdings) and Yield Book (periodic disclosure of full portfolio holdings) for the purpose of performing certain portfolio analytics for the adviser. The Funds' Board of Trustees exercises oversight of the disclosure of the Funds' portfolio holdings by reviewing, on a quarterly basis, persons or entities receiving such disclosure. Notwithstanding the above, there is no assurance that the Funds' policies on the sharing of portfolio holdings information will protect the Funds from the potential misuse of holdings by individuals or firms in possession of that information. In addition, any disclosures of portfolio holdings information by a Fund or its adviser must be consistent with the anti-fraud provisions of the federal securities laws, the Fund's and the adviser's fiduciary duty to shareholders, and the Fund's code of ethics. The Funds' policies expressly prohibit the sharing of portfolio holdings information if the Fund, its adviser, or any other affiliated party receives compensation or other consideration in connection with such arrangement. The term "consideration" includes any agreement to maintain assets in a Fund or in other funds or accounts managed by the Fund's adviser or by any affiliated person of the adviser. MANAGEMENT OF THE TRUSTS The Funds are governed by a Board of Trustees, which is responsible for generally overseeing the conduct of Fund business and for protecting the interests of shareholders. The trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with companies that provide services to the Funds and review the Funds' performance. Trustees and Officers The table below provides certain information regarding the trustees and officers of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II and Loomis Sayles Funds Trust II. For purposes of this table and for purposes of this Statement, the term "Independent Trustee" means those trustees who are not "interested persons," as defined in the 1940 Act, of the relevant Trust. In certain circumstances, trustees are also required to have no direct or indirect financial interest in the approval of a matter being voted on in order to be considered "independent" for the purposes of the requisite approval. For purposes of this Statement, the term "Interested Trustee" means those trustees who are "interested persons" of the relevant Trust. Unless otherwise indicated, the address of all persons below is 399 Boylston Street, Boston, MA 02116.
Number of Portfolios in Fund Complex Overseen*** Position(s) Held with the Principal and Trusts, Length of Time Occupation(s) Other Name and Date of Served and Term of During Past 5 Directorships Birth Office* Years** Held - ---------------- --------------------------- ------------- ------------- INDEPENDENT TRUSTEES Graham T. Allison, Jr. Trustee Douglas 38 (3/23/40) Since 1984 for IXIS Advisor Dillon Director, Funds Trust I (including Professor Taubman its predecessors); since and Director Centers, 1995 for IXIS Advisor Funds of the Belfer Inc. (real Trust II; since 2003 for Center for estate Loomis Sayles Funds II Science and investment International trust) Contract Review and Affairs, John Governance Committee Member F. Kennedy School of Government, Harvard University
28
Number of Portfolios in Fund Position(s) Held with the Principal Complex Trusts, Length of Time Occupation(s) Overseen*** and Name and Date of Served and Term of During Past 5 Other Birth Office* Years** Directorships Held - ---------------- ---------------------------- -------------- ------------------ Charles D. Baker Trustee President and 38 (11/13/56) Chief None Since 2005 for IXIS Advisor Executive Funds Trust I, IXIS Advisor Officer, Funds Trust II and Loomis Harvard Sayles Funds II Pilgrim Health Care Audit Committee Member (health plan) Edward A. Benjamin Trustee Retired 38 (5/30/38) Since 2003 for IXIS Advisor Director, Funds Trust I and IXIS Precision Optics Advisor Funds Trust II; Corporation since 2002 for Loomis (optics Sayles Funds II manufacturer) Chairman of the Contract Review and Governance Committee Daniel M. Cain Trustee President and 38 (2/24/45) Chief Since 1996 for IXIS Advisor Executive Director, Funds Trust I and IXIS Officer, Cain Sheridan Advisor Funds Trust II; Brothers & Healthcare Inc. since 2003 for Loomis Company, (physician Sayles Funds II Incorporated practice (investment management); Chairman of the Audit banking) Trustee, Committee Lexington Strategic Asset Corporation (realty investment trust) Richard Darman Trustee Partner, The 38 (5/10/43) Carlyle Since 1996 for IXIS Advisor Group Director and Funds Trust I and IXIS (investments); Chairman of Advisor Funds Trust II; formerly, Board of since 2003 for Loomis Professor, Directors, AES Sayles Funds II John F. Corporation Kennedy (international Contract Review and School of power company) Governance Committee Member Government, Harvard University Sandra O. Moose Chairperson of the Board of President, 38 (2/17/42) Trustees since November 2005 Strategic Advisory Director, Verizon Trustee since 1982 for IXIS Services Communications; Advisor Funds Trust I (management Director, Rohm (including its consulting); and Haas predecessors); since 1993 formerly, Company for IXIS Advisor Funds Senior Vice (specialty Trust II; since 2003 for President and chemicals); Loomis Sayles Funds II Director, The Director, AES Ex officio member of the Boston Corporation Audit Committee and Consulting (international Contract Review and Group, Inc. power company) Governance Committee (management consulting)
29
Number of Portfolios in Fund Complex Overseen*** Position(s) Held with the Principal and Trusts, Length of Time Occupation(s) Other Name and Date of Served and Term of During Past 5 Directorships Birth Office* Years** Held - ---------------- --------------------------- --------------- ------------- Cynthia L. Walker Trustee Executive 38 (7/25/56) Dean for Since 2005 for IXIS Advisor Administration None Funds Trust I, IXIS Advisor (formerly, Funds Trust II and Loomis Dean for Sayles Funds II Finance and CFO), Harvard Audit Committee Member Medical School INTERESTED TRUSTEES Robert J. Blanding/1/ Trustee President, 38 (4/14/47) Chairman, 555 California Street Since 2003 for IXIS Advisor Director, and None San Francisco, CA 94104 Funds Trust I and IXIS Chief Advisor Funds Trust II; Executive since 2002 for Loomis Officer, Sayles Funds II Loomis, Sayles & Chief Executive Officer of Company, Loomis Sayles Funds II L.P.; President and Chief Executive Officer, Loomis Sayles Funds I John T. Hailer/2/ President and Trustee President and 38 (11/23/60) Chief Since 2000 for IXIS Advisor Executive None Funds Trust I and IXIS Officer, IXIS Advisor Funds Trust II; Asset since 2003 for Loomis Management Sayles Funds II Advisors, L.P., IXIS Asset Chief Executive Officer of Management IXIS Advisor Funds Trust I Distributors and IXIS Advisor Funds L.P. and IXIS Trust II Asset Management Global Associates L.P.; Executive 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 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. 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. 30 /1/ Mr. Blanding is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trust: President, Chairman, Director and Chief Executive Officer of Loomis Sayles. /2/ Mr. Hailer is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: Director and Executive Vice President of IXIS Asset Management Distribution Corporation ("IXIS Distribution Corporation"); and President and Chief Executive Officer of IXIS Advisors, IXIS Asset Management Global Associates, L.P. and the Distributor. Officers of the Trusts
Term of Position(s) Office* and Held With the Length of Principal Occupation(s) Name and Date of Birth Trusts Time Served During Past 5 Years** - ---------------------- ------------- ----------- ----------------------------------------------------------- Coleen Downs Dinneen Secretary, Since Senior Vice President, General Counsel, Secretary and (12/16/60) Clerk and September Clerk (formerly, Deputy General Counsel, Assistant Chief Legal 2004 Secretary and Assistant Clerk), IXIS Asset Management Officer Distribution Corporation, IXIS Asset Management Distributors, L.P., and IXIS Asset Management Advisors, L.P. Daniel J. Fuss (9/27/33) Executive Since June Vice Chairman and Director, Loomis, Sayles & Company, One Financial Center Vice 2003 L.P.; Prior to 2002, President and Trustee of Loomis Sayles Boston, MA 02111 President Funds II of Loomis Sayles Funds II Russell L. Kane Chief Chief Chief Compliance Officer for Mutual Funds; Vice (7/23/69) Compliance Compliance President, Associate General Counsel, Assistant Secretary Officer; Officer, and Assistant Clerk, IXIS Asset Management Distribution Assistant since May Corporation, L.P., IXIS Asset Management Distributors, Secretary 2006; L.P. and IXIS Asset Management Advisors, L.P.; formerly, Assistant Senior Counsel, Columbia Management Group. Secretary since June 2004 Michael C. Kardok (7/17/59) Treasurer, Since Senior Vice President, IXIS Asset Management Advisors, Principal October L.P. and IXIS Asset Management Distributors, L.P.; Financial 2004 formerly, Senior Director, PFPC Inc; formerly, Vice and President - Division Manager, First Data Investor Services, Accounting Inc. Officer Max J. Mahoney Anti- Since Senior Vice President, Deputy General Counsel, Assistant (5/1/62) Money August Secretary and Assistant Clerk, IXIS Asset Management Laundering 2005 Distribution Corporation, IXIS Asset Management Officer and Distributors, L.P. and IXIS Asset Management Advisors, Assistant L.P.; Chief Compliance Officer, IXIS Asset Management Secretary Advisors, L.P. ; formerly, Senior Counsel, MetLife, Inc.; formerly, Associate Counsel, LPL Financial Services, Inc. John E. Pelletier (6/24/64) Chief Since Executive Vice President and Chief Operating Officer Operating September (formerly, Senior Vice President, General Counsel, Officer 2004 Secretary and Clerk), IXIS Asset Management Distribution Corporation, IXIS Asset Management Distributors, L.P. and IXIS Asset Management Advisors, L.P.
* 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. 31 Standing Board Committees The trustees have delegated certain authority to the two standing committees of the Trust, the Audit Committee and Contract Review and Governance Committee. The Contract Review and Governance Committee of the Trust consists solely of Independent Trustees and considers matters relating to advisory, subadvisory and distribution arrangements, potential conflicts of interest between the adviser and the Trust, and governance matters relating to the Trust. During the fiscal year ended September 30, 2006, this Committee held five meetings. The Contract Review and Governance Committee also makes nominations for independent trustee membership on the Board of Trustees when necessary and considers recommendations from shareholders of the Fund that are submitted in accordance with the procedures by which shareholders may communicate with the Board of Trustees. Pursuant to those procedures, shareholders must submit a recommendation for nomination in a signed writing addressed to the attention of the Board of Trustees, c/o Secretary of the Funds, IXIS Asset Management Advisors, L.P., 399 Boylston Street, Boston, MA 02116. This written communication must (i) be signed by the shareholder, (ii) include the name and address of the shareholder, (iii) identify the Fund(s) to which the communication relates, and (iv) identify the account number, class and number of shares held by the shareholder as of a recent date or the intermediary through which the shares are held. The recommendation must contain sufficient background information concerning the trustee candidate to enable a proper judgment to be made as to the candidate's qualifications, which may include (i) the nominee's knowledge of the mutual fund industry; (ii) any experience possessed by the nominee as a director or senior officer of other public companies; (iii) the nominee's educational background; (iv) the nominee's reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the nominee, and the extent to which such expertise would complement the Board's existing mix of skills and qualifications; (vi) the nominee's perceived ability to contribute to the ongoing functions of the Board, including the nominee's ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the nominee's ability to qualify as an Independent Trustee for purposes of applicable regulations; and (viii) such other factors as the appropriate Board Committee may request in light of the existing composition of the Board and any anticipated vacancies or other transitions. The recommendation must be received in a timely manner (and in any event no later than the date specified for receipt of shareholder proposals in any applicable proxy statement with respect to the Fund). A recommendation for trustee nomination shall be kept on file and considered by the Board for six (6) months from the date of receipt, after which the recommendation shall be considered stale and discarded. The Audit Committee of the Trusts consists solely of Independent Trustees and considers matters relating to the scope and results of the Trusts' audits and serves as a forum in which the independent registered public accounting firm can raise any issues or problems identified in the audit with the Board of Trustees. This Committee also reviews and monitors compliance with stated investment objectives and policies, SEC and Treasury regulations as well as operational issues relating to the transfer agent and custodian. During the fiscal year ended September 30, 2006, this Committee held six meetings. The current membership of each committee is as follows: Audit Committee Contract Review and Governance Committee Daniel M. Cain - Chairman Edward A. Benjamin - Chairman Charles D. Baker Graham T. Allison, Jr. Cynthia L. Walker Richard Darman As chairperson of the Board of Trustees, Ms. Moose is an ex officio member of both Committees. 32 Fund Securities Owned by the Trustees As of December 31, 2006, the trustees had the following ownership in the Funds: Independent Trustees
Graham T. Charles Daniel Sandra Cynthia Allison, D. Edward A. M. Richard O. L. Dollar Range of Fund Shares Jr.** Baker Benjamin** Cain** Darman** Moose** Walker - --------------------------- --------- ------- ---------- ------ -------- ------- ------- Core Plus Bond Fund........................... A A A A A A A Massachusetts Tax Free Income Fund............ A A A A A A A Global Markets Fund........................... E C D E A A A Growth Fund................................... A A A A A A B High Income Fund.............................. A A A A A A A Investment Grade Bond Fund.................... A A A A A A A Limited Term Government and Agency Fund....... A A A A A A A Municipal Income Fund......................... A A A A A A A Research Fund................................. A A A A A A B Strategic Income Fund......................... A A D A A A C Aggregate Dollar Range of Fund Shares in Funds Overseen by Trustee in the Trusts........... E C E E E E D
*A.None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000 ** Amounts include economic value of notional investments held through the deferred compensation plan. Interested Trustees Dollar Range of Fund Shares* Robert J. Blanding John T. Hailer - ---------------------------- ------------------ -------------- Core Plus Bond Fund.......................... A A Massachusetts Tax Free Income Fund........... A A Global Markets Fund.......................... E A Growth Fund.................................. E A High Income Fund............................. A A Investment Grade Bond Fund................... A A Limited Term Government and Agency Fund...... A A Municipal Income Fund........................ A A Research Fund................................ A A Strategic Income Fund........................ E A Aggregate Dollar Range of Fund Shares in Funds Overseen by Trustee in the Trusts.... E E *A.None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. over $100,000 Trustee Fees The Trusts pay no compensation to their officers or to their trustees who are Interested Trustees. 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 33 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 committee 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 he or she attends telephonically. These fees are allocated among the mutual fund portfolios in the IXIS Advisor Funds Trusts and Loomis Sayles Funds Trusts based on a formula that takes into account, among other factors, the relative net assets of each mutual fund portfolio. In addition, for oversight of the AEW Real Estate Income Fund, a closed-end fund advised by AEW Management and Advisors, L.P., an affiliate of IXIS Advisors and Loomis Sayles, each Independent Trustee (other than the Chairperson) receives a retainer fee at the annual rate of $2,000 and meeting attendance fees of $375 for each meeting of the Board of Trustees that he or she attends. Each committee member receives an additional retainer fee at the annual rate of $2,000. Furthermore, each committee chairman receives an additional retainer fee at the annual rate of $1,000. The retainer fees for the AEW Real Estate Income Fund assume four Committee meetings per year. Each Trustee of the AEW Real Estate Income Fund is compensated $200 per Committee meeting that he or she attends in excess of four per year. For the period October 1, 2005 to November 18, 2005, the compensation structure for the Chairperson of the Board and attendance fees for the committee meetings were different. Each co-chairman of the Board received a retainer fee at the annual rate of $25,000 in addition to the compensation structure detailed in the paragraph above. 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. Each Committee member received $4,000 for each Committee meeting that he or she attended in person and $2,000 for each Committee meeting that he or she attended telephonically. During the fiscal year ended September 30, 2006 the trustees of the Trusts received the amounts set forth in the following table for serving as a trustee of the Trusts and for also serving as trustees of IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I and AEW Real Estate Income Fund. The table also sets forth, as applicable, pension or retirement benefits accrued as part of fund expenses, as well as estimated annual retirement benefits: Compensation Table For the Fiscal Year Ended September 30, 2006
Pension or Aggregate Aggregate Retirement Compensation Compensation Aggregate Benefits Estimated Total from IXIS from IXIS Compensation Accrued as Annual Compensation Advisor Advisor from Loomis Part of Benefits from the Funds Trust Funds Trust Sayles Funds Fund Upon Fund I* II* Trust II* Expenses Retirement Complex** ------------ ------------ ------------ ---------- ---------- ------------ INDEPENDENT TRUSTEES Graham T. Allison, Jr. $17,342 $3,771 $30,920 $0 $0 $102,000 Charles D. Baker...... $17,342 $3,771 $30,920 $0 $0 $102,000 Edward A. Benjamin.... $17,718 $3,850 $31,729 $0 $0 $104,500 Daniel M. Cain........ $23,943 $5,024 $41,857 $0 $0 $144,250 Kenneth J. Cowan***... $23,592 $4,979 $40,858 $0 $0 $140,750 Paul G. Chenault***... $17,342 $3,771 $30,920 $0 $0 $102,000 Richard Darman........ $16,910 $3,663 $30,272 $0 $0 $100,000 Sandra O. Moose....... $26,001 $4,537 $55,119 $0 $0 $191,290 John A. Shane***...... $16,971 $3,659 $30,548 $0 $0 $101,000 Cynthia L. Walker..... $15,663 $3,390 $27,551 $0 $0 $ 92,000 INTERESTED TRUSTEES John T. Hailer........ $ 0 $ 0 $ 0 $0 $0 $ 0 Robert J. Blanding.... $ 0 $ 0 $ 0 $0 $0 $ 0
34 * Amounts include payments deferred by trustees for the fiscal year ended September 30, 2006, with respect to the Trusts. The total amount of deferred compensation accrued for IXIS Advisor Funds Trust I as of September 30, 2006 for the trustees is as follows: Allison ($832,894), Benjamin ($152,643), Cain ($276,746), Chenault ($81,235), Cowan ($186,115), Darman ($322,964) and Walker ($29,732). The total amount of deferred compensation accrued for IXIS Advisor Funds Trust II as of September 30, 2006 for the trustees is as follows: Allison ($162,281), Benjamin ($29,741), Cain ($53,921), Chenault ($15,828), Cowan ($36,262), Darman ($62,926) and Walker ($5,793). The total amount of deferred compensation accrued for Loomis Sayles Funds Trust II as of September 30, 2006 for the trustees is as follows: Allison ($409,561), Benjamin ($75,059), Cain ($136,085), Chenault ($39,946), Cowan ($91,518), Darman ($158,811) and Walker ($14,620). ** Total Compensation represents amounts paid during the fiscal year ended September 30, 2006 to a trustee for serving on the board of trustees of eight (8) trusts with a total of thirty-eight (38) funds as of September 30, 2006. ***Kenneth J. Cowan, Paul G. Chenault and John A. Shane retired from the IXIS Advisor and Loomis Sayles Funds Trusts Board of Trustees effective December 31, 2006. The IXIS Advisor and Loomis Sayles Funds Trusts do not provide pension or retirement benefits to trustees, but have adopted a deferred payment arrangement under which each Trustee may elect not to receive fees from the Funds on a current basis but to receive in a subsequent period an amount equal to the value that such fees would have been if they had been invested in a Fund or Funds selected by the Trustee on the normal payment date for such fees. Management Ownership As of record on January 5, 2007, the officers and trustees of the Trusts collectively owned less than 1% of the then outstanding shares of the Funds except that the officers and trustees of the Trusts owned beneficially 3.61% of the Loomis Sayles Global Markets Fund. These amounts include shares held by the Loomis Sayles Employees' Profit Sharing Plan (the "Profit Sharing Plan") for the accounts of officers and trustees of the Trusts, but exclude all other holdings of the Profit Sharing Plan and the Loomis Sayles Funded Pension Plan (the "Pension Plan"). As of January 5, 2007, the Profit Sharing Plan owned the following percentages of the outstanding Institutional Class shares of the indicated Funds: 5.97% of the Loomis Sayles Global Markets Fund, 3.59% of the Loomis Sayles Growth Fund, 22.32% of the Loomis Sayles Research Fund. As of January 5, 2007, the Pension Plan owned the following percentages of the outstanding Institutional Class shares of the indicated Funds: 12.65% of the Loomis Sayles Global Markets Fund, 2.14% of the Loomis Sayles Growth Fund, 36.35% of the Loomis Sayles Research Fund. The trustee of the Pension Plan and Profit Sharing Plan is Charles Schwab Trust Company. The Pension Plan's Advisory/Committee, which is composed of the same individuals listed below as trustees of the Profit Sharing Plan, has the sole voting and investment power with respect to the Pension Plan's shares. The trustees of the Profit Sharing Plan are John DeBeer, Stephanie Lord, Teri Mason, Richard Skaggs, Timothy Hunt, Greg O'Hara, John McGraw, Paul Sherba, John Russell and Kurt Wagner. Except for Timothy Hunt, John DeBeer and John McGraw, each member of the Advisory Committee is an officer and employee of Loomis Sayles. Plan participants are entitled to exercise investment and voting power over shares owned of record by the Profit Sharing Plan. Shares not voted by participants are voted in the same proportion as the shares voted by the voting participants. The address for the Profit Sharing Plan and the Pension Plan is One Financial Center, Boston, Massachusetts. Code of Ethics. The Trusts, Loomis Sayles and the Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics permit the personnel of these entities to invest in securities, including securities that the Funds may purchase or hold. The codes of ethics are on public file with, and are available from, the SEC. Proxy Voting Policies. The Board of Trustees of the Funds has adopted the Proxy Voting Policy and Guidelines (the "Guidelines") for the voting of proxies for securities held by the Funds. Under the Guidelines, the responsibility for voting proxies generally is delegated to the Funds' investment adviser. Under the Guidelines, decisions regarding the voting of proxies are to be made solely in the interest of the Fund and its shareholders. The adviser shall exercise its fiduciary responsibilities to vote proxies with respect to each Fund's investments that are managed by that adviser in a prudent manner in accordance with the Guidelines and the proxy voting policies of the adviser. Proposals that, in the opinion of the adviser, are in the best interests of shareholders are generally voted "for" and proposals that, in the judgment of the adviser, are not in the best interests of shareholders are generally voted "against." The adviser is responsible for maintaining certain records and reporting to the Audit Committee of the Trusts in connection with the voting of proxies. The adviser shall make available to each Fund, or IXIS Advisors, the Fund's administrator, the records and information maintained by the adviser under the Guidelines. Loomis Sayles uses the services of third parties ("Proxy Voting Service(s)"), to research and administer the vote on proxies for those accounts and funds for which Loomis Sayles has voting authority. Each Proxy Voting Service has a copy of Loomis Sayles' proxy voting procedures ("Procedures") and provides vote recommendations and/or analysis to Loomis Sayles based on the Proxy Voting Service's own research. Loomis Sayles will generally follow its express policy with input from the Proxy Voting Services unless Loomis Sayles' Proxy Committee (the "Proxy Committee") determines that the client's best interests are served by voting otherwise. All issues presented for shareholder vote will be considered under the oversight of the Proxy Committee. All non-routine issues will be directly considered by the Proxy Committee and, when necessary, the equity analyst following the company and/or the portfolio manager of a Fund holding the security, and will be voted in the best investment interests of the Fund. All routine issues will be voted according to Loomis Sayles' policy approved by the Proxy Committee unless special factors require that they be considered by the Proxy Committee and, when necessary, the equity analyst following the company and/or the portfolio manager of a Fund holding the security. Loomis Sayles' Proxy Committee has established these routine policies in what it believes are the best investment interests of Loomis Sayles' clients. The specific responsibilities of the Proxy Committee include (1) developing, authorizing, implementing and updating the Procedures, including an annual review of the Procedures, existing voting guidelines and the proxy voting process in general, (2) oversight of the proxy voting process including oversight of the vote on proposals according to the predetermined policies in the voting guidelines, directing the vote on proposals where there is 35 reason not to vote according to the predetermined policies in the voting guidelines or where proposals require special consideration, and consultation with the portfolio managers and analysts for the Fund(s) holding the security when necessary or appropriate and, (3) engagement and oversight of third-party vendors, including Proxy Voting Services. Loomis Sayles has established several policies to ensure that proxies are voted in its clients' best interest and are not affected by any possible conflicts of interest. First, except in certain limited instances, Loomis Sayles votes in accordance with its pre-determined policies set forth in the Procedures. Second, where these Procedures allow for discretion, Loomis Sayles will generally consider the recommendations of the Proxy Voting Services in making its voting decisions. However, if the Proxy Committee determines that the Proxy Voting Services' recommendation is not in the best interest of its clients, then the Proxy Committee may use its discretion to vote against the Proxy Voting Services' recommendation, but only after taking the following steps: (1) conducting a review for any material conflict of interest Loomis Sayles may have and, (2) if any material conflict is found to exist, excluding anyone at Loomis Sayles who is subject to that conflict of interest from participating in the voting decision in any way. However, if deemed necessary or appropriate by the Proxy Committee after full prior disclosure of any conflict, that person may provide information, opinions or recommendations on any proposal to the Proxy Committee. In such event the Proxy Committee will make reasonable efforts to obtain and consider, prior to directing any vote information, opinions or recommendations from or about the opposing position on any proposal. Information regarding how the Funds voted proxies related to their respective portfolio securities during the 12-month period ended June 30, 2006 is available without charge (i) through the Funds' websites, www.ixisadvisorfunds.com and www.loomissayles.com and (ii) on the SEC's website at www.sec.gov. INVESTMENT ADVISORY AND OTHER SERVICES IXIS Asset Management Advisors, L.P. ("IXIS Advisors"), formed in 1995, is a limited partnership whose sole general partner, IXIS Asset Management Distribution Corporation ("IXIS Distribution Corporation"), is a wholly-owned subsidiary of IXIS Asset Management Holdings, LLC ("IXIS Holdings"), which in turn is a wholly-owned subsidiary of IXIS Asset Management US Group, L.P. (formerly, IXIS Asset Management North America, L.P.) ("IXIS Asset Management US Group"). IXIS Distribution Corporation is also the sole general partner of the Distributor. IXIS Asset Management US Group owns the entire limited partnership interest in each of IXIS Advisors and the Distributor. IXIS Asset Management US Group is part of IXIS Asset Management Group, an international asset management group based in Paris, France. IXIS Asset Management Group is ultimately owned principally, directly or indirectly, by four large French financial services entities: Natixis (formerly Natexis Banques Populaires), an investment banking and financial services firm; the Caisse Nationale des Caisses d'Epargne ("CNCE"), a financial institution owned by French regional savings banks known as the Caisses d'Epargne and by CDC (as defined below); the Banque Federale des Banques Populaires ("BFBP"), a financial institution owned by regional cooperative banks known as the Banques Populaires; and CNP Assurances, a large French life insurance company. In addition, the Caisse des Depots et Consignations ("CDC"), a public sector financial institution created by the French government in 1816, is a shareholder in both CNCE and CNP Assurances, although it is contemplated that its interest in CNCE will be repurchased by CNCE in the near future. The registered address of Natixis is 45, rue Saint-Dominique, 75007 Paris, France. The registered address of CNCE is 5, rue Masseran, 75007 Paris, France. The registered address of BFBP is 5, rue Leblanc, 75011 Paris, France. The registered address of CNP Assurances is 4, place Raoul Dautry, 75015 Paris, France. The registered address of CDC is 56, rue de Lille, 75007 Paris, France. The 14 principal subsidiary or affiliated asset management firms of IXIS Asset Management US Group, L.P. collectively had over $247.1 billion in assets under management or administration as of September 30, 2006. Loomis, Sayles & Company, L.P. is a registered investment adviser whose origins date back to 1926. An important feature of the Loomis Sayles investment approach is its emphasis on investment research. Recommendations and reports of the Loomis Sayles research department are circulated throughout the Loomis Sayles organization and are available to the individuals in the Loomis Sayles organization who are responsible for making investment decisions for the Funds' portfolios as well as numerous other institutional and individual clients to which Loomis Sayles provides investment advice. Loomis Sayles is a limited partnership whose sole general 36 partner, Loomis, Sayles & Company, Inc., is a wholly-owned subsidiary of IXIS Holdings, which in turn is a wholly-owned subsidiary of IXIS Asset Management US Group. IXIS Asset Management US Group owns the entire limited partnership interest in Loomis Sayles. Advisory Agreements. Each Fund's advisory agreement with Loomis Sayles provides that the adviser will furnish or pay the expenses of the applicable Fund for office space, facilities and equipment, services of executive and other personnel of the Trusts and certain administrative services. The adviser is responsible for obtaining and evaluating such economic, statistical and financial data and information and performing such additional research as is necessary to manage each Fund's assets in accordance with its investment objectives and policies. Each Fund pays all expenses not borne by the adviser including, but not limited to, the charges and expenses of the Funds' custodian and transfer agent, independent registered public accounting firm and legal counsel for the Funds and the Trusts' Independent Trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under federal and state securities laws, all expenses of shareholders' and trustees' meetings and of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of the Funds' adviser, or its affiliates, other than affiliated registered investment companies. In the case of Funds with Class Y shares, certain expenses may be allocated differently among the Fund's Classes A, B and C shares, on the one hand, and Class Y shares on the other hand. (See "Description of the Trusts and Ownership of Shares.") Each advisory agreement provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the Board of Trustees of the relevant Trust or by vote of a majority of the outstanding voting securities of the relevant Fund and (ii) by vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval. Each advisory agreement may be terminated without penalty by vote of the Board of Trustees of the relevant Trust or by vote of a majority of the outstanding voting securities of the relevant Fund, upon 60 days' written notice, or by the Funds' adviser upon 90 days' written notice, and each terminates automatically in the event of its assignment (as defined in the 1940 Act). Each advisory agreement provides that the adviser shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. Advisory Administration Agreement. Under separate Advisory Administration Agreements dated September 1, 2003, IXIS Advisors oversees the portfolio management services provided by Loomis Sayles to the Core Plus Bond Fund and Massachusetts Tax Free Income Fund and provides certain administrative services to those Funds. Subject to the review of the Board of Trustees, IXIS Advisors monitors Loomis Sayles to assure that Loomis Sayles is managing a Fund's assets consistently with the Fund's investment objective and restrictions and applicable laws and guidelines, including, but not limited to, compliance with the diversification requirements set forth in the 1940 Act and Subchapter M of the Code. In addition, IXIS Advisors also provides the Funds with administrative services which include, among other things, day-to-day administration of matters related to the Funds' existence, maintenance of its records, preparation of reports and assistance in the preparation of the Funds' registration statements under federal and state laws. IXIS Advisors does not determine what investments will be purchased or sold for any Fund. Distribution Agreements and Rule 12b-1 Plans. Under a separate agreement with each Fund, the Distributor serves as the principal distributor of each class of shares of the Funds. The Distributor's principal business address is 399 Boylston Street, Boston, Massachusetts 02116. Under these agreements (the "Distribution Agreements"), the Distributor conducts a continuous offering and is not obligated to sell a specific number of shares. The Distributor bears the cost of making information about the Funds available through advertising and other means and the cost of printing and mailing Prospectuses to persons other than shareholders. Each Fund pays the cost of registering and qualifying its shares under state and federal securities laws and distributing Prospectuses to existing shareholders. 37 The Distributor is compensated under each agreement through receipt of the sales charges on Class A shares described below under "Net Asset Value and Public Offering Price" and is paid by the Funds the service and distribution fees described in the applicable Prospectus. The SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of a Fund's shares. Each Fund has adopted Rule 12b-1 plans (the "Plans") for its Classes A, B and C shares which, among other things, permit it to pay the Distributor monthly fees out of its net assets. These fees consist of a service fee and a distribution fee. Any such fees that are paid by a distributor to securities dealers are known as "trail commissions." Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved by the shareholders of each Fund, and (together with the related Distribution Agreement) by the Board of Trustees, including a majority of the Independent Trustees of the relevant Trust. (Note that not all Funds offer Class B or Class C shares.) Under the Plans, each Fund pays the Distributor a monthly service fee at an annual rate not to exceed 0.25% of the Fund's average daily net assets attributable to the Classes A, B and C shares. In the case of the Class B shares, the Distributor pays investment dealers the first year's service fee at the time of sale, in the amount of up to 0.25% of the amount invested. In the case of Class C shares, the Distributor retains the first year's service fee of 0.25% assessed against such shares. For Class A and, after the first year, for Class B and Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Fund's shares, on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer, for providing personal services to investors in shares of the Fund and/or the maintenance of shareholder accounts. This service fee will accrue to securities dealers of record immediately with respect to reinvested income dividends and capital gain distributions of the Fund's Class A and Class B shares. The service fee on Class A shares may be paid only to reimburse the Distributor for expenses of providing personal services to investors, including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Each Fund's Class B and Class C shares also pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average net assets of the respective Fund's Class B and Class C shares. The Distributor retains the 0.75% distribution fee assessed against both Class B and Class C shares during the first year of investment. After the first year for Class B shares, the Distributor retains the annual distribution fee as compensation for its services as distributor of such shares. After the first year for Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Fund's shares, as distribution fees in connection with the sale of the Fund's shares on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer. As noted in the prospectus, Class B shares automatically convert into Class A shares after 8 years. This conversion from Class B to Class A shares occurs once per month for all Class B shares that reach their eighth year over the course of that particular month. As stated in the prospectuses, investors will not be permitted to purchase $100,000 or more of Class B shares as a single investment per account. There is an exception to this restriction with respect to the omnibus account in Class B shares of Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). With respect to this exception, Merrill Lynch has represented that it has policies in place that prohibit individual purchases in Class B shares by Merrill Lynch's clients of $100,000 or more and that Merrill Lynch has processes in place to monitor and enforce this limitation with respect to its clients. In addition, Merrill Lynch has represented that it will only accept purchases of Class B shares by Merrill Lynch clients whose households' total Class B share assets (including the purchase) within the IXIS Advisor Funds family total less than $100,000, of which not more than $50,000 can be in the IXIS Advisor Tax Free Income and IXIS Advisor Income Funds ("Fixed Income Funds"). Purchases of Class B shares of the Fixed Income Funds will only be accepted if the client's accumulated household Class B assets (including the purchase) in the Fixed Income Funds total less than $50,000. Each Plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the relevant Fund. Each Plan may be amended by vote of the relevant trustees, including a majority of the relevant Independent Trustees, cast in person at a meeting called for that purpose. Any change in any Plan that would materially increase the fees payable thereunder by the 38 relevant class of shares of the relevant Fund requires approval by a vote of the holders of a majority of such shares outstanding. The Trusts' trustees review quarterly a written report of such costs and the purposes for which such costs have been incurred. For so long as a Plan is in effect, selection and nomination of those trustees who are Independent Trustees of the relevant Trust shall be committed to the discretion of such trustees. Fees paid by Class A, Class B or Class C shares of any Fund may indirectly support sales and servicing efforts relating to shares of the other series of the IXIS Advisor Funds Trusts or the Loomis Sayles Funds Trusts. In reporting its expenses to the trustees, the Distributor itemizes expenses that relate to the distribution and/or servicing of a single Fund's shares, and allocates other expenses among the relevant Funds based on their relative net assets. Expenses allocated to each Fund are further allocated among its classes of shares annually based on the relative sales of each class, except for any expenses that relate only to the sale or servicing of a single class. The Distributor has entered into selling agreements with investment dealers, including affiliates of the Distributor, for the sale of the Funds' shares. As described in more detail below, the Distributor, at its expense, may pay an amount not to exceed 0.50% of the amount invested to dealers who have selling agreements with the Distributor. Class Y shares of the Funds may be offered by registered representatives of certain affiliates who are also employees of IXIS Asset Management US Group and may receive compensation from the Funds' adviser with respect to sales of Class Y shares. (Note that certain Funds do not currently offer Class Y shares.) The Distribution Agreement for any Fund may be terminated at any time on 60 days' written notice without payment of any penalty by the Distributor or by vote of a majority of the outstanding voting securities of the relevant Fund or by vote of a majority of the Independent Trustees. The Distribution Agreements and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees and (ii) by the vote of a majority of the entire Board of Trustees cast in person at a meeting called for that purpose or by a vote of a majority of the outstanding securities of a Fund (or the relevant class, in the case of the Plans). With the exception of the Distributor, its affiliated companies and those trustees that are not Independent Trustees, no interested person of the Trusts or any trustee of the Trusts had any direct or indirect financial interest in the operation of the Plans or any related agreement. Benefits to the Funds and their shareholders resulting from the Plans are believed to include (1) enhanced shareholder service, (2) asset retention and (3) enhanced portfolio management opportunities and bargaining position with third party service providers and economies of scale arising from having asset levels higher than they would be if the plans were not in place. The Distributor controls the words "IXIS Advisor" in the names of the IXIS Advisor Funds Trusts and if it should cease to be the principal distributor of such Funds' shares, the Trusts may be required to change their names and delete these words or letters. The Distributor also acts as principal distributor for IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust and Loomis Sayles Funds I. The address of the Distributor is 399 Boylston Street, Boston Massachusetts, 02116. The portion of the various fees and expenses for Funds offering Classes A, B and, with respect to certain Funds, C shares that are paid (reallowed) to securities dealers are shown below. 39 All Income Funds (except Limited Term Government and Agency Fund) For Class A shares of the Income Funds, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Income Funds that are paid to securities dealers are shown below:
Maximum Maximum Sales Charge Paid Reallowance or Maximum First Year Maximum First by Investors (% Commission (% Service Fee Year Compensation Investment of offering price) of offering price) (% of net investment) (% of offering price) - ---------- ------------------ ------------------ --------------------- --------------------- Less than $100,000...................... 4.50% 4.00% 0.25% 4.25% $100,000 - $249,999..................... 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999..................... 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999..................... 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million........................ none 1.00%(1) 0.25% 1.25% Excess over $3 million.................. none 0.50%(1) 0.25% 0.75% Investments with no Sales Charge (2).... none 0.00% 0.25% 0.25%
Limited Term Government and Agency Fund
Maximum Maximum Sales Charge Paid Reallowance or Maximum First Year Maximum First by Investors (% Commission Service Fee Year Compensation Investment of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- ------------------ --------------------- --------------------- --------------------- Less than $100,000...................... 3.00% 2.70% 0.25% 2.95% $100,000 - $249,999..................... 2.50% 2.15% 0.25% 2.40% $250,000 - $499,999..................... 2.00% 1.70% 0.25% 1.95% $500,000 - $999,999..................... 1.25% 1.00% 0.25% 1.25% Investments of $1 million or more First $3 million........................ none 1.00%(1) 0.25% 1.25% Excess over $3 million.................. none 0.50%(1) 0.25% 0.75% Investments with no Sales Charge (2).... none 0.00% 0.25% 0.25%
(1)These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2)Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Income Funds under the section "How Sales Charges Are Calculated." Also refers to any Class C share accounts established prior to December 1, 2000. The Class B and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B and Class C shares of the Income Funds that are paid to securities dealers are shown below: 40 Core Plus Bond, High Income, Investment Grade Bond and Strategic Income Funds
Maximum Front -End Sales Maximum Charge Paid by Reallowance or Maximum First Year Maximum First Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- All amounts for Class B............ none 3.75% 0.25% 4.00% All amounts for Class C............ none 1.00% 0.00% 1.00%
Limited Term Government and Agency Fund
Maximum Front - Maximum End Sales Charge Reallowance or Maximum First Year Maximum First Paid by Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- All amounts for Class B............ none 2.75% 0.25% 3.00% All amounts for Class C............ none 1.00% 0.00% 1.00%
Municipal Income Fund For Class A shares of the Municipal Income Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Municipal Income Fund that are paid to securities dealers are shown below:
Maximum Sales Maximum Charge Paid by Reallowance or Maximum First Year Maximum First Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- Less than $100,000...................... 4.50% 4.00% 0.25% 4.25% $100,000 - $249,999..................... 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999..................... 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999..................... 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million........................ none 1.00%(1) 0.25% 1.25% Excess over $3 million.................. none 0.50%(1) 0.25% 0.75% Investments with no Sales Charge (2).... none 0.00% 0.25% 0.25%
(1)These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2)Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Class A, B and C shares of the Income Funds under the section "How Sales Charges Are Calculated." The Class B shares service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B shares of the Municipal Income Fund that are paid to securities dealers are shown below: 41 Municipal Income Fund
Maximum Front - Maximum End Sales Charge Reallowance or Maximum First Year Maximum First Paid by Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- All amounts for Class B none 3.75% 0.25% 4.00%
Massachusetts Tax Free Income Fund For Class A shares of the Massachusetts Tax Free Income Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Massachusetts Tax Free Income Fund that are paid to securities dealers are shown below:
