N-CSR 1 dncsr.txt NATIXIS FUNDS TRUST II UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-00242 Natixis Funds Trust II -------------------------------------------------------------------------------- (Exact name of Registrant as specified in charter) 399 Boylston Street, Boston, Massachusetts 02116 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Coleen Downs Dinneen, Esq. Natixis Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (617) 449-2810 Date of fiscal year end: September 30 Date of reporting period: September 30, 2007 Item 1. Reports to Stockholders. The Registrant's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: [LOGO] NATIXIS FUNDS INCOME FUNDS ANNUAL REPORT September 30, 2007 Loomis Sayles Core Plus Bond Fund Loomis Sayles High Income Fund Loomis Sayles Limited Term Government and Agency Fund Loomis Sayles Massachusetts Tax Free Income Fund Loomis Sayles Municipal Income Fund Loomis Sayles Strategic Income Fund [LOGO] LS LOOMIS SAYLES & COMPANY, L.P. [GRAPHIC] TABLE OF CONTENTS Management Discussion and Performance.................................... page 1 Portfolio of Investments................................................ page 20 Financial Statements.................................................... page 45 LOOMIS SAYLES CORE PLUS BOND FUND PORTFOLIO PROFILE Objective: Seeks a high level of current income consistent with what the fund considers reasonable risk -------------------------------------------------------------------------------- Strategy: Invests primarily in U.S. corporate and U.S. government bonds -------------------------------------------------------------------------------- Fund Inception: November 7, 1973 -------------------------------------------------------------------------------- Managers: Peter W. Palfrey Richard G. Raczkowski Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFRX Class B NERBX Class C NECRX Class Y NERYX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. This fund may invest in lower-rated bonds with higher yields and increased risks; securities subject to prepayment risk; and foreign market securities with special risks. Management Discussion -------------------------------------------------------------------------------- Volatility in the fixed-income markets during the 12 months ended September 30, 2007 reflected concerns over the rising pace of mortgage defaults in the United States, as well as sliding consumer confidence and the weakness of the U.S. dollar. The Federal Reserve Board fought the liquidity crunch in stages, ultimately moving aggressively with a 0.50% cut in short-term interest rates on September 18, 2007. Treasury yields bounced back up and market conditions began to stabilize. For the fiscal year ended September 30, 2007, Loomis Sayles Core Plus Bond Fund's total return was 5.70% based on the net asset value of Class A shares and $0.56 in reinvested dividends. The fund outperformed its benchmark, the Lehman Aggregate Bond Index, which returned 5.14% for the period. The fund also outperformed the 4.24% average return on the funds in Morningstar's Intermediate-Term Bond category. The 30-day SEC yield on Class A shares of the fund on September 30, 2007 was 4.26%. FUND'S AVERAGE CREDIT QUALITY ROSE DURING FISCAL 2007 Although high-yielding bonds generally underperformed during the fiscal year, not all issuers were affected equally. Certain high-yielding industrial bonds performed relatively well, and our research and security selection helped the fund outperform its benchmark and Morningstar peer group. However, we gradually trimmed lower-quality and investment-grade positions during the year and used the proceeds to build the fund's positions in higher-quality issues. This shift reflected our concern that spreads - the difference in yield between higher- and lower-quality bonds - were historically tight and we did not believe this trend was sustainable. The fund's increased emphasis on quality helped insulate it to some extent when lower-grade bond prices were retreating, and the fund was able to capture some of the price increase in U.S. Treasuries that accompanied the Fed's actions. DURATION STRATEGY LENGTHENED DURING THE PERIOD At the beginning of the fiscal year last October, the fund's duration was essentially the same as its benchmark, but we gradually extended duration as the year progressed. Duration is a measure of a portfolio's sensitivity to changes in interest rates. A longer duration allows the fund to benefit when declining interest rates elevate bond prices. Even though long-term interest rates moved higher early in the period, depressing bond prices, the fund's longer-term bonds generated higher income and subsequently benefited when interest rates declined later in the summer. During the second half of the fiscal year, investors' pursuit of safety increased demand for shorter-term, less risky securities. This increase in demand drove prices of short-term bonds up more than long-term bond prices. Long-term rates, which had moved higher in the first two quarters, ebbed only fractionally lower in the second half. Since we had maintained the portfolio in a "barbell" configuration, focusing assets at opposite ends of the maturity spectrum, the fund participated in both markets, but to a limited extent. INTERNATIONAL CURRENCIES OUTPERFORMED THE U.S. DOLLAR, TIPS DID WELL We also added to the fund's position in securities issued in currencies other than the U.S. dollar. The fund's best-performing holdings were its bonds denominated in the Norwegian krone. Norway has a strong economy and roughly half of Western Europe's oil and gas reserves. TIPS (Treasury Inflation Protected Securities) were another strong area for the fund. More than other types of Treasury securities, prices of TIPS rise if inflation expectations rise, and vice versa. The Fed's surprise rate cut in September, which was intended to alleviate recession concerns, also rekindled inflation concerns, and the fund's TIPS position was a positive. OUTLOOK IS FOR ANOTHER FED RATE CUT While consumer confidence has slipped and retail sales have been softer than expected, consumers have been resilient. Moreover, the weak dollar and strong global economic growth may set the stage for higher U.S. exports. The September rate cut was positively received, and we believe the Fed will continue to do what is necessary to keep the economy and the financial markets on a stable course. 1 LOOMIS SAYLES CORE PLUS BOND FUND Investment Results through September 30, 2007 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/4/ September 30, 1997 through September 30, 2007 [CHART] Net Asset Maximum Sales Lehman Aggregate Lehman U.S. Value/1/ Charge/2/ Bond Index Credit Index ----------- ------------ ----------- ---------- 9/30/1997 $10,000 $ 9,550 $10,000 $10,000 10/31/1997 10,095 9,641 10,145 10,127 11/30/1997 10,141 9,685 10,192 10,184 12/31/1997 10,246 9,785 10,294 10,292 1/31/1998 10,382 9,915 10,427 10,414 2/28/1998 10,415 9,947 10,419 10,411 3/31/1998 10,480 10,008 10,455 10,449 4/30/1998 10,528 10,054 10,509 10,515 5/31/1998 10,636 10,157 10,609 10,640 6/30/1998 10,675 10,195 10,699 10,718 7/31/1998 10,647 10,168 10,722 10,708 8/31/1998 10,542 10,067 10,896 10,758 9/30/1998 10,949 10,456 11,151 11,107 10/31/1998 10,834 10,346 11,092 10,936 11/30/1998 11,049 10,552 11,155 11,142 12/31/1998 11,067 10,569 11,189 11,174 1/31/1999 11,186 10,683 11,269 11,285 2/28/1999 10,961 10,467 11,072 11,017 3/31/1999 11,112 10,612 11,133 11,095 4/30/1999 11,200 10,696 11,168 11,127 5/31/1999 10,957 10,463 11,071 10,978 6/30/1999 10,886 10,397 11,035 10,921 7/31/1999 10,844 10,356 10,988 10,861 8/31/1999 10,801 10,315 10,983 10,834 9/30/1999 10,983 10,489 11,110 10,952 10/31/1999 11,008 10,513 11,151 11,002 11/30/1999 11,025 10,529 11,150 11,014 12/31/1999 11,030 10,534 11,097 10,956 1/31/2000 10,984 10,490 11,060 10,917 2/29/2000 11,108 10,608 11,194 11,018 3/31/2000 11,260 10,754 11,342 11,112 4/30/2000 11,053 10,556 11,309 11,015 5/31/2000 10,971 10,478 11,304 10,974 6/30/2000 11,304 10,795 11,539 11,249 7/31/2000 11,371 10,859 11,644 11,385 8/31/2000 11,517 10,999 11,813 11,534 9/30/2000 11,534 11,015 11,887 11,594 10/31/2000 11,469 10,953 11,966 11,606 11/30/2000 11,578 11,057 12,161 11,756 12/31/2000 11,846 11,313 12,387 11,984 1/31/2001 12,140 11,594 12,589 12,312 2/28/2001 12,260 11,709 12,699 12,420 3/31/2001 12,275 11,723 12,763 12,496 4/30/2001 12,205 11,656 12,710 12,451 5/31/2001 