Maximum Sales Maximum Charge Paid by Reallowance or Maximum First Year Maximum First Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- Less than $50,000................... 4.25% 3.75% 0.25% 4.00% $50,000 - $99,999................... 4.00% 3.50% 0.25% 3.75% $100,000 - $249,999................. 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999................. 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999................. 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million.................... none 1.00%(1) 0.25% 1.25% Excess over $3 million.............. none 0.50%(1) 0.25% 0.75% Investments with no Sales Charge (2) none 0.00% 0.25% 0.25%
(1)These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2)Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for the Massachusetts Tax Free Income Fund under the section "How Sales Charges Are Calculated." The Class B shares service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B shares of the Massachusetts Tax Free Income Fund that are paid to securities dealers are shown below:
Maximum Front - Maximum End Sales Charge Reallowance or Maximum First Year Maximum First Year Paid by Investors Commission Service Fee Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering period) - ---------- --------------------- --------------------- --------------------- ---------------------- All amounts for Class B none 3.75% 0.25% 4.00%
42 Equity Funds For Class A shares of the Research Fund, Growth Fund and Global Markets Fund, the service fee is payable only to reimburse the Distributor for amounts it pays in connection with providing personal services to investors and/or maintaining shareholder accounts. The portion of the various fees and expenses for Class A shares of the Loomis Sayles Funds that are paid to securities dealers are shown below:
Maximum Sales Maximum Charge Paid by Reallowance or Maximum First Year Maximum First Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- Less than $50,000................... 5.75% 5.00% 0.25% 5.25% $50,000 - $99,999................... 4.50% 4.00% 0.25% 4.25% $100,000 - $249,999................. 3.50% 3.00% 0.25% 3.25% $250,000 - $499,999................. 2.50% 2.15% 0.25% 2.40% $500,000 - $999,999................. 2.00% 1.70% 0.25% 1.95% Investments of $1 million or more First $3 million.................... None 1.00%(1) 0.25% 1.25% Excess over $3 million.............. None 0.50%(1) 0.25% 0.75% Investments with no Sales Charge (2) None 0.00% 0.25% 0.25%
(1)These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. (2)Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Loomis Sayles Funds under the section "How Sales Charges Are Calculated." The Class B (except for the Global Markets Fund, which does not offer class B shares) and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The portion of the various fees and expenses for Class B and Class C shares of the Loomis Sayles Funds that are paid to securities dealers are shown below:
Maximum Front - Maximum End Sales Charge Reallowance or Maximum First Year Maximum First Paid by Investors Commission Service Fee Year Compensation Investment (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ---------- --------------------- --------------------- --------------------- --------------------- All amounts for Class B none 3.75% 0.25% 4.00% All amounts for Class C none 1.00% 0.00% 1.00%
(1)Refers to any investments made by investors not subject to a sales charge as described in the Prospectus for Classes A, B and C shares of the Loomis Sayles Growth Fund and Loomis Sayles Research Fund under the section "How Sales Charges Are Calculated." All Funds As described in the Prospectus, each purchase or sale of shares is effected at the net asset value next determined after an order is received, less any applicable sales charge. The sales charge is allocated between the investment dealer and the Distributor, as indicated in the tables above. The Distributor receives the contingent deferred sales charge (the "CDSC"). Proceeds from the CDSC on Class A and C shares are paid to the Distributor and are used by the Distributor to defray the expenses for services the Distributor provides the Trusts. Proceeds from the CDSC on Class B shares are paid to the Distributor and are remitted to SG Constellation LLC to compensate SG Constellation LLC for financing the payment of commissions on the sale of Class B shares pursuant to certain Class B financing and servicing agreements between the Distributor and SG Constellation LLC. The Distributor may, at its discretion, pay (reallow) the entire sales charge imposed on the sale of Class A shares to investment dealers from time to time. For Funds subject to a redemption fee, such fees are paid to the Fund. (Note not all Funds offer Class B shares or Class C shares.) 43 For new amounts invested at net asset value by an eligible governmental authority, the Distributor may, at its expense, pay investment dealers a commission of 0.025% of the average daily net assets of an account at the end of each calendar quarter for up to one year. These commissions are not payable if the purchase represents the reinvestment of redemption proceeds from any other IXIS Advisor Fund or if the account is registered in street name. The Distributor, the adviser and their affiliates may out of their own resources make additional payments to dealers who sell shares of the Funds. These payments may include: (i) full reallowance of the sales charge of Class A shares, (ii) additional compensation with respect to the sale and/or servicing of Class A, B and C shares, (iii) payments based upon factors such as the length of time the assets of a dealer's clients have been invested in the Funds and the levels of those clients' assets and (iv) financial assistance programs to firms who sell or arrange for the sale of Fund shares including, but not limited to, remuneration for: the firm's internal sales contests and incentive programs, marketing and sales fees, expenses related to advertising or promotional activity and events, and shareholder record keeping or miscellaneous administrative services. Payment for travel, lodging and related expenses may be provided for attendance at Fund seminars and conferences, e.g., due diligence meetings held for training and educational purposes. The payment of these concessions and any other compensation offered will conform with state and federal laws and the rules of any self-regulatory organization, such as the National Association of Securities Dealers, Inc ("NASD"). The participation of such firms in financial assistance programs is at the discretion of the firm. These payments described in this paragraph may be significant to the dealers receiving the payments and the entities paying them. Dealers may charge their customers a processing fee or service fee in connection with the purchase or redemption of fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by its individual dealer. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in the Funds' Prospectuses and this Statement. Customers will be provided with specific information about any processing or service fees charged by their dealer. The commissions and sales charges for the last three fiscal years were allocated as follows: IXIS ADVISOR FUNDS TRUST I* 09/30/04 09/30/05 09/30/06 -------- -------- -------- Total commissions on sales of Class A shares........ $130,978 $ 57,237 $49,062 Amount reallowed to other securities dealers..... $115,007 $ 50,468 $43,029 Amount retained by Distributor................... $ 15,971 $ 6,769 $ 6,033 Total CDSCs on redemptions of Classes A, B and C shares............................................ $237,298 $115,694 $55,609 Amount paid to SG Constellation, LLC............. $235,561 $114,951 $52,890 Amount retained by Distributor*.................. $ 1,737 $ 743 $ 2,719 * See "Other Arrangements" for information about amounts received by the Distributor from IXIS Advisor Funds Trust I's investment advisers or the Funds directly for providing certain administrative services relating to IXIS Advisor Funds Trust I. IXIS ADVISOR FUNDS TRUST II* 9/30/04 9/30/05 9/30/06 ------- ------- ------- Total commissions on sales of Class A shares.......... $32,428 $23,234 $25,641 Amount reallowed to other securities dealers....... $28,205 $20,081 $23,104 Amount retained by Distributor..................... $ 4,223 $ 3,153 $ 2,537 Total CDSCs on redemptions of Classes A, B and C shares.............................................. $19,660 $ 1,738 $ 5,789 Amount paid to SG Constellation, LLC............... $19,660 $ 1,738 $ 5,789 Amount retained by Distributor*.................... $ 0 $ 0 $ 0 * See "Other Arrangements" for information about amounts received by the Distributor from IXIS Advisor Funds Trust II's investment advisers or the Funds directly for providing certain administrative services relating to IXIS Advisor Funds Trust II. 44 LOOMIS SAYLES FUNDS II 9/30/04 9/30/05 9/30/06 ---------- ---------- ---------- Total commissions on sales of Class A shares. $1,880,862 $4,025,606 $9,594,146 Amount reallowed to other securities dealers................................. $1,683,746 $3,542,232 $8,628,759 Amount retained by Distributor............ $ 197,116 $ 483,374 $ 965,387 Total CDSCs on redemptions of Classes A, B and C shares............................... $ 531,962 $ 566,535 $ 782,392 Amount paid to SG Constellation, LLC...... $ 425,043 $ 383,962 $ 431,292 Amount retained by Distributor*........... $ 106,919 $ 182,573 $ 351,100 Other Services. IXIS Advisors performs certain accounting and administrative services for the Funds, pursuant to an Administrative Services Agreement dated January 1, 2005, as amended from time to time (the "Administrative Agreement"). Under the Administrative Agreement, IXIS Advisors provides the following services to the Funds: (i) personnel that perform bookkeeping, accounting, internal auditing and financial reporting functions and clerical functions relating to the Funds, (ii) services required in connection with the preparation of registration statements and prospectuses, registration of shares in various states, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Funds or regulatory authorities and reports and questionnaires for SEC compliance, and (iii) the various registrations and filings required by various regulatory authorities. Prior to January 1, 2005, IXIS Asset Management Services Company ("IXIS Services") performed these same services, pursuant to separate administrative services agreements with each Trust. For the fiscal years ended September 30, 2004, September 30, 2005 and September 30, 2006, IXIS Services or IXIS Advisors received the following fees from the Funds for administrative service: Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended Fund 9/30/04* 9/30/05* 9/30/06 ---- ----------- ----------- ----------- Core Plus Bond Fund....................... $198,429 $170,210 $ 136,903 Global Markets Fund....................... $ 9,912 $ 15,386 $ 41,606 Growth Fund............................... $ 41,894 $ 99,168 $ 198,292 High Income Fund.......................... $ 31,916 $ 27,317 $ 23,472 Investment Grade Bond Fund................ $247,170 $252,634 $ 218,559 Limited Term Government and Agency Fund... $ 88,981 $ 96,860 $ 86,859 Massachusetts Tax Free Income Fund........ $ 57,745 $ 52,354 $ 45,404 Municipal Income Fund..................... $ 84,045 $ 73,067 $ 61,500 Research Fund............................. $ 14,934 $ 15,927 $ 13,700 Strategic Income Fund..................... $337,400 $773,439 $1,899,235 * For the fiscal year ended September 30, 2004 and October 1, 2004 through December 31, 2004, the table reflects fees paid to IXIS Services. Custodial Arrangements. State Street Bank and Trust Company ("State Street Bank"), One Lincoln Street, Boston, Massachusetts, 02111, serves as the custodian for the Trusts. As such, State Street Bank holds in safekeeping certificated securities and cash belonging to each Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to each Fund. Upon instruction, State Street Bank receives and delivers cash and securities of each Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Trusts and calculates the total net asset value, total net income and net asset value per share of each Fund on a daily basis. Transfer Agency Services. Pursuant to contracts between the Trusts, on behalf of each Fund, and Boston Financial Data Services, Inc. ("Boston Financial"), whose principal business address is Two Heritage Drive, Quincy, Massachusetts, 02171, Boston Financial acts as shareholder servicing and transfer agent for the Funds and is responsible for services in connection with the establishment, maintenance and recording of shareholder accounts, 45 including all related tax and other reporting requirements and the implementation of investment and redemption arrangements offered in connection with the sale of the Funds' shares. Prior to October 1, 2005, IXIS Services served as the transfer agent for the Funds and it, along with Boston Financial as sub-transfer agent, provided the same services that Boston Financial now provides. For these services, IXIS Services received the following fees from the Funds: Fiscal Year Ended Fiscal Year Ended Fund 9/30/04 9/30/05 - ---- ----------------- ----------------- Core Plus Bond Fund........................ $283,969 $ 314,229 High Income Fund........................... $ 79,510 $ 95,373 Global Markets Fund........................ $ 15,000 $ 15,500 Growth Fund................................ $131,875 $ 430,710 Investment Grade Bond Fund................. $ 69,000 $ 70,007 Limited Term Government and Agency Fund.... $207,827 $ 243,164 Massachusetts Tax Free Income Fund......... $134,784 $ 86,855 Municipal Income Fund...................... $184,026 $ 104,381 Research Fund.............................. $ 69,000 $ 69,496 Strategic Income Fund...................... $597,529 $1,028,317 Independent Registered Public Accounting Firm. The Trusts' independent registered public accounting firm is PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110. The independent registered public accounting firm conducts an annual audit of each Fund's financial statements, assists in the review of federal and state income tax returns and consults with the Trusts as to matters of accounting and federal and state income taxation. The financial highlights in the Prospectuses for the Funds, and the financial statements contained in those Funds' Annual Reports for the year ended September 30, 2006 and incorporated by reference into this Statement, have been so included in reliance on the reports of the Trusts' independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. Counsel to the Funds. Ropes & Gray LLP, located at One International Place, Boston, MA 02110, serves as counsel to the Funds. PORTFOLIO MANAGEMENT INFORMATION Portfolio Managers' Management of Other Accounts As of September 30, 2006, many of the Portfolio Manager(s) of the Funds managed other accounts in addition to managing one or more of the Funds. The following table provides information on the other accounts managed by each Portfolio Manager.
Registered Investment Other Pooled Investment Companies Vehicles Other Accounts ------------------------------ ------------------------------- ------------------------------- Advisory fee Advisory fee is Advisory fee is Other Accounts is based on Other Accounts based on Other Accounts based on Managed performance Managed performance Managed performance ----------------- ------------ ---------------- -------------- ---------------- -------------- # of Total # of Total # of Total # of Total # of Total # of Total Name of Portfolio Manager Accts Assets Accts Assets Accts Assets Accts Assets Accts Assets Accts Assets - ------------------------- ----- ----------- ----- ------ ----- ---------- ----- -------- ----- ---------- ----- -------- Mark B. Baribeau....... 15 $ 4,084 mil 0 $0 6 $1,431 mil 1 $131 mil 161 $5,970 mil 0 $ 0 Pamela N. Czekanski.... 13 $ 3,715 mil 0 $0 6 $1,431 mil 1 $131 mil 155 $6,040 mil 0 $ 0 Maureen G. Depp........ 1 $ 26 mil 0 $0 2 $ 226 mil 1 $ 79 mil 22 $2,505 mil 0 $ 0 Matthew J. Eagan....... 5 $ 790 mil 0 $0 1 $ 136 mil 0 $ 0 40 $2,007 mil 0 $ 0 Daniel J. Fuss......... 14 $14,480 mil 0 $0 4 $ 259 mil 0 $ 0 80 $9,330 mil 4 $805 mil Kathleen C. Gaffney.... 7 $12,689 mil 0 $0 0 $ 0 0 $ 0 48 $3,821 mil 0 $ 0 John Hyll.............. 4 $ 55 mil 0 $0 0 $ 0 0 $ 0 51 $7,632 mil 0 $ 0 Brian James............ 1 $ 26 mil 0 $0 2 $ 226 mil 1 $ 79 mil 20 $2,510 mil 0 $ 0 Steven Kaseta.......... 2 $ 693 mil 0 $0 5 $1,988 mil 0 $ 0 47 $4,133 mil 0 $ 0 Warren Koontz.......... 3 $ 172 mil 0 $0 0 $ 0 0 $ 0 64 $ 732 mil 0 $ 0 Peter W. Palfrey....... 1 $ 218 mil 0 $0 0 $ 0 0 $ 0 23 $1,515 mil 0 $ 0 Robert Payne........... 2 $ 171 mil 0 $0 0 $ 0 0 $ 0 10 $ 245 mil 0 $ 0 Richard G. Raczkowski.. 2 $ 260 mil 0 $0 2 $ 72 mil 0 $ 0 40 $ 890 mil 2 $512 mil David W. Rolley........ 3 $ 1,286 mil 0 $0 0 $ 0 0 $ 0 18 $4,196 mil 0 $ 0 Clifton V. Rowe........ 6 $ 290 mil 0 $0 0 $ 0 0 $ 0 55 $2,262 mil 0 $ 0 Richard D. Skaggs...... 13 $ 3,714 mil 0 $0 6 $1,431 mil 1 $131 mil 122 $5,894 mil 0 $ 0 Elaine J. Stokes....... 6 $ 798 mil 0 $0 0 $ 0 0 $ 0 33 $ 950 mil 1 $183 mil Martha A. Strom........ 2 $ 171 mil 0 $0 0 $ 0 0 $ 0 5 $ 76 mil 0 $ 0
46 Material Conflicts of Interest Conflicts of interest may arise in the allocation of investment opportunities and the allocation of aggregated orders among the Funds and other accounts managed by the portfolio managers. A portfolio manager potentially could give favorable treatment to some accounts for a variety of reasons, including favoring larger accounts, accounts that pay higher fees, accounts that pay performance-based fees, accounts of affiliated companies and accounts in which the portfolio manager has an interest. Such favorable treatment could lead to more favorable investment opportunities or allocations for some accounts. Loomis Sayles makes investment decisions for all accounts (including institutional accounts, mutual funds, hedge funds and affiliated accounts) based on each account's availability of other comparable investment opportunities and Loomis Sayles' desire to treat all accounts fairly and equitably over time. Loomis Sayles maintains trade allocation and aggregation policies and procedures to address these potential conflicts. Conflicts of interest also may arise to the extent a portfolio manager short sells a stock in one client account but holds that stock long in other accounts, including the Funds or sells short for some accounts while buying it for others, and through the use of "soft dollar arrangements," which are discussed in the section "Portfolio Transactions and Brokerage" below. Portfolio Managers' Compensation The following describes the structure of, and the method used to determine, the compensation of each of the above-listed portfolio managers as of September 30, 2006: Loomis Sayles believes that portfolio manager compensation should be driven primarily by the delivery of consistent and superior long-term performance for its clients. Portfolio manager compensation is made up primarily of three main components: base salary, variable compensation and a long-term incentive program. Although portfolio manager compensation is not directly tied to assets under management, a portfolio manager's base salary and/or variable compensation potential may reflect the amount of assets for which the manager is responsible relative to other portfolio managers. Loomis Sayles also offers a profit sharing plan. Base salary is a fixed amount based on a combination of factors including industry experience, firm experience, job performance and market considerations. Variable compensation is an incentive-based component and generally represents a significant multiple of base salary. Variable compensation is based on four factors: investment performance, profit growth of the firm, profit growth of the manager's business unit and team commitment. Investment performance is the primary component of total variable compensation and generally represents at least 60% of the total. The other three factors are used to determine the remainder of variable compensation, subject to the discretion of the department's Chief Investment Officer (CIO) and senior management. The CIO and senior management evaluate these other factors annually. 47 Fixed Income Managers While mutual fund performance and asset size do not directly contribute to the compensation calculation, investment performance for fixed-income managers is measured by comparing the performance of the firm's institutional composite (pre-tax and net of fees) in the manager's style to the performance of an external benchmark and a customized peer group. The external benchmark used for the investment style utilized by each fixed-income fund is noted in the table below: FUND MANAGER BENCHMARK ---- ------------------------------------- Loomis Sayles Core Plus Bond Fund Lehman Aggregate Index Loomis Sayles High Income Fund Lehman High Yield Index Loomis Sayles Investment Grade Bond Fund Lehman Aggregate Index Loomis Sayles Limited Term Government and Agency Fund Lehman Intermediate Government Index Loomis Sayles Massachusetts Tax Free Income Fund Lehman Government/Credit Index Loomis Sayles Municipal Income Fund Lehman Municipal Bond 5 Year Index Loomis Sayles Strategic Income Fund Lehman Aggregate Bond Index The customized peer group is created by the firm and is made up of institutional managers in the particular investment style. A manager's relative performance for the past five years is used to calculate the amount of variable compensation payable due to performance. To ensure consistency, the firm analyzes the five year performance on a rolling three year basis. If a manager is responsible for more than one product, the rankings of each product are weighted based on relative asset size of accounts represented in each product. Loomis Sayles uses both an external benchmark and a customized peer group as measuring sticks for fixed-income manager performance because it believes they represent an appropriate combination of the competitive fixed-income product universe and the investment styles offered by the firm. Mr. Fuss's compensation is also based on his overall contributions to the firm in his various roles as Senior Portfolio Manager, Vice Chairman and Director. As a result of these factors, the contribution of investment performance to Mr. Fuss' total variable compensation may be significantly lower than the percentage reflected above. Equity Managers While mutual fund performance and asset size do not directly contribute to the compensation calculation, investment performance for equity managers is measured by comparing the performance of the firm's institutional composite (pre-tax and net of fees) in the manager's style to the performance of a peer group of institutional managers in that style. A manager's performance relative to the peer group for the 1, 3 and 5 year periods (or since the start of the manager's tenure, if shorter) is used to calculate the amount of variable compensation payable due to performance. Longer-term performance (3 and 5 years, or since the start of the manager's tenure, if shorter) combined is weighted more than shorter-term performance (1 year). If a manager is responsible for more than one product, the rankings of each product are weighted based on relative asset size of accounts represented in each product. An external benchmark is used as a secondary comparison. The external benchmark used for the investment style utilized for each equity Fund is noted in the table below: FUND MANAGER BENCHMARK ---- ------------------------------------- Loomis Sayles Research Fund S&P 500 Index Loomis Sayles Global Markets Fund Lehman Government/Credit Index Russell 1000 Value Index Russell 1000 Growth Index Lehman Global Aggregate Index Citigroup World Government Bond Index Loomis Sayles Growth Fund Russell 1000 Growth Index 48 Loomis Sayles uses the institutional peer groups as the primary measuring stick for equity manager performance because it believes they represent the most competitive product universe while closely matching the investment styles offered by the firm. Loomis Sayles considers the institutional composite an accurate proxy for the performance of each investment style. General Mutual funds are not included in the firm's composites, so unlike other managed accounts, fund performance and asset size do not directly contribute to this calculation. However, each fund managed by the firm employs strategies endorsed by the firm and fits into the product category for the relevant investment style. Loomis Sayles may adjust compensation if there is significant dispersion among the returns of the composite and accounts not included in the composite. Loomis Sayles has developed and implemented a long-term incentive plan to attract and retain investment talent. The plan supplements existing compensation. This plan has several important components distinguishing it from traditional equity ownership plans: . the plan grants units that entitle participants to an annual payment based on a percentage of company earnings above an established threshold; . upon retirement a participant will receive a multi-year payout for his or her vested units; . participation is contingent upon signing an award agreement, which includes a non-compete covenant. Senior management expects that the variable compensation portion of overall compensation will continue to remain the largest source of income for those investment professionals included in the plan. The plan is initially offered to portfolio managers and over time the scope of eligibility is likely to widen. Management has full discretion on what units are issued and to whom. Portfolio managers also participate in the Loomis Sayles profit sharing plan, in which Loomis Sayles makes a contribution to the retirement plan of each employee based on a percentage of base salary (up to a maximum amount). The portfolio managers also participate in the Loomis Sayles defined benefit pension plan, which applies to all Loomis Sayles employees who joined the firm prior to May 1, 2003. The defined benefit is based on years of service and base compensation (up to a maximum amount). Portfolio Managers' Ownership of Fund Shares As of September 30, 2006, the Portfolio Managers had the following ownership in the Funds:
Dollar Range of Equity Securities Name of Portfolio Manager Fund(s) Managed Invested - ------------------------- ---------------------------------------- ----------------- Mark B. Baribeau...... Loomis Sayles Global Markets Fund A Loomis Sayles Growth Fund E Pamela N. Czekanski... Loomis Sayles Growth Fund E Maureen G. Depp....... Loomis Sayles Research Fund E Matthew J. Eagan...... Loomis Sayles High Income Fund A Loomis Sayles Investment Grade Bond Fund A Loomis Sayles Strategic Income Fund A Daniel J. Fuss........ Loomis Sayles Global Markets Fund G Loomis Sayles Investment Grade Bond Fund E Loomis Sayles Strategic Income Fund G
49 Kathleen C. Gaffney.. Loomis Sayles High Income Fund A Loomis Sayles Investment Grade Bond Fund A Loomis Sayles Strategic Income Fund B John Hyll............ Loomis Sayles Limited Term Government and Agency Fund A Brian James.......... Loomis Sayles Research Fund F Steven Kaseta........ Loomis Sayles Investment Grade Bond Fund A Warren Koontz........ Loomis Sayles Global Markets Fund C Peter W. Palfrey..... Loomis Sayles Core Plus Bond Fund D Robert Payne......... Loomis Sayles Massachusetts Tax Free Income Fund A Loomis Sayles Municipal Income Fund A Richard G. Raczkowski Loomis Sayles Core Plus Bond Fund C David Rolley......... Loomis Sayles Global Markets Fund E Clifton V. Rowe...... Loomis Sayles Limited Term Government and Agency Fund A Richard D. Skaggs.... Loomis Sayles Growth Fund E Elaine J. Stokes..... Loomis Sayles High Income Fund A Loomis Sayles Investment Grade Bond Fund A Loomis Sayles Strategic Income Fund D Martha A. Strom...... Loomis Sayles Massachusetts Tax Free Income Fund A Loomis Sayles Municipal Income Fund A
* A. None B. $1 - 10,000 C. $10,001 - $50,000 D. $50,001 - $100,000 E. $100,001 - $500,000 F. $500,001 - $1,000,000 G. over $1,000,000 There are various reasons why a Portfolio Manager may not own shares of the Fund he or she manages. One reason is that the Fund's investment objectives and strategies may not match those of the Portfolio Manager. Administrative reasons (such as facilitating compliance with an adviser's code of ethics) also may explain why a Portfolio Manager has chosen not to invest in the IXIS Advisor Funds. Allocation of Investment Opportunity Among IXIS Advisor and Loomis Sayles Funds (the "Funds") and Other Investors Managed by the Adviser; Cross Relationships of Officers and Trustees Loomis Sayles has organized its business into two investment groups: The Fixed Income Group and The Equity Group. The Fixed Income Group and the Equity Group make investment decisions for the funds managed by Loomis Sayles. The groups make investment decisions independently of one another. These groups also have responsibility for the management of other client portfolios. The other investment companies and clients served by Loomis Sayles' investment platforms sometimes invest in securities in which the funds (or segments thereof) advised or subadvised by Loomis Sayles also invest. If one of these funds and such other clients advised or subadvised by the same investment group of Loomis Sayles desire to buy or sell the same portfolio securities at or about the same time, the respective group allocates purchases and sales, to the extent practicable, on a pro rata basis in proportion to the amount desired to be purchased or sold for each fund or client advised or subadvised by that investment group. It is recognized that in some cases the practices described in this paragraph could have a detrimental effect on the price or amount of the securities which each of the funds purchases or sells. In other cases, however, it is believed that these practices may benefit the relevant Fund. 50 PORTFOLIO TRANSACTIONS AND BROKERAGE All Income Funds In placing orders for the purchase and sale of portfolio securities for each Income Fund, Loomis Sayles always seeks the best price and execution. Some of each Income Fund's portfolio transactions are placed with brokers and dealers that provide Loomis Sayles with supplementary investment and statistical information or furnish market quotations to that Fund, the other Funds or other investment companies advised by Loomis Sayles. The business would not be so placed if the Funds would not thereby obtain the best price and execution. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce the expenses of Loomis Sayles. The services may also be used by Loomis Sayles in connection with their other advisory accounts and in some cases may not be used with respect to the Funds. All Equity Funds In placing orders for the purchase and sale of equity securities for each Equity Fund, Loomis Sayles selects only brokers that it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates that, when combined with the quality of the foregoing services, will produce the best price and execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. The adviser will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Subject to the overriding objective of obtaining the best possible execution of orders, each Fund's adviser may allocate brokerage transactions to affiliated brokers. Any such transactions will comply with Rule 17e-1 under the 1940 Act. In order for the affiliated broker to effect portfolio transactions for the Fund, the commissions, fees or other remuneration received by the affiliated broker must be reasonable and fair compared to the commissions, fees and other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period. Furthermore, each Trust's Board of Trustees, including a majority of the Independent Trustees, have adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker are consistent with the foregoing standard. Generally, Loomis Sayles seeks to obtain quality executions at favorable security prices and at competitive commission rates, where applicable, through brokers and dealers who, in Loomis Sayles' opinion, can provide the best overall net results for its clients. Transactions in unlisted equity securities (including NASDAQ securities) are frequently executed through a primary market maker but may also be executed on an Electronic Communication Network (ECN), Alternative Trading System (ATS), or other execution system. Fixed-income securities are generally purchased from the issuer or a primary market maker acting as principal on a net basis with no brokerage commission paid by the client. Such securities, as well as equity securities, may also be purchased from underwriters at prices which include underwriting fees. Commissions and Other Factors in Broker or Dealer Selection Loomis Sayles uses its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and to evaluate the overall reasonableness of brokerage commissions paid on client portfolio transactions by reference to such data. In making this evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker or dealer, are taken into account. Other relevant factors may include, without limitation: (a) the execution capabilities of the brokers and/or dealers, (b) research and other products or services (as described under "Soft Dollars" below) provided by such brokers and/or dealers which are expected to enhance Loomis Sayles' general portfolio management capabilities, (c) the size of the transaction, (d) the difficulty of execution, (e) the operations facilities of the brokers and/or dealers involved, (f) the risk in positioning a block of securities, and (g) the quality of the overall brokerage and research services provided by the broker and/or dealer. 51 Soft Dollars Loomis Sayles' receipt of brokerage and research products or services may sometimes be a factor in Loomis Sayles' selection of a broker or dealer to execute transactions for a Fund where Loomis Sayles believes that the broker or dealer will provide best execution of the transactions. Such brokerage and research products or services may be paid for with Loomis Sayles' own assets or may, in connection with transactions in equity securities effected for client accounts for which Loomis Sayles exercises investment discretion, be paid for with client commissions (the latter, sometimes referred to as "Soft Dollars"). The brokerage and research products and services that may be a factor in Loomis Sayles' selection of a broker or dealer and that may be acquired by Loomis Sayles with Soft Dollars include, without limitation, the following which aid Loomis Sayles in carrying out its investment decision-making responsibilities: a wide variety of reports, charts, publications, subscriptions, quotation services, news services, investment related hardware and software, and data on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, credit analysis, stock and bond market conditions and projections, asset allocation, portfolio structure, economic forecasts, investment strategy advice, fundamental and technical advice on individual securities, valuation advice, market analysis, advice as to the availability of securities or purchasers or sellers of securities, and meetings with management representatives of issuers and other analysts and specialists. The brokerage and research products or services provided to Loomis Sayles by a particular broker or dealer may include both (a) products and services created by such broker or dealer and (b) products and services created by a third party. If Loomis Sayles receives a particular product or service that both aids it in carrying out its investment decision-making responsibilities (i.e., a "research use") and provides non-research related uses, Loomis Sayles will make a good faith determination as to the allocation of the cost of such "mixed-use item" between the research and non-research uses and will only use Soft Dollars to pay for the portion of the cost relating to its research use. In connection with Loomis Sayles' use of Soft Dollars, a Fund may pay a broker or dealer an amount of commission for effecting a transaction for the Fund in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if Loomis Sayles determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research products or services provided by the broker or dealer, viewed in terms of either the particular transaction or Loomis Sayles' overall responsibilities with respect to the Fund. Loomis Sayles may use Soft Dollars to acquire brokerage or research products and services that have potential application to all client accounts including the Funds or to acquire brokerage or research products and services that will be applied in the management of a certain group of client accounts and, in some cases, may not be used with respect to the Funds. The products or services may not be used in connection with the management of some of the accounts including the Funds that paid commissions to the broker or dealer providing the products or services and may be used in connection with the management of other accounts. Loomis Sayles' use of Soft Dollars to acquire brokerage and research products and services benefits Loomis Sayles by allowing it to obtain such products and services without having to purchase them with its own assets. Loomis Sayles believes that its use of Soft Dollars also benefits the Funds as described above. However, conflicts may arise between a Fund's interest in paying the lowest commission rates available and Loomis Sayles' interest in receiving brokerage and research products and services from particular brokers and dealers without having to purchase such products and services with Loomis Sayles' own assets. Loomis Sayles seeks to ensure that its "Soft Dollar" practices fall within the "safe harbor" provided by Section 28(e) of the Securities Exchange Act of 1934, as amended. For purposes of this Soft Dollars discussion, the term "commission" may include (to the extent applicable) both commissions paid to brokers in connection with transactions effected on an agency basis and markups, markdowns, commission equivalents, or other fees paid to dealers in connection with certain transactions as encompassed by relevant SEC interpretation. Loomis Sayles does not generate "Soft Dollars" on fixed-income transactions. 52 Brokerage Commissions The tables in Part I of this Statement set forth, for each of the last three fiscal years, (1) the aggregate dollar amount of brokerage commissions paid on portfolio transactions during such year, (2) the dollar amount of transactions on which brokerage commissions were paid during such year that were directed to brokers providing research services ("directed transactions") and (3) the dollar amount of commissions paid on directed transactions during such year. The information in the tables includes transactions that were directed to broker dealers based on the internal "broker vote" allocation policy of Loomis Sayles as well as transactions that were allocated under arrangements with brokers providing research services. The "broker vote" is an internal evaluation conducted by Loomis Sayles trading personnel which consists of reviewing the brokers or dealers with whom Loomis Sayles executes client transactions to rate such firms after considering a variety of factors, including the quality of their research, the quality of their sales coverage, execution capabilities, willingness to commit capital on transactions, market knowledge, competitive commissions rates and prices and their ability to affect difficult trades in less liquid, smaller capitalized, and more closely held issues. When Loomis Sayles believes that more than one broker is capable of providing best execution on a particular transaction, the transaction may be allocated among those brokers based on the results of the "broker vote" and/or pursuant to Soft Dollar arrangements. General Subject to procedures adopted by the Board of Trustees of each Trust, the Funds' brokerage transactions may be executed by brokers that are affiliated with IXIS Asset Management US Group or Loomis Sayles. Any such transactions will comply with Rule 17e-1 under the 1940 Act, or other applicable restrictions as permitted by the SEC pursuant to exemptive relief or otherwise. Under the 1940 Act, persons affiliated with each Trust are prohibited from dealing with each Trust's funds as a principal in the purchase and sale of securities. Since transactions in the over-the-counter market usually involve transactions with dealers acting as principals for their own accounts, affiliated persons of the Trusts may not serve as the Funds' dealer in connection with such transactions. To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, the adviser may allocate brokerage transactions to broker-dealers (including affiliates of the Distributor) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a Fund toward the reduction of that Fund's expenses. It is expected that the portfolio transactions in fixed-income securities will generally be with issuers or dealers on a net basis without a stated commission. Securities firms may receive brokerage commissions on transactions involving options, futures and options on futures and the purchase and sale of underlying securities upon exercise of options. The brokerage commissions associated with buying and selling options may be proportionately higher than those associated with general securities transactions. DESCRIPTION OF THE TRUSTS The Declarations of Trust of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II and Loomis Sayles Funds II permit each Trust's trustees to issue an unlimited number of full and fractional shares of each series. Each share of each Fund represents an equal proportionate interest in such Fund with each other share of that Fund and is entitled to a proportionate interest in the dividends and distributions from that Fund. The Declarations of Trust further permit each Trust's Board of Trustees to divide the shares of each series into any number of separate classes, each having such rights and preferences relative to other classes of the same series as each Trust's Board of Trustees may determine. When you invest in a Fund, you acquire freely transferable shares of beneficial interest that entitle you to receive dividends as determined by each Trust's Board of Trustees and to cast a vote for each share you own at shareholder meetings. The shares of each Fund do not have any preemptive rights. Upon termination of any Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of each class of that Fund are entitled to share pro rata in the net assets attributable to that class of shares of that Fund available for distribution to shareholders. Each Declaration of Trust also permits the Board of Trustees to charge shareholders directly for custodial, transfer agency and servicing expenses. The shares of all the Funds (except as noted in this Statement and in each of the Fund's Prospectuses) are divided into four classes: Class A, Class B, Class C and Class Y. Each Fund offers such classes of shares as set forth in such Fund's Prospectuses. As disclosed in the Prospectus, not every Fund offers each class of shares. Class 53 Y shares are available for purchase only by certain eligible investors and have higher minimum purchase requirements than Classes A, B and C. All expenses of each Fund (including advisory and subadvisory fees but excluding class specific expenses such as transfer agency fees ("Other Expenses")) are borne by its Classes A, B, C and Y shares on a pro rata basis, except for 12b-1 fees, which are borne only by Classes A, B and C and may be charged at a separate rate to each such class. Other Expenses of Classes A, B and C are borne by such classes on a pro rata basis, but Other Expenses relating to the Class Y shares may be allocated separately to the Class Y shares. The multiple class structure could be terminated should certain IRS rulings or SEC regulatory positions be rescinded or modified. The assets received by each class of a Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of creditors, are allocated to, and constitute the underlying assets of, that class of the Fund. The underlying assets of each class of a Fund are segregated and are charged with the expenses with respect to that class of the Fund and with a share of the general expenses of the relevant Fund and Trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular class of a Fund are allocated by or under the direction of the trustees in such manner as the trustees determine to be fair and equitable. While the expenses of each Trust are allocated to the separate books of account of each Fund, certain expenses may be legally chargeable against the assets of all of the Funds in a Trust. Each Declaration of Trust also permits the Trusts' Board of Trustees, without shareholder approval, to subdivide any Fund or series or class of shares into various sub-series or sub-classes with such dividend preferences and other rights as the trustees may designate. Each Trust's Board of Trustees may also, without shareholder approval, establish one or more additional series or classes or merge two or more existing series or classes without shareholder approval. Shareholders' investments in such an additional or merged series would be evidenced by a separate series of shares (i.e., a new "fund"). Each Declaration of Trust provides for the perpetual existence of the Trusts. Any Trust or any Fund, however, may be terminated at any time by vote of at least two-thirds of the outstanding shares of each Fund affected. Similarly, any class within a Fund may be terminated by vote of at least two-thirds of the outstanding shares of such class. Each Declaration of Trust further provides that the Board of Trustees may also without shareholder approval terminate the relevant Trust or Fund upon written notice to its shareholders. VOTING RIGHTS Shareholders of all Funds are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided therein) on the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. All classes of shares of each Fund have identical voting rights except that each class of shares has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and has separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. Each class of shares has exclusive voting rights with respect to matters pertaining to any distribution or servicing plan or agreement applicable to that class. Matters submitted to shareholder vote will be approved by each series separately except (i) when required by the 1940 Act, shares shall be voted together and (ii) when the matter does not affect all series, then only shareholders of the series affected shall be entitled to vote on the matter. Consistent with the current position of the SEC, shareholders of all series and classes vote together, irrespective of series or class, on the election of trustees and the selection of the Trusts' independent registered public accounting firm, but shareholders of each series vote separately on most other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory and subadvisory agreement relating to that series, and shareholders of each class within a series vote separately as to the Rule 12b-1 plan (if any) relating to that class. There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) a Trust will hold a shareholders' meeting for the election of trustees at such time as less than a majority of the trustees holding office have been elected by shareholders, and (ii) if there is a vacancy on the Board of Trustees, such vacancy may be filled only by a vote of the shareholders unless, after filling such vacancy by other means, at least two-thirds of the trustees holding office shall have been elected by the shareholders. In addition, trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares and filed with a Trust's custodian or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for that purpose. 54 Upon written request by a minimum of ten holders of shares having held their shares for a minimum of six months and having a net asset value of at least $25,000 (with respect to all Trusts except Loomis Sayles Funds II) or constituting at least 1% of the outstanding shares stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a trustee, the Trusts have undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders). Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Shareholder voting rights are not cumulative. The affirmative vote of a majority of shares of the Trusts voted (assuming a quorum is present in person or by proxy) is required to amend a Declaration of Trust if such amendment (1) affects the power of shareholders to vote, (2) amends the section of the Declaration of Trust governing amendments, (3) is one for which a vote is required by law or by the Trusts' registration statement or (4) is submitted to the shareholders by the trustees. If one or more new series of a Trust is established and designated by the trustees, the shareholders having beneficial interests in the Funds shall not be entitled to vote on matters exclusively affecting such new series, such matters including, without limitation, the adoption of or any change in the investment objectives, policies or restrictions of the new series and the approval of the investment advisory contracts of the new series. Similarly, the shareholders of the new series shall not be entitled to vote on any such matters as they affect the other Funds. SHAREHOLDER AND TRUSTEE LIABILITY Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of a Trust. However, the Declarations of Trust disclaim shareholder liability for acts or obligations of a Trust and require that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by a Trust or the trustees. The Declarations of Trust provide for indemnification out of each Fund's property for all loss and expense of any shareholder held personally liable for the obligations of the Fund by reason of owning shares of such Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and a Fund itself would be unable to meet its obligations. The Declarations of Trust further provide that the relevant Board of Trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declarations of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The By-Laws of each Trust provide for indemnification by the Trust of trustees and officers of the relevant Trust, except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that his or her action was in the best interests of the Trust. Such persons may not be indemnified against any liability to the Trust or the Trust's shareholders to whom he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Each Trust offers only its own Funds' shares for sale, but it is possible that a Trust might become liable for any misstatements in a Prospectus that relate to another Trust. The trustees of each Trust have considered this possible liability and approved the use of the combined Prospectus for Funds of the Trusts. HOW TO BUY SHARES The procedures for purchasing shares of the Funds are summarized in the Prospectuses. All purchases made by check should be in U.S. dollars and made payable to IXIS Advisor Funds. Shares may also be purchased either in writing, by phone, by wire, by electronic funds transfer using Automated Clearing House ("ACH"), or by exchange, as described in the Prospectuses, or through firms that are members of the NASD and that have selling agreements with the Distributor. For purchase of Fund shares by mail, the trade date is the day of receipt of the check in good order by the transfer agent so long as it is received by the close of regular trading of the New York Stock Exchange (the "Exchange") on a day when the Exchange is open. For purchases through the ACH system, the shareholder's bank or credit union must be a member of the ACH system and the shareholder must have approved banking information on file. With respect to shares purchased by 55 wire or through the ACH system, shareholders should bear in mind that the transactions may take two or more days to complete. Banks may charge a fee for transmitting funds by wire. You may also use IXIS Advisor Funds Personal Access Line(R) (800-225-5478, press 1) or IXIS Advisor Funds Web site (www.ixisadvisorfunds.com) to purchase Fund shares (except for Class Y shares). For more information, see the section "Shareholder Services" in this Statement. At the discretion of the Distributor, bank trust departments or trust companies may also be eligible for investment in Class Y shares at a reduced minimum, subject to certain conditions including a requirement to meet the minimum investment balance within a specified time period. Please contact the Distributor at 800-225-5478 for more information. At the discretion of the Distributor, clients of IXIS Advisors may purchase, at NAV, Class A shares of IXIS Advisor Funds that do not offer Class Y shares. Shareholders of the Funds may be permitted to open an account without an initial investment and then wire funds into the account once established. These shareholders will still be subject to the investment minimums as detailed in the prospectus of the relevant Fund. REDEMPTIONS The procedures for redemption of shares of a Fund are summarized in its Prospectus. As described in the Prospectus, a CDSC may be imposed on certain redemptions of Classes A, B and C shares, and a redemption fee may be charged on redemptions and exchanges of certain of the Funds. For purposes of the CDSC, an exchange of shares from one Fund to another Fund is not considered a redemption or a purchase. For federal tax purposes, however, such an exchange is considered a sale and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or loss. In determining whether a CDSC is applicable to a redemption of Class A, Class B or Class C shares, the calculation will be determined in the manner that results in the lowest rate being charged. The charge will not be applied to dollar amounts representing an increase in the net asset value of shares since the time of purchase or reinvested distributions associated with such shares. Unless you request otherwise at the time of redemption, the CDSC is deducted from the redemption, not the amount remaining in the account. The Funds will only accept Medallion signature guarantees bearing the STAMP 2000 Medallion imprint. However, a Medallion signature guarantee may not be required if the proceeds of the redemption do not exceed $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address, or if the proceeds are going to a bank on file. Please contact the Funds at 800-225-5478 with any questions regarding when a Medallion signature guarantee is required. If you select the telephone redemption service in the manner described in the next paragraph, shares of the Funds may be redeemed by calling toll free 800-225-5478. A wire fee may be deducted from the proceeds if you elect to receive the funds wired to your bank on record. Telephone redemption requests must be received by the close of regular trading on the Exchange. Requests made after that time or on a day when the Exchange is not open for business will receive the next business day's closing price. The proceeds of a telephone withdrawal will normally be sent within three business days following receipt of a proper redemption request. In order to redeem shares by telephone, a shareholder must either select this service when completing the Fund application or must do so subsequently on the Service Options Form, which is available at www.ixisadvisorfunds.com or from your investment dealer. When selecting the service, a shareholder may have their withdrawal proceeds sent to his or her bank, in which case the shareholder must designate a bank account on his or her application or Service Options Form to which the redemption proceeds should be sent as well as provide a check marked "VOID" and/or a deposit slip that includes the routing number of his or her bank. Any change in the bank account so designated may be made by furnishing to Boston Financial or your investment dealer a completed Service Options Form, which may require a signature guarantee. Telephone redemptions by ACH or wire may only be made if the designated bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The Funds, the Distributor, the transfer agent and State Street Bank (the Funds' custodian) are not responsible for the authenticity of withdrawal instructions received by telephone, although they will apply established verification procedures. Boston Financial (the Funds' transfer agent), as agreed to with the Funds, will employ reasonable procedures to confirm that your telephone instructions are genuine, and if it does not, it may be liable for any losses due to unauthorized or fraudulent instructions. Such verification procedures include, but are not 56 limited to, requiring a form of personal identification prior to acting on an investor's telephone instructions and recording an investor's instructions. Check writing is available on Class A shares of Limited Term Government and Agency Fund and Massachusetts Tax Free Income Fund. To elect check writing for your account, select the check writing option on your application and complete the attached signature card. To add check writing to an existing account, please call 800-225-5478 for our Service Options Form. The Funds will send you checks drawn on State Street Bank. You will continue to earn dividends on shares redeemed by check until the check clears. Each check must be written for $500 or more. The check writing privilege does not apply to shares for which you have requested share certificates to be issued. Check writing is not available for investor accounts containing Class A shares subject to a CDSC. If you use withdrawal checks, you will be subject to State Street Bank's rules governing checking accounts. Limited Term Government and Agency Fund, Massachusetts Tax Free Income Fund and the Distributor are in no way responsible for any check writing account established with State Street Bank. You may not close your account by withdrawal check because the exact balance of your account will not be known until after the check is received by State Street Bank. Shares purchased by check or through ACH may not be available immediately for redemption. The Funds may withhold redemption proceeds for 10 days when redemptions are made within 10 calendar days of purchase by check or through ACH. The redemption price will be the net asset value per share (less any applicable CDSC and redemption fee) next determined after the redemption request and any necessary special documentation are received by State Street Bank or your investment dealer in proper form. Payment normally will be made by State Street Bank on behalf of a Fund within seven days thereafter. However, in the event of a request to redeem shares for which the Fund has not yet received good payment, the Funds reserve the right to withhold payments of redemption proceeds if the purchase of shares was made by a check which was deposited within ten calendar days prior to the redemption request (unless the Fund is aware that the check has cleared). The CDSC may be waived on redemptions made from IRA accounts due to attainment of age 59 1/2 for IRA shareholders who established accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from IRA accounts due to death, disability, return of excess contribution, required minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to meet the required minimum amount based on assets held within the Funds), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of the account, and redemptions made from the account to pay custodial fees. The CDSC may also be waived on redemptions within one year following the death of (i) the sole shareholder of an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfer to Minors Act or other custodial account. If the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption occurring within one year of death. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged. If shares are not redeemed within one year of the death, they will remain subject to the applicable CDSC when redeemed from the transferee's account. The CDSC may be waived on redemptions made from 403(b)(7) custodial accounts due to attainment of age 59 1/2 for shareholders who established custodial accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from 403(b)(7) custodial accounts due to death or disability. The CDSC may also be waived on redemptions necessary to pay plan participants or beneficiaries from qualified retirement plans under Section 401 of the Code, including profit sharing plans, money purchase plans, 401(k) and custodial accounts under Section 403(b)(7) of the Code. Distributions necessary to pay plan participants and beneficiaries include payment made due to death, disability, separation from service, normal or early retirement as defined in the plan document, loans from the plan and hardship withdrawals, return of excess contributions, required minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of your account, and redemptions made from qualified retirement accounts or Section 403(b)(7) custodial accounts necessary to pay custodial fees. A CDSC will apply in the event of plan level transfers, including transfers due to changes in investment where assets are transferred outside of IXIS Advisor Funds, including IRA and 403(b)(7) participant-directed 57 transfers of assets to other custodians (except for the reasons given above) or qualified transfers of assets due to trustee-directed movement of plan assets due to merger, acquisition or addition of additional funds to the plan. In order to redeem shares electronically through the ACH system, a shareholder's bank or credit union must be a member of the ACH system and the shareholder must have a completed, approved ACH application on file. In addition, the telephone request must be received no later than the close of the exchange). Upon receipt of the required information, the appropriate number of shares will be redeemed and the monies forwarded to the bank designated on the shareholder's application through the ACH system. The redemption will be processed the day the telephone call is made and the monies generally will arrive at the shareholder's bank within three business days. The availability of these monies will depend on the individual bank's rules. Each Fund will normally redeem shares for cash; however, each Fund reserves the right to pay the redemption price wholly or partly in kind, if the Trust's Board of Trustees determines it to be advisable and in the interest of the remaining shareholders of a Fund. The redemptions in kind will be selected by the Fund's adviser in light of the Fund's objective and will not generally represent a pro rata distribution of each security held in the Fund's portfolio. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Funds have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which each Fund is obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total net asset value of each Fund at the beginning of such period. The Funds do not currently impose any redemption charge other than the CDSC imposed by the Funds' distributor, and the redemption fee imposed on certain Funds, both as described in the Prospectuses. The Board of Trustees reserves the right to impose additional charges at any time. A redemption constitutes a sale of shares for federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See also "Taxes," below. Reinstatement Privilege (Class A shares only) The Prospectus describes redeeming shareholders' reinstatement privileges for Class A shares. Written notice and the investment check from persons wishing to exercise this reinstatement privilege must be received by your investment dealer or the Funds within 120 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and the investment check and will be limited to the amount of the redemption proceeds. Even though an account is reinstated, the redemption will constitute a sale for federal income tax purposes. Investors who reinstate their accounts by purchasing shares of the Funds should consult with their tax advisers with respect to the effect of the "wash sale" rule if a loss is realized at the time of the redemption. SHAREHOLDER SERVICES Open Accounts A shareholder's investment is automatically credited to an open account maintained for the shareholder by Boston Financial. Following each additional investment or redemption from the account initiated by an investor (with the exception of systematic investment plans), a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each calendar year, Boston Financial will send each shareholder a statement providing account information which may include federal tax information on dividends and distributions paid to the shareholder during the year. This statement should be retained as a permanent record. Boston Financial may charge a fee for providing duplicate information. The open account system provides for full and fractional shares expressed to three decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. Certificates will not be issued for any class of shares. The costs of maintaining the open account system are paid by the Funds and no direct charges are made to shareholders. Although the Funds have no present intention of making such direct charges to shareholders, they each reserve the right to do so. Shareholders will receive prior notice before any such charges are made. 58 Automatic Investment Plans (Classes A, B and C Shares) Subject to each Fund's investor eligibility requirements, investors may automatically invest in additional shares of a Fund on a monthly basis by authorizing the Distributor to draw checks on an investor's bank account. The checks are drawn under the Investment Builder Program, a program designed to facilitate such periodic payments, or through payroll deduction, and are forwarded to Boston Financial for investment in the Fund. A plan may be opened with an initial investment of $1,000 or more and thereafter regular monthly checks of $50 or more will be drawn on the investor's account. (Shareholders with accounts participating in IXIS Advisor Funds Investment Builder Program prior to May 1, 2005 may continue to make subsequent purchases of $25 or more into those accounts). The reduced minimum initial investment pursuant to an automatic investment plan is referred to in the Prospectus. An Investment Builder application must be completed to open an automatic investment plan and may be obtained by calling the Distributor at 800-225-5478 or your investment dealer or by visiting the Funds' website at www.ixisadvisorfunds.com. This program is voluntary and may be terminated at any time by Boston Financial upon notice to existing plan participants. The Investment Builder Program plan may be discontinued at any time by the investor by written notice to Boston Financial, which must be received at least five business days prior to any payment date. The plan may be discontinued by State Street Bank at any time without prior notice if any check is not paid upon presentation or by written notice to the shareholder at least thirty days prior to any payment date. The Funds are under no obligation to notify shareholders as to the nonpayment of any check. Retirement Plans and Other Plans Offering Tax Benefits (Classes A, B and C Shares) The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of the Funds or with certain other investments. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRAs), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, i.e., 403(b)(7) plans. The minimum initial investment available to retirement plans and other plans offering tax benefits is referred to in the Prospectus. For these plans, initial investments in a Fund must be at least $1,000 for IRAs and Keogh plans using the IXIS Advisor Funds prototype document and $500 for Coverdell Education Savings Accounts and at least $100 for any subsequent investments. There is no initial or subsequent investment minimum for SIMPLE IRAs and 403(b)(7) plans using the IXIS Advisor Funds, prototype documents. Income dividends and capital gain distributions must be reinvested (unless the investor is over age 59 1/2 or disabled). These types of accounts may be subject to fees. Plan documents and further information can be obtained from the Distributor. Certain retirement plans may also be eligible to purchase Class Y shares. See the Prospectus relating to Class Y shares. Systematic Withdrawal Plans (Classes A, B and C Shares) An investor owning a Fund's shares having a value of $10,000 or more at the current public offering price may establish a Systematic Withdrawal Plan ("Plan") providing for periodic payments of a fixed or variable amount. An investor may terminate the plan at any time. A form for use in establishing such a plan is available from the servicing agent or your investment dealer. Withdrawals may be paid to a person other than the shareholder if a Medallion signature guarantee is provided. Please consult your investment dealer or the Funds. A shareholder under a Plan may elect to receive payments monthly, quarterly, semiannually or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the account's market value or (3) a specified number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more. In the case of shares subject to a CDSC, the amount or percentage you specify may not, on an annualized basis, exceed 10% of the value, as of the time you make the election, of your account with the Fund with respect to which you are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan will be treated as 59 redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares purchased through the reinvestment of distribution in your account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in your account. No CDSC applies to redemptions pursuant to the Plan. A redemption fee may apply. All shares under the Plan must be held in an open (uncertificated) account. Income dividends and capital gain distributions will be reinvested (without a sales charge in the case of Class A shares) at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in net asset value. Accordingly, a shareholder should consider whether a Plan and the specified amounts to be withdrawn are appropriate under the circumstances. The Funds and the Distributor make no recommendations or representations in this regard. It may be appropriate for a shareholder to consult a tax adviser before establishing such a plan. See "Redemptions" and "Taxes" below for certain information as to federal income taxes. It may be disadvantageous for a shareholder to purchase on a regular basis additional Fund shares with a sales charge while redeeming shares under a Plan. Accordingly, the Funds and the Distributor do not recommend additional investments in Class A shares by a shareholder who has a withdrawal plan in effect and who would be subject to a sales load on such additional investments. IXIS Advisor Funds may modify or terminate this program at any time. Because of statutory restrictions this Plan is not available to pension or profit-sharing plans, IRAs or 403(b)(7) plans that have State Street Bank as trustee. Payroll Deduction Program The Funds no longer offer the Payroll Deduction Plan to new shareholders. Shareholders enrolled in the Payroll Deduction Program prior to May 1, 2005 may continue to participate in the program for the accounts that were included in that enrollment but may not add the program to additional accounts. Employees of IXIS Advisors may continue to participate in the program and may continue to add the program to additional accounts. In order to participate, employees must establish an account that meets the minimum initial investment amount. Subsequent investments through the program must be for a minimum of $50 on a monthly basis. Dividend Diversification Program You may also establish a Dividend Diversification Program, which allows you to have all dividends and any other distributions automatically invested in shares of the same class of another IXIS Advisor Fund, subject to the investor eligibility requirements of that other Fund and to state securities law requirements. Shares will be purchased at the selected Fund's net asset value (without a sales charge or CDSC) on the dividend record date. A dividend diversification account must be registered to the same shareholder as the distributing Fund account and, if a new account in the purchased Fund is being established, the purchased Fund's minimum investment requirements must be met. Before establishing a Dividend Diversification Program into any other IXIS Advisor Fund, you must obtain and carefully read a copy of that Fund's Prospectus. Exchange Privilege A shareholder may exchange the shares of any Fund for shares of the same class of another IXIS Advisor Fund, IXIS Advisor Cash Management Trust-Money Market Series (the "Money Market Fund") or series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers that class (subject to the investor eligibility requirements, if any, of the fund into which the exchange is being made and any other limits on the sales of or exchanges into that fund) on the basis of relative net asset values at the time of the exchange without any sales charge. An exchange of shares in one fund for shares of another fund is a taxable event on which gain or loss may be recognized. In certain limited circumstances, the Distributor may waive the requirement that shareholders pay the difference between any sales charge already paid on their shares and the higher sales charge of the fund into which they are exchanging at the time of the exchange. When an exchange is made from the Class A, Class B or Class C shares of one Fund to the same class of shares of another Fund, the shares received by the shareholder in the exchange will have the same age characteristics as the shares exchanged. The age of the shares determines the 60 expiration of the CDSC and, for the Class B shares, the conversion date. As stated above, if you own Class A, Class B or Class C shares, you may also elect to exchange your shares of any Fund for shares of the same class of the Money Market Fund. On all exchanges of Class B or C shares subject to a CDSC into the Money Market Fund, the exchange stops the aging period relating to the CDSC, and, for Class B shares only, relating to conversion to Class A shares. The aging period resumes only when an exchange is made back into Classes B and C shares of a Fund. Shareholders may also exchange their shares in the Money Market Fund for shares of the same class of any other IXIS Advisor Fund listed below, subject to those funds' eligibility requirements and sales charges. Class C shares in accounts of the Money Market Fund may exchange into Class C shares of a IXIS Advisor Fund subject to its CDSC schedule. These options are summarized in the Prospectuses. An exchange may be effected, provided that neither the registered name nor address of the accounts is different and provided that a certificate representing the shares being exchanged has not been issued to the shareholder, by (1) a telephone request to the Fund at 800-225-5478 or (2) a written exchange request to the Fund, P.O. Box 219579, Kansas City, MO 64121-9579. You must acknowledge receipt of a current Prospectus for a Fund before an exchange for that Fund can be effected. The minimum amount for an exchange is the minimum amount to open an account or the total net asset value of your account, whichever is less. All exchanges are subject to the eligibility requirements of the fund into which you are exchanging and any other limits on sales of or exchanges into that fund. The exchange privilege may be exercised only in those states where shares of such funds may be legally sold. Each Fund reserves the right to suspend or change the terms of exchanging shares. Each Fund and the Distributor reserve the right to refuse or limit any exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Fund's other shareholders or possibly disruptive to the management of the Fund. An exchange transaction is a redemption of shares and is subject to the redemption fee policy. See the section "Redemptions" above. Agents, general agents, directors and senior officers of New England Financial and its insurance company subsidiaries may, at the discretion of New England Financial, elect to exchange Class A shares of any series of the Trusts acquired in connection with deferred compensation plans offered by New England Financial for Class Y shares of any series of the Trusts which offers Class Y shares. To obtain a Prospectus and more information about Class Y shares, please call the Distributor toll free at 800-225-5478. Before requesting an exchange into any other IXIS Advisor Fund, Money Market Fund, or series of Loomis Sayles Funds I or Loomis Sayles Funds II, please read its prospectus carefully. Subject to the applicable rules of the SEC, the Board of Trustees reserves the right to modify the exchange privilege at any time. Except as otherwise permitted by SEC rule, shareholders will receive at least 60 days' advance notice of any material change to the exchange privilege. As indicated in the Prospectuses, certain Funds are subject to a redemption fee on exchanges. Automatic Exchange Plan (Classes A, B and C Shares) As described in the Prospectus following the caption "Additional Investor Services of IXIS Advisor Funds," a shareholder may establish an Automatic Exchange Plan under which shares of a Fund are automatically exchanged each month for shares of the same class of one or more of the other Funds. Registration on all accounts must be identical. The two dates each month on which exchanges may be made are the 15th and 28th (or the first business day thereafter if either the 15th or the 28th is not a business day) until the account is exhausted or until Boston Financial is notified in writing to terminate the plan. Exchanges may be made in amounts of $100 or more. The Service Options Form may be used to establish an Automatic Exchange Plan and is available from Boston Financial or your financial representative. Broker Trading Privileges The Distributor may, from time to time, enter into agreements with one or more brokers or other intermediaries to accept purchase and redemption orders for Fund shares until the close of regular trading on the Exchange (normally, 4:00 p.m. Eastern time on each day that the Exchange is open for trading); such purchase and redemption orders will be deemed to have been received by the Fund when the authorized broker or intermediary accepts such orders; and such orders will be priced using that Fund's net asset value next computed after the orders 61 are placed with and accepted by such brokers or intermediaries. Any purchase and redemption orders received by a broker or intermediary under these agreements will be transmitted daily to the Fund no later than the time specified in such agreement; but, in any event, no later than 9:30 a.m. following the day that such purchase or redemption orders are received by the broker or intermediary. Transcript Requests Transcripts of account transactions will be provided, for a fee, at the shareholders request. Transcripts for the current calendar year and the past calendar year will be provided free of charge. Requests for transcripts for periods prior to that will be subject to a fee of $10 per transcript up to a maximum of $75 per account. Self-Servicing Your Account with IXIS Advisor Funds Personal Access Line(R) and Web Site IXIS Advisor Funds shareholders may access account information, including share balances and recent account activity online, by visiting our Web site at www.ixisadvisorfunds.com. Transactions may also be processed online for certain accounts (restrictions may apply). Such transactions include purchases, redemptions and exchanges, and shareholders are automatically eligible for these features. IXIS Advisor Funds has taken measures to ensure the security of shareholder accounts, including the encryption of data and the use of personal identification (PIN) numbers. In addition, you may restrict these privileges from your account by calling IXIS Advisor Funds at 800-225-5478, or writing to us at P.O. Box 219579, Kansas City, MO 64121-9579. More information regarding these features may be found on our Web site at www.ixisadvisorfunds.com. Investor activities through these mediums are subject to the terms and conditions outlined in the following IXIS Advisor Funds Online and Telephonic Customer Agreement. This agreement is also posted on our Web site. The initiation of any activity through the IXIS Advisor Funds Personal Access Line/(R)/ or Web site at www.ixisadvisorfunds.com by an investor shall indicate agreement with the following terms and conditions: IXIS Advisor Funds Online and Telephonic Customer Agreement NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS AND CONDITIONS. The accuracy, completeness and timeliness of all mutual fund information provided is the sole responsibility of the mutual fund company that provides the information. No party that provides a connection between this Web site and a mutual fund or its transfer agency system can verify or ensure the receipt of any information transmitted to or from a mutual fund or its transfer agent, or the acceptance by, or completion of any transaction with, a mutual fund. The online acknowledgments or other messages that appear on your screen for transactions entered do not mean that the transactions have been received, accepted or rejected by the mutual fund. These acknowledgments are only an indication that the transactional information entered by you has either been transmitted to the mutual fund, or that it cannot be transmitted. It is the responsibility of the mutual fund to confirm to you that it has received the information and accepted or rejected a transaction. It is the responsibility of the mutual fund to deliver to you a current prospectus, confirmation statement and any other documents or information required by applicable law. NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION FROM THE FUND COMPANY. You are responsible for reviewing all mutual fund account statements received by you in the mail in order to verify the accuracy of all mutual fund account information provided in the statement and transactions entered through this site. You are also responsible for promptly notifying the mutual fund of any errors or inaccuracies relating to information contained in, or omitted from, your mutual fund account statements, including errors or inaccuracies arising from the transactions conducted through this site. TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH IN THE PROSPECTUS OF THE SELECTED FUND. 62 THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH THE IXIS ADVISOR FUNDS PERSONAL ACCESS LINE/(R)/ You are responsible for the confidentiality and use of your personal identification numbers, account numbers, social security numbers and any other personal information required to access the site or transmit telephonically. Any individual that possesses the information required to pass through all security measures will be presumed to be you. All transactions submitted by an individual presumed to be you will be solely your responsibility. You agree that IXIS Advisor Funds does not have the responsibility to inquire as to the legitimacy or propriety of any instructions received from you or any person believed to be you, and is not responsible or liable for any losses that may occur from acting on such instructions. IXIS Advisor Funds is not responsible for incorrect data received via the Internet or telephonically from you or any person believed to be you. Transactions submitted over the Internet and telephonically are solely your responsibility and IXIS Advisor Funds makes no warranty as to the correctness, completeness, or the accuracy of any transmission. Similarly IXIS Advisor Funds bears no responsibility for the performance of any computer hardware, software, or the performance of any ancillary equipment and services such as telephone lines, modems, or Internet service providers. The processing of transactions over this site or telephonically will involve the transmission of personal data including social security numbers, account numbers and personal identification numbers. While IXIS Advisor Funds has taken reasonable security precautions including data encryption designed to protect the integrity of data transmitted to and from the areas of our Web site that relate to the processing of transactions, we disclaim any liability for the interception of such data. You agree to immediately notify IXIS Advisor Funds if any of the following occurs: 1. You do not receive confirmation of a transaction submitted via the Internet or telephonically within five (5) business days. 2. You receive confirmation of a transaction of which you have no knowledge and was not initiated or authorized by you. 3. You transmit a transaction for which you do not receive a confirmation number. 4. You have reason to believe that others may have gained access to your personal identification number (PIN) or other personal data. 5. You notice an unexplained discrepancy in account balances or other changes to your account, including address changes, and banking instructions on any confirmations or statements. Any costs incurred in connection with the use of the IXIS Advisor Funds Personal Access Line/(R)/ or the IXIS Advisor Funds Internet site including telephone line costs and Internet service provider costs are solely your responsibility. Similarly IXIS Advisor Funds makes no warranties concerning the availability of Internet services or network availability. IXIS Advisor Funds reserves the right to suspend, terminate or modify the Internet capabilities offered to shareholders without notice. YOU HAVE THE ABILITY TO RESTRICT INTERNET AND TELEPHONIC ACCESS TO YOUR ACCOUNTS BY NOTIFYING IXIS ADVISOR FUNDS OF YOUR DESIRE TO DO SO. 63 Written notifications to IXIS Advisor Funds should be sent to: IXIS Advisor Funds P. O. Box 219579 Kansas City, MO 64121-9579 Notification may also be made by calling 800-225-5478 during normal business hours. NET ASSET VALUE The method for determining the public offering price and net asset value per share is summarized in the Prospectus. The total net asset value or "NAV" of each class of shares of a Fund (the excess of the assets of such Fund attributable to such class over the liabilities attributable to such class) is determined at the close of regular trading (normally 4:00 p.m. Eastern time) on each day that the Exchange is open for trading. In addition, in Loomis Sayles' discretion, a Fund's shares may be priced on a day the Exchange is closed for trading if Loomis Sayles determines that it is advisable to do so based primarily upon factors such as whether (i) there has been enough trading in that Fund's portfolio securities to materially affect the net asset value of the Fund's shares and (ii) whether in Loomis Sayles' view sufficient information (e.g., prices reported by pricing services) is available for the Fund's shares to be priced. The Funds do not expect to price their shares on the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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. 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. 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. Options, interest rate futures and options thereon that are traded on exchanges are valued at their last sale price as of the close of such exchanges. Securities for which current market quotations are not readily available and all other assets are valued at fair value as determined in good faith by the Board of Trustees, although the actual calculations may be made by persons acting pursuant to the direction of the Board. Generally, trading in foreign government securities and other fixed-income securities, as well as trading in equity securities in markets outside the United States, is substantially completed each day at various times prior to the close of the Exchange. Securities traded on a foreign exchange will be valued at their market price on the non-U.S. exchange except for securities traded on the London Stock Exchange ("British Equities"). British Equities will be valued at the mean between the last bid and last asked prices on the London Stock Exchange. The value of other securities principally traded outside the United States will be computed as of the completion of substantial trading for the day on the markets on which such securities principally trade. Securities principally traded outside the United States will generally be valued several hours before the close of regular trading on the Exchange, generally 4:00 p.m. Eastern Time, when the Funds compute the net asset value of their shares. Occasionally, events affecting the value of securities principally traded outside the United States may occur between the completion of substantial trading of such securities for the day and the close of the Exchange, which events will not be reflected in the computation of a Fund's net asset value. If, in the determination of the Board of Trustees or persons acting at their direction, events materially affecting the value of a Fund's securities occur during such period, then these securities may be fair valued at the time the Fund determines its net asset value by or pursuant to procedures approved by the 64 Board of Trustees. When fair valuing their securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the local market and before the time a Fund's net asset value is calculated. Because of fair value pricing, securities may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board of Trustees believes is more likely to result in a price that reflects fair value. The Funds may also value securities at fair value or estimate their value pursuant to procedures approved by the Board of Trustees in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the Exchange. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuer's security from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets). Trading in some of the portfolio securities of some of the Funds takes place in various markets outside the United States on days and at times other than when the Exchange is open for trading. Therefore, the calculation of these Funds' net asset value does not take place at the same time as the prices of many of its portfolio securities are determined, and the value of the Fund's portfolio may change on days when the Fund is not open for business and its shares may not be purchased or redeemed. The per share net asset value of a class of the Fund's shares is computed by dividing the number of shares outstanding into the total net asset value attributable to such class. The public offering price of a Class A share of a Fund is the net asset value per share next-determined after a properly completed purchase order is accepted by Boston Financial or State Street Bank, plus a sales charge as set forth in the Fund's Prospectus. The public offering price of a Class B, C or Y shares of a Fund is the next-determined net asset value. REDUCED SALES CHARGES The following special purchase plans are summarized in the Prospectuses and are described in greater detail below. Investors should note that in many cases, the broker, and not the Funds, is responsible for ensuring that the investor receives current discounts. If you invest in Class A shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure you obtain the proper "breakpoint" discount. In order to reduce your sales charge, it will be necessary at the time of purchase to inform the Distributor and your financial intermediary, in writing, of the existence of other accounts in which there are holdings eligible to be aggregated to meet sales load breakpoints. If the Distributor is not notified that you are eligible for a reduced sales charge, the Distributor will be unable to ensure that the reduction is applied to the investor's account. You may be required to provide certain records and information, such as account statements, with respect to all of your accounts which hold Fund shares, including accounts with other financial intermediaries, and your family members' and other related parties' accounts, in order to verify your eligibility for the reduced sales charge. Cumulative Purchase Discount A Fund shareholder may make an initial or an additional purchase of Class A shares and be entitled to a discount on the sales charge payable on that purchase. This discount will be available if the shareholder's "total investment" in the Fund reaches the breakpoint for a reduced sales charge in the table under "How Sales Charges Are Calculated - Class A shares" in the Prospectus. The total investment is determined by adding the amount of the additional purchase, including sales charge, to the current public offering price of all series and classes of shares of the IXIS Advisor Funds held by the shareholder in one or more accounts. If the total investment exceeds the breakpoint, the lower sales charge applies to the entire additional investment even though some portion of that additional investment is below the breakpoint to which a reduced sales charge applies. For example, if a shareholder who already owns shares of one or more Funds or other of the IXIS Advisor Funds with a value at the current public offering price of $30,000 makes an additional purchase of $20,000 of Class A shares of another Fund or IXIS Advisor Fund, the reduced sales charge of 4.5% of the public offering price will apply to the entire amount of the additional investment. 65 Letter of Intent A Letter of Intent (a "Letter"), which can be effected at any time, is a privilege available to investors that reduces the sales charge on investments in Class A shares. Ordinarily, reduced sales charges are available for single purchases of Class A shares only when they reach certain breakpoints (e.g., $25,000, $100,000, etc.). By signing a Letter, a shareholder indicates an intention to invest enough money in Class A shares within 13 months to reach a breakpoint. If the shareholder's intended aggregate purchases of all series and classes of the Trusts over a defined 13-month period will be large enough to qualify for a reduced sales charge, the shareholder may invest the smaller individual amounts at the public offering price calculated using the sales load applicable to the 13-month aggregate investment. A Letter is a non-binding commitment, the amount of which may be increased, decreased or canceled at any time. The effective date of a Letter is the date it is received in good order by the Funds' transfer agency. A reduced sales charge is available for aggregate purchases of all series and classes of shares of the Trusts pursuant to a written Letter effected within 90 days after any purchase. In the event the account was established prior to 90 days before the effective date of the Letter, the account will be credited with the Rights of Accumulation ("ROA") towards the breakpoint level that will be reached upon the completion of the 13 months' purchases. The ROA credit is the value of all shares held as of the effective dates of the Letter based on the "public offering price computed on such date." The cumulative purchase discount, described above, permits the aggregate value at the current public offering price of Class A shares of any accounts with the Trusts held by a shareholder to be added to the dollar amount of the intended investment under a Letter, provided the shareholder lists them on the account application. The Funds' transfer agent will hold in escrow shares with a value at the current public offering price of 5% of the aggregate amount of the intended investment. The amount in escrow will be released when the commitment stated in the Letter is completed. If the shareholder does not purchase shares in the amount indicated in the Letter, the shareholder agrees to remit to the Funds' transfer agent the difference between the sales charge actually paid and that which would have been paid had the Letter not been in effect, and authorizes the Funds' transfer agent to redeem escrowed shares in the amount necessary to make up the difference in sales charges. Reinvested dividends and distributions are not included in determining whether the Letter has been completed. Combining Accounts For purposes of determining the sales charge applicable to a given purchase, a shareholder may elect to combine the purchase and the shareholder's total investment (calculated at the current public offering price) in all series and classes of the IXIS Advisor Funds (excluding the ( Money Market Fund), unless the shares were purchased through an exchange with another IXIS Advisor Fund) with the purchases and total investment of the shareholder's spouse, parents, children, siblings, grandparents, grandchildren, and in-laws of those previously mentioned, single trust estates, individual fiduciary accounts and sole proprietorships or any other group of individuals acceptable to the Distributor. If the combined value of the purchases and total investments exceed a sales charge breakpoint as disclosed in the Prospectus, the lower sales charge applies to the entire amount of the purchase, even though some portion of that investment is below the breakpoint to which a reduced sales charge applies. For certain retirement plans, the Distributor may, in its discretion, combine the purchases and total investment of all qualified participants in the same retirement plan for purposes of determining the availability of a reduced sales charge. Purchases and total investments of individuals may not be combined with purchases and total investments of the retirement plan accounts described in the preceding paragraph for the purpose of determining the availability of a reduced sales charge. Only the purchases and total investments in tax-qualified retirement plans or other employee benefit plans in which the shareholder is the sole participant may be combined with individual accounts for purposes of determining the availability of a reduced sales charge. 66 Clients of the Adviser No front-end sales charge or CDSC applies to investments of $25,000 or more in Class A shares of the Fund by (1) clients of an adviser to any series of the Trusts; any director, officer or partner of a client of an adviser to any series of the Trusts; or the spouse, parents, children, siblings, in-laws, grandparents or grandchildren of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype of an adviser to any series of the Trusts if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of an adviser to any series of the Trusts. Any investor eligible for this arrangement should so indicate in writing at the time of the purchase. In addition, the front-end sales charge or CDSC may be waived for investments in Class A shares, for Funds that do not offer Class Y shares, by clients of an adviser to any series of the Trusts. Eligible Governmental Authorities There is no sales charge or CDSC related to investments in Class A shares by any state, county or city or any instrumentality, department, authority or agency thereof that has determined that a Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company. Investment Advisory Accounts Class A shares of any Fund may be purchased at net asset value by investment advisers, financial planners or other intermediaries who place trades for their own accounts or the accounts of their clients and who charge a management, consulting or other fee for their services; clients of such investment advisers, financial planners or other intermediaries who place trades for their own accounts if the accounts are linked to the master account of such investment adviser, financial planner or other intermediary on the books and records of the broker or agent; and retirement and deferred compensation plans and trusts used to fund those plans, including, but not limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the Code and "rabbi trusts." Investors may be charged a fee if they effect transactions through a broker or agent. Certain Broker-Dealers and Financial Services Organizations Class A shares of any Fund also may be purchased at net asset value through certain broker-dealers and/or financial services organizations without any transaction fee. Such organizations may also receive compensation paid by IXIS Advisors, or its affiliates out of their own assets (as described above under "Distribution Agreements and 12b-1 Plans"), and/or be paid indirectly by the Fund in the form of servicing, distribution or transfer agent fees. Certain Retirement Plans Class A shares of the Funds are available at net asset value for investments by participant-directed 401(a) and 401(k) plans that have $1 million or more in total plan assets or 100 or more eligible employees or by retirement plans whose third party administrator or dealer has entered into a service agreement with the Distributor and which may be subject to certain operational and minimum size requirements specified from time to time by the Distributor. The Distributor may pay compensation to such third party administrators or dealers. This compensation may be paid indirectly by the Fund in the form of service and/or distribution fees. Bank Trust Departments or Trust Companies Class A shares of the Funds are available at net asset value for investments by non-discretionary and non-retirement accounts of bank trust departments or trust companies, but are unavailable if the trust department or institution is part of an organization not principally engaged in banking or trust activities. The reduction or elimination of the sales charges in connection with special purchase plans described above reflects the absence or reduction of expenses associated with such sales. 67 TAXES In General As described in the Prospectuses, it is the policy of each Fund to pay its shareholders, as dividends, substantially all net investment income and to distribute annually all net realized long-term capital gains, if any, after offsetting any capital loss carryovers. Ordinary income dividends and capital gain distributions are payable in full and fractional shares of the relevant class of the Funds based upon the net asset value determined as of the close of the Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their ordinary income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to IXIS Advisor Funds. In order for a change to be in effect for any dividend or distribution, it must be received by IXIS Advisor Funds on or before the record date for such dividend or distribution. If you elect to receive your dividends in cash and the dividend checks sent to you are returned "undeliverable" to the Fund or remain uncashed for six months, your cash election will automatically be changed and your future dividends will be reinvested. No interest will accrue on amounts represented by uncashed dividend or redemption checks. As required by federal law, detailed federal tax information will be furnished to each shareholder for each calendar year on or before January 31st of the succeeding year. Taxation of the Funds Each Fund intends to elect to be treated and qualify each year as a regulated investment company under Subchapter M of the Code. In order to qualify, each Fund must, among other things, (i) derive at least 90% of its gross income in each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies and net income derived from interests in qualified publicly traded partnerships; (ii) distribute with respect to each taxable year at least 90% of the sum of its taxable net investment income, net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and (iii) diversify its holdings so that at the end of each fiscal quarter, (a) at least 50% of the value of its total assets consists of cash, U.S. government securities, securities of other regulated investment companies, and other securities limited generally, with respect to any one issuer, to no more than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Fund's total assets is invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades or businesses, or in the securities of one ore more publicly traded partnerships. For purposes of meeting this diversification requirement, in the case of the Fund's investments in loan participations the issuer may be the financial intermediary or the borrower. In general, for purposes of the 90% gross income requirement described in section (i) of the previous paragraph, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (x) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (y) that derives less than 90% of its income from the qualifying income described in section (i) of the prior paragraph) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of section (iii) of the prior paragraph, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. To the extent that it qualifies for treatment as a regulated investment company, a Fund will not be subject to federal income tax on income distributed to its shareholders in a timely manner in the form of dividends (including Capital Gain Dividends, defined below). If a Fund failed to qualify as a regulated investment company accorded 68 special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. A nondeductible excise tax at the rate of 4% will be imposed on the excess, if any, of each Fund's "required distribution" over its actual distributions in any calendar year. Generally, the "required distribution" is 98% of the Fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31st (or December 31/st/ if the Fund is so permitted to elect and so elects) plus undistributed amounts from prior years. For these purposes, each Fund will be treated as having distributed any amount for which it is subject to income tax. Each Fund intends to make distributions sufficient to avoid imposition of the excise tax, although there can be no assurance that it will be able to do so. Taxation of Fund Distributions For federal income tax purposes, distributions of investment income are generally taxable as ordinary income to the extent of a Fund's earnings and profits. Taxes on distributions of capital gains are determined by how long a Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. Distributions of net capital gains from the sale of investments that the Fund owned for more than one year and that are properly designated by the Fund as capital gain dividends ("Capital Gain Dividends") will be taxable as long-term capital gains. Distributions of gains from the sale of investments that a Fund owned for one year or less will be taxable as ordinary income. Distributions are taxable to shareholders even if they are paid from income or gains earned by a Fund before a shareholder's investment (and thus were included in the price the shareholder paid). Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares (other than distributions, if any, designated by a Fund as "exempt-interest dividends"). Any gain resulting from the sale or exchange of Fund shares generally will be taxable as capital gains. Distributions declared and payable by a Fund during October, November or December to shareholders of record on a date in any such month and paid by a Fund during the following January will be treated for federal tax purposes as paid by the Fund and received by shareholders on December 31st of the year in which declared rather than the calendar year in which they were received. Long-term capital gain rates applicable to individuals have been temporarily reduced - in general, to 15% with lower rates applying to taxpayers in the 10% and 15% rate brackets - for taxable years beginning on ore before December 31, 2010. For taxable years beginning on or before December 31, 2010, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, on the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. Income derived from investments in fixed-income securities is not eligible for treatment as qualified dividend income. In general, distributions of investment income designated by a Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to such Fund's shares. In any event, if the aggregate qualified dividends received by a Fund during any taxable year are 95% or more of its gross income, 69 excluding net long-term capital gain over net short-term capital loss, then 100% of the Fund's dividends (other than property designated capital gain dividends) will be eligible to be treated as qualified dividend income. If a Fund makes a distribution in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of a shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces a shareholder's basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the shareholder of such shares. Sale or Redemption of Shares The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other substantially identical shares of the Fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. A loss on the sale of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received with respect to such shares and thereafter treated as a long-term capital loss to the extent of any long-term capital gain dividend paid to the shareholder with respect to such shares. Furthermore, no loss will be allowed on the sale of Fund shares to the extent the shareholder acquired other shares of the same Fund within a period beginning 30 days prior to the sale of the loss shares and ending 30 days after such sale. Exempt-Interest Dividends A Fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Fund's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that a Fund properly designates as exempt-interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If a Fund intends to be qualified to pay exempt-interest dividends, the Fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets. Investors may not deduct part or all of the interest on indebtedness, if any, incurred or continued to purchase or carry shares of an investment company paying exempt-interest dividends, such as the Massachusetts and Municipal Income Funds. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholders that are exempt-interest dividends. Under rules used by the IRS to determine when borrowed Funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. Passive Foreign Investment Companies Funds that invest in foreign securities may own shares in certain foreign investment entities, referred to as "passive foreign investment companies" ("PFICs"). In order to avoid U.S. federal income tax on distributions received from a PFIC, and an additional charge on a portion of any "excess distribution" from such companies or gain from the disposition of such shares, each Fund may elect to "mark-to-market" annually its investments in such entities and to distribute any resulting net gain to shareholders. Such gains are taxed as ordinary income. Each Fund may also elect to treat the PFIC as a "qualified electing fund" (a "QEF election"), in which case the Fund would be required to include its share of the company's income and net capital gains annually, regardless of whether it receives distributions from the company. The QEF and mark-to-market elections may require a Fund to sell 70 securities it would have otherwise continued to hold in order to make distributions to shareholders to avoid any Fund-level tax. Income from investments in PFICs generally will not qualify for treatment as qualified dividend income. Foreign Taxes Funds that invest in foreign securities may be liable to foreign governments for taxes relating primarily to investment income or capital gains on foreign securities in the Fund's portfolio. Each Fund may in some circumstances be eligible to, and in its discretion may, make an election under the Code that would allow Fund shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax credit or deduction (but not both) on their U.S. income tax return for their pro rata portion of qualified taxes paid by that Fund to foreign countries in respect of foreign securities held at least a minimum period specified in the Code. If a Fund makes the election, the amount of each shareholder's distribution reported on the information returns filed by such Fund with the IRS must be increased by the amount of the shareholder's portion of the Fund's foreign tax paid. A shareholder's ability to claim all or a part of a foreign tax credit or deduction in respect of foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code. Foreign Currency Transactions Transactions in foreign currencies, foreign-currency denominated debt obligations and certain foreign currency options, futures contracts, and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. Financial Products A Fund's investments in options, futures contracts, hedging transactions, forward contracts, swaps and certain other transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale, short sale and other rules), the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments in the holding periods of Fund securities, convert capital gain into ordinary income and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character distributions to Fund shareholders. Certain of each Fund's hedging activities (including its transactions, if any, in foreign currencies and foreign currency denominated instruments) are likely to result in a difference between the Fund's book income and taxable income. This difference may cause a portion of the Fund's income distributions to constitute a return of capital or capital gain for tax purposes or require the Fund to make distributions exceeding book income to avoid excise tax liability and to qualify as a regulated investment company. Securities loans may or may not be structured in a manner to preserve qualified dividend income treatment on dividends paid with respect to the securities lent. A Fund may receive substitute payments (instead of the dividend) that will not be eligible for treatment as qualified dividend income, taxed at the rate applicable to long-term capital gains). Securities issued or purchased at a discount and Payment-in-Kind Securities A Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require that Fund to accrue and distribute income net yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. In addition, payment-in-kind securities will give rise to income which is required to be distributed and is taxable even though the Fund holding the security receives no interest payment in cash on the security during the year. 71 Tax-Exempt Shareholders Under current law, the Funds serve to "block" (that is, prevent the attribution to shareholders of) unrelated business taxable income ("UBTI") from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder could realize UBTI by virtue of its investment in a Fund if the Fund invests in REITs that hold residential interests in real estate mortgage investment conduits ("REMICs"), or if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b). If a charitable remainder trust (as defined in Code Section 664) realizes any UBTI for a taxable year, it will lose its tax-exempt status for the year. Backup Withholding Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund with a correct taxpayer identification number ("TIN"), who has under-reported dividend or interest income, or who fails to certify to a Fund that he or she is not subject to such withholding. The backup withholding tax rate is 28% for amounts paid through 2010. The backup withholding tax rate will be 31% for amounts paid after December 31, 2010. Other Tax Matters Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of and investment on their particular tax situation. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state, local and, where applicable, foreign taxes. The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the backup withholding tax rates described above (or a reduced rate of withholding provided by treaty). If a shareholder recognizes a loss with respect to the fund's shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. Non-U.S. Shareholders In general, dividends (other than Capital Gain Dividends) paid by a Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, effective for taxable years of a Fund beginning before January 1, 2008, a Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by a Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in 72 the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. Depending on the circumstances, a Fund may make such designations with respect to all, some, or none of its potentially eligible dividends and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a foreign person will need to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares held through an intermediary, the intermediary may withhold even if the Fund makes a designation with respect to a payment. Foreign persons should contact their intermediaries with respect to the application of these rules to their accounts. If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates. Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of a Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, or (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and related regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative actions. PERFORMANCE INFORMATION Yield and Total Return Each Fund may advertise the yield of each class of its shares. Each Fund's yield will vary from time to time depending upon market conditions, the composition of its portfolio and operating expenses of the relevant Trust allocated to each Fund. These factors, possible differences in the methods used in calculating yield and the tax exempt status of distributions should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund's shares and to the relative risks associated with the investment objectives and policies of the Fund. Yields do not take into account any applicable sales charges or CDSC. Yield may be stated with or without giving effect to any expense limitations in effect for a Fund. For those funds that present yields reflecting an expense limitation or waiver, its yield would have been lower if no limitation or waiver were in effect. Yields and total returns will generally be higher for Class A shares than for Class B and Class C shares of the same Fund, because of the higher levels of expenses borne by the Class B and Class C shares. Because of its lower operating expenses, Class Y shares of each Fund can be expected to achieve a higher yield and total return than the same Fund's Classes A, B and C shares. Each Fund may also present one or more distribution rates for each class in its sales literature. These rates will be determined by annualizing the class's distributions from net investment income and net short-term capital gain over a recent 12-month, 3-month or 30-day period and dividing that amount by the maximum offering price or the net asset value. If the net asset value, rather than the maximum offering price, is used to calculate the distribution rate, the rate will be higher. Each of the Tax Free Income Funds may also advertise a taxable equivalent yield, calculated as described above except that, for any given tax bracket, net investment income will be calculated using as gross investment income an amount equal to the sum of (i) any taxable income of the Fund plus (ii) the tax-exempt income of the Fund divided by the difference between 1 and the effective federal (or combined federal and state) income tax rate for taxpayers in that tax bracket. At any time in the future, yields and total return may be higher or lower than past yields and there can be no assurance that any historical results will continue. 73 Investors in the Funds are specifically advised that share prices, expressed as the net asset values per share, will vary just as yield will vary. An investor's focus on the yield of a Fund to the exclusion of the consideration of the share price of that Fund may result in the investor's misunderstanding the total return he or she may derive from the Fund. FINANCIAL STATEMENTS The financial statements, financial highlights and the reports of the Independent Registered Public Accounting Firm included in the Funds' annual reports dated September 30, 2006, are also incorporated herein by reference to such reports. The Funds' annual and semiannual reports are available upon request and without charge. Each Fund will send a single copy of its annual and semiannual report to an address at which more than one shareholder of record with the same last name has indicated that mail is to be delivered. Shareholders may request additional copies of any annual or semiannual report by telephone at 800-225-5478 or by writing to the Funds at: 399 Boylston Street, Boston, Massachusetts 02116 or by visiting the Funds' website at www.ixisadvisorfunds.com. The annual and semiannual reports are also available on-line at the SEC's website at www.sec.gov. 74 APPENDIX A DESCRIPTION OF SECURITIES RATINGS Certain of the Funds make use of average portfolio credit quality standards to assist institutional investors whose own investment guidelines limit their investments accordingly. In determining a Fund's overall dollar-weighted average quality, unrated securities are treated as if rated, based on the adviser's view of their comparability to rated securities. A Fund's use of average quality criteria is intended to be a guide for those investors whose investment guidelines require that assets be invested according to comparable criteria. Reference to an overall average quality rating for a Fund does not mean that all securities held by the Fund will be rated in that category or higher. A Fund's investments may range in quality from securities rated in the lowest category in which the Fund is permitted to invest to securities rated in the highest category (as rated by Moody's, S&P or Fitch or, if unrated, determined by the adviser to be of comparable quality). The percentage of a Fund's assets invested in securities in a particular rating category will vary. Following is a description of Moody's, S&P's and Fitch's ratings applicable to fixed-income securities. Moody's Investors Service, Inc. Corporate and Municipal Bond Ratings Aaa: Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. A: Obligations rated A are considered upper-medium grade and are subject to low credit risk. Baa: Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Ba: Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk. B: Obligations rated B are considered speculative and are subject to high credit risk. Caa: Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk. Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. C: Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest. Moody's bond ratings, where specified, are applicable to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one year. Obligations relying upon support mechanisms such as letter-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's Sovereign Rating for Bank Deposits. Such branch obligations are rated at the lower of the bank's rating or Moody's Sovereign Rating for the Bank Deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer branch is located are not incorporated into Moody's ratings. A-1 Moody's makes no representation that rated bank obligations or insurance company obligations are exempt from registration under the Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moody's represent that any specific bank or insurance company obligation is legally enforceable or a valid senior obligation of a rated issuer. Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating classified from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Corporate Short-Term Debt Ratings Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment-grade, to indicate the relative repayment ability of rated issuers: P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations. P-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations. P-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations. NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories. Standard & Poor's Ratings Services Issue Credit Rating Definitions A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations or a specific financial program (including ratings on medium term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days, including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings. Issue credit ratings are based, in varying degrees, on the following considerations: likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the A-2 terms of the obligation; nature of and provisions of the obligation; protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition. Corporate and Municipal Bond Ratings Investment-Grade AAA: An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA: An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A: An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB: An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Speculative Grade Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB: An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B: An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment. C: A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. A-3 CI: The rating CI is reserved for income bonds on which no interest is being paid. D: An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or Minus (-): The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. pr: The letters 'pr' indicate that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful, timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk. r: The 'r' modifier was assigned to securities containing extraordinary risks, particularly market risks, that are not covered in the credit rating. The absence of an 'r' modifier should not be taken as an indication that an obligation will not exhibit extraordinary non-credit related risks. Standard & Poor's discontinued the use of the 'r' modifier for most obligations in June 2000 and for the balance of obligations (mainly structured finance transactions) in November 2002. NR: This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy. Commercial Paper Rating Definitions A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from 'A' for the highest quality obligations to 'D' for the lowest. These categories are as follows: A-1: This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2: Capacity for a timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated 'A-1'. A-3: Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying higher designations. B: Issues rated 'B' are regarded as having only speculative capacity for timely payment. C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D: Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor's believes such payments will made during such grace period. A commercial paper rating is not a recommendation to purchase, sell or hold a security inasmuch as it does not comment on market price or suitability for a particular investor. The ratings are based on current information furnished to Standard & Poor's by the issuer or obtained from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information. A-4 Fitch Investor Services, Inc Credit Ratings Fitch's credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are used by investors as indications of the likelihood of receiving their money back in accordance with the terms on which they invested. Fitch's credit ratings cover the global spectrum of corporate, sovereign (including supranational and sub-national), financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets. The use of credit ratings defines their function: "investment grade" ratings (international Long-term 'AAA' to 'BBB-' categories; Short-term 'F1' to 'F3') indicate relatively low to moderate credit risk, while those in the "speculative" or "non investment grade" categories (international Long-term 'BB+' to 'D'; Short-term 'B' to 'D') either signal a higher level of credit risk or that a default has already occurred. Credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. Depending on their application, credit ratings address benchmark measures of probability of default as well relative expectations of loss given default. For example, issuers are typically assigned Issuer Default Ratings that are relative measures of default probability. Similarly, short-term credit ratings give primary consideration to the likelihood that obligations will be met on a timely basis. Securities, however, are rated taking into consideration probability of default and loss given default. As a result, for entities such as corporations security ratings may be rated higher, lower or the same as the issuer rating to reflect expectations of the security's relative recovery prospects, as well as differences in ability and willingness to pay. While recovery analysis plays an important role throughout the ratings scale, it becomes a more critical consideration for below investment-grade securities and obligations, particularly at the lower end of the non-investment-grade ratings scale where Fitch often publishes actual Recovery Ratings, that are complementary to the credit ratings. Structured finance ratings typically are assigned to each individual security or tranche in a transaction, and not to an issuer. Each structured finance tranche is rated on the basis of various stress scenarios in combination with its relative seniority, prioritization of cash flows and other structural mechanisms. International Long-Term Credit Ratings International Long-Term Credit Ratings (LTCR) may also be referred to as Long-Term Ratings. When assigned to most issuers, it is used as a benchmark measure of probability of default and is formally described as an Issuer Default Rating (IDR). The major exception is within Public Finance, where IDRs will not be assigned as market convention has always focused on timeliness and does not draw analytical distinctions between issuers and their underlying obligations. When applied to issues or securities, the LTCR may be higher or lower than the issuer rating (IDR) to reflect relative differences in recovery expectations. The following rating scale applies to foreign currency and local currency ratings: Investment Grade AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA Very high credit quality. 'AA' ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A-5 A High credit quality. 'A' ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB Good credit quality. 'BBB' ratings indicate that there are currently expectations of low credit risk. The capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. This is the lowest investment grade category. Speculative Grade BB Speculative 'BB' ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B Highly speculative [ ] For issuers and performing obligations, 'B' ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. [ ] For individual obligations, may indicate distressed or defaulted obligations with potential for extremely high recoveries. Such obligations would possess a Recovery Rating of 'RR1' (outstanding). CCC [ ] For issuers and performing obligations, default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic conditions. [ ] For individual obligations, may indicate distressed or defaulted obligations with potential for average to superior levels of recovery. Differences in credit quality may be denoted by plus/minus distinctions. Such obligations typically would possess a Recovery Rating of 'RR2' (superior), or 'RR3' (good) or 'RR4' (average). CC [ ] For issuers and performing obligations, default of some kind appears probable. [ ] For individual obligations, may indicate distressed or defaulted obligations with a Recovery Rating of 'RR4' (average) or 'RR5' (below average). C [ ] For issuers and performing obligations, default is imminent. [ ] For individual obligations, may indicate distressed or defaulted obligations with potential for below-average to poor recoveries. Such obligations would possess a Recovery Rating of 'RR6' (poor). RD Indicates an entity that has failed to make due payments (within the applicable grace period) on some but not all material financial obligations, but continues to honor other classes of obligations. D Indicates an entity or sovereign that has defaulted on all of its financial obligations. Default generally is defined as one of the following: . failure of an obligor to make timely payment of principal and/or interest under the contractual terms of any financial obligation; - the bankruptcy filings, administration, receivership, liquidation or other winding-up or A-6 cessation of business of an obligor; or--the distressed or other coercive exchange of an obligation, where creditors were offered securities with diminished structural or economic terms compared with the existing obligation. Default ratings are not assigned prospectively; within this context, non-payment on an instrument that contains a deferral feature or grace period will not be considered a default until after the expiration of the deferral or grace period. Issuers will be rated 'D' upon a default. Defaulted and distressed obligations typically are rated along the continuum of 'C' to 'B' ratings categories, depending upon their recovery prospects and other relevant characteristics. Additionally, in structured finance transactions, where analysis indicates that an instrument is irrevocably impaired such that it is not expected to meet pay interest and/or principal in full in accordance with the terms of the obligation's documentation during the life of the transaction, but where no payment default in accordance with the terms of the documentation is imminent, the obligation may be rated in the 'B' or 'CCC-C' categories. Default is determined by reference to the terms of the obligations' documentation. Fitch will assign default ratings where it has reasonably determined that payment has not been made on a material obligation in accordance with the requirements of the obligation's documentation, or where it believes that default ratings consistent with Fitch's published definition of default are the most appropriate ratings to assign. International Short-Term Credit Ratings The following ratings scale applies to foreign currency and local currency ratings. A Short-term rating has a time horizon of less than 13 months for most obligations, or up to three years for US public finance, in line with industry standards, to reflect unique risk characteristics of bond, tax, and revenue anticipation notes that are commonly issued with terms up to three years. Short-term ratings thus place greater emphasis on the liquidity necessary to meet financial commitments in a timely manner. F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near term adverse changes could result in a reduction to non investment grade. B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near term adverse changes in financial and economic conditions. C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. RD Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other obligations. D Indicates an entity or sovereign that has defaulted on all of its financial obligations. A-7 Notes to International Long-Term and Short-Term ratings: The modifiers "+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the 'AAA' Long-term rating category, to categories below 'CCC', or to Short-term ratings other than 'F1.' (The +/- modifiers are only used to denote issues within the CCC category, whereas issuers are only rated CCC without the use of modifiers.) Rating Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for a potential downgrade, or "Evolving," if ratings may be raised, lowered or maintained. Rating Watch is typically resolved over a relatively short period. Rating Outlook: An Outlook indicates the direction a rating is likely to move over a one to two-year period. Outlooks may be positive, stable or negative. A positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for which outlooks are 'stable' could be upgraded or downgraded before an outlook moves to positive or negative if circumstances warrant such an action. Occasionally, Fitch Ratings may be unable to identify the fundamental trend. In these cases, the Rating Outlook may be described as evolving. Program ratings (such as the those assigned to MTN shelf registrations) relate only to standard issues made under the program concerned; it should not be assumed that these ratings apply to every issue made under the program. In particular, in the case of non-standard issues, i.e. those that are linked to the credit of a third party or linked to the performance of an index, ratings of these issues may deviate from the applicable program rating. Variable rate demand obligations and other securities which contain a short-term 'put' or other similar demand feature will have a dual rating, such as AAA/F1+. The first rating reflects the ability to meet long-term principal and interest payments, whereas the second rating reflects the ability to honor the demand feature in full and on time. Interest Only Interest Only ratings are assigned to interest strips. These ratings do not address the possibility that a security holder might fail to recover some or all of its initial investment due to voluntary or involuntary principal repayments. Principal Only Principal Only ratings address the likelihood that a security holder will receive their initial principal investment either before or by the scheduled maturity date. Rate of Return Ratings also may be assigned to gauge the likelihood of an investor receiving a certain predetermined internal rate of return without regard to the precise timing of any cash flows. 'PIF' Paid-in -Full; denotes a security that is paid-in-full, matured, called, or refinanced. 'NR' indicates that Fitch Ratings does not rate the issuer or issue in question. 'Withdrawn': A rating is withdrawn when Fitch Ratings deems the amount of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced, or for any other reason Fitch Ratings deems sufficient. A-8 Registration Nos. 2-11101 811-00242 IXIS ADVISOR FUNDS TRUST II PART C OTHER INFORMATION Item 23. Exhibits (a) Articles of Incorporation. (1) The Registrant's Fourth Amended and Restated Agreement and Declaration of Trust dated June 2, 2005 (the "Agreement and Declaration") is incorporated by reference to exhibit (a)(1) to post-effective amendment ("PEA") No. 128 to the initial registration statement ("Registration Statement") filed on January 30, 2006. (b) By-Laws. (1) The Registrant's Amended and Restated By-Laws dated June 2, 2005 (the "By-Laws") are incorporated by reference to exhibit (b)(1) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (c) Instruments Defining Rights of Security Holders. (1) Rights of shareholders as described in Article III, Section 6 of the Registrant's Agreement and Declaration is incorporated by reference to exhibit (c) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (d) Investment Advisory Contracts. (1) (i) Advisory Agreement dated October 30, 2000 between the Registrant on behalf of Harris Associates Large Cap Value Fund and IXIS Asset Management Advisors, L.P. ("IXIS Advisors") is incorporated by reference to exhibit (d)(1)(i) to PEA No. 114 to the Registration Statement filed on February 27, 2001. (ii) Advisory Agreement dated September 1, 2003 between the Registrant on behalf of Loomis Sayles Massachusetts Tax Free Income Fund and Loomis, Sayles & Company, L.P. ("Loomis Sayles") is incorporated by reference to exhibit (d)(1)(ii) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (2) (i) Sub-advisory Agreement dated October 29, 2002 among Registrant on behalf of Harris Associates Large Cap Value Fund, IXIS Advisors and Harris Associates L.P. ("Harris Associates") is incorporated by reference to exhibit (d)(2)(i) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (ii) Amendment No.1 dated July 1, 2005 to Sub-advisory Agreement dated October 29, 2002 among Registrant on behalf of Harris Large Cap Value Fund, IXIS Advisors and Harris Associates is incorporated by reference to exhibit (d)(2)(ii) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (e) Underwriting Contracts. (1) Distribution Agreement dated March 3, 2003 between Registrant on behalf of Harris Associates Large Cap Value Fund and IXIS Asset Management Distributors, L.P. ("IXIS Distributors") is incorporated by reference to exhibit (e)(1) to PEA No. 119 to the Registration Statement filed on April 29, 2003.
1 (2) Distribution Agreement dated March 3, 2003 between Registrant on behalf of Loomis Sayles Massachusetts Tax Free Income Fund and IXIS Distributors is incorporated by reference to exhibit (e)(3) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (3) Form of Dealer Agreement used by IXIS Distributors is filed herewith. (f) Bonus or Profit Sharing Contracts. Not applicable. (g) Custodian Agreements. (1) Custodian Contract dated September 1, 2005 among Registrant, on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II, AEW Real Estate Income Fund and State Street Bank and Trust Company ("State Street") is incorporated by reference to exhibit (g)(1) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (2) Amendment No. 1 dated September 15, 2006 to Master Custody Agreement dated September 1, 2005 among the Registrant, on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II, AEW Real Estate Income Fund and State Street is filed herewith. (h) Other Material Contracts. (1) (i) Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and Boston Financial Data Services, Inc. ("Boston Financial") is incorporated by reference to exhibit (h)(1)(i) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (ii) Revised Appendix A dated July 17, 2006 to the Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and Boston Financial is filed herewith. (2) (i) Administrative Services Agreement dated January 3, 2005 between the Registrant, on behalf of its respective series, IXIS Advisor Funds Trust II, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust Money Market Series, Loomis Sayles Funds I, Loomis Sayles Funds II and IXIS Advisors is incorporated by reference to PEA No. 125 to the Registration Statement filed on January 28, 2005. (ii) First Amendment dated November 1, 2005 to the Administrative Services Agreement between the Registrant on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and IXIS Advisors is incorporated by reference to exhibit (h)(2)(ii) to PEA No. 128 to the Registration Statement filed on January 30, 2006.
2 (iii) Second Amendment dated January 1, 2006 to Administrative Services Agreement between Registrant, on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and IXIS Advisors is incorporated by reference to exhibit (h)(2)(ii) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (3) Securities Lending Agency Agreement dated September 1, 2005 among the Registrant on behalf of its respective series, IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and State Street is incorporated by reference to exhibit (h)(3)(i) to PEA No. 128 to the Registration Statement filed on January 30, 2006. (4) IXIS Advisors Fee Waiver/Expense Reimbursement Undertakings dated January 31, 2007 between IXIS Advisors and the Registrant on behalf of Harris Associates Large Cap Value Fund is filed herewith. (5) Loomis Sayles Fee Waiver/Expense Reimbursement Undertakings dated January 31, 2007 between Loomis Sayles and the Registrant on behalf of Loomis Sayles Massachusetts Tax Free Income Fund is filed herewith. (6) Reliance Agreement for Exchange Privileges dated September 30, 2003 by and among IXIS Advisors Funds Trust IV, IXIS Advisor Funds Trust I, Registrant, IXIS Advisor Funds Trust III, IXIS Advisor Cash Management Trust, Loomis Sayles Funds I and Loomis Sayles Funds II is incorporated by reference to exhibit (h)(6) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (7) Advisory Administration Agreement dated September 1, 2003 between Registrant, with respect to Loomis Sayles Massachusetts Tax Free Income Fund, and IXIS Advisors is incorporated by reference to exhibit (h)(7) to PEA No. 120 to the Registration Statement filed on November 28, 2003. (i) Legal Opinion. (1) Opinion and consent of counsel dated January 3, 1989 with respect to the Registrant's Harris Associates Large Cap Value Fund and Loomis Sayles Massachusetts Tax Free Income Fund is incorporated by reference to exhibit 10(a) to PEA No. 106 to the Registration Statement filed on April 18, 1997. (2) Opinion and consent of counsel dated September 10, 1993 with respect to offering multiple classes of shares for all series of the Registrant is incorporated by reference to exhibit 10(d) to PEA No. 106 to this Registration Statement filed on April 18, 1997. (j) Other Opinions. Consent of PricewaterhouseCoopers LLP is filed herewith. (k) Omitted Financial Statements. Not applicable. (l) Initial Capital Agreements.
3 Not applicable. (m) Rule 12b-1 Plan. (1) (a) Rule 12b-1 Plan for Class A shares of Harris Associates Large Cap Value Fund is incorporated by reference to exhibit (m)(1)(a) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (b) Rule 12b-1 Plan for Class B shares of Harris Associates Large Cap Value Fund is incorporated by reference to exhibit (m)(1)(b) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (c) Rule 12b-1 Plan for Class C shares of Harris Associates Large Cap Value Fund is incorporated by reference to exhibit (m)(1)(c) to PEA No. 115 to the Registration Statement filed on April 30, 2001. (2) (a) Amended and Restated Rule 12b-1 Plan dated July 1, 2004 for Class A shares of Loomis Sayles Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (m)(2)(a) to PEA No. 124 to the Registration Statement filed on December 2, 2004. (b) Rule 12b-1 Plan for Class B shares of Loomis Sayles Massachusetts Tax Free Income Fund is incorporated by reference to exhibit (3)(b) to PEA No. 119 to the Registration Statement filed on April 29, 2003. (n) Rule 18f-3 Plan. Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended, effective August 2005, is incorporated by reference to exhibit (n) to PEA No. 129 to the Registration Statement filed on April 28, 2006. (p) Code of Ethics. (1) Code of Ethics dated March 10, 2006 for Registrant is incorporated by reference to exhibit (p)(1) to PEA No 129 to the Registration Statement filed on April 28, 2006. (2) Code of Ethics dated June 30, 2006 for IXIS Advisors and IXIS Distributors is filed herewith. (3) Code of Ethics dated April 24, 2006 for Harris Associates is filed herewith. (4) Code of Ethics dated January 14, 2000 as amended July 24, 2006 for Loomis Sayles is filed herewith. (q) Powers of Attorney. (1) Powers of Attorney for Graham T. Allison, Jr., Daniel M. Cain, Richard Darman, John T. Hailer, Edward Benjamin, Robert Blanding and Sandra O. Moose dated October 18, 2004 designating John M. Loder, Coleen Downs Dinneen, Russell Kane and Michael Kardok as attorneys to sign for each Trustee is incorporated by reference to exhibit (q) to PEA No. 124 to the Registration Statement filed on December 2, 2004. (2) Powers of Attorney for Charles D. Baker and Cynthia L. Walker are incorporated by reference to exhibit (q)(2) to PEA No. 128 to the Registration Statement filed on January 30, 2006.