12,283 11,730 12,786 12,566 6/30/2001 12,287 11,734 12,835 12,629 7/31/2001 12,598 12,031 13,122 12,959 8/31/2001 12,737 12,164 13,272 13,133 9/30/2001 12,684 12,113 13,427 13,113 10/31/2001 12,934 12,352 13,708 13,439 11/30/2001 12,848 12,270 13,519 13,322 12/31/2001 12,705 12,133 13,433 13,231 1/31/2002 12,675 12,105 13,541 13,343 2/28/2002 12,626 12,058 13,673 13,443 3/31/2002 12,488 11,926 13,445 13,195 4/30/2002 12,606 12,038 13,706 13,379 5/31/2002 12,712 12,140 13,822 13,556 6/30/2002 12,405 11,847 13,942 13,578 7/31/2002 12,261 11,710 14,110 13,571 8/31/2002 12,541 11,977 14,348 13,923 9/30/2002 12,582 12,016 14,581 14,187 10/31/2002 12,512 11,949 14,514 14,023 11/30/2002 12,750 12,176 14,511 14,204 12/31/2002 13,066 12,478 14,810 14,623 1/31/2003 13,139 12,548 14,823 14,671 2/28/2003 13,328 12,728 15,028 14,964 3/31/2003 13,367 12,765 15,016 14,975 4/30/2003 13,567 12,957 15,140 15,252 5/31/2003 13,837 13,215 15,423 15,733 6/30/2003 13,859 13,236 15,392 15,694 7/31/2003 13,384 12,782 14,875 15,025 8/31/2003 13,512 12,904 14,973 15,143 9/30/2003 13,902 13,276 15,370 15,672 10/31/2003 13,867 13,243 15,226 15,505 11/30/2003 13,951 13,324 15,263 15,576 12/31/2003 14,178 13,540 15,418 15,750 1/31/2004 14,299 13,656 15,542 15,909 2/29/2004 14,410 13,761 15,710 16,109 3/31/2004 14,518 13,864 15,828 16,264 4/30/2004 14,147 13,511 15,416 15,752 5/31/2004 14,023 13,392 15,355 15,641 6/30/2004 14,108 13,474 15,441 15,707 7/31/2004 14,268 13,626 15,594 15,901 8/31/2004 14,553 13,898 15,892 16,276 9/30/2004 14,636 13,978 15,935 16,368 10/31/2004 14,796 14,130 16,069 16,526 11/30/2004 14,766 14,102 15,940 16,361 12/31/2004 14,900 14,230 16,087 16,574 1/31/2005 14,936 14,264 16,188 16,706 2/28/2005 14,921 14,250 16,093 16,607 3/31/2005 14,727 14,065 16,010 16,400 4/30/2005 14,789 14,124 16,227 16,620 5/31/2005 14,927 14,255 16,402 16,853 6/30/2005 15,025 14,349 16,492 16,987 7/31/2005 14,983 14,309 16,341 16,816 8/31/2005 15,136 14,455 16,551 17,072 9/30/2005 14,991 14,316 16,380 16,816 10/31/2005 14,886 14,216 16,251 16,633 11/30/2005 14,941 14,269 16,323 16,734 12/31/2005 15,063 14,386 16,478 16,899 1/31/2006 15,113 14,433 16,479 16,865 2/28/2006 15,167 14,485 16,533 16,939 3/31/2006 15,055 14,378 16,371 16,701 4/30/2006 15,066 14,388 16,342 16,640 5/31/2006 15,022 14,346 16,324 16,611 6/30/2006 15,034 14,358 16,359 16,636 7/31/2006 15,239 14,553 16,580 16,881 8/31/2006 15,446 14,751 16,834 17,194 9/30/2006 15,596 14,894 16,982 17,386 10/31/2006 15,731 15,023 17,094 17,524 11/30/2006 15,963 15,244 17,292 17,772 12/31/2006 15,867 15,153 17,192 17,619 1/31/2007 15,878 15,163 17,185 17,615 2/28/2007 16,173 15,445 17,450 17,970 3/31/2007 16,141 15,415 17,450 17,884 4/30/2007 16,238 15,507 17,544 18,013 5/31/2007 16,096 15,372 17,411 17,837 6/30/2007 15,982 15,263 17,360 17,753 7/31/2007 16,084 15,361 17,505 17,814 8/31/2007 16,306 15,573 17,719 17,978 9/30/2007 16,483 15,741 17,854 18,122 Average Annual Total Returns -- September 30, 2007/4/
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 11/7/73) Net Asset Value/1/ 5.70% 5.55% 5.12% With Maximum Sales Charge/2/ 0.95 4.58 4.64 CLASS B (inception 9/13/93) Net Asset Value/1/ 4.90 4.74 4.35 With CDSC/3/ -0.10 4.40 4.35 CLASS C (Inception 12/30/94) Net Asset Value/1/ 4.91 4.76 4.34 With CDSC/3/ 3.91 4.76 4.34 CLASS Y (Inception 12/30/94) Net Asset Value/1/ 6.06 5.88 5.48 ------------------------------------------------------------ COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Aggregate Bond Index 5.14% 4.13% 5.97% Lehman U.S. Credit Index 4.23 5.02 6.13 Morningstar Int.-Term Bond Fund Avg. 4.24 4.08 5.19
See page 13 for a description of the indexes. All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of any dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.funds.natixis.com. Class Y shares are available to certain investors, as described in the prospectus. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 9/30/07 9/30/06 ------------------------------------------ Aaa 66.4 56.4 ------------------------------------------ Aa 1.4 1.5 ------------------------------------------ A 3.4 1.2 ------------------------------------------ Baa 13.1 16.6 ------------------------------------------ Ba 6.4 13.1 ------------------------------------------ B 3.9 5.0 ------------------------------------------ Caa 0.8 -- ------------------------------------------ Not Rated* 1.9 4.7 ------------------------------------------ Short-term and other 2.7 1.5 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 9/30/07 9/30/06 -------------------------------------------------- 1 year or less 5.8 6.8 -------------------------------------------------- 1-5 years 30.1 39.4 -------------------------------------------------- 5-10 years 39.2 38.5 -------------------------------------------------- 10+ years 24.9 15.3 -------------------------------------------------- Average Effective Maturity 9.5 years 7.6 years --------------------------------------------------
Portfolio characteristics will vary. EXPENSE RATIOS AS STATED IN THE MOST RECENT PROSPECTUS
Share Class Gross Expense Ratio/5/ Net Expense Ratio/6/ ------------------------------------------------------- A 1.08% 1.00% ------------------------------------------------------- B 1.83 1.75 ------------------------------------------------------- C 1.82 1.75 ------------------------------------------------------- Y 0.80 0.75 -------------------------------------------------------
NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 4.50%. /3/Performance for Class B shares assumes a maximum of 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C shares performance assumes a 1% CDSC applied when you sell shares within one year of purchase. /4/Fund performance has been increased by expense reductions and reimbursements, if any, without which performance would have been lower. /5/Before reductions and reimbursements. /6/After reductions and reimbursements. Expense reductions are contractual and are set to expire on 1/31/08. 2 LOOMIS SAYLES HIGH INCOME FUND PORTFOLIO PROFILE Objective: Seeks high current income plus the opportunity for capital appreciation to produce a high total return -------------------------------------------------------------------------------- Strategy: Invests primarily in lower-quality fixed-income securities -------------------------------------------------------------------------------- Fund Inception: February 22, 1984 -------------------------------------------------------------------------------- Managers: Matthew J. Eagan, CFA Kathleen C. Gaffney, CFA Elaine M. Stokes Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFHX Class B NEHBX Class C NEHCX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest-rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. This fund emphasizes lower-rated, high-yield bonds that may involve extra risks. It also invests in foreign securities which have special risks, including political, economic, regulatory and currency risks. Management Discussion -------------------------------------------------------------------------------- Bond prices became increasingly volatile during the spring and summer, as fears spread that defaults in the subprime mortgage market might threaten the long-running U.S. economic expansion. To shore up sagging confidence, the Federal Reserve Board cut interest rates by 0.50% in September. Meanwhile, the U.S. dollar continued to weaken, fueling gains in overseas markets. For the fiscal year ended September 30, 2007, Loomis Sayles High Income Fund's total return was 8.10% based on the net asset value of Class A shares and $0.38 in reinvested dividends. For the period, the fund surpassed its benchmark, the Lehman High Yield Composite Index, which returned 7.54%, and outperformed the 7.08% average return on Morningstar's High Yield Bond category. As of September 30, 2007, the 30-day SEC yield on the fund's Class A shares was 6.19%. FUND'S FLEXIBILITY AND SHIFT TO HIGHER-QUALITY ISSUES WERE POSITIVE The fund's ability to invest in securities that are not part of the Lehman benchmark - including U.S. Treasury securities, bonds denominated in foreign currencies and equity securities - contributed to its performance edge during the period. Yield spreads (the difference in yield between higher- and lower-quality bonds) remained narrow for several months. This meant that high-yield issues offered relatively little yield advantage over higher-quality bonds, so we edged the