4 Item 24. Persons Controlled by or under Common Control with the Registrant. The Registrant is not aware of any person controlled or under common control with any of its series. As of January 5, 2007, there were no persons that owned 25% or more of the outstanding voting securities of the Registrant. Item 25. Indemnification. Under Article 5 of the Registrant's By-laws, any past or present Trustee or officer of the Registrant (hereinafter referred to as a "Covered Person") shall be indemnified to the fullest extent permitted by law against all liability and all expenses reasonably incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party or otherwise involved by reason of his or her being or having been a Covered Person. That provision does not authorize indemnification when it is determined that such Covered Person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. This description is modified in its entirety by the provision of Article 5 of the Registrant's By-laws incorporated by reference to exhibit (b)(1)to PEA No. 128 to the Registration Statement filed on January 30, 2006. The Distribution Agreements, the Custodian Agreement, the Transfer Agency and Service Agreement and the Administrative Services Agreement (the "Agreements") contained herein and in various post-effective amendments and incorporated herein by reference, provide for indemnification. The general effect of these provisions is to indemnify entities contracting with the Registrant against liability and expenses in certain circumstances. This description is modified in its entirety by the provisions of the Agreements as contained in this Registration Statement and incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any claim, action, suit or proceeding) is asserted against the Registrant by such Trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Registrant and its Trustees, officers and employees are insured, under a policy of insurance maintained by the Registrant in conjunction with IXIS Asset Management US Group, L.P. and its affiliates, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such Trustees or officers. The policy expressly excludes coverage for any Trustee or officer for any claim arising out of any fraudulent act or omission, any dishonest act or omission or any criminal act or omission of the Trustee or officer. Item 26. Business and Other Connections of Investment Adviser. (a) IXIS Advisors, a wholly-owned subsidiary of IXIS Asset Management US Group, L.P., serves as investment adviser to Harris Associates Large Cap Value Fund. IXIS Advisors was organized in 1995. The list required by this Item 26 regarding any other business, profession, vocation or 5 employment of a substantial nature engaged in by officers and partners of IXIS Advisors during the past two years is incorporated by reference to schedules A, C and D of Form ADV filed by IXIS Advisors pursuant to the Investment Advisers Act of 1940, as amended, (the "Advisers Act") (SEC file No. 801-48408; IARD/CRD No. 106800). (b) Harris Associates serves as a subadviser to the Registrant's Harris Associates Large Cap Value Fund. Harris Associates serves as investment adviser to mutual funds, individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships, and is a registered commodity trading adviser and commodity pool operator. The list required by this Item 26 regarding any other business, profession or employment of a substantial nature engaged in by officers and partners of Harris Associates during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Harris Associates pursuant to the Advisers Act (SEC File No. 801-50333; IARD/CRD No. 106960). (c) Loomis Sayles, the adviser of the Registrant's Loomis Sayles Massachusetts Tax Free Income Fund, provides investment advice to a number of other registered investment companies and to other organizations and individuals. The list required by this Item 26 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Loomis Sayles during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Loomis Sayles pursuant to the Advisers Act (SEC file No. 801-170; IARD/CRD No. 105377). Item 27. Principal Underwriters. (a) IXIS Asset Management Distributors, L.P., the Registrant's principal underwriter, also serves as principal underwriter for: IXIS Advisors Funds Trust I IXIS Advisors Funds Trust III IXIS Advisors Funds Trust IV IXIS Advisors Cash Management Trust Loomis Sayles Funds I Loomis Sayles Funds II Delafield Fund, Inc. Hansberger Institutional Series 6 (b) The general partner and officers of the Registrant's principal underwriter, IXIS Asset Management Distributors, L.P., and their addresses are as follows:
Positions and Offices Positions and Offices Name with Principal Underwriter with Registrant - ---- -------------------------------------------------- ---------------------------------------------- IXIS Asset General Partner None Management Distribution Corporation John T. Hailer President and Chief Executive Officer President, Chief Executive Officer and Trustee John E. Pelletier Executive Vice President and Chief Operating Chief Operating Officer Officer Coleen Downs Dinneen Senior Vice President, General Counsel, Secretary Secretary, Clerk and Chief Legal Officer and Clerk Russell Kane Vice President, Chief Compliance Officer for Chief Compliance Officer; Assistant Secretary Mutual Funds, Associate General Counsel, Assistant Secretary and Assistant Clerk Michael Kardok Senior Vice President Treasurer, Principal Financial and Accounting Officer Beatriz Pina Smith Senior Vice President, Treasurer and Chief None Financial Officer Anthony Loureiro Senior Vice President, Chief Compliance Officer- None Broker/Dealer and Anti-Money Laundering Compliance Officer Max J. Mahoney Senior Vice President, Deputy General Counsel, Assistant Secretary and Anti-Money Laundering Assistant Secretary, Assistant Clerk, and Chief Officer Compliance Officer-Investment Adviser Robert Krantz Executive Vice President None William Butcher Executive Vice President None Matt Witkos Executive Vice President None Diane Whelan Executive Vice President None Jeffrey Coron Senior Vice President None Curt Overway Senior Vice President None
7 Maureen O'Neill Senior Vice President None Susannah Wardly Senior Vice President None Mark Doyle Senior Vice President None Matthew Coldren Senior Vice President None Christopher Mullahy Senior Vice President None KC Chew Senior Vice President None Caren Leedom Senior Vice President None Dan Lynch Senior Vice President None Peter Martin Senior Vice President None Thomas Nelson Senior Vice President None Matt Raynor Senior Vice President None
The principal business address of all the above persons or entities is 399 Boylston Street, Boston, MA 02116. (c) Not applicable. Item 28. Location of Accounts and Records The following companies maintain possession of the documents required by the specified rules: (a) For all series of Registrant: (i) IXIS Advisors Funds Trust II 399 Boylston Street Boston, Massachusetts 02116 (ii) IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 (iii) IXIS Asset Management Advisors, L.P. 399 Boylston Street Boston, Massachusetts 02116 (iv) State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 (b) For the series of the Registrant managed by Harris Associates L.P.: Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602
8 (c) For the series of the Registrant managed by Loomis, Sayles & Company, L.P.: Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111
Item 29. Management Services. None. Item 30. Undertakings. The Registrant undertakes to provide the annual report of any of its series to any person who receives a prospectus for such series and who requests the annual report. 9 IXIS ADVISORS FUNDS TRUST II SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all requirements for effectiveness of this Post-Effective Amendment No. 130 to its Registration Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 130 to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 26th day of January, 2007. IXIS ADVISORS FUNDS TRUST II By: /s/ JOHN T. HAILER ----------------------------- John T. Hailer Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signature Title Date - --------- ----------------------------- ---------------- /s/ MICHAEL KARDOK - --------------------------- Michael Kardok Treasurer January 26, 2007 /s/ GRAHAM T. ALLISON, JR.* - --------------------------- Graham T. Allison, Jr. Trustee January 26, 2007 /s/ CHARLES D. BAKER** - --------------------------- Charles D. Baker Trustee January 26, 2007 /s/ EDWARD A. BENJAMIN* - --------------------------- Edward A. Benjamin Trustee January 26, 2007 /s/ ROBERT J. BLANDING* - --------------------------- Robert J. Blanding Trustee January 26, 2007 /s/ DANIEL M. CAIN* - --------------------------- Daniel M. Cain Trustee January 26, 2007 /s/ RICHARD DARMAN* - --------------------------- Richard Darman Trustee January 26, 2007 /s/ JOHN T. HAILER - --------------------------- John T. Hailer Trustee, President, Chief Executive Officer January 26, 2007 /s/ SANDRA O. MOOSE* - ---------------------- Sandra O. Moose Trustee, Chairperson of the Board January 26, 2007 /s/ CYNTHIA L. WALKER* - ---------------------- Cynthia L. Walker Trustee January 26, 2007 *By: /s/ COLEEN DOWNS DINNEEN ----------------------------- Coleen Downs Dinneen Attorney-In-Fact**/*** January 26, 2007 ** Powers of Attorney are incorporated by reference to exhibit (q) to PEA No. 124 to the Registration Statement filed on December 2, 2004. *** Powers of Attorney for Charles D. Baker and Cynthia L. Walker are incorporated by reference to exhibit (q)(2) to PEA No. 128 to the Registration Statement filed on January 30, 2006. IXIS Advisor Funds Trust II Exhibit Index Exhibits for Item 23 of Form N-1A
Exhibit Exhibit Description - ------- ----------------------------------------------------------------------------------- (e)(3) Form of Dealer Agreement (g)(2) Amendment No. 1 to Master Custody Agreement (h)(1)(ii) Revised Appendix A to Transfer Agency and Services Agreement (h)(4) IXIS Advisor Fee Waiver/Expense Reimbursement Undertakings dated January 31, 2007 (h)(5) Loomis Advisor Fee Waiver/Expense Reimbursement Undertakings dated January 31, 2007 (j) Consent of PricewaterhouseCoopers LLP (p)(2) Code of Ethics for IXIS Advisors and IXIS Distributors (p)(3) Code of Ethics for Harris Associates (p)(4) Code of Ethics for Loomis Sayles
EX-99.(E)(3) 2 dex99e3.txt FORM OF DEALER AGREEMENT IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 Dealer Agreement This dealer agreement ("Dealer Agreement") is entered into between IXIS Asset Management Distributors, L.P. ("our", "us", or "we") and the undersigned company ("you"). We offer to sell to you shares of each of the mutual funds distributed by us (the "Funds" and each a "Fund"), for each of which Funds we are a principal underwriter as defined in the Investment Company Act of 1940, as amended (the "Act"), and from which we have the right to purchase shares./1/ With respect to each of the Funds (except for Section 5, which applies only with respect to each Fund having in effect from time to time a service plan, service and distribution plan or other plan adopted pursuant to Rule 12b-1 under the Act): 1. In all sales of shares of the Funds you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent, except as limited agent for purposes of receiving and transmitting orders and instructions regarding the purchase, exchange and redemption of shares held by its customers, broker or employee for any of the Funds or for us. 2. You agree not to purchase any Fund shares for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the then current Prospectus of the applicable Fund. You hereby represent that you understand your obligation to deliver a Prospectus to customers who purchase Fund shares pursuant to federal securities laws and you have taken all necessary steps to comply with such Prospectus delivery requirements. 3. Orders received from you will be accepted by us only at the public offering price applicable to each order, except for transactions to which a reduced offering price applies as provided in the then current Prospectus (which term as hereinafter used shall include the Statement of Additional Information) of the Fund(s). The minimum dollar purchase of shares of each Fund by any investor shall be the applicable minimum amount described in the then current Prospectus of the Fund and no order for less than such amount will be accepted hereunder. The public offering price shall be the net asset value per share plus the sales charge, if any, applicable to the transaction, expressed as a percentage of the public offering price, as determined and effective as of the time specified in the then current Prospectus of the Fund(s). The procedures relating to the handling of orders shall be subject to any instructions that we shall forward from time to time to you. All orders are subject to acceptance or rejection by us in our sole discretion. You hereby agree to comply with the attached Policies and Procedures with Respect to the Sales of Funds Offering Multiple Classes of Shares. 4. The sales charge applicable to any sale of Fund shares by you and the dealer concession or commission applicable to any order from you for the purchase of Fund shares accepted by us shall be set forth in the then current Prospectus of the Fund. You shall notify us if you are not eligible to receive a dealer concession or commission. You may be deemed to be an underwriter in connection with sales by you of shares of the Fund where you receive all or substantially all of the sales charge as set forth in the Fund's Prospectus, and therefore you may be subject to applicable provisions of the Securities Act of 1933. - -------- /1/ The definition of "Funds" shall not include the following mutual funds, which are distributed by IXIS Asset Management Distributors, L.P, but which are not available to you through the terms of this Dealer Agreement: Hansberger Emerging Markets Fund (Institutional Class); Hansberger International Growth Fund (Institutional Class); Hansberger Core Fund (Institutional Class); Hansberger International Value Fund (Institutional Class); Hansberger International Growth Fund (Advisor Class); Loomis Sayles Fixed Income Fund; Loomis Sayles Institutional High Income Fund; Loomis Sayles Intermediate Duration Fixed Income Fund; Loomis Sayles Investment Grade Fixed Income Fund; Loomis Sayles Tax Managed Equity Fund; Loomis Sayles High Income Opportunities Fund; and Loomis Sayles Securitized Asset Fund. 1 08-06
(a) We are entitled to a contingent deferred sales charge ("CDSC") on redemptions of applicable Classes of shares of the Funds, as described in the then current Prospectus. You agree that you will sell shares subject to a CDSC and that are to be held in omnibus accounts only if you are a NETWORKING participant with the National Securities Clearing Corporation and if such accounts are established pursuant to a NETWORKING Agreement. (b) Reduced sales charges or no sales charge may apply to certain transactions under letter of intent, combined purchases or investments, reinvestment of dividends and distributions, repurchase privilege, unit investment trust distribution reinvestment or other programs, as described in the then current Prospectus of the Fund(s). To obtain any such reductions, you must notify us when the sale that would qualify for such reduction takes place. 5. Rule 12b-1 Plans. The substantive provisions of this Section 5 have been adopted pursuant to Rule 12b-1 under the Act by certain Funds, under plans pursuant to such Rule (each a "Plan"). (a) You agree to provide (i) for the Funds with a Service Plan, personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts, and (ii) for those Funds with a Service and Distribution Plan, both personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts and also distribution and marketing services in the promotion of Fund shares. As compensation for these services, we shall pay you, upon receipt by us from the Fund(s), a quarterly service fee or service fee and distribution fee based on the average daily net asset value of Fund shares at the rate set forth with respect to the relevant Class(es) of shares of the Fund(s) in the then current Prospectus. This fee will be based on the average daily net asset value of Fund shares which are owned of record by your firm as nominee for your customers or which are owned by those shareholders whose records, as maintained by the Fund or its agent, designate your firm as the shareholder's dealer of record. No such fee will be paid to you with respect to shares purchased by you or your customers and redeemed or repurchased by the Fund or by us as agent within seven (7) business days after the date of our confirmation of such purchase. No such fee will be paid to you with respect to any of your customers if the amount of such fee based upon the value of such customer's Fund shares would be less than $5.00. Normally, payment of such fee to you shall be made within forty-five (45) days after the close of each quarter for which such fee is payable provided, however, that any other provision of this Dealer Agreement or the Prospectuses to the contrary notwithstanding, we shall not have any obligation whatsoever to pay any amount of distribution and/or service fee with respect to shares of any Fund except to the extent, and only to the extent, that we have actually received payment of at least such amount of distribution and/or service fee from the Funds with respect to such shares pursuant to a Plan in consideration of you furnishing distribution and client services hereunder with respect to your customers that own such class of shares of such Fund (b) You shall furnish us and the Fund with such information as shall reasonably be requested by the Trustees of the Fund with respect to the fees paid to you pursuant to this Section 5 and you shall notify us if you are not eligible to receive 12b-1 fees. (c) The provisions of this Section 5 may be terminated by the vote of a majority of the Trustees of the Funds who are not interested persons of the Funds and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, or by a vote of a majority of the Fund's outstanding shares, on sixty (60) days' written notice, without payment of any penalty. Such provisions will be terminated also by any act that terminates either the Fund's Distribution Contract or Underwriting Agreement with us or this Dealer Agreement and shall terminate automatically in the event of the assignment (as that term is defined in the Act) of this Dealer Agreement. (d) The provisions of the Distribution Contract or Underwriting Agreement between the Fund and us, insofar as they relate to the Plan, are incorporated herein by reference. The provisions of this Section 5 shall continue in full force and effect only so long as the continuance of the Plan, the Distributor's Contract or Underwriting Agreement and these provisions are approved at least annually by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting thereon. 6. You agree to purchase Fund shares only from us or from your customers. If you purchase Fund shares from us, you agree that all such purchases shall be made only: (a) to cover orders already received by you from your customers; (b) for shares being acquired by your customers pursuant to either the exchange privilege or the reinvestment privilege, as described in the then current Prospectus of the Fund; (c) for your own bona fide investment; or (d) for investments by any IRS qualified pension, profit sharing or other trust established for the benefit of your employees or for investments in Individual Retirement Accounts established by your employees, and if you so advise us in writing prior to any sale of Fund shares pursuant to this 2 08-06
subsection (d), you agree to waive all your dealer concessions with respect to all sales of Fund shares pursuant to this subsection (d). If you purchase shares from your customers, you agree to pay such customers not less than the applicable redemption price next quoted by the Fund pursuant to the procedures set forth in the then current Prospectus of the Fund. 7. You shall sell shares only: (a) to customers at the applicable public offering price, except for shares being acquired by your customers at net asset value pursuant to either the exchange privilege or the repurchase privilege as described in the then current Prospectus of the Fund, and (b) to us as agent for the Fund at the redemption price. In such a sale to us, you may act either as principal for your own account or as agent for your customer. If you act as principal for your own account in purchasing shares for resale to us, you agree to pay your customer not less than the price that you receive from us. If you act as agent for your customer in selling shares to us, you agree not to charge your customer more than a fair commission or fee for handling the transaction, except that you agree to receive no compensation of any kind based on the reinvestment of redemption or repurchase proceeds pursuant to the repurchase privilege, as described in the then current Prospectus of the Fund. 8. You hereby certify that all of your customers' taxpayer identification numbers ("TIN") or social security numbers ("SSN") furnished to us by you are correct and that you will not open an account without providing us with the customer's TIN or SSN. 9. You shall not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding; e.g., by a change in the net asset value from that used in determining the public offering price to your customers. 10. We will not accept from you any conditional orders for shares. 11. If any Fund shares sold to you or your customers under the terms of this Dealer Agreement are redeemed by the Fund or repurchased by us as agent for the Fund within seven (7) business days after the date of our confirmation of the original purchase by you or your customers, it is agreed that you shall forfeit your right to any dealer concession or commission received by you on such Fund shares. We will notify you of any such repurchase or redemption within ten (10) business days after the date thereof and you shall forthwith refund to us the entire concession or commission allowed or paid to you on such sale. We agree, in the event of any such repurchase or redemption, to refund to the Fund the portion of the sales charge, if any, retained by us and, upon receipt from you of the concession allowed to you on any Fund shares, to pay such refund forthwith to the Fund. 12. Payment for Fund shares sold to you shall be made on or before the settlement date specified in our confirmation, at the office of our clearing agent, and by check payable to the order of the Fund, which reserves the right to delay issuance, redemption or transfer of shares until such check has cleared. If such payment is not received by us, we reserve the right, without notice, forthwith either to cancel the sale, or at our option, or to sell the shares ordered back to the Fund, in which case you shall bear any loss resulting from your failure to make payment as aforesaid. 13. You will also act as principal in all purchases by a shareholder for whom you are the dealer of record of Fund shares with respect to payments sent directly by such shareholder to the Shareholder Services and Transfer Agent (the "Agent") specified in the then current Prospectus of the Fund, and you authorize and appoint the Agent to execute and confirm such purchases to such shareholders on your behalf. The Agent will remit not less frequently than monthly to you the amount of any concessions due with respect to such purchases, except that no concessions will be paid to you on any transaction for which your net sales concession is less than $5.00 in any one month. You also represent that with respect to all such direct purchases by such shareholder, you may lawfully sell shares of such Fund in the state designated as such shareholder's record address. 14. No person is authorized to make any representations concerning shares of the Funds except those contained in the then current Prospectuses of the Funds and in sales literature issued by us supplemental to such Prospectuses or approved in writing by us. In purchasing shares from us, you shall rely solely on the representations contained in such Prospectuses and such sales literature. We will furnish you with additional copies of such Prospectuses and such sales literature and other releases and information issued by us in reasonable quantities upon request. (a) If, with prior written approval from us, you use any advertisement or sales literature which has not been supplied by us, you are responsible for ensuring that the material complies with all applicable regulations and has been filed with the appropriate authorities. 3 08-06
(b) You shall indemnify and hold us (and our directors, officers, employees, controlling persons and agents) and the Fund and its Trustees and officers harmless from and against any and all losses, claims, liabilities and expenses (including reasonable attorneys' fees) ("Losses") incurred by us or any of them arising out of (i) your dissemination of information regarding any Fund that is alleged to contain an untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and that was not published or provided to you by or on behalf of us, or accurately derived from information published or provided by or on behalf of us or any of our Affiliates, (ii) any breach by you of any representation, warranty or agreement contained in this Dealer Agreement, or (iii) any willful misconduct or negligence on your part in the performance of, or failure to perform, your obligations under this Dealer Agreement, except to the extent such losses are caused by our breach of this Dealer Agreement or our willful misconduct or negligence in the performance, or failure to perform, our obligations under this Dealer Agreement. This Section (15) shall survive termination of this Dealer Agreement. 15. The Fund reserves the right in its discretion and we reserve the right in our discretion, without notice, to refuse any order for the purchase of Fund shares for any reason whatsoever, and to suspend sales or withdraw the offering of Fund shares (or shares of any class(es)) entirely. We reserve the right, by written notice to you, to amend, modify, cancel or assign this Dealer Agreement and any appendices that are now or in the future attached to this Dealer Agreement. Notice for all purposes shall be deemed to be given when mailed or electronically transmitted to you. 16. This Dealer Agreement shall replace any prior agreement between you and us or any of our predecessor entities (including but not limited to CDC IXIS Asset Management Distributors, L.P., Nvest Funds Distributor, L.P., New England Funds, L.P., TNE Investment Services Corporation, and Investment Trust of Boston Distributors, Inc.) and is conditioned upon your representation and warranty that you are (i) registered as a broker/dealer under the Securities Exchange Act of 1934, as amended, and are a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"), (ii) a Registered Investment Adviser under state and/or federal law, (iii) ineligible for NASD membership because you are a foreign dealer, or (iv) bank chartered by the appropriate state or federal agency and authorized to enter into and perform the transactions contemplated by this Dealer Agreement. Regardless of whether you qualify, under (i), (ii) (iii) or (iv), you and we agree to abide by the Rules and Regulations of the NASD, including without limitation Conduct Rules 2310, 2420, 3110, 3510 and 2830, and all applicable state and federal laws, rules and regulations. (a) You will not offer Fund shares for sale in any state (a) where they are not qualified for sale under the blue sky laws and regulations of such state or (b) where you are not qualified to act as a dealer or adviser. (b) In the event that you offer Fund shares outside the United States, you agree to comply with the applicable laws, rules and regulations of the foreign government having jurisdiction over such sales, including any regulations of United States military authorities applicable to solicitations to military personnel. 17. Each of the parties represents and warrants that it has enacted appropriate safeguards to protect non-public customer information. If non-public personal information regarding either party's customers or consumers is disclosed to the other party in connection with this Dealer Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Dealer Agreement and in accordance with Regulation S-P. 18. Each party to this Dealer Agreement hereby agrees to abide by and comply with all relevant anti-money laundering laws and regulations, including without limitation the Bank Secrecy Act, as amended, and the USA PATRIOT Act of 2001, as amended (the "USA PATRIOT Act of 2001"). Each party represents that it has established an Anti-Money Laundering Program that complies with all material aspects of the USA PATRIOT Act of 2001 and other applicable anti-money laundering laws and regulations. Each party also hereby agrees to comply with any new or additional anti-money laundering laws or regulations. 19. You hereby agree that all purchases, redemptions and exchanges of shares contemplated by this Dealer Agreement shall be effected by you for your customers in accordance with each Fund's then current Prospectus, including, without limitation, the collection of any redemption fees, and in accordance with applicable laws and regulations. 20. You hereby represent that you have established and will maintain a business continuity program, in compliance with NASD Rules 3510 and 3520, designed to ensure that you will at all times fulfill your obligations as set forth in this Dealer Agreement. 4 08-06
21. You hereby acknowledge that each Fund and class of shares thereof may be offered and sold only in accordance with the terms and conditions set forth in the respective Fund's prospectus and statement of additional information, as may be amended from time to time. 22. All communications to us should be sent to the above address. Any notice to you shall be duly given if mailed or faxed to you at the address specified by you below. 23. This Dealer Agreement together with attached appendices shall be effective when accepted by you below and shall be governed by and construed under the laws of the Commonwealth of Massachusetts. 24. This Dealer Agreement together with attached appendices shall be effective as against you and your successor in interest. All obligations, representations, warranties and covenants made and belonging to you shall be enforceable against your successor in interest to the same extent that such would be enforceable against you. Your submission and our acceptance of an order for the Funds, or receipt by us of an executed copy of this Dealer Agreement from you represents your acknowledgement and acceptance of the terms and conditions of this Dealer Agreement and its attached appendices.
Accepted: ______________________________ IXIS Asset Management Distributors, L.P. Dealer's Name By: IXIS Asset Management Distribution Corporation, its general partner Address: _____________________________ _____________________________ Address: 399 Boylston Street _____________________________ Boston, MA 02116 By: _____________________________ By: ______________________________ Authorized Signature of Dealer Authorized Signature _______________________________________ (Please print name) Date: _____________________________
5 08-06 Appendix A IXIS Asset Management Distributors, L.P. Policies and Procedures with Respect to Mutual Fund Trading You shall establish and maintain effective internal policies and controls, including operational and system controls, with respect to the processing of orders of the funds received prior to and after the close of the New York Stock Exchange - normally 4:00 p.m. Eastern Time ("Pricing Time"), for the purchase, redemption and exchange of shares of mutual funds, including the Funds. For all transactions in the Funds, you shall follow all applicable rules and regulations and shall establish internal policies regarding the timely handling of orders for the purchase, redemption and exchange of shares of the Funds ("Fund Orders") and maintain effective internal controls over the ability to distinguish and appropriately process Fund Orders received prior to and after the Fund's Pricing Time, including operational and systems controls. Specifically, you represent as of the date of Dealer Agreement and each time that you accept a Fund Order on behalf of a Fund that: .. Your policies and procedures provide reasonable assurance that Fund Orders received by you prior to the Fund's Pricing Time are segregated from Fund Orders received by you after the Fund's Pricing Time and are properly transmitted to the Funds (or their agents) for execution at the current day's net asset value ("NAV"). .. Your policies and procedures provide reasonable assurances that Fund Orders received by you after the Fund's Pricing Time are properly transmitted to the Funds (or their agents) for execution at the next day's NAV. .. Your policies and procedures provide reasonable assurance that transactional information is delivered to the Funds (or their agents) in a timely manner. .. You have designed procedures to provide reasonable assurance that policies with regard to the receipt and processing of Fund Orders are complied with. Such procedures either prevent or detect, on a timely basis, instances of noncompliance with the policies governing the receipt and processing of Fund Orders. .. Policies and procedures governing the timely handling of Fund Orders have been designed and implemented effectively by all third parties to whom you have designated the responsibility to distinguish and appropriately process Fund Orders received prior to and after the Fund's Pricing Time. To the extent we have entered into related agreements with you regarding your handling of Fund Orders, you acknowledge and agree that this appendix shall apply to your handling of all Fund Orders, whether authorized under the Dealer Agreement or any other agreement with us or our affiliates. 6 08-06
Appendix B IXIS Asset Management Distributors, L.P. Policies and Procedures with Respect to Sales of Funds Offering Multiple Classes Of Shares In connection with the offering of certain Funds with multiple classes of shares, one subject to a front-end sales load and a service fee or service and distribution fee ("Class A shares"), one subject to a service fee, a distribution fee, no front-end sales load and a contingent deferred sales charge ("CDSC") on redemptions within a time period specified in the then current Prospectus (which for purposes of these policies and procedures shall include the Funds' then current statement of additional information) of the Fund ("Class B shares"), one subject to a service fee, distribution fee and a CDSC on redemptions within a period specified in the then current Prospectus of the Fund ("Class C shares"), one intended generally only for certain institutional investors and subject to no front-end sales load ("Class Y shares") and other no-load Retail, Admin and Institutional Fund shares, an investor must choose the method of purchasing shares which best suits his/her particular circumstances. To assist investors in these decisions, we have instituted the following policies with respect to orders for Fund shares. These policies apply to every entity distributing Fund shares. 1. No purchase order may be placed for Class B shares if the amount of the orders equals or exceeds $100,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares, as provided in the Prospectus. 2. No purchase order may be placed for Class C shares if the amount of the order equals or exceeds $1,000,000 or the order is eligible for a net asset value purchase price (i.e., no front-end sales charge) of Class A shares unless the investor indicates on the relevant section of the application that the investor has been advised of the relative advantages and disadvantages of Classes A and C shares. 3. Any purchase order for less than $1,000,000 may be for either Class A, B (subject to Section 1 above) or C shares in light of the relevant facts and circumstances, including: a) the specific purchase order dollar amount; b) the length of time the investor expects to hold his/her shares; and c) any other relevant circumstances such as the availability of purchase under a Letter of Intent, Breakpoints (a volume discount), or Rights of Accumulation, as described in the Prospectus. 4. Investors may purchase Class Y shares only if they meet the identity, suitability, minimum investment and other standards set forth in the Funds' then current Class Y Prospectuses. Investors otherwise eligible to purchase Class Y shares but who will not make the initial minimum investment amount are eligible to invest in Class A, B or C shares. They should be advised, however, of the lower fees and expenses applicable to Class Y shares and should consider whether a larger investment, to meet the Class Y requirements, would be appropriate and desirable for their circumstances. There are instances when purchasing one class of shares may be more appropriate than the others. For example, investors who would qualify for a significant discount from the maximum sales load on Class A shares may determine that payment of such a reduced front-end sales load and service fee is preferable to payment of a higher ongoing distribution fee. Investors whose orders would not qualify for such a discount and who anticipate holding their investment for more than eight years might consider Class B shares because 100% of the purchase price is invested immediately. Investors making smaller investments who anticipate redeeming their shares within eight years might consider Class C shares for the same reason. Appropriate supervisory personnel within your organization must ensure that all employees and representatives receiving investor inquiries about the purchase of shares of a Fund advise the investor of then available pricing structures offered by the Funds, and the impact of choosing one class of shares over another. You shall inform investors of available breakpoints and ensure that such investor receives access to representatives and employees within your organization to answer any inquiries that such investor may have with respect to available and applicable breakpoints. In some instances it may be appropriate for a supervisory person to discuss a purchase with the investor. This policy is effective with respect to any order for the purchase of shares of a Fund offering multiple classes of shares. Fund and class of shares may be offered and sold only in accordance with the terms and conditions set forth in the respective Fund's prospectus and statement of additional information. Questions relating to this policy should be directed to John T. Hailer, President and Chief Executive Officer, IXIS Asset Management Distributors, L.P. at (617) 449-2500. 7 08-06
APPENDIX C IXIS Asset Management Distributors, L.P. Policies and Procedures with Respect to Rule 22c-2 I. Shareholder Information. 1. Agreement to Provide Information. Intermediary agrees to provide to the Fund, upon written request, the taxpayer identification number ("TIN"), the Individual/International Taxpayer Identification Number ("ITIN"), or other government-issued identifier ("GII"), if known, of any or all Shareholder(s) of the account and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or next change) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by Intermediary during the period covered by the request. 2. Period Covered by Request. Requests must set forth a specific period, not to exceed ninety (90) days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than ninety (90) days from the date of the request as the Fund deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. The Fund reserves the right to request the information set forth in Section I. (1) for each trading day and Intermediary agrees, if so directed by the Fund, to provide the information. 3. Form and Timing of Response. Intermediary agrees to provide, promptly upon request of the Fund or its designee, the requested information specified in Section I. (1). If requested by the Fund or its designee, Intermediary agrees to use best efforts to determine promptly whether any specific person about whom it has received identification and transaction information specified in Section I. (1) is itself a financial intermediary ("indirect intermediary") and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in Section I. (1) for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. Intermediary additionally agrees to inform the Fund whether it plans to perform (i) or (ii). Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format. 4. Limitations on Use of Information. Fund agrees not to use the information received for marketing or any other similar purpose without Intermediary's prior written consent. 5. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Fund's Shares (directly or indirectly through Intermediary's account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund. 6. Form of Instructions. Instructions to restrict or prohibit trading must include the TIN, ITIN, GII, if known, and the specific restriction(s) to be executed. If the TIN, ITIN, or GII is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates. 7. Timing of Response. Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by Intermediary. 8 08-06
8. Confirmation by Intermediary. Intermediary must provide written confirmation to the Fund that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed. 9. Definitions. For purposes of this schedule: (a) The term "Fund" includes the fund's principal underwriter and transfer agent. The term does not include any "excepted funds" as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940.* (b) The term "Shares" means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by Intermediary. (c) The term "Shareholder" means the beneficial owner of Shares, whether the Shares are held directly or by Intermediary in nominee name. (d) Note that the term "Shareholder" may have alternative meanings as follows: (1) for Retirement Plan Recordkeepers the term "Shareholder" means the Plan participant notwithstanding that the Plan may be deemed to be the beneficial owner of Shares and (2) for Insurance Companies the term "Shareholder" means the holder of interests in a variable annuity or variable life insurance contract issued by an Intermediary. (e) The term "written" includes electronic writings and facsimile transmissions. - -------- * As defined in SEC Rule 22c-2(b), the term "excepted fund" means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund. 9 08-06
EX-99.(G)(2) 3 dex99g2.txt AMENDMENT NO. 1 TO MASTER CUSTODY AGREEMENT AMENDMENT NO. 1 TO MASTER CUSTODIAN AGREEMENT THIS AMENDMENT NO. 1 (this "Amendment") to that certain Master Custodian Agreement dated as of September 1, 2005, as amended, modified and supplemented from time to time (the "Custodian Agreement"), is entered into as of September 15, 2006, by and among each of the entities set forth on Appendix A attached hereto and State Street Bank and Trust Company (the "Custodian"). Capitalized terms used herein without definition shall have the meanings ascribed to them in the Custodian Agreement. WHEREAS, the Custodian provides custody and accounting services to the Funds, pursuant to and as more particularly described in the Custodian Agreement; WHEREAS, the parties hereto wish to amend the terms of the Custodian Agreement; NOW, THEREFORE, in consideration of the covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment to Custodian Agreement. The Custodian Agreement is hereby amended to add the following new Section 17A: "SECTION 17A. LOAN SERVICING. SECTION 17A.1 GENERAL. The following provisions shall apply with respect to a Fund's investments, property or assets in the nature of loans, or interests or participations in loans, including without limitation interests in syndicated bank loans and bank loan participations (collectively, "Loans"). SECTION 17A.2 SAFEKEEPING. Instruments, certificates, agreements and/or other documents which the Custodian may receive in respect of Loans, if any (collectively "Financing Documents"), from time to time, shall be held by the Custodian at its offices in Boston, Massachusetts. SECTION 17A.3 DUTIES OF THE CUSTODIAN. The Custodian shall accept such Financing Documents, if any, in respect of Loans as may be delivered to it from time to time by a Fund. The Custodian shall be under no obligation to examine the contents or determine the sufficiency of any such Financing Documents or to provide any certification with respect thereto, whether received by the Custodian as original documents, photocopies, by facsimile or otherwise. Without limiting the foregoing, the Custodian is under no duty to examine any such Financing Documents to determine whether necessary steps have been taken or requirements met in respect of the assignment or transfer of the related Loan or applicable interest or participation therein. The Custodian shall be entitled to assume the genuineness, sufficiency and completeness of any Financing Documents received, and the genuineness and due authority of any signature appearing thereon. Notwithstanding any term of this Agreement to the contrary, with respect to any Loans, (i) the Custodian shall be under no obligation to determine, and shall have no liability for, the sufficiency of, or to require delivery of, any instrument, document or agreement constituting, evidencing or representing such Loan, other than to receive such Financing Documents, if any, as may be delivered or caused to be delivered to it by a Fund (or its investment adviser on its behalf), (ii) without limiting the generality of the foregoing, delivery of any such Loan may be made to the Custodian by, and may be represented solely by, delivery to the Custodian of a facsimile or photocopy of an assignment agreement (an "Assignment Agreement") or a confirmation or certification from the Fund (or its investment adviser) to the effect that it has acquired such Loan and/or has received or will receive, and will deliver to the Custodian, appropriate Financing Documents constituting, evidencing or representing such Loan (such confirmation or certification, together with any Assignment Agreement, collectively, an "Assignment Agreement or Confirmation"), in any case without delivery of any promissory note, participation certificate or similar instrument (collectively, an "Instrument"), (iii) if an original Instrument shall be or shall become available with respect to any such Loan, it shall be the sole responsibility of the Fund to make or cause delivery thereof to the Custodian, and the Custodian shall be under no obligation at any time or times to determine whether any such original Instrument has been issued or made available with respect to such Loan, and shall not be under any obligation to compel compliance by the Fund to make or cause delivery of such Instrument to the Custodian, and (iv) any reference to Financing Documents appearing in this Section 17A shall be deemed to include, without limitation, any such Instrument and/or Assignment Agreement or Confirmation. If payments with respect to a Loan ("Loan Payment") are not received by the Custodian on the date on which they are due, as reflected in the Payment Schedule (as such term is defined in Section 17A.4 below) of the Loan ("Payment Date"), or in the case of interest payments, not received either on a scheduled interest payable date, as reported to the Custodian by the Fund, or its investment adviser on its behalf, for the Loan (the "Interest Payable Date"), or in the amount of their accrued interest payable, the Custodian shall promptly, but in no event later than one business day after the Payment Date or the Interest Payable Date, give telephonic notice to the party obligated under the Financing Documents to make such Loan Payment (the "Obligor") of its failure to make timely payment, and if such payment is not received within three business days of its due date, shall notify the Fund of such Obligor's failure to make the Loan Payment. The Custodian shall have no responsibility with respect to the collection of Loan Payments which are past due, other than the duty to notify the Obligor and the Fund as provided herein. The Custodian shall have no responsibilities or duties whatsoever under this Agreement, with respect to Loans or the Financing Documents, except for such responsibilities as are expressly set forth herein. Without limiting the generality of the foregoing, the Custodian shall have no obligation to preserve any rights against prior parties or to exercise any right or perform any obligation in connection with the Loans or any Financing Documents (including, without limitation, no obligation to take any action in respect of or upon receipt of any consent solicitation, notice of default or similar notice received from any bank agent or Obligor, except that the Custodian shall undertake reasonable efforts to forward any such notice to the Fund). In case any question arises as to its duties hereunder, the Custodian may request instructions from the applicable Fund and shall be entitled at all times to refrain from taking any action unless it has received Proper Instructions from the Fund or its investment adviser, and the Custodian shall in any event have no liability, risk or cost for any action taken, with respect to a Loan, pursuant to and in compliance with Proper Instructions. The Custodian shall be only responsible and accountable for Loan Payments actually received by it and identified as for the account of a Fund; any and all credits and payments credited to such Fund, with respect to Loans, shall be conditional upon clearance and actual receipt by the Custodian of final payment thereon. The Custodian shall promptly, upon a Fund's request pursuant to Proper Instructions, release any Financing Documents being held on behalf of such Fund. Without limiting the foregoing, the Custodian shall not be deemed to have or be charged with knowledge of the sale of any Loan, unless and except to the extent it shall have received written notice and instruction from the Fund with respect thereto, and except to the extent it shall have received the sale proceeds thereof. In no event shall the Custodian be under any obligation or liability to make any advance of its own funds in respect of any Loan. SECTION 17A.4 RESPONSIBILITY OF FUNDS. With respect to each Loan held by the Custodian hereunder in accordance with the provisions hereof, the applicable Fund shall (a) cause the Financing Documents evidencing such Loan to be delivered to the Custodian; (b) include with such Financing Documents an amortization schedule of payments (the "Payment Schedule") identifying the amount and - 2 - due dates of scheduled principal payments, the Interest Payable Date(s) and related payment amount information, and such other information with respect to the related Loan and Financing Documents as the Custodian reasonably may require in order to perform its services hereunder (collectively, "Loan Information"), in such form and format as the Custodian reasonably may require; (c) take, or cause its investment adviser to take, all actions necessary to acquire good title to such Loan (or the participation therein, as the case may be), as and to the extent intended to be acquired; and (d) cause the Custodian to be named as its nominee for payment purposes under the Financing Documents or otherwise provide for the direct payment of the Payments to the Custodian. The Custodian shall be entitled to rely upon the Loan Information provided to it without any obligation on the part of the Custodian independently to verify, investigate, recalculate, update or otherwise confirm the accuracy or completeness thereof; and the Custodian shall have no liability for any delay or failure on the part of a Fund in providing necessary Loan Information to the Custodian, or for any inaccuracy therein or incompleteness thereof. With respect to each such Loan, the Custodian shall be entitled to rely on any information and notices it may receive from time to time from the related bank agent, Obligor or similar party with respect to the related Loan, and shall be entitled to update its records on the basis of such information or notices received, without any obligation on its part independently to verify, investigate or recalculate such information. Notwithstanding any other provision of this Agreement, the Custodian shall have no responsibility to ensure that any investment by a Fund with respect to Loans has been authorized. SECTION 17A.5 APPLICABLE FUNDS AND PORTFOLIOS. The provisions of this Section 17A shall apply initially only to Loomis Sayles Bond Fund, a series of Loomis Sayles Funds I, and Loomis Sayles Strategic Income Fund, a series of Loomis Sayles Funds II. Additional Funds or Portfolios may elect to become subject to the provisions of this Section 17A by the delivery by the applicable Fund of Special Instructions to the Custodian, specifying the Funds/Portfolios and requesting that the Custodian provide loan servicing to such Funds/Portfolios. 2. No Other Modifications. Except to the extent amended hereby, the terms of the Custodian Agreement shall remain unchanged and unaffected hereby and shall remain in full force and effect to the extent of, and in accordance with, its terms. In the event of any conflict between the terms of the Custodian Agreement prior to this Amendment and this Amendment, the terms of this Amendment shall prevail. 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. 4. Counterparts. This Amendment may be signed in counterparts, which taken together shall constitute one and the same instrument. [remainder of page intentionally left blank] - 3 - IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and on its behalf by its duly authorized representative as of the date first set forth above. EACH OF THE ENTITIES SET FORTH ON APPENDIX A ATTACHED HERETO By: /s/ Michael C. Kardok ----------------------------- Name: Michael C. Kardok Title: Treasurer STATE STREET BANK AND TRUST COMPANY By: /s/ Joseph L. Hooley ----------------------------- Name: Joseph L. Hooley Title: Executive Vice President - 4 - Appendix A Management Investment Companies Registered with the SEC and Portfolios thereof, if any LOOMIS SAYLES FUNDS I Loomis Sayles Bond Fund 9/1/05 Loomis Sayles Global Bond Fund 9/1/05 Loomis Sayles Small Cap Value Fund 9/1/05 Loomis Sayles Fixed Income Fund 9/1/05 Loomis Sayles Inflation Protected Securities Fund 9/1/05 Loomis Sayles Institutional High Income Fund 9/1/05 Loomis Sayles Intermediate Duration Fixed Income Fund 9/1/05 Loomis Sayles Investment Grade Fixed Income Fund 9/1/05 Loomis Sayles High Income Opportunities Fund 9/1/05 Loomis Sayles Securitized Asset Fund 9/1/05 LOOMIS SAYLES FUNDS II Loomis Sayles Aggressive Growth Fund 9/1/05 Loomis Sayles Small Cap Growth Fund 9/1/05 Loomis Sayles Value Fund 9/1/05 Loomis Sayles Global Markets Fund (f/k/a Worldwide Fund) 9/1/05 Loomis Sayles Tax-Managed Equity Fund 9/1/05 Loomis Sayles Growth Fund 9/1/05 Loomis Sayles High Income Fund 10/1/05 Loomis Sayles Investment Grade Bond Fund 9/1/05 Loomis Sayles Limited Term Government and Agency Fund 10/1/05 Loomis Sayles Municipal Income Fund 10/1/05 Loomis Sayles Research Fund 9/1/05 Loomis Sayles Strategic Income Fund 10/1/05 IXIS ADVISOR CASH MANAGEMENT TRUST Money Market Series 9/1/05
IXIS ADVISOR FUNDS TRUST I CGM Advisor Targeted Equity Fund 9/1/05 Hansberger International Fund 9/1/05 IXIS U.S. Diversified Portfolio 9/1/05 IXIS Value Fund 9/1/05 Loomis Sayles Core Plus Bond Fund 10/1/05 Vaughan Nelson Small Cap Value Fund 9/1/05 Westpeak Capital Growth Fund 9/1/05 IXIS Income Diversified Portfolio 11/1/05 IXIS ADVISOR FUNDS TRUST II Loomis Sayles Massachusetts Tax Free Income Fund 10/1/05 Harris Associates Large Cap Value Fund 9/1/05 IXIS ADVISOR FUNDS TRUST III Harris Associates Focused Value Fund 9/1/05 IXIS Equity Diversified Portfolio 9/1/05 IXIS Moderate Diversified Portfolio 9/1/05 IXIS ADVISOR FUNDS TRUST IV AEW Real Estate Fund 9/1/05 AEW REAL ESTATE INCOME FUND (closed end) 9/1/05
- 6 - EX-99.(H)(1)(II) 4 dex99h1ii.txt REVISED APPENDIX A TO TRANSFER AGENCY AND SERVICES AGREEMENT APPENDIX A Funds and Portfolios Dated July 17,2006 IXIS Advisor Cash Management Trust, a business trust organized under the laws of the Commonwealth of Massachusetts IXIS Cash Management Trust - Money Market Series (formerly CDC Nvest Cash Management Trust - Money Market Series) IXIS Advisor Funds Trust I, a business trust organized under the laws of the Commonwealth of Massachusetts CGM Advisor Targeted Equity Fund Hansberger International Fund IXIS U.S. Diversified Portfolio (formerly, CDC Nvest Star Advisers Fund) IXIS Value Fund (formerly, CDC Nvest Star Value Fund) Loomis Sayles Core Plus Bond Fund Vaughan Nelson Small Cap Value Fund Westpeak Capital Growth Fund IXIS Income Diversified Portfolio IXIS Advisor Funds Trust II, a business trust organized under the laws of the Commonwealth of Massachusetts Harris Associates Large Cap Value Fund Loomis Sayles Massachusetts Tax Free Income Fund IXIS Advisor Funds Trust III, a business trust organized under the laws of the Commonwealth of Massachusetts Harris Associates Focused Value Fund IXIS Equity Diversified Portfolio IXIS Moderate Diversified Portfolio (formerly, CDC IXIS Moderate Diversified Portfolio) IXIS Advisor Funds Trust IV, a business trust organized under the laws of the Commonwealth of Massachusetts AEW Real Estate Fund Loomis Sayles Funds I, a business trust organized under the laws of the Commonwealth of Massachusetts Loomis Sayles Bond Fund Loomis Sayles Fixed Income Fund Loomis Sayles Global Bond Fund Loomis Sayles High Income Opportunities Fund Loomis Sayles Inflation Protected Securities Fund Loomis Sayles Institutional High Income Fund Loomis Sayles Intermediate Duration Fixed Income Fund Loomis Sayles Investment Grade Fixed Income Fund Loomis Sayles Securitized Asset Fund Loomis Sayles Small Cap Value Fund Loomis Sayles Funds II, a business trust organized under the laws of the Commonwealth of Massachusetts Loomis Sayles Aggressive Growth Fund Loomis Sayles Global Markets Fund (formerly, Loomis Sayles Worldwide Fund) Loomis Sayles Growth Fund Loomis Sayles High Income Fund Loomis Sayles Investment Grade Bond Fund (except for Class J shares) Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Municipal Income Fund Loomis Sayles Research Fund Loomis Sayles Small Cap Growth Fund Loomis Sayles Strategic Income Fund Loomis Sayles Tax-Managed Equity Fund Loomis Sayles Value Fund IXIS ADVISOR CASH MANAGEMENT TRUST IXIS ADVISOR FUNDS TRUST I IXIS ADVISOR FUNDS TRUST II IXIS ADVISOR FUNDS TRUST III IXIS ADVISOR FUNDS TRUST IV LOOMIS SAYLES FUNDS I LOOMIS SAYLES FUNDS II BOSTON FINANCIAL DATA SERVICES, INC. By: /s/ John E. Pelletier By: /s/ Charles P Ragusa -------------------------------- -------------------------------- Name: John E. Pelletier Name: Charles P Ragusa Title: Chief Operating Officer Title: Vice President
As an Authorized Officer on behalf of each of the Funds listed above. EX-99.(H)(4) 5 dex99h4.txt IXIS ADVISOR FEE WAIVER/ EXPENSE REIMBURSEMENT LOGO January 31, 2007 IXIS Advisor Funds Trust I IXIS Advisor Funds Trust II 399 Boylston Street Boston, MA 02116 Re: Fee Waiver/Expense Reimbursement Ladies and Gentlemen: IXIS Asset Management Advisors, L.P. notifies you that it will waive its management fee (and, to the extent necessary, bear other expenses of the Funds listed below) through January 31, 2008 to the extent that expenses of each class of a Fund, exclusive of brokerage, interest, taxes and deferred organizational and extraordinary expenses, would exceed the following annual rates: Name of Fund Expense Cap - ------------ ------------------------ February 1, 2007 through January 31, 2008: Loomis Sayles Massachusetts Tax Free 0.95% for Class A shares Income Fund* 1.70% for Class B shares Loomis Sayles Core Plus Bond Fund* 1.05% for Class A shares 1.80% for Class B shares 1.80% for Class C shares 0.80% for Class Y shares * The expense caps above account for management fees payable to Loomis, Sayles & Company, L.P. Loomis, Sayles & Company, L.P. and IXIS Asset Management Advisors, L.P. have agreed to equally bear the waiver. With respect to each Fund, IXIS Asset Management Advisors, L.P. shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its management fee or otherwise) in later periods to the extent that a Fund's expenses fall below the annual rates set forth above. Provided, however, that a Fund is not obligated to pay any such deferred fees more than one year after the end of the fiscal year in which the fee was deferred. During the periods covered by this letter agreement, the expense cap arrangement set forth above for each of the Funds may only be modified by a majority vote of the "non-interested" Trustees of the Trusts affected. For purposes of determining any such waiver or expense reimbursement, expenses of the class of the Funds shall not reflect the application of balance credits made available by the Funds' custodian or arrangements under which broker-dealers that execute portfolio transactions for the Funds' agree to bear some portion of Fund expenses. We understand and intend that you will rely on this undertaking in preparing and filing the Registration Statements on Form N-1A for the above referenced Funds with the Securities and Exchange Commission, in accruing each Fund's expenses for purposes of calculating its net asset value per share and for other purposes permitted under Form N-1A and/or the Investment Company Act of 1940, as amended, and expressly permit you to do so. IXIS Asset Management Advisors, L.P. By: /s/ Coleen Downs Dinneen ------------------------------ Coleen Downs Dinneen Title: Senior Vice President, General Counsel, Secretary & Clerk EX-99.(H)(5) 6 dex99h5.txt LOOMIS ADVISOR FEE WAIVER/ EXPENSE REIMBURSEMENT LOGO January 31, 2007 IXIS Advisor Funds Trust I IXIS Advisor Funds Trust II Loomis Sayles Funds I Loomis Sayles Funds II 399 Boylston Street Boston, MA 02116 Re: Fee Waiver/Expense Reimbursement Ladies and Gentlemen: Loomis, Sayles & Company, L.P. notifies you that it will waive its management fee (and, to the extent necessary, bear other expenses of the Funds listed below) through January 31, 2008 to the extent that expenses of each class of a Fund, exclusive of brokerage, interest, taxes and deferred organizational and extraordinary expenses, would exceed the following annual rates:
Name of Fund Expense Cap - ------------ ------------------------------------ February 1, 2007 through January 31, 2008: Loomis Sayles Aggressive Growth Fund 1.00% for Institutional class shares 1.25% for Retail class shares Loomis Sayles Bond Fund 0.75% for Institutional class shares 1.00% for Retail class shares 1.25% for Admin class shares Loomis Sayles Small Cap Growth Fund 1.00% for Institutional class shares 1.25% for Retail class shares Loomis Sayles Small Cap Value Fund 0.90% for Institutional class shares 1.15% for Retail class shares 1.40% for Admin class shares Loomis Sayles Value Fund 0.85% for Institutional class shares 1.10% for Retail class shares
1 Loomis Sayles Global Markets Fund 1.25% for Class A shares 2.00% for Class C shares 1.00% for Class Y shares Loomis Sayles Fixed Income Fund 0.65% for Institutional class shares Loomis Sayles Institutional High Income Fund 0.75% for Institutional class shares Loomis Sayles Investment Grade Fixed Income Fund 0.55% for Institutional class shares Loomis Sayles Tax-Managed Equity Fund 0.65% for Institutional class shares Loomis Sayles Global Bond Fund 0.75% for Institutional class shares 1.00% for Retail class shares Loomis Sayles Growth Fund 1.25% for Class A shares 2.00% for Class B shares 2.00% for Class C shares 0.85% for Class Y shares Loomis Sayles Research Fund 1.25% for Class A shares 2.00% for Class B shares 2.00% for Class C shares 0.85% for Class Y shares Loomis Sayles Investment Grade Bond Fund 0.95% for Class A shares 1.70% for Class B shares 1.70% for Class C shares 0.55% for Class Y shares 1.30% for Class J shares Loomis Sayles Strategic Income Fund 1.25% for Class A shares 2.00% for Class B shares 2.00% for Class C shares 1.00% for Class Y shares
2 Loomis Sayles Inflation Protected Securities Fund 0.40% for Institutional class shares Loomis Sayles Intermediate Duration Fixed Income 0.40% for Institutional Fund class shares Loomis Sayles High Income Fund 1.15% for Class A shares 1.90% for Class B shares 1.90% for Class C shares Loomis Sayles Massachusetts Tax Free 0.95% for Class A shares Income Fund* 1.70% for Class B shares Loomis Sayles Core Plus Bond Fund* 1.05% for Class A shares 1.80% for Class B shares 1.80% for Class C shares 0.80% for Class Y shares Loomis Sayles Limited Term 1.00% for Class A shares Government and Agency 1.75% for Class B shares 1.75% for Class C shares 0.75% for Class Y shares Loomis Sayles Municipal Income Fund 0.95% for Class A shares 1.70% for Class B shares * The expense caps above account for advisory administration fees payable to IXIS Asset Management Advisors, L.P. Loomis, Sayles & Company, L.P. and IXIS Asset Management Advisors, L.P. have agreed to equally bear the waiver. 3 With respect to each Fund, Loomis, Sayles & Company, L.P. shall be permitted to recover expenses it has borne subsequent to the effective date of this agreement (whether through reduction of its management fee or otherwise) in later periods to the extent that a Fund's expenses fall below the annual rates set forth above. Provided, however, that a Fund is not obligated to pay any such deferred fees more than one year after the end of the fiscal year in which the fee was deferred. During the periods covered by this letter agreement, the expense cap arrangement set forth above for each of the Funds may only be modified by a majority vote of the "non-interested" Trustees of the Trusts affected. For purposes of determining any such waiver or expense reimbursement, expenses of the class of the Funds shall not reflect the application of balance credits made available by the Funds' custodian or arrangements under which broker-dealers that execute portfolio transactions for the Funds' agree to bear some portion of Fund expenses. We understand and intend that you will rely on this undertaking in preparing and filing the Registration Statements on Form N-1A for the above referenced Funds with the Securities and Exchange Commission, in accruing each Fund's expenses for purposes of calculating its net asset value per share and for other purposes permitted under Form N-1A and/or the Investment Company Act of 1940, as amended, and expressly permit you to do so. Loomis, Sayles & Company, L.P. By: /s/ Kevin Charleston ----------------------------- Name: Kevin Charleston Title: Chief Financial Officer 4 EX-99.(J) 7 dex99j.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in this Post-Effective Amendment No. 130 to the registration statement on Form N-1A ("Registration Statement") of our report dated November 22, 2006, relating to the financial statements and financial highlights which appears in the September 30, 2006 Annual Report to Shareholders of the Loomis Sayles Massachusetts Tax Free Income Fund, a series of IXIS Advisor Funds Trust II, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Performance" and "Independent Registered Public Accounting Firm" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts January 24, 2007 EX-99.(P)(2) 8 dex99p2.txt CODE OF ETHICS FOR IXIS ADVISORS AND IXIS DISTRIBUTORS Code of Ethics IXIS Asset Management Advisors, L.P. IXIS Asset Management Distributors, L.P. As Amended June 30, 2006 1 Introduction This is the Code of Ethics ("Code") of IXIS Asset Management Advisors, L.P. ("IAMA") and IXIS Asset Management Distributors, L.P. ("IAMD") (the "Firms"). Statement of General Principles It is the policy of the Firms that no Supervised Person shall engage in any act, practice, or course of conduct that would violate the Code, the fiduciary duty owed by the Firms and its personnel to clients, any applicable federal securities laws including but not limited to certain sections of and rules promulgated under the Investment Advisers Act of 1940 (as amended; the "Advisers Act"), the Employee Retirement Income Security Act of 1974 (as amended; "ERISA"), or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rule 17j-1 thereunder. The fundamental position of the Firms is, and has been, that at all times the interests of its Clients are placed first. Accordingly, Supervised Person's personal financial transactions (and in some cases, those of members of their Family/Household) and related activities must be conducted consistently with this Code and in such a manner as to avoid any actual or potential conflict of interest or abuse of the Firms' position of trust and responsibility. It is not intended that the policies in this Code will specifically address every situation involving personal trading. These policies will be interpreted and applied, and exceptions and amendments will be made by the Compliance Officer in a manner considered fair and equitable, in all cases with the view of placing the Firms Clients' interests paramount. It also bears emphasis that technical compliance with the procedures, prohibitions, and limitations of this Code will not automatically insulate a Supervised Person from scrutiny of, and sanctions for, securities transactions that indicate an abuse of the Firms' fiduciary duty to any of its Clients. Things You Need to Know to Use This Code 1. Terms - Terms in boldface type have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms. The definitions are at the end of the Code. 2. Purpose of the Code - The policies in this Code reflect the Firms' desire to detect and prevent not only situations involving actual or potential conflicts of interest or unethical conduct, but also those situations involving even the appearance of these. This Code (i) sets forth standards of conduct expected of Supervised Persons (including compliance with the federal securities laws), (ii) is intended to safeguard material nonpublic information about client transactions, (iii) requires Supervised Persons to refrain from frequent trading of Covered Funds and Covered Securities, and (iv) requires Access Persons to report personal securities transactions, including transactions in shares of certain investment companies managed by the Firms or any affiliate of any of the Firms ("Covered Funds"). A complete list of Covered Funds is maintained by the Compliance Officer and is posted on the Firms' Intranet; a printed list is available upon request from the Compliance Officer. 3. Access Persons - All officers, directors, and employees of the Firms are considered Access Persons, except for any director who is not an officer or employee of the Firms and who meets all of the following conditions: .. He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment 2 company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; .. He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; .. He or she does not have access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any Covered Fund; and .. He or she is not involved in making securities recommendations to clients, and does not have access to such recommendations that are nonpublic. While many officers and employees of the Firms do not have regular access to information regarding the purchase and sale of securities by either Mutual Fund Clients or Separate Account Clients, they may have occasional access to mutual fund or separate account portfolio information that has not been aged 30 days. Therefore, all officers and employees of the Firms have been designated Access Persons. 4. Compliance Department and Compliance Officer - This Code is administered by the Compliance Officer and his designee(s). Any significant issues, concerns, or findings identified by the Compliance Officer are reported to the Firm's Ethics and Supervisory Committee. The Compliance Officer has the authority to grant written waivers of certain provisions of this Code in appropriate instances. However: .. the Firms expect that waivers will be granted only in rare instances; and .. some provisions of the Code are mandated by Securities and Exchange Commission (SEC) rules and cannot be waived. 5. Ethics and Supervisory Committee ("Committee") - The Committee is comprised of certain members of senior management of the Firms, including the President, Chief Operating Officer and Chief Compliance Officer of IAMA. The Committee is charged with ensuring the Code remains reasonably designed to prevent Supervised Persons from engaging in any act, practice, or course of conduct that would violate the fiduciary duty owed to clients or to the Firms, any applicable federal securities laws including but not limited to certain sections of and rules promulgated under the Investment Advisers Act of 1940 (as amended; the "Advisers Act"), the Employee Retirement Income Security Act of 1974 (as amended; "ERISA"), or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rule 17j-1 thereunder. The Committee will review the terms and provisions of this Code at least annually and make amendments as necessary. The Committee meets quarterly to review any Code violations identified by the Compliance Officer to (i) make a determination of whether they are indeed violations under the Code; (ii) establish the degree of severity the violation represents; and (iii) if necessary mete out disciplinary actions as described in Section E of this Code. The Compliance Officer will distribute the Code to all Supervised Persons annually and upon any amendment. You are required to acknowledge your receipt and understanding of the Code by submitting a signed Acknowledgement Form to the Compliance Officer annually (see Section F.4. of this Code). 6. Mutual Fund Clients - Includes all investment companies for which IAMA serves as adviser, or for which IAMD is the Distributor. All investment company clients are currently considered Mutual Fund Clients. 7. Separate Account Clients - IAMA markets the investment expertise of its advisory affiliates and other advisory firms to separate account platforms. While IAMA primarily relies on model portfolios 3 provided by affiliates or third party subadvisers to manage client assets, it normally has investment discretion over Separate Account Client portfolios. For purposes of this Code of Ethics, Mutual Fund Clients and Separate Account Clients are collectively referred to as Clients. Specific Requirements of the Code A. General Rules It is improper for Supervised Persons to: . use for his/her own benefit (or the benefit of anyone other than the Clients) information about the trading activity of the Clients or recommendations of the advisers or subadvisers; or . take advantage of investment opportunities that would otherwise be available for the Clients. Also, as a matter of business policy, the Firms require that Supervised Persons adhere to a standard of conduct that: (i) reflects the fiduciary obligations of the Firms, including preventing access to material nonpublic information about clients to Supervised Persons not needing such information to perform their duties; (ii) complies with all securities laws; and (iii) avoids even the appearance that Supervised Persons receive any improper benefit from information about trading activity of Clients, the advisers or subadvisers, or from our relationships with the brokerage and advisory communities. The Firms expect all Supervised Persons to comply with the spirit of the Code, as well as the specific rules contained in the Code. B. Designated Brokerage Requirement Except as described in paragraphs (i)-(v) below, Access Persons who have personal accounts that hold or can hold Covered Securities or shares of Covered Funds in which they have Beneficial Ownership are required to maintain such accounts at one of the following firms: Charles Schwab, Fidelity Investments, or Merrill Lynch (collectively, the "Designated Brokers"). New Access Persons must initiate movement of existing accounts to a Designated Broker within 30 days of being named an Access Person. Exemptions to the Designated Brokerage Requirement: (i) Shares of the IXIS Advisor Funds, Loomis Sayles Funds, and Oakmark Funds purchased directly from the Covered Fund if such shares are held with the fund's transfer agent. (ii)Shares of Covered Funds purchased through one or more of the Firm's retirement plans, including the Firms' 401(k) plan. (iii)Certain accounts in which the Access Person has Beneficial Ownership, including retirement accounts with an Access Person's prior employer, retirement accounts of an Access Person's spouse, and DRIP and ESOP investment programs. 4 (iv)Accounts for which the Access Person has Beneficial Ownership but no investment influence or control may be eligible for an exemption from the Designated Brokerage Requirement. All such exemptions must be approved by the Compliance Officer. (v) Accounts in which an Access Person may have Beneficial Ownership through a member of their Family/Household, which accounts are subject to a code of ethics or similar policy requiring the account be held at an entity other than a Designated Broker. For example, if the spouse of an Access Person is employed by a broker-dealer or registered investment adviser that has adopted a code of ethics that requires the spouse to maintain personal securities accounts at a non-designated broker-dealer (including the employer itself), the Firms will defer to that requirement as to that account so long as the Duplicate Confirmation Notice and Statement Requirement (see Section F.5. of this Code) is satisfied. NOTE: In the occasional instance in which the Compliance Officer grants an exemption from the Designated Brokerage Requirement to any accounts that hold or can hold Covered Securities and/or Covered Funds, the Duplicate Confirmation Notice and Statement Requirement shall apply instead. C. Gifts to or from Brokers, Clients, or Others No Access Person may accept or receive on his or her own behalf, or on behalf of the Firms, any gift or other accommodations from a vendor, broker, securities salesman, client, or prospective client (a "business contact") that might create a conflict of interest or interfere with the impartial discharge of such Access Person's responsibilities to the Firms or the Clients, be construed as an improper attempt to influence the recipient, or place the recipient or the Firms in a difficult or embarrassing position. This prohibition applies equally to gifts to members of the Family/Household of Access Persons. In no event should gifts to or from any one business contact have a value that exceeds the annual limitation on the dollar value of gifts established by the Compliance Officer from time to time (currently $100). These policies are not intended to prohibit normal business entertainment such as meals or tickets to sporting events or the theatre. Please note that business entertainment is different than giving or receiving gifts. If you are unsure whether something is a gift or business entertainment, refer to the Firms Non-Cash Compensation Policy or ask the Compliance Officer. D. Service on the Board or as an Officer of Another Company To avoid conflicts of interest, "inside information" concerns, and other compliance and business issues, the Firms prohibit all Access Persons from serving as officers or members of the board of any other entity, except with the advance written approval of the General Counsel or Compliance Officer. Approval must be obtained through the Compliance Officer, and will ordinarily require consideration by the Ethics and Supervisory Committee. The Firms can deny approval for any reason or without providing a reason. This prohibition does not apply to service as an officer or board member of any parent, subsidiary, or affiliate of the Firms, nor does it apply to non-employee members of the Firms' board (i.e. those board members who are not employees of the Firms). 5 E. Violations and Penalties The Firms expect all Supervised Persons to comply with the spirit of the Code, as well as the specific rules contained in the Code. Any violations must be reported promptly to the Compliance Officer. The Firms treat violations of this Code (including violations of the spirit of the Code) very seriously. If you violate either the letter or the spirit of this Code, the Firms (through the Ethics and Supervisory Committee) might take a variety of remedial measures. These may include imposing penalties or fines, cutting your compensation, demoting you, requiring disgorgement of trading gains, imposing a ban on your personal trading, suspending or terminating your employment, or reporting the matter to civil or criminal authorities. Improper trading activity may constitute a violation of this Code. You may also be considered in violation of this Code by failing to promptly report violations to the Compliance Officer, by failing to file required reports in a timely manner, or by making inaccurate or misleading reports or statements concerning trading activity or securities accounts. You may be considered in violation of this Code even if no harm results from your conduct. If you have any doubt or uncertainty about what this Code requires or permits, you should ask the Compliance Officer. Do not just guess at the answer, since ignorance of the requirements of the Code or the legal regulations underlying the Code will not serve as an excuse for a violation. F. Reporting Requirements -- Applies to All Access Persons One of the more important aspects of complying with this Code is understanding which holdings, transactions, and accounts you must report and what accounts are subject to trading restrictions. For example, accounts of certain members of your Family/Household are covered, as are certain categories of trust accounts, certain investment pools in which you might participate, and certain accounts that others may be managing for you. To be sure you understand which holdings, transactions, and accounts are covered, it is essential that you carefully review the definitions of Covered Security, Family/Household, and Beneficial Ownership in the "Definitions" section of this Code. NOTE: All reports specified in this Code must be submitted to the Compliance Department. You must file the reports described below, even if you have no holdings, transactions, or accounts to list in the reports, and whether or not your accounts are held at a Designated Broker or duplicate confirmation statements have been forwarded to the Compliance Department. You can get copies of any forms or reporting procedures from the Compliance Officer, or the Firms' Intranet. 1. Initial Holdings Report. No later than 10 days after you become an Access Person, you must file with the Compliance Officer an Initial Holdings Report. The Initial Holdings Report requires you to list all Covered Securities and Covered Funds in which you (or members of your Family/Household) have Beneficial Ownership. It also requires you to list all brokers, dealers, and banks where you maintained an account in which any Covered Funds or Covered Securities were held or could have been held for the direct or indirect benefit of you or a member of your Family/Household on the date you became an Access Person. The Initial Holdings Report also requires you to confirm that you have read and understand this Code; that you understand that it applies to you and members of your Family/Household; and that you are considered an Access Person under the Code. 6 NOTE: It is important for new Access Persons to be familiar with the Designated Broker Requirement of this Code; any questions concerning this requirement should be directed to the Compliance Officer. 2. Quarterly Transaction Reports. No later than 15 days after the end of March, June, September, and December each year, you must file with the Compliance Officer a Quarterly Transaction Report. While compliance with this requirement will be monitored, a late report will not be considered a violation of the Code unless it is filed with the Compliance Officer more than 30 days after the end of the quarter. The Quarterly Transaction Report requires you to report all transactions during the most recent calendar quarter in Covered Securities and Covered Funds (including the date of the transaction, the title and type of security and, as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturity date, the number of shares and principal amount), in which you (or a member of your Family/Household) had Beneficial Ownership. It also requires you to report the nature of the transaction (i.e. purchase, sale or any other type of acquisition or disposition), the price of the security at which the transaction was effected and the name of the broker, dealer or bank with or through which the transaction was effected. The Quarterly Transaction Report also requires you to either confirm or amend your complete list of brokers, dealers, and banks in which you or a member of your Family/Household established an account in which any Covered Funds or Covered Securities were held or could have been held during the quarter for the direct or indirect benefit of you or a member of your Family/Household. 3. Annual Holdings Reports. By January 30 of each year, you must file with the Compliance Officer an Annual Holdings Report as of December 31 of the preceding year. The Annual Holdings Report requires you to list all Covered Securities and Covered Funds (including title and type of security and, as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturity date, the number of shares and principal amount) in which you (or a member of your Family/Household) had Beneficial Ownership as of December 31 of the prior year. It also requires you to list all brokers, dealers, and banks in which you or a member of your Family/Household maintained an account in which any Covered Securities or Covered Funds were held, or could have been held, for the direct or indirect benefit of you or a member of your Family/Household on December 31 of the prior year. The Annual Holdings Report also requires you to confirm that during the prior year, except as otherwise indicated therein, you have complied with all applicable requirements of the Code and have reported all accounts, holdings, and transactions required to be reported under the Code, that you understand that it applies to all members of your Family/Household, and that you understand that you have been designated an Access Person under the Code. 4. Annual Acknowledgement. You must acknowledge your receipt and understanding of the Code (and any amendments), along with the Firms' Statement of Policies and Procedures with Respect to the Flow and Use of Material, Non-Public (Inside) Information by submitting a signed Acknowledgement Form to the Compliance Officer annually. 5. Duplicate Confirmation Notices and Statements. Any Access Person or member of his or her Family/Household that has a securities account (in which Covered Securities or shares of Covered Funds are held, or could be held) with any broker, dealer, or bank that is subject to an exemption from the Designated Broker Requirement under Sections B. (iii), (iv), or (v) of this Code, must direct that 7 broker, dealer, or bank to send, directly to the Compliance Officer, contemporaneous duplicate copies of all transaction confirmation notices and statements relating to that account. NOTE: In certain circumstances Covered Securities may be held in accounts that are exempt from the Designated Brokerage Requirement, but do not have the ability to generate duplicate confirmation notices and statements (i.e. ESOP, DRIP, and 401(k) Plans). In these limited circumstances an Access Person may satisfy his or her reporting requirement by manually completing quarterly transaction reports and submitting a copy of the year-end statements for all such accounts with his or her annual holdings report. G. Transaction Restrictions 1. Initial Public Offerings and Private Placements. Access Persons may not acquire securities in an Initial Public Offering ("IPO") or Private Placement unless prior written approval is obtained from the Compliance Officer, and, in the determination of the Compliance Officer, participation does not present a conflict of interest with any Clients or impede the equitable distribution of the offering to the public. Any request for allocation of an IPO or a Private Placement to an Access Person that is in any way connected with his or her position in the Firms will be denied. Further, the Compliance Officer may deny requests for any reason or without providing a reason. Access Persons must request approval for participation in an IPO or Private Placement by submitting a written request to the Compliance Officer. These requests must include: . A brief description of the Private Placement or IPO opportunity . In the case of a Private Placement, the nature of the employee's participation . A statement as to how and why the opportunity was offered to the Access Person and other factors relevant, from the perspective of the Firms, to the approval decision (e.g. whether participation in the Private Placement or IPO is connected with the Access Person's position with the Firms or will result in any conflicts of interest with Client portfolios.) 2. Short Term Trading of Covered Funds. No Access Person may purchase and sell, or conversely sell and repurchase shares of the same Covered Fund within 60 calendar days. These restrictions apply to purchases and exchanges in all accounts including 401(k)'s. Hardship exceptions may be requested in writing (in advance) from the Compliance Officer. Further, the Compliance Officer may deny requests for any reason or without providing a reason. For example, if Covered Fund A was purchased on January 1/st/, because of the 60 day holding period it could not be sold until March 2/nd/ (61 days later). Non-volitional and automatic trades such as 401(k) contributions (individual and company match), automatic investment, withdrawal and dividend reinvestment plans are exempt from this restriction and will not be considered in determining the 60-day holding period. For example, if an Access Person has established a monthly investment into Covered Fund A that is automatically deducted from his or her paycheck, that investment will not begin or end a 60-day holding period. This same principle applies to regular 401(k) contributions (individual and company match). All volitional purchase and sale transactions (including exchanges) of Covered Funds, in any share class and in any account (i.e., direct account with the Covered Fund, Designated Broker account, 401(k) account, etc.), will be evaluated for purposes of applying the Short Term Trading restriction. 8 For example, if Covered Fund A was purchased by an Access Person in a joint account with his or her spouse on January 1/st/, any sale of Covered Fund A in the Access Person's 401(k) account before March 2/nd/ would violate the Short Term Trading restriction. In applying the 60-day holding period, the most recent purchase (or sale) will be measured against the sale (or purchase) in question. Further, if fewer than 60 days have elapsed since a purchase (or sale), no shares may be sold (or purchased) (i.e. not simply the number of shares involved in the earlier transaction). Exchanges between funds will be considered a sale (exchange from account) or purchase (exchange to account) under the Code. NOTE: The 60-day holding period restriction for Covered Funds does not permit sales at a loss. Further, the 60-day holding period does not apply to money market funds whether or not IAMA (or any affiliate) serves as the investment adviser or subadviser. 3. Short Term Trading of Covered Securities. No Access Person may profit from the purchase and sale, or conversely the sale and repurchase of the same or equivalent Covered Security within 60 calendar days. These restrictions apply to purchases and sales in all accounts including 401(k)'s. Hardship exceptions may be requested (in advance) from the Compliance Officer. Further, the Compliance Officer may deny requests for any reason or without providing a reason. An Access Person may sell a Covered Security at a loss or purchase a Covered Security to cover a short position at a loss within 60 calendar days. All other trading restrictions in Section G of this Code continue to apply to transactions resulting in a loss, including blackout period and preclearance requirement. NOTE: In applying the 60-day holding period, the most recent purchase (or sale) will be measured against the sale (or purchase) in question. Further, if fewer than 60 days have elapsed since a purchase (or sale), no shares may be sold (or purchased) (i.e. not simply the number of shares involved in the earlier transaction). 4. Futures and Related Options. No Access Person shall use derivatives including futures, options on futures, or options on a Covered Security to evade the restrictions of the Code. In other words, no Access Person may use derivative transactions with respect to a Covered Security if the Code would prohibit the Access Person from taking the same position directly in the Covered Security. 5. Blackout Period. No Access Person (including any member of the Family/Household of such Access Person) may purchase or sell any Covered Security within the seven calendar days immediately before or after a calendar day on which any Mutual Fund Client or a Separate Account Client purchases or sells that Covered Security (or any closely related security, such as an option or a related convertible or exchangeable security), unless the Access Person had no actual knowledge that the Covered Security (or any closely related security) was being considered for purchase or sale for any Mutual Fund Client or Separate Account Client. Note that the total blackout period is 15 days (the day of the Client trade, plus seven days before and seven days after). The blackout period does not apply to Access Person transactions concurrent with Separate Account Client transactions intended merely to rebalance, liquidate, or open accounts for Separate Account Clients where IAMA acts as the adviser, for the following reasons: IAMA primarily relies on model portfolios supplied by investment advisory affiliates and third party investment advisory firms; due to the nature of IAMA's separate account program, a number of these Separate Account Clients may add or 9 withdraw funds, and open or close accounts on a daily basis; the trades generated by these activities are unpredictable; they are not caused by a change in the investment opinion of IAMA or any of its subadvisers; they tend to be small in size with little or no market impact; they are of an administrative nature; and if triggering a blackout period, they would likely have the effect of "blacking out" every security traded by Separate Account Clients of IAMA on every trading day. The blackout period does apply, however, to transactions concurrent with Separate Account Client transactions related to implementation of changes to model portfolios or related to changes in the investment opinion of IAMA or any of its subadvisers. NOTE: All transactions for Access Persons will be compared to transactions executed by IAMA or a subadviser on behalf of Mutual Fund Clients and Separate Account Clients. The fact that the Compliance Officer has precleared a trade does not mean that it is not in violation of the Code. When evaluating a preclearance request, current open orders for Separate Account Clients as well as trades executed on behalf of Separate Account Clients over the previous 7 days are considered. Changes to model portfolios over the subsequent 7 days may create a violation of the blackout period. Due to the nature of IAMA's advisory activity with respect to Mutual Fund Clients it is impossible to be certain that there are no open orders for a particular security when granting preclearance For example if an Access Person executes a trade in a Covered Security for which he or she has received proper preclearance on January 1/st/, and a subadviser changes a model portfolio which results in trades in the same Covered Security by Separate Account Clients any time before January 8/th/ (the remainder of the 15 day blackout period), it may result in a violation of the Code, if the Access Person had knowledge that the Covered Security was being considered for purchase or sale for any Client account. Trading within the 15-day blackout period is not automatically considered a violation of the Code but is instead subject to the knowledge condition set forth above. The Compliance Officer will monitor personal securities trading activity and if a pattern appears to exist with respect to the trading activity of an Access Person and any Mutual Fund Client and/or Separate Account Client within the 15-day blackout periods, it will be investigated. If it is determined that a violation has occurred, the Firms will generally require any profits from the transactions to be disgorged and donated to charity, and may impose other sanctions as deemed necessary (see Section E of this Code). 6. Preclearance Requirement. Access Persons are required to request and receive preclearance by the Compliance Officer before executing the purchase or sale of Covered Securities. Given the nature of IAMA's current advisory operations, which include oversight of other investment advisers, approving, and in some cases effecting, transactions for Client accounts, IAMA's role as an administrator, and IAMD's role as a distributor and underwriter,, the Firms have incorporated several exemptions to the Preclearance Requirement that you should be familiar with. a. Preclearance. Unless specifically exempted by this Code, no Access Person shall purchase or sell any Covered Security for his or her own account (or the account of any member of his or her Family/Household) without proper preclearance. Trades must be completed on the same day that preclearance is granted. This requirement applies to all trades in Covered Securities. Instruments representing an indirect interest in a Covered Security, such as options and warrants, must also be precleared. b. Exemptions. The preclearance requirement does not apply to the following transactions: . Exempt Transactions (as defined in item 8 of this Section of the Code). 10 . Transactions of 100 shares or less of common or preferred stocks of a class that is publicly traded on a national stock exchange. . Transactions with an aggregate dollar value (excluding commissions) of $10,000 or less. . Transactions in Covered Funds. . Transactions in accounts for which the Access Person has Beneficial Ownership but no investment influence or control and, if applicable, has been granted an exemption from the Designated Brokerage Requirement by the Compliance Officer. c. Process. Access Persons are required to submit a written preclearance request to the Compliance Officer and receive written approval for the transaction before executing a trade for a Covered Security transaction requiring preclearance. Trades in Covered Securities cannot be executed until the Compliance Officer provides specific approval. Preclearance will not be granted at any time when there are open orders relating to the implementation of changes to model portfolios in the same Covered Security for Separate Account Clients. Further, preclearance will not be granted for any trades that would violate the blackout period restriction as it applies to personal transactions effected within 7 days after a Separate Account Client trade. The Firms reserve the right to require any Access Person to preclear exempted transactions at any time and, if requested by the Firms, an Access Person will obtain the approval of the Compliance Officer before buying or selling any security, for such period (which may be indefinite) as the Compliance Officer shall determine. NOTE: Access Persons should keep a copy of all completed preclearance approvals for a period of at least 12 months. You can get copies of any forms or reporting procedures from the Compliance Officer, or the Firms' Intranet. 7. Good Until Canceled and Limit Orders. No Access Person shall place a "good until canceled," "limit", or equivalent order with his/her broker for any Covered Security subject to the preclearance requirement except that an Access Person may utilize a "day order with a limit" so long as the transaction is consistent with provisions of this Code, including the preclearance procedures. All orders must expire at the end of the trading day on which they are precleared unless otherwise extended by the Compliance Officer. 8. Exempt Transactions. The blackout period, short term trading of Covered Securities, and preclearance requirements do not apply to Covered Funds and the following categories of transactions in Covered Securities: . Transactions in any Covered Security guaranteed by the United States Government. . Transactions in common or preferred stocks of a class that is publicly traded and issued by a company with a stock market capitalization of at least $10 billion U.S. (or the equivalent in foreign currency). . Transactions in futures and options contracts on interest rate instruments or indexes, and options on such contracts. So long as the transactions do not violate Section G.4. of this Code. . Transactions that occur by operation of law or under any other circumstance in which no investment discretion is exercised, and no recommendations are made by the Access Person or any member of their Family/Household. . Purchases pursuant to the exercise of rights issued pro rata to all holders of the class of a Covered Security held by the Access Person (or Family/Household member) and received by the Access Person (or Family/Household member) from the issuer. 11 . Purchases of a Covered Security pursuant to an automatic investment, withdrawal or dividend reinvestment plan. . Transactions in Exchange Traded Funds ("ETFs"), as well as any related options. NOTE: These transactions are not exempted from the reporting requirements of this Code. H. Compliance Officer Approval The Compliance Officer is charged with responsibility for ensuring that all Access Persons adhere to the reporting requirements of this Code of Ethics and that the review requirements of this Code are performed in a prompt manner. 