fund upward in quality during the fiscal year. During the subprime mortgage upheaval, yield spreads widened dramatically, wiping out earlier gains in high-yield issues as investors moved out of riskier assets. Results were better among the fund's investment-grade holdings, thanks to successful selection in bonds with Moody's ratings in the AAA, AA and BBB categories. Other positive contributors included several foreign bonds and certain bonds issued by financial companies with below investment-grade ratings. The fund's best-performing U.S. securities included common and preferred stocks. WEAK U.S. DOLLAR BOOSTED OVERSEAS HOLDINGS Leading contributors among non-U.S. bonds included securities issued by supranational organizations denominated in Brazil's real and Iceland's krona. Emerging-market issues that added to returns included those tied to South Africa's rand, bonds denominated in Mexico's peso and the Malaysian ringgit. Japan was the only disappointing country, in absolute terms. Securities domiciled in Canada, Austria and Germany performed well, but fund holdings in these countries trailed their benchmarks. INDUSTRIAL, HOUSING, AND LOWER-RATED ISSUES WERE WEAK The housing meltdown caused sharp declines in the securities of lower-rated homebuilders and materials suppliers. Basic industry, technology and communications also suffered as investors worried about general economic weakness and the possible lack of capital as the credit crisis played itself out. These holdings detracted from the fund's results. In general, performance trailed off with each step down the ratings ladder; certain B-rated issues were the fund's worst performers. OUTLOOK IS FOR SLOWING GROWTH While consumer confidence has slipped and retail sales have been softer than expected, in general consumers were resilient during the fund's fiscal year. We believe the worst effects of the credit crisis will have been seen by the end of calendar 2007, although we think additional Fed rate cuts may lie ahead. Non-residential construction is strong, and the weak dollar is boosting U.S. export activity. However, stiff increases in monthly payments as millions of adjustable-rate mortgages are reset could restrain consumer spending - a large part of the overall economy - keeping growth moderate and interest rates in check. Lower rates would favor Treasury securities, but better opportunities may be found in other parts of the market. Investors have become less risk-averse than they were this summer, and the depressed mortgage-backed sector may begin to recover. Investment-grade corporate bonds may mirror the economy if it regains momentum next year. High-yield bonds also hold potential for good performance in upcoming quarters, but an excess supply in loans in the wake of leveraged buyouts must be worked off first. 3 LOOMIS SAYLES HIGH INCOME FUND Investment Results through September 30, 2007 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/4/ September 30, 1997 through September 30, 2007 [CHART] Net Asset Maximum Sales Lehman High Yield Value/1/ Charge/2/ Composite Index --------- ------------- ------------------ 9/30/1997 $10,000 $ 9,550 $10,000 10/31/1997 9,913 9,467 10,009 11/30/1997 10,046 9,594 10,105 12/31/1997 10,139 9,683 10,193 1/31/1998 10,291 9,828 10,377 2/28/1998 10,277 9,814 10,437 3/31/1998 10,383 9,916 10,535 4/30/1998 10,439 9,969 10,577 5/31/1998 10,422 9,953 10,614 6/30/1998 10,458 9,987 10,652 7/31/1998 10,442 9,972 10,712 8/31/1998 9,717 9,280 10,121 9/30/1998 9,625 9,192 10,167 10/31/1998 9,423 8,999 9,959 11/30/1998 10,099 9,645 10,372 12/31/1998 9,965 9,517 10,383 1/31/1999 10,189 9,731 10,538 2/28/1999 10,253 9,792 10,476 3/31/1999 10,420 9,951 10,575 4/30/1999 10,644 10,165 10,780 5/31/1999 10,383 9,916 10,634 6/30/1999 10,354 9,888 10,612 7/31/1999 10,312 9,848 10,654 8/31/1999 10,151 9,695 10,537 9/30/1999 10,085 9,632 10,461 10/31/1999 10,176 9,718 10,391 11/30/1999 10,243 9,782 10,513 12/31/1999 10,363 9,897 10,632 1/31/2000 10,248 9,787 10,586 2/29/2000 10,294 9,831 10,606 3/31/2000 9,983 9,534 10,383 4/30/2000 9,977 9,528 10,400 5/31/2000 9,699 9,263 10,293 6/30/2000 9,993 9,543 10,503 7/31/2000 10,052 9,600 10,583 8/31/2000 10,012 9,561 10,656 9/30/2000 9,804 9,363 10,562 10/31/2000 9,315 8,896 10,224 11/30/2000 8,541 8,157 9,819 12/31/2000 8,694 8,303 10,009 1/31/2001 9,703 9,267 10,759 2/28/2001 9,655 9,220 10,902 3/31/2001 9,162 8,749 10,645 4/30/2001 8,880 8,481 10,513 5/31/2001 8,904 8,504 10,702 6/30/2001 8,393 8,015 10,402 7/31/2001 8,558 8,173 10,555 8/31/2001 8,493 8,110 10,679 9/30/2001 7,720 7,372 9,962 10/31/2001 7,635 7,291 10,208 11/30/2001 7,882 7,527 10,580 12/31/2001 7,768 7,418 10,537 1/31/2002 7,816 7,464 10,611 2/28/2002 7,578 7,237 10,463 3/31/2002 7,782 7,432 10,714 4/30/2002 7,719 7,371 10,886 5/31/2002 7,606 7,264 10,825 6/30/2002 7,062 6,744 10,027 7/31/2002 6,586 6,290 9,589 8/31/2002 6,817 6,510 9,863 9/30/2002 6,564 6,269 9,733 10/31/2002 6,561 6,266 9,648 11/30/2002 6,997 6,682 10,246 12/31/2002 7,081 6,762 10,389 1/31/2003 7,231 6,905 10,735 2/28/2003 7,332 7,002 10,867 3/31/2003 7,521 7,183 11,180 4/30/2003 7,956 7,598 11,843 5/31/2003 8,095 7,731 11,966 6/30/2003 8,270 7,898 12,310 7/31/2003 8,105 7,741 12,174 8/31/2003 8,191 7,823 12,314 9/30/2003 8,460 8,079 12,651 10/31/2003 8,640 8,251 12,906 11/30/2003 8,821 8,424 13,102 12/31/2003 9,056 8,649 13,399 1/31/2004 9,197 8,783 13,654 2/29/2004 9,156 8,744 13,620 3/31/2004 9,208 8,794 13,713 4/30/2004 8,997 8,593 13,619 5/31/2004 8,764 8,370 13,389 6/30/2004 8,954 8,551 13,581 7/31/2004 9,026 8,620 13,765 8/31/2004 9,273 8,855 14,035 9/30/2004 9,401 8,978 14,239 10/31/2004 9,609 9,177 14,496 11/30/2004 9,761 9,322 14,671 12/31/2004 9,993 9,544 14,890 1/31/2005 10,026 9,575 14,871 2/28/2005 10,259 9,797 15,089 3/31/2005 9,896 9,451 14,650 4/30/2005 9,694 9,258 14,508 5/31/2005 9,946 9,498 14,765 6/30/2005 10,183 9,724 15,055 7/31/2005 10,343 9,877 15,318 8/31/2005 10,397 9,930 15,347 9/30/2005 10,373 9,907 15,194 10/31/2005 10,245 9,784 15,088 11/30/2005 10,345 9,880 15,167 12/31/2005 10,496 10,024 15,297 1/31/2006 10,809 10,323 15,541 2/28/2006 10,974 10,481 15,645 3/31/2006 11,016 10,520 15,739 4/30/2006 11,080 10,581 15,836 5/31/2006 10,880 10,390 15,834 6/30/2006 10,899 10,409 15,778 7/31/2006 11,004 10,509 15,933 8/31/2006 11,239 10,733 16,191 9/30/2006 11,348 10,838 16,420 10/31/2006 11,589 11,067 16,644 11/30/2006 11,804 11,273 16,924 12/31/2006 11,952 11,414 17,109 1/31/2007 12,058 11,516 17,300 2/28/2007 12,210 11,661 17,542 3/31/2007 12,205 11,656 17,561 4/30/2007 12,405 11,847 17,789 5/31/2007 12,487 11,925 17,922 6/30/2007 12,249 11,698 17,600 7/31/2007 11,803 11,272 16,977 8/31/2007 12,033 11,492 17,208 9/30/2007 12,268 11,716 17,659 Average Annual Total Returns -- September 30, 2007/4/
SINCE 1 YEAR 5 YEARS 10 YEARS INCEPTION CLASS A (Inception 2/22/84) Net Asset Value/1/ 8.10% 13.32% 2.07% -- With Maximum Sales Charge/2/ 3.23 12.30 1.60 -- CLASS B (Inception 9/20/93) Net Asset Value/1/ 7.21 12.51 1.32 -- With CDSC/3/ 2.21 12.26 1.32 -- CLASS C (Inception 3/2/98) Net Asset Value/1/ 7.22 12.46 -- 1.08 With CDSC/3/ 6.22 12.46 -- 1.08 -------------------------------------------------------------------------- SINCE CLASS C COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/5/ Lehman High Yield Composite Index 7.54% 12.65% 5.85% 5.59% Morningstar High Yield Bond Fund Avg. 7.08 11.24 4.30 4.12
See page 13 for a description of the indexes. All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.funds.natixis.com. Performance history includes periods from a predecessor fund. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 9/30/07 9/30/06 ------------------------------------------ Aaa 15.5 8.0 ------------------------------------------ Aa 1.9 2.5 ------------------------------------------ A 0.7 0.5 ------------------------------------------ Baa 8.9 6.8 ------------------------------------------ Ba 17.4 17.4 ------------------------------------------ B 24.9 39.4 ------------------------------------------ Caa 15.9 6.8 ------------------------------------------ Not Rated* 11.7 13.7 ------------------------------------------ Short-term and other 3.1 4.9 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 9/30/07 9/30/06 -------------------------------------------------- 1 year or less 4.2 4.0 -------------------------------------------------- 1-5 years 21.9 25.9 -------------------------------------------------- 5-10 years 19.4 23.1 -------------------------------------------------- 10+ years 54.5 47.0 -------------------------------------------------- Average Effective Maturity 13.8 years 12.0 years --------------------------------------------------