12 Definitions The following terms have special meanings in this Code of Ethics: .. Access Person .. Beneficial Ownership .. Client .. Compliance Officer .. Covered Fund .. Covered Security .. Designated Broker .. Family/Household .. Initial Public Offering .. Mutual Fund Client .. Private Placement .. Separate Account Client .. Supervised Person The special meanings of these terms as used in this Code of Ethics are explained below. Some of these terms (such as "Beneficial Ownership") are sometimes used in other contexts, not related to Code of Ethics, where they may have different meanings. For example, "Beneficial Ownership" has a different meaning in this Code of Ethics than it does in the SEC's rules for proxy statement disclosure of corporate directors' and officers' stockholdings, or in determining whether an investor has to file 13D or 13G reports with the SEC. IMPORTANT: If you have any doubt or question about whether an investment, account, or person is covered by any of these definitions, ask the Compliance Officer. Do not just guess at the answer. Access Person means Access Person as defined in Rule 17j-1 under the 1940 Act and/or Rule 204A-1 of the Advisers Act, as those rules are amended from time to time. The elements of these definitions are outlined on page 2 of this Code. Due to the nature of the Firms' activities and for the purposes of administering this Code, the Firms have designated all their officers and employees as Access Persons. The term "Access Person" under this Code and relating to the Firms normally does not include an employee of a company in a control relationship to the Firms, who is not an employee, officer, or director of any of the Firms, where such company is required to have a Code of Ethics containing provisions reasonably necessary to prevent the Access Person from engaging in any act, practice, or course of business prohibited by Rule 17j-1(a) and such employee is required to report his or her transactions to such company. However, in certain instances a person may be an employee of both the Firms and an affiliated adviser, and may be subject to more than one Code of Ethics. Beneficial Ownership means beneficial ownership as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means any opportunity, directly or indirectly, to profit or share in the profit from any transaction in securities. Beneficial Ownership is a very broad concept. Some examples of forms of Beneficial Ownership include: . securities held in a person's own name, or that are held for the person's benefit in nominee, custodial, or "street name" accounts. 13 . securities owned by a member of your Family/Household. . securities owned by or for a partnership, in which the person is a general partner (whether the ownership is under the name of that partner, another partner, the partnership, or through a nominee, custodial, or "street name" account). . securities that are being managed for a person's benefit on a discretionary basis by an investment adviser, broker, bank, trust company, or other manager. . securities in a person's individual retirement account. . securities in a person's account in a 401(k) or similar retirement plan, even if the person has chosen to give someone else investment discretion over the account. . securities owned by a trust of which the person is either a trustee or a beneficiary. . securities owned by a corporation, partnership, or other entity that the person controls (whether the ownership is under the name of that person, under the name of the entity, or through a nominee, custodial, or "street name" account). . securities that are traded on behalf of an investment club of which an Access Person is a club member or in which a member of their Family/Household is a member. The above is not a complete list of the forms of ownership that could constitute Beneficial Ownership for purposes of this Code. You should ask the Compliance Officer if you have any questions or doubts at all about whether you or a member of your Family/Household would be considered to have Beneficial Ownership in any particular situation. Client means any individual, entity, or registered investment company for which IAMA serves as adviser or subadviser, or IAMD serves as distributor. Client information includes information obtained from entities contracted by IAMA as adviser to serve as subadviser for certain Mutual Fund Clients and Separate Account Clients. Compliance Officer currently means Anthony Loureiro, Senior Vice President, Compliance or another person that he has designated to perform the functions of Compliance Officer. For purposes of reviewing the Compliance Officer's own transactions and reports under this Code, the functions of the Compliance Officer are performed by Coleen Downs Dinneen, Senior Vice President, General Counsel, or her designee. Covered Fund means (i) any investment company advised or subadvised (as defined in section 2(a)(20) of the 1940 Act) by IAMA, (ii) mutual funds that are advised by any investment adviser that controls IAMA, is controlled by IAMA or is under common control with IAMA (e.g. Loomis Sayles, Harris Associates, etc.), (iii) mutual funds administered by IAMA, (iv) any investment company distributed by IAMD. For clarification purposes, Covered Funds include, but are not limited to, the IXIS Advisor Funds, the Loomis Sayles Funds, and the Oakmark Funds. NOTE: Covered Funds do not include money market funds whether or not IAMA (or any affiliate) serves as the investment adviser or subadviser. 14 NOTE: A 529 plan invested in underlying mutual funds will not be treated as a Covered Security or as an investment in Covered Funds, so long as the plan is not distributed, advised or subadvised by IAMA, IAMD or any affiliated firm, and your 529 plan investments are not in any portfolios distributed, advised or subadvised by IAMA, IAMD or any affiliated firm. A complete list of Covered Funds may be obtained from the Compliance Officer or on the Firms' Intranet. The Compliance Officer may either add or remove funds from this list if he determines that there is either a heightened risk of access to portfolio information (in the case of funds that would not be considered Covered Funds under this definition), or no access to portfolio information about a fund (for those funds that would otherwise meet the above criteria of a Covered Fund). Covered Security means a covered security as defined in Rule 17j-1 under the Investment Company Act, as amended from time to time. Currently this means anything that is considered a "security" under the Investment Company Act of 1940, except: . Direct obligations of the U.S. Government. . Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt obligations, including repurchase agreements. . Shares of open-end investment companies that are registered under the Investment Company Act (mutual funds). NOTE: A 529 plan invested in underlying mutual funds will not be treated as a Covered Security or as an investment in Covered Funds, so long as the plan is not distributed, advised or subadvised by IAMA, IAMD or any affiliated firm, and your 529 plan investments are not in any portfolios distributed, advised or subadvised by IAMA, IAMD or any affiliated firm. Security is a very broad term. It includes most kinds of investment instruments, including things that you might not ordinarily think of as "securities", such as: . Options on securities and currencies. . Investments in all kinds of limited partnerships. . Investments in foreign unit trusts, closed end funds, and foreign mutual funds. . Investments in private investment funds, hedge funds, and investment clubs. If you have any question or doubt about whether an investment is a considered a security or a Covered Security under this Code, ask the Compliance Officer. Designated Broker means Charles Schwab, Fidelity Investments, or Merrill Lynch (collectively, the "Designated Brokers"). Family/Household means: . Your spouse or live-in partner who shares your household and combines his or her financial resources in a manner similar to that of married persons (unless he or she does not live in the same household as you and you do not contribute in any way to his or her support). . Your children under the age of 18. . Your children who are 18 or older (if they live in the same household as you or you contribute in any way to their support). 15 . Any of these people who live in your household: your stepchildren, grandchildren, parents, stepparents, grandparents, brothers, sisters, parents-in-law, sons-in-law, daughters-in-law, brothers-in-law, and sisters-in-law, including adoptive relationships. . Any individual for whom you are exercising investment control. NOTE: There are a number of reasons why this Code covers transactions in which members of your Family/Household have Beneficial Ownership. First, the SEC regards any benefit to a person that you help support financially as indirectly benefiting you, because it could reduce the amount that you might otherwise need to contribute to that person's support. Second, members of your Family/Household could, in some circumstances, learn of information regarding the Firm's trading or recommendations for Client accounts, and must not be allowed to benefit from that information. Initial Public Offering ("IPO") means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. Mutual Fund Client includes all investment companies for which IAMA serves as adviser, or for which IAMD is the Distributor. All investment company clients are currently considered Mutual Fund Clients. Private Placement means an offering of a stock or bond that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or Pursuant to Rule 504, 505, or 506 thereunder. Separate Account Client includes all separately managed accounts for which IAMA provides investment advisory services. Although IAMA has the ultimate investment decision-making authority with respect to securities to be purchased or sold, in most cases IAMA generally follows the recommendations implicit in the model portfolios supplied by its subadvisers. While IAMA relies primarily on these model portfolios to manage Client assets, it will retain discretionary authority over Client portfolios. This discretion will be primarily used to execute trades and manage accounts according to specific Client requirements. Supervised Person means any partner, officer, director (or other person occupying a similar station or performing similar functions) or employee of a Firm, or other person who provides investment advice on behalf of IAMA and is subject to the supervision and control of IAMA. All Access Persons are also Supervised Persons. 16 EX-99.(P)(3) 9 dex99p3.txt CODE OF ETHICS FOR HARRIS ASSOCIATES Harris Associates L.P., Harris Associates Securities L.P. and Harris Associates Investment Trust Code of Ethics and Statement on Insider Trading As Amended January 31, 2006 I. DEFINITIONS A. Firm or Harris. The term "Firm" or "Harris" shall include Harris Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP"). B. Trust. The term "Trust" shall mean Harris Associates Investment Trust, including any series of shares of beneficial interest of the Trust (each, a "Fund"). C. Employee. The term "Employee" shall include any person employed by the Firm, whether on a full or part-time basis and all partners, officers, shareholders and directors (other than Non-Access Directors (as defined below)) of the Firm. D. Access Person. The term "Access Person" shall have the meaning set forth in Section 17j-1(a)(1) of the Investment Company Act of 1940 and rules thereunder (the "Act") and Section 204A-1(e)(1) of the Investment Advisers Act of 1940 (the "Advisers Act"). Accordingly, Access Person means any director, officer, general partner, or Advisory Person (as defined below) of the Fund or HALP, but shall not include any trustee of the Trust who is not an "interested person" of the Trust and, in the case of HALP, shall not include any Non-Access Director. E. Advisory Person. The term "Advisory Person" shall have the meaning set forth in Section 17j-1(a)(2) of the Act. Accordingly, Advisory Person means any Employee of the Firm, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities (as defined below) by a Client (as defined below), or whose functions relate to the making of any recommendations with respect to purchases and sales. For the purpose of this Code, each Employee of the Firm with an office at the Firm's principal place of business shall be deemed to be an Advisory Person. F. Persons Subject to this Code. Each Employee is subject to this Code. In addition, Non-Access Directors are subject to the following provisions of this Code: II.A, II.B, II.C.i, II.J, and III (other than III.B.3 (i), (ii) and (iv) and the last sentence of III.B.4). G. Covered Security. The term "Covered Security" shall have the meaning set forth in Section 2(a)(36) of the Act, including any right to acquire such security, except that it shall not include securities which are direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debit instruments (including repurchase agreements), and shares issued by open-end investment companies other than Reportable Funds (defined below). In addition, all exchange-traded funds 1 ("ETFs"), whether registered as open-end management companies or unit investment trusts, shall be treated as Covered Securities for reporting purposes only. H. Reportable Fund. The term "Reportable Fund" shall have the meaning set forth in Section 204A-1(e)(9) of the Advisers Act. Reportable Fund means any investment company registered under the Act that is advised or sub-advised or distributed by the Firm or any affiliated company (e.g. IXIS Asset Management Advisers, Loomis Sayles, or Hansberger). Reportable Funds include, for example, open-ended investment companies and closed-end funds/1/. A current list of Reportable Funds is maintained on the Compliance page of the Firm's intranet site. I. Beneficial Interest or Ownership. The term "beneficial interest or ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and rules thereunder, which includes any interest in which a person, directly or indirectly, has or shares a direct or indirect pecuniary interest. A pecuniary interest is the opportunity, directly or indirectly, to profit or share in any profit derived from any transaction. Each person will be assumed to have a pecuniary interest, and therefore, beneficial interest or ownership, in all securities held by that person, that person's spouse, all members of that person's immediate family and adults sharing the same household with that person (other than mere roommates) and all minor children of that person and in all accounts subject to their direct or indirect influence or control and/or through which they obtain the substantial equivalent of ownership, such as trusts in which they are a trustee or beneficiary, partnerships in which they are the general partner, corporations in which they are a controlling shareholder or any other similar arrangement. Any questions an Employee may have about whether an interest in a security or an account constitutes beneficial interest or ownership should be directed to the Firm's General Counsel or Compliance Department. Examples of beneficial interest or ownership are attached as Appendix A. J. Client. The term "Client" shall mean any client of HALP, including any Fund. K. Special Compliance Person. The term "Special Compliance Person" shall mean the current Compliance Officer of IXIS Asset Management - North America. L. Non-Access Director. The term "Non-Access Director" shall mean any person who is a Director of Harris Associates, Inc., the corporate general partner of HALP and HASLP, but who is not - -------- /1/ Reportable Funds that are money market funds are not subject to the Code's reporting requirements or holding periods (see Section II.G - Procedures to Implement Trading Restrictions and Reporting Obligations). 2 an officer or employee of any of HALP, HASLP or Harris Associates, Inc. and who meets all of the following conditions: i) He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; ii)He or she does not have access to nonpublic information regarding any Firm clients' purchases or sales of securities (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a client of the Firm), or nonpublic information regarding the portfolio holdings of any Reportable Fund; and iii)He or she is not involved in making securities recommendations to Firm clients, and does not have access to such recommendations that are nonpublic (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a client of the Firm). 3 II.CODE OF ETHICS A. GENERAL STATEMENT Harris seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in mutual funds and clients with accounts advised by the Firm is something that is highly valued and must be protected. The Firm owes a fiduciary duty to its advisory clients, and the fundamental principle of the Firm is that at all times the interests of its Clients come first. As a result, any activity which creates even the suspicion of misuse of material non-public information by the Firm or any of its Employees, which gives rise to or appears to give rise to any breach of fiduciary duty owed to any Client, or which creates any actual or potential conflict of interest between any Client and the Firm or any of its Employees or even the appearance of any conflict of interest must be avoided and is prohibited. The Investment Company Act and rules make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by the Trust to: i) employ any device, scheme, or artifice to defraud the Trust; ii)make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading or in any way mislead the Trust regarding a material fact; iii)engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust; or iv)engage in any manipulative practice with respect to the Trust. The restrictions on personal securities transactions contained in this Code are intended to help the Firm monitor for compliance with these prohibitions. Additionally, the federal securities laws require that an investment adviser maintain a record of every transaction in any Covered Security and Reportable Fund in which an Access Person acquires any direct or indirect beneficial interest or ownership, except any transaction in an account in which the Access Person has no direct or indirect control or influence. To attempt to ensure that each Person Subject to this Code satisfies this Code and these record keeping obligations, the Firm has developed the following rules relating to personal securities trading, outside employment, personal investments with external investment managers and confidentiality. The General Counsel, Chief Executive Officer, and Chief Compliance Officer, acting in concert, have the authority to grant written waivers of the provisions of this Code in appropriate instances. However, 4 the Firm expects that waivers will be granted only in rare instances, and some provisions of the Code that are mandated by the Act or the Advisers Act cannot be waived. The Firm expects all Access Persons to comply with the spirit of the Code as well as the specific rules contained in the Code. Any violations of the Code must be reported promptly to the Firm's Chief Compliance Officer. B. COMPLIANCE WITH FEDERAL SECURITIES LAWS More generally, Firm personnel and Non-Access Directors are required to comply with applicable federal securities laws at all times. Examples of applicable federal securities laws include: i) the Securities Act of 1933, Securities Act of 1934, Sarbanes-Oxley Act of 2002 and SEC rules thereunder; ii)the Investment Advisers Act of 1940 and SEC rules thereunder; iii)the Investment Company Act of 1940 and SEC rules thereunder; iv)Title V of the Gramm-Leach-Bliley Act of 1999 (privacy and security of client non-public information); and v) the Bank Secrecy Act, as it applies to mutual funds and investment advisers, and SEC and Department of the Treasury rules thereunder. C. RESTRICTIONS ON EMPLOYEE TRADING No trading activity by an Employee in any security in which an Employee has any beneficial interest or ownership which is also the subject of a Client portfolio purchase or sale shall disadvantage or appear to disadvantage such Client transaction. Further, the following specific restrictions apply to all trading activity for Advisory Persons: i) Any transaction in a security in anticipation of client orders ("frontrunning") is prohibited, ii)Any transaction in a security which is the subject of a Firm recommendation is prohibited until the tenth business day following the dissemination of the recommendation, or any longer period specified in this Code, iii)Any transaction in a security which the Advisory Person knows or has reason to believe is being purchased or sold or considered for purchase or sale/2/ by any investment company advised - -------- /2/ A security is "being considered for purchase or sale"; the earlier of, when a recommendation to purchase or sell has been made and communicated or the security is placed on the research project list and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. 5 by the Firm is prohibited until the transaction by such investment company has been completed or consideration of such transaction has been abandoned,/3/ iv)Any same day transaction in a security in which any Client advised by the Firm has a pending or actual transaction is prohibited. If an Advisory Person places a same day order for such security prior to the Client placing an order, the Employee's order will be canceled, v) Any transaction in a security within two business days after any investment company advised by the Firm has traded in that security is prohibited, vi)Any transaction involving options, single stock futures, or other derivatives relating to any security on the Firm's approved list or which are held by any investment company advised by the Firm that appears to evade the restrictions of the Code is prohibited, and vii)Any acquisition of an equity security in an initial public offering is prohibited. Additionally, no Employee of the Firm shall knowingly sell to or purchase from the Funds or the Trust any security or other property except, in the case of the Funds, securities issued by the Funds. Neither shall the Firm, HASL nor any Employee share in the profits or losses in any account of a customer carried by the Firm or HASL or any other NASD member, except to the extent provided for by Rule 205-3 of the Investment Advisors Act of 1940 and/or NASD Rule 2330. D. PRIVATE PLACEMENTS AND INVESTMENTS WITH EXTERNAL MONEY MANAGERS. No Advisory Person or Access Person shall acquire any security or interest in a private placement or commit initial capital to any account for which such person has any beneficial interest (other than non-affiliated mutual funds where the account is held directly at such fund) with an external investment manager without the prior written approval of the Firm's Chief Executive Officer and Chief Compliance Officer. For purposes of this Code, "private placement" shall mean any limited offering that is generally not available to the public, including unregistered investment pool vehicles (e.g., hedge funds, commodity pools), Rule 144A securities, limited partnerships, etc. In deciding whether to grant approval, consideration will be given to whether the investment is consistent with the Firm's investment philosophy and guidelines and should be offered to Clients, and whether the investment creates an actual conflict or the appearance of a conflict of interest. An - -------- /3/ Among the clients of the Firm are private investment partnerships (partnerships) in which various Employees of the Firm have equity interests. This trading prohibition shall not restrict purchases or sales for the accounts of such partnerships provided that the Trust and such accounts are treated fairly and equitably in connection with such purchases and sales. 6 Advisory Person who has acquired a security in a private placement must disclose that investment to the Firm's Chief Executive Officer and Chief Compliance Officer if such Advisory Person later participates in the consideration of that issuer for inclusion on any list of securities approved for purchase by Firm clients. E. ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS. Any Access Person who is a fund manager of any registered investment company that is advised by the Firm is prohibited from buying or selling a security for an account in which he or she has a beneficial interest within fifteen calendar days before and after the investment company that he/she manages trades in that security. Any profits realized on trades within the proscribed periods shall be required to be disgorged./4/ F. CERTAIN ACCOUNTS EXEMPT FROM REQUIREMENTS OF CODE. Any account (including open-end investment companies and limited partnerships) for which the Firm acts as investment adviser or general partner shall be managed in accordance with the Firm's trading procedures for a Client account. Any such account shall be exempt from the provisions of Sections B, C and D of Part II of this Code if (1) accounts of persons not affiliated with the Firm are also invested in the account or (2) the account is being operated as a model portfolio in contemplation of management of Client accounts in the same or a similar strategy. G. PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS. 1) Trading through Harris' Trading Desk. All Advisory Persons who have personal accounts that hold or can hold Covered Securities are required to maintain such accounts at Pershing LLC ("Pershing"), the Firm's prime broker. All transactions in Covered Securities in which an Advisory Person has any beneficial interest or ownership or in any accounts in which an Advisory Person has discretion, other than fee paying accounts ("Advisory Person account"), must be processed through the Firm's trading desk. Additionally, all transactions in Reportable Funds in which an Advisory Person has any beneficial interest or ownership must be processed (i) directly with the fund; (ii) through the Firm's mutual fund trading desk for the Advisory Person's Pershing brokerage account; or (iii) through the Firm's Profit Sharing and Savings Plan. Reportable Funds are not allowed to be held in outside brokerage accounts. An Advisory Person may have beneficial ownership of Reportable Funds in his or her spouse's - -------- /4/ Any profits disgorged shall be given to a tax-exempt charitable organization of Harris' choosing. 7 retirement or 401(k) plan held at another bank or broker. In such instances, the Advisory Person should contact the Chief Compliance Officer to apply for a waiver to transact and hold Reportable Funds through the spouse's plan Reportable Fund transactions effected pursuant to an automatic investment plan or in any account over which the Access Person has no direct or indirect influence or control do not need to be reported. Changes in allocations of funds connected to an automatic investment plan are considered volitional transactions and need to be reported. Transactions at brokers other than Pershing or banks are not permitted except in unusual circumstances and then only after the Advisory Person has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening or placing an initial order in an account with such other broker or bank, (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening or placing an initial order in such account, (iii) provided such other broker or bank with a written notice of the Advisory Person's affiliation with Harris and request that copies of confirmations and statements be sent to the Firm's Compliance Department, and provide a report to the Firm that includes the name of the broker or bank with whom the account was established, the date the account was established, and the date the report is submitted. A copy of such written notice and request should also be provided to his/her Supervisor and the Compliance Department. Even after an Advisory Person has obtained approval to execute transactions through another broker or bank, the Advisory Person must still present the Firm's trading desk with an order ticket for an order to be executed at the other broker or bank. In those exceptional situations in which it is inappropriate for the Firm's trading desk to place the order, the Advisory Person must promptly present the trading desk with a completed order ticket reflecting the details of the transaction and clearly indicating that the transaction has been completed. 2) Monitoring of Trades. Transactions for an account of an Advisory Person that are executed through the Firm's trading desk are to be monitored by the Trading Department and reviewed and approved by the Chief Compliance Officer (or such party to whom he or she delegates). These transactions are non-discretionary transactions, should be so marked on the original order ticket as "unsolicited and unsupervised" and may not be executed if they are in conflict with discretionary orders. Should a conflict arise, sharing of executions may be approved by the Chief Investment Officer, or in his/her absence, the Trading Supervisor. The Firm's Compliance Department will access Advisory Person trade information online from Pershing (including the title and exchange ticker symbol or CUSIP number of each Covered Security or Reportable Fund involved, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security or Reportable Fund involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected, and the date on which the report is submitted). 8 Transactions at brokers other than Pershing, in addition to being placed through the trading desk, are to be monitored by the Compliance Department. To accomplish this, all Access Persons shall submit to the Compliance Department within thirty days after any transaction a report which includes the title and exchange ticker or CUSIP number of the Covered Security, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected and the date on which the report is submitted. This requirement may be satisfied by having the broker or bank send the Firm duplicate copies of confirmations and statements, provided that such confirmations and statements contain all of the information otherwise required to be provided in the report. The Compliance Department will maintain copies of all such transaction reports. 3) Cancellation of Trades. Any transaction for an account of an Access Person is subject to cancellation or reversal if it is determined by either the Chief Executive Officer (or such party to whom he delegates), the Trading Supervisor, or the Compliance Department that the transaction is or was in conflict with or appeared to be in conflict with any Client transaction or any of the trading restrictions of this Code. Cancellations or reversals of transactions may be required after an extended period past the settlement date. The Trading Supervisor may also prevent the execution of orders for an Advisory Person's account if it appears that the trade may have to be canceled or reversed. Client transactions include transactions for any investment company managed by the Firm, any other discretionary advisory clients or any other accounts managed or advised by Employees of the Firm for a fee. The determination that a transaction of an Access Person may conflict with a Client transaction will be subjective and individualized and may include questions about timely and adequate dissemination of information, availability of bids and offers, as well as many other factors deemed pertinent for that transaction or series of transactions. It is possible that a cancellation or reversal of a transaction could be costly to an Access Person or his/her family. Therefore, great care is required to adhere to the Firm's trading restrictions and avoid conflicts or the appearance of conflicts. 4) Holding Periods for Reportable Funds No Advisory Person may purchase and sell, or conversely sell and repurchase shares of the same Reportable Fund within 30 calendar days. This restriction applies to purchases and sales in all accounts in which the Advisory Person has a beneficial ownership interest, including retirement plans and 401(k) plan investments. Note that an exchange of shares counts as a sale of shares for purposes of this prohibition. 9 For purposes of applying the 30-day holding period, the most recent purchase (or sale) will be measured against the sale (or purchase) in question. That is, a last-in-first-out analysis will apply. All volitional purchase and sale transactions of Reportable Funds in any share class and in any account will be evaluated for purposes of applying the Holding Period, for example if an Access Person purchased a Reportable Fund in his Pershing brokerage account and sold the Reportable Fund in his 401(k) account within 30 days, he would have violated the Holding Period. Hardship exemptions may be requested in advance from the Compliance Department. The Chief Executive Officer, General Counsel, and Chief Compliance Officer must approve any such waiver in accordance with Section II.A, above. 5) Participation in Dividend Reinvestment Plans and Systematic Purchase Plans. Advisory Persons may purchase Covered Securities through dividend reinvestment plans or systematic purchase plans without processing such transactions through the Firm's trading desk. Purchases are permitted only after the Advisory Person has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase, and (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase. Notice and approval shall not be required in connection with purchase of shares or units of ETFs. Even after the Advisory Person has obtained approval to invest in such a plan, the Advisory Person must provide the Compliance Department with duplicate copies of statements within thirty days after the end of each calendar quarter. Such report or statements must contain all of the information required to be reported with respect to transactions in Covered Securities under II(F)(2) above. The Compliance Department will maintain copies of all such transaction reports. 6) Reporting All Other Securities Transactions. Because the obligations of an investment adviser to maintain records of Employee's personal securities transactions is broader than the type of transactions discussed above in this Section, all Employees have the following additional reporting obligations. Any transaction in a Covered Security not required to be placed through the Firm's trading desk in which an Employee has any beneficial interest or ownership (such as, real estate or oil and gas limited partnership interests and other privately placed securities and funds) must be reported to the Compliance Department. This report must be submitted within thirty days after the end of each calendar quarter and include: the title and exchange ticker symbol or CUSIP number, price, number of shares and principal amount of each Covered Security involved, the date and nature of the transaction (i.e. buy/sell), the name of the broker or bank used, if any, interest rate and maturity, if applicable, and the date on which the report is submitted. This report may be in any form, including a copy of a confirmation or monthly statement. However, no report is necessary for any transaction in an account in which the Employee has no control or influence. 10 7) Initial and Annual Reporting Requirements. Each Access Person shall initially disclose in writing to the Compliance Department or within ten business days of becoming an Access Person, and annually thereafter within forty-five business days after each calendar year-end, the title and exchange ticker or CUSIP number, type of security, number of shares and principal amount of all Covered Securities and Reportable Funds beneficially owned by such Access Person, and the date the Access Person submits the report, as of the date of becoming a Access Person or as of the preceding December 31 for annual reporting and the name of the broker or bank with whom the Access Person maintains an account in which he or she has beneficial ownership of any security. An Access Person need not make an Initial or Annual Report for Covered Securities held in any account over which the Employee has no direct or indirect influence or control. H. CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES During the period of employment with the Firm an Employee will have access to certain "confidential information" concerning the Firm and its clients. This information is a valuable asset and the sole property of the Firm and may not be misappropriated and used outside of the Firm by an Employee or former Employee. "Confidential Information", defined as all information not publicly available about the business of the Firm, may include, but is not limited to, Client and prospect names and records, research, trading and portfolio information and systems, information concerning externally managed entities or accounts which have been considered or made on behalf of fee paying clients, and the financial records of the Firm and/or its Employees. In order to protect the interests of the Firm, an Employee or ex-Employee shall not, without the express written consent of the Firm's Chief Executive Officer, disclose directly or indirectly confidential information to anyone outside of the Firm. An Employee should be extremely careful to avoid inadvertent disclosures and to exercise maximum effort to keep confidential information confidential. Any questions concerning the confidentiality of information should be directed to the Chief Executive Officer or the General Counsel. An abuse of the Firm's policy of confidentiality could subject an Employee to immediate disciplinary action that may include dismissal from the Firm. I. OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES 1) Outside Employment and Associations. It is Harris's policy not to permit Advisory Persons to hold outside positions of authority, including that of being an officer, partner, director or employee of another business entity (except in the case of entities managed by the Firm). Also, Harris requires that all Advisory Persons make their positions with the Firm a full-time job. The approval of Harris, and in some cases the approval of the NASD, is required before any Advisory Person may hold any outside position with any business organization, regardless of whether such position is compensated or not. Any exception to this policy must be approved in writing by the Firm's Chief Executive Officer (or other person as he may delegate) and the Access Person's Supervisor, and a copy of such approval shall be provided by the Advisory Person to the Compliance Department. Any change in the status of such approved position immediately must be 11 reported in writing to the Compliance Department and the Advisory Person's Supervisor. Any income or compensation received by an Advisory Person for serving in such position must be paid in full to the Firm. Under no circumstance may an Advisory Person represent or suggest that Harris has approved or recommended the business activities of the outside organization or any person associated with it. 2) Outside Business Activities. To further avoid actual or potential conflicts of interest and to maintain impartial investment advice, and equally important, the appearance of impartial investment advice, each Advisory Person must disclose in writing to the Compliance Department any special relationships and/or investments or business activities that they or their families have which could influence the investment activities of the Firm. If an Employee has any questions about any activities and the need for disclosure, the Employee should be cautious and direct any questions to the Firm's General Counsel or Compliance Department. J. Certification of Compliance by Access Persons. The Firm shall distribute the Code to each Employee and Non-Access Director upon inception of employment and whenever the Code is amended, but no less frequently than annually. Each Access Person and Non-Access Director is required to certify in writing annually that (i) he or she has read and understands the Code, (ii) recognizes that he or she is subject to the Code, and, in the case of Access Persons, (iii) he or she has disclosed or reported all Personal Securities Transactions required to be disclosed or reported under the Code. Each Access Person who has not engaged in any personal securities transactions during the preceding year for which a report was required to be filed pursuant to the Code shall include a certification to that effect in his or her annual certification. K. Annual Report to the Trust's Board of Trustees. The officers of the Trust shall prepare an annual report to the board of trustees of the Trust that: i) summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; ii)describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed; 12 iii)certifies to the board that the Trust has adopted procedures reasonably necessary to prevent its Investment Personnel and Access Persons from violating the Code; and iv)identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations. 13 III. POLICY STATEMENT ON INSIDER TRADING A. BACKGROUND Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission (SEC) can recover the profits gained or losses avoided through the violative trading, obtain a penalty of up to three times the illicit windfall and issue an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations. Regardless of whether a government inquiry occurs, Harris views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including dismissal. The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the General Counsel, or, in her absence, a member of the Stock Selection Group, or the Compliance Department. You also must notify the General Counsel, or, in her absence, a member of the Stock Selection Group or the Compliance Department immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur. B. POLICY STATEMENT ON INSIDER TRADING No person to whom this Policy Statement applies may trade, either personally or on behalf of others (such as Clients), while in possession of material, nonpublic information; nor may such persons communicate material, nonpublic information to others in violation of the law. This Policy Statement is drafted broadly; it will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by all Access Persons (including their spouses, minor children and adult members of their households). The section below reviews principles important to this Policy Statement. 1. What is Material Information? Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information whose disclosure will have a substantial effect on the price of a company's securities. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is 14 material to the General Counsel, or, in her absence, a member of the Stock Selection Group, or Compliance Department. Material information often relates to a company's results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information also may relate to the market for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. 2. What is Nonpublic Information? Information is "nonpublic" until it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, the Dow Jones "tape" or the WALL STREET JOURNAL or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely. 3. Identifying Inside Information Before executing any trade for yourself or others, including Clients, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps: i) Immediately alert the Trading Department to restrict trading in the security by placing the security on the restricted list maintained in the trading room. No reason or explanation should be given to the Trading Department for the restriction. ii)Report the information and proposed trade immediately to the General Counsel and the Chief Compliance Officer, or in their absence, a member of the Stock Selection Group. iii)Do not purchase or sell the securities on behalf of yourself or others, including Clients. iv)Do not communicate the information inside or outside Harris other than to the above individuals. 15 v) After the above individuals have reviewed the issue, the Firm will determine whether the information is material and nonpublic and, if so, what action(s) the Firm should take. 4. Contacts with Public Companies For Harris, contacts with public companies represent an important part of our research efforts. Harris may make investment decisions on the basis of the Firm's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, an Access Person becomes aware of material, nonpublic information. This could happen, for example, if a company's Chief Financial Officer prematurely discloses quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, Harris must make a judgment as to its further conduct. To protect yourself, Clients and the Firm, you should contact the General Counsel, or in her absence, a member of the Stock Selection Group, or Compliance Department immediately if you believe that you may have received material, nonpublic information. 5. Tender Offers Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Employees should exercise particular caution any time they become aware of nonpublic information relating to a tender offer. C. PROCEDURES TO IMPLEMENT THE POLICY STATEMENT ON INSIDER TRADING 1. Personal Securities Trading The restrictions on Employee trading and procedures to implement those restrictions and the Firm's reporting obligations, which are set forth in Section II above, constitute the same procedures to implement this Policy Statement. Review those procedures carefully and direct any questions about their scope or applicability to the General Counsel or the Compliance Department. 2. Restrictions on Disclosures Harris Employees shall not disclose any nonpublic information (whether or not it is material) relating to Harris or its securities transactions to any person outside Harris (unless such disclosure has been 16 authorized by Harris). Material, nonpublic information may not be communicated to anyone, including persons within Harris, except as provided in Section III(B)(3) above. Such information must be secured. For example, access to files containing material, nonpublic information and computer files containing such information should be restricted, and conversations containing such information, if appropriate at all, should be conducted in private. 17 IV.RETENTION OF RECORDS The Compliance Department or the Secretary of the Trust will maintain the records listed below for a period of five years. Such records shall be maintained at the Firm's principal place of business in an easily accessible place: i) a list of all persons subject to the Code during that period; ii) receipts signed by all persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it; iii)a copy of each Code of Ethics that has been in effect at any time during the period; iv) a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period as well as a record of all persons responsible for reviewing these reports; and v) a copy of any decision and the reasons supporting the decision, to approve the acquisition of Limited Offerings. 18 ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON INSIDER TRADING Code of Ethics. Harris Associates L.P. ("HALP"), Harris Associates Securities L.P. ("HASLP") and Harris Associates Investment Trust (the "Trust") have adopted a written Code of Ethics and Statement on Insider Trading (the "Code") to avoid potential conflicts of interest by HALP and HASLP personnel and to govern the use and handling of material non-public information. A copy of the Code is attached to this acknowledgement. As a condition of your continued employment with HALP and HASLP, and/or the retention of your position, if any, as an officer of the Trust or a member of the board of HALP's general partner, you are required to read, understand and abide by the Code. Compliance Program. The Code requires that all personnel (other than Non-Access Directors) furnish to the Compliance Department information regarding any investment account in which you have a "beneficial interest." You are also required to furnish to the Compliance Department copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales of securities in any such account, or which are effected by you or for your benefit, or the benefit of any member of your household. Additionally, you are required to furnish a report of your personal securities holdings within ten days of commencement of your employment with HALP or HASLP and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts. This compliance program also requires that employees report any contact with any securities issuer, government or its personnel, or others, that, in the usual course of business, might involve material non-public financial information. The Code requires that employees bring to the attention of the General Counsel any information they receive from any source, which might be material non-public information. Any questions concerning the Code should be directed to the General Counsel or the Compliance Department. I affirm that I have read and understand the Code. I agree to the terms and conditions set forth in the Code. - ---------------------------------- ----------------------------- Signature Date 1 ANNUAL AFFIRMATION OF COMPLIANCE FOR ACCESS PERSONS AND NON-ACCESS DIRECTORS I affirm that: 1. I have again read and, during the past year to the best of my knowledge, have complied with provisions of the Code of Ethics and Statement of Insider Trading (the "Code") that pertain to me. 2. I have provided to the Compliance Department the names and addresses of each investment account that I have with any firm, including, but not limited to, broker-dealers, banks and others. (List of known accounts attached.) (Access Persons only) 3. I have provided to the Compliance Department copies of account statements or other reports showing each and every transaction in any security in which I have a beneficial interest, as defined in the Code, during the most recently ended calendar year or during the most recent calendar year there were no transactions in any security in which I had a beneficial interest required to be reported pursuant to the Code. (Access Persons only) 4. I have provided to the Compliance Department a report of my personal securities holdings as of the end of the most recent calendar year, including all required information for each security in which I have any direct or indirect beneficial ownership. (Access Persons only) - ---------------------------------- ----------------------------- Signature Date APPENDIX A Examples of Beneficial Interest For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include: .. securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); .. securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); .. securities held by you as trustee or co-trustee, where either you or any member of your immediate family (i.e., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust. .. securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; .. securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; .. securities held by a personal holding company controlled by you alone or jointly with others; .. securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or .. securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. .. You will not be deemed to have beneficial ownership of securities in the following situations: .. securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and APPENDIX A .. securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the General Counsel or Compliance Department. EX-99.