Portfolio characteristics will vary. EXPENSE RATIOS AS STATED IN THE MOST RECENT PROSPECTUS
Share Class Gross Expense Ratio/6/ Net Expense Ratio/7/ ------------------------------------------------------- A 1.48% 1.15% ------------------------------------------------------- B 2.25 1.90 ------------------------------------------------------- C 2.23 1.90 -------------------------------------------------------
NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 4.50%. /3/Performance for Class B shares assumes a maximum of 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C shares performance assumes a 1% CDSC applied when you sell shares within one year of purchase. /4/Fund performance has been increased by expense reductions and reimbursements, if any, without which performance would have been lower. /5/The since-inception comparative performance figures shown for Class C shares are calculated from 4/1/98. /6/Before reductions and reimbursements. /7/After reductions and reimbursements. Expense reductions are contractual and are set to expire on 1/31/08. 4 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND PORTFOLIO PROFILE Objective: Seeks a high current return consistent with preservation of capital -------------------------------------------------------------------------------- Strategy: Invests primarily in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities -------------------------------------------------------------------------------- Fund Inception: January 3, 1989 -------------------------------------------------------------------------------- Managers: John Hyll Clifton V. Rowe, CFA Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFLX Class B NELBX Class C NECLX Class Y NELYX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. Securities issued by the U.S. government are guaranteed by the U.S. government if held to maturity; mutual funds that invest in these securities are not guaranteed. Securities issued by U.S. government agencies may not be government guaranteed. Management Discussion -------------------------------------------------------------------------------- U.S. fixed-income securities provided positive returns for the 12 months ended September 30, 2007, despite volatility in July and August, when simmering worries about subprime mortgage lending began to boil over. For the first nine months of this period, the Federal Reserve Board left rates unchanged, which led to a relatively calm environment for bond investors. By this summer, concerns stemming from the high rate of mortgage defaults took hold, affecting both the stock and bond markets. Not for the first time in history, a "flight to safety" played itself out until mid September, when the Fed's concern about recession replaced its inflation fears, prompting them to cut the federal funds rate to 4.75% from 5.25%. Market conditions began to stabilize as September drew to a close. For the fiscal year ended September 30, 2007, Loomis Sayles Limited Term Government and Agency Fund's total return was 4.46% based on the net asset value of Class A shares and $0.48 in reinvested dividends. By comparison, the fund's benchmark, the Lehman 1-5 Year Government Bond Index returned 5.89%, while the average return on Morningstar's Short Government category was 4.74%. The 30-day SEC yield on the fund's Class A shares was 4.17% as of September 30, 2007. YIELD ADVANTAGE OF MORTGAGE-BACKED SECURITIES WAS STRONGLY POSITIVE The fund's emphasis on mortgage-backed securities (MBS) helped it outperform its benchmark during the first nine months of the year, primarily because these securities offer higher yields in return for greater risk. However in the closing quarter of the fiscal year, growing turmoil in the residential mortgage market caused MBS to underperform U.S. Treasuries, more than offsetting the fund's earlier lead. As deteriorating market conditions neared a peak in the late summer and fall, even MBS issued by government-sponsored entities (GSE securities) suffered. (While the U.S. government does not guarantee GSE securities, they are viewed as having very little credit risk.) Privately issued mortgage securities - including those that were AAA-rated and insured - were the hardest hit in this market environment. AAA is Moody's Investors Service highest bond rating. Relative to its benchmark, the fund was overweight in residential MBS throughout the year, although holdings also included some U.S. Treasury and agency securities, and securities backed by commercial mortgages and other assets. Attractive yields offered by the securities we emphasized benefited the fund during the first nine months, although they lagged U.S. Treasury bonds in the closing quarter. Prices of shorter-term securities were first to rise in response to lower interest rates. Rates on longer-term bonds also declined, but to a lesser degree. FUND CAPITALIZED ON LOWER MBS PRICES We made several opportunistic shifts in the portfolio during the year. As valuations fell to what we regarded as attractive levels late in the period, we increased the fund's already substantial weighting in MBS. Notably, price volatility in the private (non-government sponsored) MBS market, presented opportunities to invest in some AAA-rated securities with strong credit protection at historically low prices. We also added to the fund's holdings in securities backed by commercial mortgages, which have been less volatile than residential mortgages. The fund's duration has remained similar to that of its benchmark. Duration is a measure of a portfolio's price sensitivity to changes in interest rates. A longer duration is an aggressive strategy; one that basically matches the benchmark is considered neutral. U.S. ECONOMY IS EXPECTED TO SLOW We believe the Fed may cut rates once more before the end of December, although this is not a foregone conclusion. In the relatively stable interest rate environment we see ahead, we believe the low valuations of the securities we selected will attract more investors, contributing to the fund's total return over time. 5 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND Investment Results through September 30, 2007 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/4/ September 30, 1997 through September 30, 2007 [CHART] Net Asset Maximum Sales Lehman 1-5 Year Value/1/ Charge/2/ Government Bond Index --------- ---------- ------------- 9/30/1997 $10,000 $ 9,700 $10,000 10/31/1997 10,112 9,809 10,094 11/30/1997 10,129 9,825 10,113 12/31/1997 10,206 9,900 10,189 1/31/1998 10,354 10,044 10,305 2/28/1998 10,330 10,020 10,304 3/31/1998 10,313 10,003 10,339 4/30/1998 10,353 10,042 10,388 5/31/1998 10,420 10,108 10,451 6/30/1998 10,496 10,181 10,510 7/31/1998 10,510 10,195 10,555 8/31/1998 10,678 10,358 10,717 9/30/1998 10,984 10,654 10,912 10/31/1998 10,877 10,551 10,955 11/30/1998 10,843 10,518 10,931 12/31/1998 10,866 10,540 10,968 1/31/1999 10,925 10,597 11,015 2/28/1999 10,799 10,475 10,922 3/31/1999 10,850 10,524 10,999 4/30/1999 10,881 10,555 11,030 5/31/1999 10,800 10,476 10,994 6/30/1999 10,730 10,408 11,025 7/31/1999 10,678 10,358 11,043 8/31/1999 10,674 10,354 11,070 9/30/1999 10,795 10,472 11,153 10/31/1999 10,816 10,491 11,179 11/30/1999 10,827 10,502 11,193 12/31/1999 10,792 10,468 11,183 1/31/2000 10,746 10,423 11,161 2/29/2000 10,841 10,516 11,245 3/31/2000 10,976 10,647 11,334 4/30/2000 10,941 10,612 11,349 5/31/2000 10,946 10,618 11,386 6/30/2000 11,103 10,770 11,536 7/31/2000 11,158 10,823 11,611 8/31/2000 11,275 10,937 11,716 9/30/2000 11,362 11,021 11,818 10/31/2000 11,403 11,061 11,888 11/30/2000 11,558 11,211 12,025 12/31/2000 11,693 11,343 12,200 1/31/2001 11,842 11,487 12,367 2/28/2001 11,931 11,573 12,460 3/31/2001 12,006 11,646 12,559 4/30/2001 11,982 11,622 12,567 5/31/2001 12,042 11,681 12,629 6/30/2001 12,050 11,689 12,672 7/31/2001 12,274 11,906 12,857 8/31/2001 12,355 11,985 12,953 9/30/2001 12,549 12,173 13,206 10/31/2001 12,738 12,355 13,364 11/30/2001 12,572 12,195 13,276 12/31/2001 12,495 12,120 13,255 1/31/2002 12,561 12,185 13,297 2/28/2002 12,686 12,305 13,383 3/31/2002 12,503 12,128 13,244 4/30/2002 12,732 12,350 13,443 5/31/2002 12,819 12,434 13,518 6/30/2002 12,947 12,558 13,660 7/31/2002 13,132 12,738 13,872 8/31/2002 13,261 12,863 13,970 9/30/2002 13,380 12,979 14,139 10/31/2002 13,409 13,007 14,162 11/30/2002 13,348 12,947 14,085 12/31/2002 13,515 13,109 14,274 1/31/2003 13,508 13,103 14,261 2/28/2003 13,625 13,217 14,364 3/31/2003 13,616 13,207 14,386 4/30/2003 13,639 13,230 14,419 5/31/2003 13,722 13,310 14,546 6/30/2003 13,697 13,286 14,552 7/31/2003 13,412 13,010 14,359 8/31/2003 13,457 13,053 14,367 9/30/2003 13,680 13,270 14,584 10/31/2003 13,584 13,177 14,487 11/30/2003 13,621 13,212 14,480 12/31/2003 13,716 13,305 14,583 1/31/2004 13,775 13,362 14,635 2/29/2004 13,881 13,465 14,743 3/31/2004 13,934 13,516 14,818 4/30/2004 13,683 13,273 14,582 5/31/2004 13,638 13,229 14,551 6/30/2004 13,690 13,279 14,567 7/31/2004 13,767 13,354 14,645 8/31/2004 13,940 13,522 14,803 9/30/2004 13,936 13,518 14,797 10/31/2004 14,008 13,588 14,865 11/30/2004 13,945 13,527 14,758 12/31/2004 13,991 13,572 14,808 1/31/2005 14,011 13,591 14,803 2/28/2005 13,956 13,538 14,744 3/31/2005 13,915 13,497 14,724 4/30/2005 14,037 13,616 14,847 5/31/2005 14,109 13,685 14,929 6/30/2005 14,130 13,706 14,964 7/31/2005 14,066 13,644 14,880 8/31/2005 14,165 13,740 15,008 9/30/2005 14,084 13,661 14,934 10/31/2005 14,022 13,601 14,905 11/30/2005 14,064 13,642 14,960 12/31/2005 14,157 13,732 15,027 1/31/2006 14,162 13,738 15,045 2/28/2006 14,209 13,783 15,050 3/31/2006 14,141 13,717 15,047 4/30/2006 14,148 13,724 15,088 5/31/2006 14,144 13,719 15,100 6/30/2006 14,165 13,740 15,125 7/31/2006 14,305 13,876 15,259 8/31/2006 14,434 14,001 15,393 9/30/2006 14,535 14,099 15,485 10/31/2006 14,599 14,161 15,552 11/30/2006 14,703 14,262 15,650 12/31/2006 14,695 14,254 15,630 1/31/2007 14,707 14,266 15,653 2/28/2007 14,839 14,394 15,806 3/31/2007 14,879 14,433 15,864 4/30/2007 14,946 14,498 15,926 5/31/2007 14,906 14,459 15,880 6/30/2007 14,893 14,446 15,934 7/31/2007 14,976 14,527 16,096 8/31/2007 15,087 14,634 16,277 9/30/2007 15,185 14,729 16,397 Average Annual Total Returns -- September 30, 2007/4/
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 1/3/89) Net Asset Value/1/ 4.46% 2.56% 4.27% With Maximum Sales Charge/2/ 1.33 1.94 3.95 CLASS B (Inception 9/27/93) Net Asset Value/1/ 3.72 1.82 3.56 With CDSC/3/ -1.28 1.47 3.56 CLASS C (Inception 12/30/94) Net Asset Value/1/ 3.62 1.82 3.55 With CDSC/3/ 2.62 1.82 3.55 CLASS Y (Inception 3/31/94) Net Asset Value/1/ 4.79 2.81 4.62 --------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman 1-5 Yr Gov't Bond Index 5.89% 3.01% 5.07% Morningstar Short Gov't Fund Avg. 4.74 2.48 4.36
See page 13 for a description of the indexes. All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.funds.natixis.com. Performance history includes periods from a predecessor fund. Class Y shares are available to certain investors, as described in the prospectus. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of FUND COMPOSITION 9/30/07 9/30/06 ---------------------------------------------------- Mortgage Related 60.7 65.4 ---------------------------------------------------- Treasuries 9.3 19.4 ---------------------------------------------------- Asset-Backed Securities 5.7 4.5 ---------------------------------------------------- Agency 3.3 3.1 ---------------------------------------------------- Hybrid ARMs 2.5 2.0 ---------------------------------------------------- Mortgaged Backed Securities 1.1 1.1 ---------------------------------------------------- Collateralized Mortgage Obligation 0.2 -- ---------------------------------------------------- Government Sponsored -- 2.7 ---------------------------------------------------- Short Term Investments & Other 17.2 1.8 ----------------------------------------------------
% of Net Assets as of EFFECTIVE MATURITY 9/30/07 9/30/06 -------------------------------------------------- 1 year or less 20.9 21.3 -------------------------------------------------- 1-5 years 63.2 59.6 -------------------------------------------------- 5-10 years 15.9 19.1 -------------------------------------------------- 10+ years n/a n/a -------------------------------------------------- Average Effective Maturity 3.2 years 3.5 years --------------------------------------------------
Portfolio characteristics will vary. EXPENSE RATIOS AS STATED IN THE MOST RECENT PROSPECTUS
Share Class Gross Expense Ratio/5/ Net Expense Ratio/6/ ------------------------------------------------------- A 1.09% 0.95% ------------------------------------------------------- B 1.84 1.70 ------------------------------------------------------- C 1.84 1.70 ------------------------------------------------------- Y 0.74 0.70 -------------------------------------------------------
NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 3.00%. /3/Performance for Class B shares assumes a maximum of 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C shares performance assumes a 1% CDSC applied when you sell shares within one year of purchase. /4/Fund performance has been increased by expense reductions and reimbursements, if any, without which performance would have been lower. /5/Before reductions and reimbursements. /6/After reductions and reimbursements. Expense reductions are contractual and are set to expire on 1/31/08. 6 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND PORTFOLIO PROFILE Objective: Seeks to maintain a high level of current income exempt from federal and Massachusetts personal income taxes -------------------------------------------------------------------------------- Strategy: Invests primarily in Massachusetts municipal bonds, including general obligation bonds and issues secured by specific revenue streams -------------------------------------------------------------------------------- Inception Date: March 23, 1984 -------------------------------------------------------------------------------- Manager: Robert Payne Martha A. Strom Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFMX Class B NEMBX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. This fund concentrates in a single geographic region, which can affect your fund's performance. Some income may be subject to federal and state taxes. Realized capital gains are fully taxable. Some investors may be subject to the Alternative Minimum Tax (AMT). Lower-rated bonds entail higher risks. Management Discussion -------------------------------------------------------------------------------- All U.S. bonds weathered a difficult period during the 12 months ended September 30, 2007, as concerns grew about the weakness in the housing market and the default rate in home mortgages. Consumer spending slowed and negative sentiment spilled over into other market areas as the crisis deepened this summer. At the same time, municipal bonds absorbed a record pace of new issues, creating a supply/demand imbalance. Municipal bonds with shorter maturities performed in line with U.S. Treasury securities, for the most part, but longer-term municipal bonds did better. Investors responded positively in September when the Federal Reserve Board cut the federal funds rate (a sensitive indicator of general interest rate trends) by 0.50%. Bonds with the shortest maturities were the first group to respond. For the fiscal year ended September 30, 2007, Loomis Sayles Massachusetts Tax Free Income Fund's total return was 1.71% based on the net asset value of Class A shares and $0.64 per share in reinvested dividends. Primarily because of its longer maturity, the fund's results lagged the average return of 2.09% for Morningstar's Muni Massachusetts category and the 3.10% return on the nationally diversified Lehman Municipal Bond Index. The 30-day SEC yield on the fund's Class A shares at the end of September was 3.75%, equivalent to a taxable yield of 6.12%, adjusted for the combined maximum federal and Massachusetts income tax rate of 38.45%. INVESTORS SOUGHT SAFETY IN HIGH-QUALITY, SHORT-MATURITY ISSUES A climate of uncertainty prompted investors to seek higher-quality bonds with shorter maturities in pursuit of relative safety during most of fiscal 2007. The fund's emphasis on insured bonds had a positive effect on performance because of their higher credit quality. Higher education bonds also contributed positively to performance because many of these bonds have shorter maturities. However, relative to the Lehman benchmark, this fund was underweight in insured bonds and bonds on the shorter end of the maturity spectrum. Performance of the fund's housing-related bonds was slightly negative during