(P)(4) 10 dex99p4.txt CODE OF ETHICS FOR LOOMIS SAYLES LOOMIS, SAYLES & CO., L.P. Code of Ethics Policy on Personal Trading and Related Activities by Loomis Sayles Personnel EFFECTIVE: January 14, 2000 AS AMENDED: January 1, 2003 March 1, 2004 January 1, 2005 August 23, 2005 January 1, 2006 June 1, 2006 July 24, 2006 - 1 - LOOMIS, SAYLES & CO., L.P. Code of Ethics Policy on Personal Trading and Related Activities 1. INTRODUCTION This Code of Ethics ("Code") has been adopted by Loomis, Sayles & Co., L.P. ("Loomis Sayles") to govern certain conduct of Loomis Sayles' Supervised Persons and personal trading in securities and related activities of those individuals who have been deemed Access Persons thereunder, and under certain circumstances, those Access Persons' family members and others in a similar relationship to them. The policies in this Code reflect Loomis Sayles' desire to detect and prevent not only situations involving actual or potential conflicts of interest or unethical conduct, but also those situations involving even the appearance of these. 2. STATEMENT OF GENERAL PRINCIPLES It is the policy of Loomis Sayles that no Access Person or Supervised Person as such terms are defined under the Loomis Sayles' Code, (please note that Loomis Sayles treats all employees as Access Persons) shall engage in any act, practice or course of conduct that would violate the Code, the fiduciary duty owed by Loomis Sayles and its personnel to Loomis Sayles' clients, Rule 204A-1 under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rule 17j-1 there under. The fundamental position of Loomis Sayles is, and has been, that it must at all times place the interests of its clients first. Accordingly, your personal financial transactions (and in some cases, those of your family members and others in a similar relationship to you) and related activities must be conducted consistently with this Code and in such a manner as to avoid any actual or potential conflict of interest or abuse of your position of trust and responsibility. Without limiting in any manner the fiduciary duty owed by Loomis Sayles to its clients, it should be noted that Loomis Sayles considers it proper that purchases and sales be made by Access Persons in the marketplace of securities owned by Loomis Sayles' clients, provided that such securities transactions comply with the spirit of, and the specific restrictions and limitations set forth in the Code. In making personal investment decisions, however, you must exercise extreme care to ensure that the provisions of the Code are not violated and under no circumstances, may an Access Person use the knowledge of Covered Securities purchased or sold by any client of Loomis Sayles or Covered Securities being considered for purchase or sale by any client of Loomis Sayles to profit personally, directly or indirectly, by the market effect of such transactions. - 2 - Improper trading activity can constitute a violation of the Code. The Code can also be violated by an Access Person's failure to file required reports, by making inaccurate or misleading reports or statements concerning trading activity, or by opening an account with a non-Select Broker. It is not intended that these policies will specifically address every situation involving personal trading. These policies will be interpreted and applied, and exceptions and amendments will be made, by Loomis Sayles in a manner considered fair and equitable, but in all cases with the view of placing Loomis Sayles' clients' interests paramount. It also bears emphasis that technical compliance with the procedures, prohibitions and limitations of this Code will not automatically insulate you from scrutiny of, and sanctions for, securities transactions which indicate an abuse of Loomis Sayles' fiduciary duty to any of its clients. You are encouraged to bring any questions you may have about the Code to Personal Trading Compliance. Please do not guess at the answer. Personal Trading Compliance, the Chief Compliance Officer and the Ethics Committee will review the terms and provisions of the Code at least annually and make amendments as necessary. Any amendments to the Code will be provided to you. 3. A FEW KEY TERMS Boldfaced terms have special meaning in this Code. The application of a particular Code requirement to you may hinge on the elements of the definition of these terms. See the Glossary at the end of this Code for definitions of these terms. In order to have a basic understanding of the Code, however, you must have an understanding of the terms "Covered Security", "Beneficial Ownership" and "Investment Control" as used in the Code. 3.1 Covered Security This Code generally relates to transactions in and ownership of an investment that is a Covered Security. Currently, this means any type of equity or debt security (such as common and preferred stocks, and corporate and government bonds or notes), any equivalent (such as ADRs), any derivative, instrument representing, or any rights relating to, a Covered Security, and any closely related security (such as certificates of participation, depository receipts, put and call options, warrants, and related convertible or exchangeable securities and securities indices). Shares of closed-end funds, municipal obligations and securities issued by agencies and instrumentalities of the U.S. government (e.g. GNMA obligations) are also considered Covered Securities under the Code. Additionally, the shares of any investment company that is registered under the Investment Company Act that is advised, sub-advised, or distributed by Loomis Sayles, and those investment companies that are advised, sub-advised, or distributed by any affiliated investment adviser within the IXIS organization (e.g. IXIS Asset Management Advisers, Harris Associates, Hansberger, etc.) ("Reportable Funds") are deemed to be Covered Securities for purposes of certain provisions of the Code. Reportable Funds include any open-ended or closed-end funds managed by Loomis Sayles or an IXIS organization as described above, but exclude money market funds. A current list of Reportable Funds is attached as Exhibit One and will be maintained on the firm's intranet site under the Legal and Compliance page. - 3 - All Access Persons are expected to comply with the spirit of the Code, as well as the specific rules contained in the Code. Therefore, while the list of Reportable Funds is subject to change, it is ultimately the responsibility of all Access Persons to determine whether or not an investment company or mutual fund is advised, sub-advised, or distributed by Loomis Sayles or advised, sub-advised, or distributed by an IXIS investment adviser prior to investing in such a fund to ensure that you comply with all aspects of the Code regarding your investment in a Reportable Fund. Please see Exhibit Two for the application of the Code to a specific Covered Security or instrument, including exemptions from pre-clearance. It should be noted that private placements, hedge funds and investment pools are deemed to be Covered Securities for purposes of the Code whether or not advised, sub-advised, or distributed by Loomis Sayles or an IXIS investment adviser. Investments in such securities are discussed under sections 4.14 and 5.2. 3.2 Beneficial Ownership The Code governs any Covered Security in which an Access Person has any direct or indirect "Beneficial Ownership." Beneficial Ownership for purposes of the Code means a direct or indirect "pecuniary interest" that is held or shared by you directly or indirectly (through any contract, arrangement, understanding, relationship or otherwise) in a Covered Security. The term "pecuniary interest" in turn generally means your opportunity directly or indirectly to receive or share in any profit derived from a transaction in a Covered Security, whether or not the Covered Security or the relevant account is in your name and regardless of the type of account (i.e. brokerage account, direct account, or retirement plan account). Although this concept is subject to a variety of U.S. Securities and Exchange Commission (the "SEC") rules and interpretations, you should know that you are presumed under the Code to have an indirect pecuniary interest as a result of: .. ownership of a Covered Security by your spouse or minor children; .. ownership of a Covered Security by a live-in partner who shares your household and combines his/her financial resources in a manner similar to that of married persons; .. ownership of a Covered Security by your other family members sharing your household (including an adult child, a stepchild, a grandchild, a parent, stepparent, grandparent, sibling, mother- or father-in-law, sister- or brother-in-law, and son- or daughter-in-law); .. your share ownership, partnership interest or similar interest in Covered Securities held by a corporation, general or limited partnership or similar entity you control; .. your right to receive dividends or interest from a Covered Security even if that right is separate or separable from the underlying securities; .. your interest in a Covered Security held for the benefit of you alone or for you and others in a trust or similar arrangement (including any present or future right to income or principal); and .. your right to acquire a Covered Security through the exercise or conversion of a "derivative Covered Security." - 4 - Explanatory Note: Any account of an Access Person, even if also a client account of the firm, will be subject to the Code as an account in which an Access Person has Beneficial Ownership. Please see Exhibit Three to this Code for specific examples of the types of interests and accounts subject to the Code. 3.3 Investment Control The Code governs any Covered Security in which an Access Person has direct or indirect "Investment Control." The term Investment Control encompasses any influence (i.e., power to manage, trade, or give instructions concerning the investment disposition of assets in the account or to approve or disapprove transactions in the account), whether sole or shared, direct or indirect, you exercise over the account or Covered Security. You should know that you are presumed under the Code to have Investment Control as a result of having: . Investment Control (shared) over your personal brokerage account(s) . Investment Control (shared) over an account(s) in the name of your spouse or minor children, unless, you have renounced an interest in your spouse's assets (subject to the approval of Personal Trading Compliance) . Investment Control (shared) over an account(s) in the name of any family member, friend or acquaintance . Involvement in an Investment Club . Trustee power over an account(s) . The existence and/or exercise of a power of attorney over an account Please see Exhibit Three to this Code for specific examples of the types of interests and accounts subject to the Code. 3.4 Maintaining Personal Accounts All Access Persons who have personal accounts that hold or can hold Covered Securities in which they have direct or indirect Investment Control and Beneficial Ownership are required to maintain such accounts at one of the following firms: Charles Schwab, Fidelity Investments, Merrill Lynch or TD Ameritrade (collectively, the "Select Brokers"). Additionally, an Access Person may only purchase and hold shares of Reportable Funds through either a Select Broker, directly from the Reportable Fund through its transfer agent, or through one or more of Loomis Sayles' retirement plans. Accounts in which the Access Person only has either Investment Control or Beneficial Ownership; certain retirement accounts with an Access Person's prior employer; and/or - 5 - the retirement accounts of an Access Person's spouse may be maintained with a firm other than the Select Brokers with the approval of Personal Trading Compliance or the Chief Compliance Officer. 4. SUBSTANTIVE RESTRICTIONS ON PERSONAL TRADING The following are substantive prohibitions and restrictions on Access Persons' personal trading and related activities. In general, the prohibitions set forth below relating to trading activities apply to accounts holding Covered Securities in which an Access Person has Beneficial Ownership and Investment Control. 4.1 Preclearance Each Access Person must pre-clear through the PTA Preclearance System ("PTA System") all Volitional transactions in Covered Securities (i.e. transactions in which the Access Person has determined the timing as to when the purchase or sale transaction will occur and amount of shares to be purchased or sold) in which he or she has Investment Control and in which he or she has or would acquire Beneficial Ownership. Limited exceptions to the preclearance requirement are set forth in Exhibit Four. Explanatory Note: Futures and options transactions in Covered Securities must be manually pre-cleared by Personal Trading Compliance or the Chief Compliance Officer since the PTA System cannot currently handle such transactions. Initial and secondary public offerings, private placements transactions, including hedge funds whether or not they are advised, sub-advised, or distributed by Loomis Sayles or an IXIS investment adviser, participation in investment clubs and private pooled vehicles require special preclearance as detailed under Sections 4.13, 4.14 and 5.2 of the Code. Any transaction approved pursuant to the preclearance request procedures must be executed by the end of the trading day on which it is approved unless Personal Trading Compliance or the Chief Compliance Officer, or designee thereof, extends the pre-clearance for an additional trading day. If the Access Person's trade has not been executed by the end of the same trading day (or the next trading day in the case of an extension), the "preclearance" will lapse and the Access Person may not trade without again seeking and obtaining preclearance of the intended trade. Preclearance requests can only be submitted through PTA and/or to Personal Trading Compliance Monday - Friday from 9:30am-4:00pm Eastern Standard Time. If after preclearance is given and before it has lapsed, an Access Person becomes aware that a Covered Security as to which he or she obtained preclearance has become the subject of a buy or sell order or is being considered for purchase or sale for a client account, the Access Person who obtained the preclearance must consider the preclearance revoked. If the transaction has already been executed before the Access Person becomes aware of such facts, no violation will be considered to have occurred as a result of the Access Person's transactions. If an Access Person has actual knowledge that a requested transaction is nevertheless in violation of this Code or any provision thereof, approval of the request will not protect the Access - 6 - Person's transaction from being considered in violation of the Code. The Chief Compliance Officer or Personal Trading Compliance may deny or revoke preclearance for any reason that is deemed to be consistent with the spirit of the Code. 4.2 Good Until Canceled and Limit Orders No Access Person shall place a "good until canceled," "limit" or equivalent order with his/her broker except that an Access Person may utilize a "day order with a limit" so long as the transaction is consistent with provisions of this Code, including the preclearance procedures. All orders must expire at the end of the trading day on which they are pre-cleared unless otherwise extended by Personal Trading Compliance. 4.3 Short Term Trading Profits No Access Person may profit from the Volitional purchase and sale, or conversely the Volitional sale and purchase, of the same or equivalent Covered Security (including Reportable Funds) within 60 calendar days (unless the sale involved shares of a Covered Security that were acquired more than 60 days prior). Hardship exceptions may be requested (in advance) from Personal Trading Compliance or the Chief Compliance Officer. An Access Person may sell a Covered Security (including Reportable Funds) or cover an existing short position at a loss within 60 calendar days. Such request must be submitted to the PTA System and to Personal Trading Compliance for approval because the PTA System does not have the capability to determine whether the Covered Security will be sold at a gain or a loss. 4.4 Restrictions on Round Trip Transactions in Reportable Funds In addition to the 60 day holding period requirement for purchases and sales of Reportable Funds, with the exception of closed-end Reportable Funds, an Access Person is prohibited from purchasing, selling and then re-purchasing shares of the same Reportable Fund within a 90 day period ("Round Trip" restriction). The Round Trip restriction does not limit the number of times an Access Person can purchase a Reportable Fund or sell a Reportable Fund during a 90 day period. In fact, subject to the holding period requirement described above, an Access Person can purchase a Reportable Fund (through one or multiple transactions) and can liquidate their position in that fund (through one or several transactions) during a 90 day period. However, an Access Person cannot then reacquire a position in the same Reportable Fund previously sold within the same 90 day period. The Round Trip restriction will only apply to Volitional transactions in Reportable Funds. Therefore, shares of Reportable Funds acquired through a dividend reinvestment or dollar cost averaging program, and automatic monthly contributions to the firm's 401K plan will not be considered when applying the Round Trip restriction. Finally, all Volitional purchase and sale transactions of Reportable Funds, in any share class and in any employee account (i.e., direct account with the Reportable Fund, Select Broker account, 401K account, etc.) will be matched for purposes of applying the Round Trip restriction. 4.5 Futures and Related Options No Access Person shall use derivatives including futures, options on futures, or options or - 7 - warrants on a Covered Security to evade the restrictions of the Code. In other words, no Access Person may use derivative transactions with respect to a Covered Security if the Code would prohibit the Access Person from taking the same position directly in the Covered Security. 4.6 Short Sales No Access Person may purchase a put option, sell a call option, sell a Covered Security short or otherwise take a short position in a Covered Security then being held in a Loomis Sayles client account, unless, in the cases of the purchase of a put or sale of a call option, the option is on a broad based index. 4.7 Competing with Client Trades Except as set forth in Section 4.9, an Access Person may not, directly or indirectly, purchase or sell a Covered Security (Reportable Funds are not subject to this rule.) when the Access Person knows, or reasonably should have known, that such Covered Securities transaction competes in the market with any actual or considered Covered Securities transaction for any client of Loomis Sayles, or otherwise acts to harm any Loomis Sayles client's Covered Securities transactions. Generally preclearance will be denied if: . a Covered Security or a closely related Covered Security is the subject of a pending "buy" or "sell" order for a Loomis Sayles client until that buy or sell order is executed or withdrawn. . the Covered Security is being considered for purchase or sale for a Loomis Sayles client, until that security is no longer under consideration for purchase or sale. . the Covered Security is on the Loomis Sayles "Restricted List" or "Concentration List" (or such other trading restriction list as Loomis Sayles, may from time to time establish). For those transactions pre-cleared through the PTA System, such system will have the information necessary to deny preclearance if any of these situations apply. Therefore, you may assume the Covered Security is not being considered for purchase or sale for a client account unless you have actual knowledge to the contrary in which case, the preclearance you received is null and void. For Covered Securities requiring manual preclearance (i.e. futures and options transactions in Covered Securities), the applicability of such restrictions will be determined by Personal Trading Compliance upon the receipt of the preclearance request. 4.8 Investment Person Seven-Day Blackout Except as set forth in Section 4.9 below, no Investment Person shall, directly or indirectly, purchase or sell any Covered Security (Reportable Funds are not subject to this rule) within a period of seven (7) calendar days (trade date being day zero) before and after the date that a Loomis Sayles client, with respect to which he or she is an Investment Person, has purchased or sold such Covered Security. It is ultimately the Investment Person's responsibility to understand the rules and restrictions of the Code and to know what Covered Securities are being traded in his/her client(s) account(s) or any account(s) with which he/she is associated. - 8 - Explanatory Note: The "seven days before" element of this restriction is based on the premise that an Investment Person can normally be expected to know, when he or she is effecting a personal trade, whether any client as to which he or she is designated an Investment Person has traded, or will be trading in the same Covered Security within seven days of the Investment Person's trade. Furthermore, an Investment Person has a fiduciary obligation to recommend and/or effect suitable and attractive trades for clients regardless of whether such trades may cause a prior personal trade to be considered an apparent violation of this restriction. It would constitute a breach of fiduciary duty and a violation of this Code to delay or fail to make any such recommendation or transaction in a client account in order to avoid a conflict with this restriction. It is understood that there maybe particular circumstances (i.e. news on an issuer, a client initiated liquidation, subscription or rebalancing) that may occur after an Investment Person's personal trade which gives rise to an opportunity or necessity for his or her client to trade in that Covered Security which did not exist or was not anticipated by that person at the time of that person's personal trade. Personal Trading Compliance or the Chief Compliance Officer, will review any extenuating circumstances which may warrant the waiving of any remedial actions in a particular situation involving an inadvertent violation of this restriction. 4.9 Large Cap/De Minimis Exemption An Access Person who wishes to make a trade in a Covered Security that would otherwise be denied preclearance solely because the Covered Security is under consideration or pending execution for a client as provided in Section 4.7 or an Investment Person who wishes to make a trade in a Covered Security that would otherwise be denied preclearance solely because either the Covered Security is under consideration or pending execution for a client as provided in Section 4.7 or because such transaction would violate the Investment Person Seven Day Blackout Restriction set forth in Section 4.8 above, will nevertheless receive preclearance provided that: . the issuer of the Covered Security in which the Access Person wishes to transact has a market capitalization exceeding U.S. $5 billion (a "Large Cap Security"); AND . the aggregate amount of the Access Person's transactions in that Large Cap Security on that day across all personal accounts does not exceed $10,000 USD. Such transactions will be subject to all other provisions of the Code 4.10 Research Analyst Three-Day Blackout Before a Recommendation During the three (3) business day period before a Research Analyst issues a Recommendation on a Covered Security, that Research Analyst may not purchase or sell that Covered Security. - 9 - Explanatory Note: It is understood that there may be particular circumstances such as a news release, change of circumstance or similar event that may occur after a Research Analyst's personal trade which gives rise to a need, or makes it appropriate, for a Research Analyst to issue a Recommendation on said Covered Security. A Research Analyst has an affirmative duty to make unbiased Recommendations and issue reports, both with respect to their timing and substance, without regard to his or her personal interest. It would constitute a breach of a Research Analyst's fiduciary duty and a violation of this Code to delay or fail to issue a Recommendation in order to avoid a conflict with this restriction. Personal Trading Compliance or the Chief Compliance Officer, will review any extenuating circumstances which may warrant the waiving of any remedial sanctions in a particular situation involving an inadvertent violation of this restriction. 4.11 Access Person Seven-Day Blackout After Recommendation Change During the seven (7) day period after a Recommendation is issued for a Covered Security, no Access Person may purchase or sell that Covered Security. A request to pre-clear a transaction in a Covered Security will be denied if there has been a Recommendation issued for such Covered Security during the past seven (7) days. 4.12 Hedge Fund Team Restrictions Due to the unique trading practices and strategies associated with hedge funds, a hedge fund team member (i.e., any Investment Person for a hedge fund) is prohibited from trading Covered Securities in their personal brokerage accounts that are eligible investments for the hedge fund with which he/she is associated. Hedge fund team members must therefore, contact Personal Trading Compliance for special preclearance approval prior to executing any personal securities transactions. 4.13 Initial and Secondary Public Offerings Investing in Initial and Secondary Public Offerings of Covered Securities is prohibited unless such opportunities are connected with your prior employment compensation (i.e. options, grants, etc.) or your spouse's employment compensation. No Access Person may, directly or indirectly, purchase any Covered Security sold in an Initial or Secondary Public Offering without obtaining prior written approval from the Chief Compliance Officer. 4.14 Private Placement Transactions No Access Person may, directly or indirectly, purchase any Covered Security offered and sold pursuant to a Private Placement Transaction without obtaining prior written approval from the Chief Compliance Officer. A request for an approval form for a private placement investment can be obtained by contacting Personal Trading Compliance. Explanatory Note: If you have been authorized to acquire a Covered Security in a Private Placement - 10 - Transaction, you must disclose to Personal Trading Compliance if you are involved in a client's subsequent consideration of an investment in the issuer of the Private Placement, even if that investment involves a different type or class of Covered Security. In such circumstances, the decision to purchase securities of the issuer for a client must be independently reviewed by an Investment Person with no personal interest in the issuer. The purchase of additional shares or the subsequent sale of an approved Private Placement Transaction does not require preclearance provided there are no publicly traded Covered Securities in the corporation, partnership or limited liability company whose shares the Access Person owns. However, if the issuer of the Private Placement has publicly traded Covered Securities, then the sale of such Private Placements must be pre-cleared with Personal Trading Compliance. Further, additional purchases and any subsequent sales of an approved private placement, regardless of whether or not the issuer is publicly traded, must be reported quarterly and annually as detailed in Section 6 of the Code. 4.15 Exemptions Granted by the Chief Compliance Officer Subject to applicable law, the Chief Compliance Officer may from time to time grant exemptions, other than or in addition to those described in Exhibit Four, from the trading restrictions, preclearance requirements or other provisions of the Code with respect to particular individuals such as non-employee directors, consultants, temporary employee, intern or independent contractor, and types of transactions or Covered Securities, where in the opinion of the Chief Compliance Officer, such an exemption is appropriate in light of all the surrounding circumstances. 5. PROHIBITED OR RESTRICTED ACTIVITIES 5.1 Public Company Board Service and Other Affiliations To avoid conflicts of interest, inside information and other compliance and business issues, the firm prohibits Access Persons from serving as officers or members of the board of any publicly traded entity. This prohibition does not apply to service as an officer or board member of any parent subsidiary of the firm. In addition, in order to identify potential conflicts of interests, compliance and business issues, before accepting any service, employment, engagement, connection, association, or affiliation in or within any enterprise, business or otherwise, (herein after, collectively outside activity(ies)), an Access Person must obtain the advance written approval of Personal Trading Compliance or the Chief Compliance Officer and the applicable Access Person's supervisor or other appropriate member of senior management. A request form for approval of such Outside Activities can be obtained by contacting Personal Trading Compliance. In determining whether to approve such Outside Activity, Personal Trading Compliance or the Chief Compliance Officer will consider whether such service will involve an actual or perceived conflict of interest with client trading, place impediments on Loomis Sayles' ability to trade on behalf of clients or otherwise materially interfere with the effective discharge of Loomis Sayles' or the Access Person's duties to clients. - 11 - 5.2 Participation in Investment Clubs and Private Pooled Vehicles No Access Person shall participate in an investment club or invest in a hedge fund, or similar private organized investment pool (but not an SEC registered open-end mutual fund) without the express permission of Personal Trading Compliance or the Chief Compliance Officer, whether or not the investment vehicle is advised, sub-advised or distributed by Loomis Sayles or an IXIS investment adviser. 6. REPORTING REQUIREMENTS 6.1 Initial Holdings Reporting, Account Disclosure and Acknowledgement of Code Within 10 days after becoming an Access Person, each Access Person must file with Personal Trading Compliance, a report (by paper) of all Covered Securities holdings (including holdings of Reportable Funds) in which such Access Person has Beneficial Ownership or Investment Control. The information contained therein must be current as of a date not more than 45 days prior to the individual becoming an Access Person. Additionally, within 10 days of becoming an Access Person, such Access Person must report all brokerage or other accounts that hold or can hold Covered Securities in which the Access Person has Beneficial Ownership or Investment Control. The information must be as of the date the person became an Access Person. An Access Person can satisfy these reporting requirements by providing Personal Trading Compliance with a current copy of his or her brokerage account or other account statements, which hold or can hold Covered Securities. Explanatory Note: Loomis Sayles treats all of its employees as Access Persons. Therefore, you are deemed to be an Access Person as of the first day you begin working for the firm. Finally, upon becoming an Access Person and annually thereafter, each Access Person must acknowledge that he or she has received, read and understands the Code and recognizes that he or she is subject hereto, and certify that he or she will comply with the requirements of the Code. 6.2 Brokerage Confirmations and Brokerage Account Statements Each Access Person must notify Personal Trading Compliance immediately upon opening an account that holds or may hold Covered Securities (including Reportable Funds), and must assist Personal Trading Compliance in ensuring that Loomis Sayles receives copies of the Access Person's confirmations and account statements for all accounts holding Covered Securities in which the Access Person has either Beneficial Ownership or Investment Control. 6.3 Quarterly Transaction Reporting and Account Disclosure Procedure Utilizing the PTA System, each Access Person must file a report of all Volitional transactions in Covered Securities (including Volitional transactions in Reportable Funds) made during each calendar quarterly period in which such Access Person has, or by reason of such transaction acquires or disposes of, any Beneficial Ownership of a Covered Security (even if such Access Person has no direct or indirect Investment Control over such Covered Security), or as to which the Access Person - 12 - has any direct or indirect Investment Control (even if such Access Person has no Beneficial Ownership in such Covered Security). Non-volitional transactions in Covered Securities (including Reportable Funds) such as automatic monthly payroll deductions, changes to future contributions within the Loomis Sayles Retirement Plans, dividend reinvestment programs, dollar cost averaging programs, and transactions made within the Guided Choice Program are subject to annual reporting only. If no transactions in any Covered Securities, required to be reported, were effected during a quarterly period by an Access Person, such Access Person shall nevertheless submit a report through PTA within the time frame specified below stating that no reportable securities transactions were affected. Access Persons are also required to report each account that may hold or holds Covered Securities (including accounts that hold or may hold Reportable Funds) opened or closed by the Access Person during the reporting period, other then those accounts described in Exhibit Three. Every quarterly report must be submitted not later than thirty (30) calendar days after the close of each calendar quarter. 6.4 Annual Holdings and Code Compliance Reporting Requirements On an annual basis, by a date specified by Personal Trading Compliance, each Access Person must file with Personal Trading Compliance a dated Annual Package which identifies all holdings in Covered Securities (including Reportable Funds) in which such Access Person has a Beneficial Ownership and/or over which such Access Person has Investment Control. This reporting requirement also applies to shares of Covered Securities, including shares of Reportable Funds that were acquired during the year in Non-volitional transactions. The information in the Annual Package shall reflect holdings in the Access Person's account(s) that are current as of a date not more than 45 days prior to the date on which the Annual Package was submitted. Additionally, on an annual basis, each Access Person and each Supervised Person must acknowledge that he/she has received, read and understood the Code and Loomis Sayles Policies and Procedures on Insider Trading ("Insider Trading Policy") and recognizes that he/she is subject thereto, and certify that he/she has complied with the requirements of the Code and Insider Trading Policy during the past year, except as otherwise disclosed in writing to Personal Trading Compliance or the Chief Compliance Officer. 6.5 Review of Reports by Chief Compliance Officer The Chief Compliance Officer shall establish procedures as the Chief Compliance Officer may from time to time determine appropriate for the review of the information required to be compiled under this Code regarding transactions by Access Persons and to report any violations thereof to all necessary parties. 6.6 Internal Reporting of Violations to the Chief Compliance Officer Prompt internal reporting of any violation of the Code to the Chief Compliance Officer or Personal Trading Compliance is required under Rule 204A-1. While the daily monitoring process undertaken by Personal Trading Compliance is designed to identify any violations of the Code and handle any such violations immediately, Access Persons and Supervised Persons are required to - 13 - promptly report any violations they learn of resulting from either their own conduct or those of other Access Persons and Supervised Persons to the Chief Compliance Officer or Personal Trading Compliance. It is incumbent upon Loomis Sayles to create an environment that encourages and protects Access Persons and Supervised Persons who report violations. In doing so, individuals have the right to remain anonymous in reporting violations. Furthermore, any form of retaliation against an individual who reports a violation could constitute a further violation of the Code, as deemed appropriate by the Chief Compliance Officer. All Access Persons and Supervised Persons should therefore feel safe to speak freely in reporting any violations. 7. SANCTIONS Any violation of the substantive or procedural requirements of this Code will result in the imposition of a sanction as set forth in the firm's then current Sanctions Policy, or as the Ethics Committee may deem appropriate under the circumstances of the particular violation. These sanctions may include, but are not limited to: . a letter of caution or warning (i.e. Procedures Notice); . payment of a fine, disgorgement of profits generated or payment of losses avoided and/or restitution to an affected client; . suspension of personal trading privileges; . actions affecting employment status, such as suspension of employment without pay, demotion or termination of employment; and . referral to the SEC, other civil authorities or criminal authorities. Serious violations, including those involving deception, dishonesty or knowing breaches of law or fiduciary duty, will result in one or more of the most severe sanctions regardless of the violator's history of prior compliance. Fines, penalties and disgorged profits will be donated to a charity selected by the Loomis Sayles Charitable Giving Committee. 8. RECORDKEEPING REQUIREMENTS Loomis Sayles shall maintain and preserve records, in an easily accessible place, relating to the Code of the type and in the manner and form and for the time period prescribed from time to time by applicable law. Currently, Loomis Sayles is required by law to maintain and preserve: . in an easily accessible place, a copy of this Code (and any prior Code of Ethics that was in effect at any time during the past five years) for a period of five years; . in an easily accessible place a record of any violation of the Code and of any action taken as a result of such violation for a period of five years following the end of the fiscal year in which the violation occurs; . a copy of each report (or information provided in lieu of a report including any manual - 14 - preclearance forms and information relied upon or used for reporting) submitted under the Code for a period of five years, provided that for the first two years such copy must be preserved in an easily accessible place; . copies of Access Persons' and Supervised Persons' written acknowledgment of receipt of the Code; . in an easily accessible place, a record of the names of all Access Persons within the past five years, even if some of them are no longer Access Persons, the holdings and transactions reports made by these Access Persons, and records of all Access Persons' personal securities reports (and duplicate brokerage confirmations or account statements in lieu of these reports); . a copy of each report provided to any Investment Company as required by paragraph (c)(2)(ii) of Rule 17j-1 under the 1940 Act or any successor provision for a period of five years following the end of the fiscal year in which such report is made, provided that for the first two years such record shall be preserved in an easily accessible place; and . a written record of any decision, and the reasons supporting any decision, to approve the purchase by a Access Person of any Covered Security in an Initial or Secondary Public Offering or Private Placement Transaction or other limited offering for a period of five years following the end of the fiscal year in which the approval is granted. Explanatory Note: Under Rule 204-2, the standard retention period required for all documents and records listed above is five years, in easily accessible place, the first two years in an appropriate office of Personal Trading Compliance. 9. MISCELLANEOUS 9.1Confidentiality Loomis Sayles will keep information obtained from any Access Person hereunder in strict confidence. Notwithstanding the forgoing, reports of Covered Securities transactions and violations hereunder will be made available to the SEC or any other regulatory or self-regulatory organizations to the extent required by law rule or regulation, and in certain circumstances, may in Loomis Sayles' discretion be made available to other civil and criminal authorities. In addition, information regarding violations of the Code may be provided to clients or former clients of Loomis Sayles that have been directly or indirectly affected by such violations. 9.2Disclosure of Client Trading Knowledge No Access Person may, directly or indirectly, communicate to any person who is not an Access Person or other approved agent of Loomis Sayles (e.g., legal counsel) any non-public information relating to any client of Loomis Sayles or any issuer of any Covered Security owned by - 15 - any client of Loomis Sayles, including, without limitation, the purchase or sale or considered purchase or sale of a Covered Security on behalf of any client of Loomis Sayles, except to the extent necessary to comply with applicable law or to effectuate Covered Securities transactions on behalf of the client of Loomis Sayles. 9.3Notice to Access Persons, Investment Personnel and Research Analysts as to Status Personal Trading Compliance will initially determine an employee's status as an Access Person, Research Analyst or Investment Person and the client accounts to which Investment Persons should be associated, and will inform such persons of their respective reporting and duties under the Code. All Access Persons and/or the applicable Supervisor thereof, have an obligation to inform Personal Trading Compliance if an Access Person's responsibilities change during the Access Person's tenure at Loomis Sayles. 9.4Notice to Personal Trading Compliance of Engagement of Independent Contractors Any person engaging a consultant, temporary employee, intern or independent contractor shall notify Personal Trading Compliance of this engagement and provide to Personal Trading Compliance, the information necessary to make a determination as to how the Code shall apply to such consultant, temporary employee, intern or independent contractor, if at all. 9.5Questions and Educational Materials Employees are encouraged to bring to Personal Trading Compliance or the Chief Compliance Officer any questions you may have about interpreting or complying with the Code about Covered Securities, accounts that hold or may hold Covered Securities or personal trading activities of you, your family, or household members, about your legal and ethical responsibilities or about similar matters that may involve the Code. Personal Trading Compliance will from time to time circulate educational materials or bulletins or conduct training sessions designed to assist you in understanding and carrying out your duties under the Code. - 16 - GLOSSARY OF TERMS The boldface terms used throughout this policy have the following meanings: 1. "Access Person" means an "access person" as defined from time to time in Rule 17j-1 under the 1940 Act or any applicable successor provision. Currently, this means any director, or officer of Loomis Sayles, or any Advisory Person (as defined below) of Loomis Sayles, but does not include any director who is not an officer or employee of Loomis Sayles or its corporate general partner and who meets all of the following conditions: a. He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; b. He or she does not have access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any Reportable Fund; and c. He or she is not involved in making securities recommendations to clients, and does not have access to such recommendations that are nonpublic. Loomis Sayles treats all employees as Access Persons. 2. "Advisory Person" means an "advisory person" and "advisory representative" as defined from time to time in Rule 17j-1 under the 1940 Act and Rule 204-2(a)(12) under the Advisers Act, respectively, or any applicable successor provision. Currently, this means (i) every employee of Loomis Sayles (or of any company in a Control relationship to Loomis Sayles), who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a Covered Security by Loomis Sayles on behalf of clients, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) every natural person in a Control relationship to Loomis Sayles who obtains information concerning recommendations made to a client with regard to the purchase or sale of a Covered Security. Advisory Person also includes: (a) any other employee designated by Personal Trading Compliance or the Chief Compliance Officer as an Advisory Person under this Code; (b) any consultant, temporary employee, intern or independent contractor (or similar person) engaged by Loomis Sayles designated as such by Personal Trading Compliance or the Chief Compliance Officer as a result of such person's access to information about the purchase or sale of Covered Securities by Loomis Sayles on behalf of clients (by being present in Loomis Sayles offices, having access to computer data or otherwise). 3. "Beneficial Ownership" is defined in Section 3.2 of the Code. 4. "Chief Compliance Officer" refers to the officer or employee of Loomis Sayles designated from time to time by Loomis Sayles to receive and review reports of purchases and sales by Access Persons, and to address issues of personal trading. "Personal Trading Compliance" means the employee or employees of Loomis Sayles designated - 1 - from time to time by the General Counsel of Loomis Sayles to receive and review reports of purchases and sales, and to address issues of personal trading, by the Chief Compliance Officer, and to act for the Chief Compliance Officer in the absence of the Chief Compliance Officer. 5. "Investment Control" is defined in Section 3.3 of the Code. This means "control" as defined from time to time in Rule 17j-1 under the 1940 Act and Rule 204-2(a)(12) under the Advisers Act or any applicable successor provision. Currently, this means the power to exercise a controlling influence over the management or policies of Loomis Sayles, unless such power is solely the result of an official position with Loomis Sayles. 6. "Initial Public Offering" means an "initial public offering" as defined from time to time in Rule 17j-l under the 1940 Act or any applicable successor provision. Currently, this means any offering of securities registered under the Securities Act of 1933 the issuer of which immediately before the offering, was not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. 7. "Investment Company" means any Investment Company registered as such under the 1940 Act and for which Loomis Sayles serves as investment adviser or subadviser or which an affiliate of Loomis Sayles serves as an investment adviser. 8. "Investment Person" means all Portfolio Managers of Loomis Sayles and other Advisory Persons who assist the Portfolio Managers in making and implementing investment decisions for an Investment Company or other client of Loomis Sayles, including, but not limited to, designated Research Analysts and traders of Loomis Sayles. A person is considered an Investment Person only as to those client accounts or types of client accounts as to which he or she is designated by Personal Trading Compliance or the Chief Compliance Officer as such. As to other accounts, he or she is simply an Access Person. 9. "Non-volitional" transactions are any transaction in which the employee has not determined the timing as to when the purchase or sale will occur and the amount of shares to be purchased or sold, i.e. changes to future contributions within the Loomis Sayles Retirement Plans, dividend reinvestment programs, dollar cost averaging program, automatic monthly payroll deductions, and any transactions made within the Guided Choice Program. Non-volitional transactions are not subject to the preclearance or quarterly reporting requirements under the Code. 10."Portfolio Manager" means any individual employed by Loomis Sayles who has been designated as a Portfolio Manager by Loomis Sayles. A person is considered a Portfolio Manager only as to those client accounts as to which he or she is designated by the Chief Compliance Officer as such. As to other client accounts, he or she is simply an Access Person. 11."Private Placement Transaction" means a "limited offering" as defined from time to time in Rule 17j-l under the 1940 Act or any applicable successor provision. Currently, this means an offering exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or 4(6) or Rule 504, 505 or 506 under that Act, including hedge funds. - 2 - 12."Recommendation" means any initial rating or change therein, in the case of an equity Covered Security, or any initial rating or status, or change therein in the case of a fixed income Covered Security in either case issued by a Research Analyst. 13."Reportable Fund" is defined in Section 3.1 of the Code and a list of such funds is found in Exhibit One. 14."Research Analyst" means any individual employed by Loomis Sayles who has been designated as a Research Analyst by Loomis Sayles. A person is considered a Research Analyst only as to those Covered Securities which he or she is assigned to cover and about which he or she issues research reports to other Investment Personnel. As to other securities, he or she is simply an Access Person. 15."Covered Security" is defined in Section 3.1 of the Code. 16."Secondary Public Offering" is defined as a registered offering of a block of Covered Securities which had been previously issued to the public, by a current shareholder. 17."Select Broker" is defined in Section 3.4 of the Code. 18."Supervised Person" is defined in Section 202(a)(25) of the Advisers Act and currently includes any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of Loomis Sayles, or other person who provides investment advice on behalf of Loomis Sayles and is subject to the supervision and control of Loomis Sayles. 19."Volitional" transactions are any transactions in which the employee has determined the timing as to when the purchase or sale transaction will occur and amount of shares to be purchased or sold, i.e. making changes to existing positions or asset allocations within the Loomis Sayles retirement plans, sending a check or wire to the Transfer Agent of a Reportable Fund, and buying or selling shares of a Reportable Fund in a brokerage account or direct account held with the applicable fund's Transfer Agent. Volitional transactions are subject to the preclearance and reporting requirements under the Code. - 3 - -----END PRIVACY-ENHANCED MESSAGE-----