the period. MASSACHUSETTS MUNIS HELD UP BETTER THAN OTHER STATES' BONDS Relative to other states, Massachusetts municipal bonds fared quite well thanks to steady demand from the state's retail investors. The fund's holdings in Puerto Rican municipal bonds, which had underperformed in the recent past, also turned in solid performance during the fiscal year as demand remained steady. (Municipal bonds issued in Puerto Rico provide diversification benefits to single-state portfolios and the interest they pay passes free of income tax to residents of any U.S. state.) Some higher-quality Massachusetts general obligations with shorter maturities had the most positive impact on performance, reflecting heightened investor demand for relative safety. Municipal bonds issued for a medical center in Milford, Massachusetts, had the most negative impact on this fund's performance. These bonds remain in the portfolio because we believe they will recover in time. FACED WITH CHANGE, FUND STRATEGY REMAINS STEADY Market volatility has not changed the fund's long-term strategy. We are continuing to emphasize industrial revenue bonds because we appreciate the relatively high, tax-free income they provide and we believe investors will regain confidence in these issues if the recent turbulence subsides, allowing prices to rise. In fact, in the course of the fiscal year we lengthened the fund's maturity to capitalize on lower prices on certain longer-term municipal bonds. Near term, we expect bonds to continue to trade in a relatively narrow range, with spreads - the difference in yield between higher- and lower-quality bonds - tightening. Above-average supply should continue to weigh on municipal bond prices as we head into 2008. Longer-term, we believe high-yield municipals will recover from their recent decline if investors become more comfortable with risk and the subprime woes fade into history. 7 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND Investment Results through September 30, 2007 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/4/ September 30, 1997 through September 30, 2007 [CHART] Net Asset MaximumSales Lehman Municipal Value/1/ Charge/2/ Bond Index ---------- ----------- ------------ 9/30/1997 $10,000 $9,575 $10,000 10/31/1997 10,049 9,622 10,064 11/30/1997 10,109 9,680 10,124 12/31/1997 10,249 9,813 10,271 1/31/1998 10,332 9,893 10,377 2/28/1998 10,317 9,879 10,380 3/31/1998 10,288 9,851 10,390 4/30/1998 10,252 9,817 10,343 5/31/1998 10,410 9,968 10,506 6/30/1998 10,447 10,003 10,548 7/31/1998 10,453 10,009 10,574 8/31/1998 10,619 10,168 10,738 9/30/1998 10,737 10,281 10,871 10/31/1998 10,693 10,239 10,871 11/30/1998 10,711 10,256 10,909 12/31/1998 10,752 10,295 10,937 1/31/1999 10,876 10,413 11,067 2/28/1999 10,826 10,366 11,019 3/31/1999 10,813 10,353 11,034 4/30/1999 10,845 10,384 11,061 5/31/1999 10,775 10,317 10,997 6/30/1999 10,599 10,148 10,839 7/31/1999 10,636 10,184 10,878 8/31/1999 10,485 10,039 10,791 9/30/1999 10,454 10,009 10,796 10/31/1999 10,307 9,869 10,679 11/30/1999 10,398 9,956 10,792 12/31/1999 10,307 9,869 10,712 1/31/2000 10,223 9,788 10,665 2/29/2000 10,350 9,910 10,789 3/31/2000 10,543 10,095 11,025 4/30/2000 10,496 10,050 10,960 5/31/2000 10,455 10,011 10,903 6/30/2000 10,665 10,212 11,192 7/31/2000 10,800 10,341 11,347 8/31/2000 10,935 10,471 11,522 9/30/2000 10,892 10,429 11,462 10/31/2000 10,980 10,513 11,587 11/30/2000 11,026 10,557 11,675 12/31/2000 11,261 10,782 11,964 1/31/2001 11,300 10,820 12,082 2/28/2001 11,340 10,858 12,120 3/31/2001 11,336 10,855 12,229 4/30/2001 11,220 10,743 12,097 5/31/2001 11,329 10,847 12,227 6/30/2001 11,409 10,924 12,309 7/31/2001 11,582 11,090 12,491 8/31/2001 11,800 11,299 12,697 9/30/2001 11,734 11,235 12,654 10/31/2001 11,843 11,340 12,805 11/30/2001 11,756 11,256 12,697 12/31/2001 11,623 11,129 12,577 1/31/2002 11,688 11,191 12,795 2/28/2002 11,820 11,317 12,949 3/31/2002 11,602 11,109 12,695 4/30/2002 11,815 11,313 12,943 5/31/2002 11,907 11,401 13,022 6/30/2002 12,045 11,533 13,160 7/31/2002 12,198 11,680 13,329 8/31/2002 12,347 11,822 13,489 9/30/2002 12,625 12,088 13,785 10/31/2002 12,395 11,868 13,556 11/30/2002 12,317 11,793 13,500 12/31/2002 12,563 12,029 13,785 1/31/2003 12,537 12,004 13,750 2/28/2003 12,733 12,192 13,942 3/31/2003 12,745 12,203 13,950 4/30/2003 12,826 12,281 14,043 5/31/2003 13,155 12,596 14,371 6/30/2003 13,096 12,539 14,310 7/31/2003 12,527 11,995 13,810 8/31/2003 12,609 12,073 13,913 9/30/2003 12,950 12,400 14,322 10/31/2003 12,930 12,380 14,249 11/30/2003 13,073 12,518 14,398 12/31/2003 13,195 12,634 14,517 1/31/2004 13,285 12,720 14,600 2/29/2004 13,480 12,907 14,820 3/31/2004 13,449 12,877 14,768 4/30/2004 13,087 12,531 14,419 5/31/2004 13,029 12,476 14,366 6/30/2004 13,045 12,491 14,419 7/31/2004 13,232 12,669 14,608 8/31/2004 13,491 12,918 14,901 9/30/2004 13,581 13,004 14,980 10/31/2004 13,704 13,121 15,109 11/30/2004 13,564 12,987 14,985 12/31/2004 13,744 13,160 15,168 1/31/2005 13,909 13,318 15,309 2/28/2005 13,852 13,263 15,258 3/31/2005 13,759 13,175 15,162 4/30/2005 14,008 13,413 15,401 5/31/2005 14,125 13,524 15,510 6/30/2005 14,184 13,581 15,606 7/31/2005 14,092 13,493 15,536 8/31/2005 14,244 13,639 15,693 9/30/2005 14,110 13,510 15,587 10/31/2005 14,000 13,405 15,492 11/30/2005 14,077 13,479 15,567 12/31/2005 14,205 13,601 15,701 1/31/2006 14,222 13,618 15,743 2/28/2006 14,339 13,729 15,849 3/31/2006 14,230 13,625 15,739 4/30/2006 14,243 13,637 15,734 5/31/2006 14,298 13,690 15,804 6/30/2006 14,232 13,627 15,744 7/31/2006 14,393 13,781 15,932 8/31/2006 14,616 13,995 16,168 9/30/2006 14,708 14,083 16,281 10/31/2006 14,808 14,179 16,383 11/30/2006 14,936 14,301 16,519 12/31/2006 14,860 14,228 16,461 1/31/2007 14,800 14,171 16,419 2/28/2007 15,001 14,364 16,635 3/31/2007 14,941 14,306 16,594 4/30/2007 14,980 14,344 16,643 5/31/2007 14,892 14,259 16,570 6/30/2007 14,786 14,158 16,484 7/31/2007 14,879 14,247 16,611 8/31/2007 14,745 14,119 16,540 9/30/2007 14,959 14,323 16,785 Average Annual Returns -- September 30, 2007/4/
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 3/23/84) Net Asset Value/1/ 1.71% 3.46% 4.12% With Maximum Sales Charge/2/ -2.61 2.56 3.67 CLASS B (Inception 9/13/93) Net Asset Value/1/ 0.94 2.73 3.41 With CDSC/3/ -3.95 2.38 3.41 ---------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Municipal Bond Index 3.10% 4.02% 5.32% Morningstar Muni Massachusetts Fund Avg. 2.09 3.17 4.37
Yields as of September 30, 2007
CLASS A CLASS B SEC 30-Day Yield/5/ 3.75% 3.18% Taxable Equivalent Yield/6/ 6.12 5.20
See page 13 for a description of the indexes. All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. For performance current to the most recent month-end, visit www.funds.natixis.com. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 9/30/07 9/30/06 ------------------------------------------ Aaa 38.7 36.8 ------------------------------------------ Aa 18.0 20.5 ------------------------------------------ A 16.1 20.3 ------------------------------------------ Baa 12.2 9.5 ------------------------------------------ Ba 4.7 4.3 ------------------------------------------ Not Rated* 8.4 6.0 ------------------------------------------ Short-term and other 1.9 2.6 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 9/30/07 9/30/06 -------------------------------------------------- 1 year or less 1.0 1.9 -------------------------------------------------- 1-5 years 31.1 30.7 -------------------------------------------------- 5-10 years 40.6 49.3 -------------------------------------------------- 10+ years 27.3 18.1 -------------------------------------------------- Average Effective Maturity 8.9 years 6.9 years --------------------------------------------------
Portfolio characteristics will vary. EXPENSE RATIOS AS STATED IN THE MOST RECENT PROSPECTUS
Share Class Gross Expense Ratio/7/ Net Expense Ratio/8/ ------------------------------------------------------- A 1.14% 0.95% ------------------------------------------------------- B 1.89 1.70 -------------------------------------------------------
NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 4.25%. /3/Performance for Class B shares assumes a maximum of 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. /4/Fund performance has been increased by expense reductions and reimbursements, if any, without which performance would have been lower. /5/SEC Yield is based on the fund's net investment income over a 30-day period and is calculated in accordance with SEC guidelines. /6/Taxable equivalent yield is based on the maximum combined federal and MA income tax bracket of 38.45%. A portion of income may be subject to federal, state and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax. /7/Before reductions and reimbursements. /8/After reductions and reimbursements. Expense reductions are contractual and are set to expire on 1/31/08. 8 LOOMIS SAYLES MUNICIPAL INCOME FUND PORTFOLIO PROFILE Objective: Seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital -------------------------------------------------------------------------------- Strategy: Invests primarily in municipal securities that pay interest exempt from federal income tax other than the alternative minimum tax -------------------------------------------------------------------------------- Fund Inception: May 9, 1977 -------------------------------------------------------------------------------- Managers: Robert Payne Martha A. Strom Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFTX Class B NETBX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. Some income may be subject to federal and state taxes. Realized capital gains are fully taxable. Some investors may be subject to the Alternative Minimum Tax (AMT). Lower-rated bonds entail higher risks. Management Discussion -------------------------------------------------------------------------------- All U.S. bonds weathered a difficult period during the 12 months ended September 30, 2007, as concerns grew about weakness in the housing market and the default rate in home mortgages. Consumer spending slowed and negative sentiment spilled over into other market areas this summer as the crisis deepened. At the same time, municipal bonds were also impacted by a record pace of new issues, which created an imbalance in supply and demand. Municipal bonds with shorter maturities performed in line with U.S. Treasury securities, for the most part, but longer-term municipal bonds did better for much of the fiscal period. However, the markets turned around in September when the Federal Reserve Board cut the federal funds rate (a sensitive indicator of general interest rate trends) by 0.50%. Bonds with the shortest maturities were the first group to respond. For the fiscal year ended September 30, 2007, the total return on Loomis Sayles Municipal Income Fund was 1.19%, based on the net asset value of Class A shares and $0.28 in dividends as well as $0.03 in capital gains reinvested during the period. The fund lagged its benchmark, the Lehman Municipal Bond Index, which returned 3.10% for the period, and the 1.86% average return on Morningstar's Muni National Long category. The 30-day SEC yield on Class A shares of the fund at the end of September 2007 was 3.75%, equivalent to a taxable yield of 5.78% based on the maximum federal income tax rate of 35.00%. AS CONCERNS MOUNTED, INVESTORS SOUGHT SAFETY IN HIGH-QUALITY, SHORT-MATURITY ISSUES Demand for higher-quality, shorter-maturity bonds mounted during the fiscal year, as market turbulence caused investors to emphasize relative safety over income. Because of their high credit quality, insured and tax-backed municipal bonds performed well, but the fund was underweight in these issues relative to the benchmark, which limited the fund's participation. The fund held a relatively large position in municipal bonds in the resource recovery industry. These high-yielding issues slipped from favor when investors retreated to the relative safety of higher-quality bonds. We reduced the fund's exposure to industrial development and pollution control bonds in an effort to minimize our exposure to corporate-backed municipal bonds and limit the impact of flight-to-quality trades. No geographic area where the fund had significant exposure contributed negatively to performance. The most positive were New York State bonds, which fared well as retail investors in that state remained relatively active. Because investor demand was high, the fund's best-performing securities during the year were some high-quality bonds issued for an energy facility in Washington State, which offered a relatively high coupon and shorter maturity. On the other hand, lower-quality municipal bonds with longer maturity structures performed poorly, including some bonds issued for a retirement community in Colorado. Both of these positions remain in the portfolio because we believe they will do well over time. VOLATILE BOND PRICES DID NOT IMPACT FUND STRATEGY Throughout this volatile 12-month period, the fund continued to maintain its emphasis on revenue bonds - tax-exempt bonds issued by municipalities to benefit businesses - because we believe investors will regain their confidence in these issues, ultimately causing their prices to increase. Near term, we expect bonds to continue to trade in a relatively narrow range, with spreads - the difference in yield between higher- and lower-quality bonds - tightening. Above-average supply should continue to weigh on municipal bond prices as we head into 2008. Longer-term, we believe high-yield municipals will recover from their recent price decline if investors become more comfortable with risk and the subprime woes fade into history. 9 LOOMIS SAYLES MUNICIPAL INCOME FUND Investment Results through September 30, 2007 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/6/ September 30, 1997 through September 30, 2007 [CHART] Net Asset Maximum Sales Lehman Municipal Value/1/ Charge/2/ Bond Index/3/ ----------- ------------ ------------ 9/30/1997 $10,000 $ 9,550 $10,000 10/31/1997 10,070 9,617 10,064 11/30/1997 10,101 9,647 10,124 12/31/1997 10,241 9,780 10,271 1/31/1998 10,368 9,901 10,377 2/28/1998 10,439 9,969 10,380 3/31/1998 10,455 9,984 10,390 4/30/1998 10,406 9,937 10,343 5/31/1998 10,518 10,045 10,506 6/30/1998 10,562 10,087 10,548 7/31/1998 10,580 10,104 10,574 8/31/1998 10,721 10,238 10,738 9/30/1998 10,808 10,321 10,871 10/31/1998 10,771 10,286 10,871 11/30/1998 10,816 10,329 10,909 12/31/1998 10,829 10,342 10,937 1/31/1999 10,935 10,443 11,067 2/28/1999 10,912 10,421 11,019 3/31/1999 10,917 10,425 11,034 4/30/1999 10,949 10,457 11,061 5/31/1999 10,911 10,420 10,997 6/30/1999 10,787 10,301 10,839 7/31/1999 10,819 10,332 10,878 8/31/1999 10,709 10,227 10,791 9/30/1999 10,713 10,231 10,796 10/31/1999 10,558 10,083 10,679 11/30/1999 10,657 10,177 10,792 12/31/1999 10,571 10,095 10,712 1/31/2000 10,515 10,041 10,665 2/29/2000 10,631 10,153 10,789 3/31/2000 10,795 10,309 11,025 4/30/2000 10,736 10,253 10,960 5/31/2000 10,706 10,224 10,903 6/30/2000 10,902 10,411 11,192 7/31/2000 11,023 10,527 11,347 8/31/2000 11,175 10,672 11,522 9/30/2000 11,144 10,643 11,462 10/31/2000 11,236 10,730 11,587 11/30/2000 11,312 10,803 11,675 12/31/2000 11,499 10,981 11,964 1/31/2001 11,579 11,058 12,082 2/28/2001 11,598 11,076 12,120 3/31/2001 11,693 11,167 12,229 4/30/2001 11,568 11,047 12,097 5/31/2001 11,678 11,152 12,227 6/30/2001 11,771 11,242 12,309 7/31/2001 11,977 11,438 12,491 8/31/2001 12,168 11,620 12,697 9/30/2001 11,958 11,420 12,654 10/31/2001 12,120 11,574 12,805 11/30/2001 11,989 11,449 12,697 12/31/2001 11,843 11,310 12,577 1/31/2002 12,037 11,495 12,795 2/28/2002 12,199 11,650 12,949 3/31/2002 11,999 11,459 12,695 4/30/2002 12,196 11,647 12,943 5/31/2002 12,258 11,707 13,022 6/30/2002 12,372 11,816 13,160 7/31/2002 12,451 11,891 13,329 8/31/2002 12,549 11,984 13,489 9/30/2002 12,749 12,176 13,785 10/31/2002 12,426 11,866 13,556 11/30/2002 12,406 11,847 13,500 12/31/2002 12,708 12,136 13,785 1/31/2003 12,550 11,985 13,750 2/28/2003 12,734 12,161 13,942 3/31/2003 12,728 12,155 13,950 4/30/2003 12,841 12,263 14,043 5/31/2003 13,161 12,568 14,371 6/30/2003 13,133 12,542 14,310 7/31/2003 12,563 11,998 13,810 8/31/2003 12,695 12,124 13,913 9/30/2003 13,075 12,486 14,322 10/31/2003 13,013 12,427 14,249 11/30/2003 13,181 12,588 14,398 12/31/2003 13,297 12,699 14,517 1/31/2004 13,378 12,776 14,600 2/29/2004 13,585 12,974 14,820 3/31/2004 13,576 12,965 14,768 4/30/2004 13,242 12,646 14,419 5/31/2004 13,213 12,618 14,366 6/30/2004 13,221 12,626 14,419 7/31/2004 13,391 12,789 14,608 8/31/2004 13,634 13,020 14,901 9/30/2004 13,713 13,096 14,980 10/31/2004 13,828 13,206 15,109 11/30/2004 13,705 13,088 14,985 12/31/2004 13,876 13,252 15,168 1/31/2005 14,027 13,396 15,309 2/28/2005 13,959 13,331 15,258 3/31/2005 13,869 13,245 15,162 4/30/2005 14,119 13,484 15,401 5/31/2005 14,223 13,583 15,510 6/30/2005 14,306 13,662 15,606 7/31/2005 14,217 13,577 15,536 8/31/2005 14,394 13,746 15,693 9/30/2005 14,247 13,606 15,587 10/31/2005 14,137 13,501 15,492 11/30/2005 14,219 13,579 15,567 12/31/2005 14,340 13,695 15,701 1/31/2006 14,364 13,718 15,743 2/28/2006 14,488 13,836 15,849 3/31/2006 14,378 13,731 15,739 4/30/2006 14,385 13,738 15,734 5/31/2006 14,431 13,782 15,804 6/30/2006 14,379 13,732 15,744 7/31/2006 14,543 13,888 15,932 8/31/2006 14,806 14,140 16,168 9/30/2006 14,932 14,260 16,281 10/31/2006 15,038 14,361 16,383 11/30/2006 15,184 14,501 16,519 12/31/2006 15,099 14,419 16,461 1/31/2007 15,023 14,347 16,419 2/28/2007 15,252 14,565 16,635 3/31/2007 15,175 14,493 16,594 4/30/2007 15,201 14,517 16,643 5/31/2007 15,105 14,426 16,570 6/30/2007 14,989 14,315 16,484 7/31/2007 15,057 14,379 16,611 8/31/2007 14,838 14,171 16,540 9/30/2007 15,111 14,431 16,785 Average Annual Total Returns -- September 20, 2007/6/
1 YEAR 5 YEARS 10 YEARS CLASS A (Inception 5/9/77) Net Asset Value/1/ 1.19% 3.46% 4.21% With Maximum Sales Charge/2/ -3.42 2.50 3.74 Class B (Inception 9/13/93) Net Asset Value/1/ 0.44 2.72 3.39 With CDSC/3/ -4.42 2.36 3.39 ---------------------------------------------------------------- COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS Lehman Municipal Bond Index 3.10% 4.02% 5.32% Morningstar Muni National Long Fund Avg. 1.86 3.41 4.41
Yields as of September 30, 2007
CLASS A CLASS B SEC 30-Day Yield/4/ 3.75% 3.17% Taxable Equivalent Yield/5/ 5.78 4.89
See page 13 for a description of the indexes. All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Performance history includes performance from a predecessor fund. For performance current to the most recent month-end, visit www.funds.natixis.com. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 9/30/07 9/30/06 ------------------------------------------ Aaa 31.2 28.2 ------------------------------------------ Aa 18.3 13.8 ------------------------------------------ A 22.5 27.1 ------------------------------------------ Baa 12.9 14.1 ------------------------------------------ Ba 3.7 3.3 ------------------------------------------ Not Rated* 10.2 12.0 ------------------------------------------ Short-term and other 1.2 1.5 ------------------------------------------
Credit quality is based on ratings from Moody's Investors Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 9/30/07 9/30/06 -------------------------------------------------- 1 year or less 0.2 4.4 -------------------------------------------------- 1-5 years 12.1 3.7 -------------------------------------------------- 5-10 years 58.4 76.0 -------------------------------------------------- 10+ years 29.3 15.9 -------------------------------------------------- Average Effective Maturity 10.1 years 8.4 years --------------------------------------------------
Portfolio characteristics will vary. EXPENSE RATIOS AS STATED IN THE MOST RECENT PROSPECTUS
Share Class Gross Expense Ratio/7/ Net Expense Ratio/8/ ------------------------------------------------------- A 0.99% 0.95% ------------------------------------------------------- B 1.75 1.70 -------------------------------------------------------
NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 4.50%. /3/Performance for Class B shares assumes a maximum of 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. /4/SEC Yield is based on the fund's net investment income over a 30-day period and is calculated in accordance with SEC guidelines. /5/Taxable equivalent yield is based on the maximum federal income tax bracket of 35%. A portion of income may be subject to federal, state and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax. /6/Fund performance has been increased by expense reductions and reimbursements, if any, without which performance would have been lower. /7/Before reductions and reimbursements. /8/After reductions and reimbursements. Expense reductions are contractual and are set to expire on 1/31/08. 10 LOOMIS SAYLES STRATEGIC INCOME FUND PORTFOLIO PROFILE Objective: Seeks high current income, with a secondary objective of capital growth -------------------------------------------------------------------------------- Strategy: Invests primarily in income-producing securities in the U.S. and around the world -------------------------------------------------------------------------------- Fund Inception: May 1, 1995 -------------------------------------------------------------------------------- Managers: Daniel J. Fuss, CFA, CIC Kathleen C. Gaffney, CFA -------------------------------------------------------------------------------- Associate Managers: Matthew J. Eagan, CFA Elaine M. Stokes Loomis, Sayles & Company, L.P. -------------------------------------------------------------------------------- Symbols: Class A NEFZX Class B NEZBX Class C NECZX Class Y NEZYX
-------------------------------------------------------------------------------- What You Should Know: Fixed-income securities are subject to credit risk and interest rate risk; their value generally rises when prevailing interest rates fall and falls when rates rise. Foreign and emerging market securities have special risks, such as currency fluctuations, differing political and economic conditions, and different accounting standards. The fund may also invest in lower-rated bonds that may offer higher yields in return for more risk. Management Discussion -------------------------------------------------------------------------------- Following a long run of strong growth, this summer the U.S. economy began to falter under the weight of the subprime mortgage debacle and fears that lax mortgage lending practices might spread to other credit arenas. After holding interest rates steady for several quarters, the Federal Reserve Board cut the federal funds rate by 0.50% in September in a bid to keep the economy on course. Overseas, global markets continued to thrive, aided in part by currency gains against the U.S. dollar. For the fiscal year ended September 30, 2007, Class A shares of Loomis Sayles Strategic Income Fund provided a total return of 9.90% at net asset value, including $0.82 in reinvested dividends. These results were significantly ahead of the fund's benchmark, the Lehman Aggregate Bond Index, which returned 5.14% for the period. Bear in mind that the fund has greater investment flexibility than the benchmark. The fund also outperformed the 6.33% average return on Morningstar's Multisector Bond category. The 30-day SEC yield on the fund's Class A shares was 5.27% on September 30, 2007. FUND BENEFITED FROM POSITIONING STRATEGIES AND SELECTION Portfolio allocation and security selection drove the fund's performance. The fund's Latin American holdings were strongest at the beginning of the period, while Asian currencies lagged until the third quarter of 2007. In the United States, lower-rated issues outperformed higher-rated bonds early in the period, but as conditions deteriorated in the credit markets, investors retreated to higher-quality holdings, preferring safety to income. This switch in sentiment boosted returns for the fund's AAA-rated bonds, including U.S. Treasury issues. Overall portfolio quality as of the end of September 2007 was up slightly from a year ago. QUALITY STRATEGIES AND NON-DOLLAR HOLDINGS AIDED RETURNS Timely shifts upward in quality sectors contributed to the fund's strong performance. Our shift in emphasis from lower- to higher-quality segments allowed us to avoid some of the price declines in high-yield markets. However, extreme market weakness in the latter part of the period reduced the favorable impact of this strategy. With the global economy steaming ahead, non-dollar holdings added broadly to the fund's results. Bonds denominated in Brazil's real were the strongest contributors, thanks to that country's continued economic growth and speculative buying of its currency. Bonds tied to other Latin American currencies and the Canadian dollar also benefited the fund, along with some non-dollar equities and preferred stocks. Asian bonds, which had lagged for several months, regained some ground in the closing quarter. CREDIT WOES UNDERCUT HOUSING-RELATED ISSUES Housing-related issues were the greatest detractors from the fund's performance, as mortgage defaults increased over the summer. Tighter credit standards made borrowing more difficult, cutting into sales of new and existing homes. The weak real estate market also took a toll on the portfolio's holdings in real estate investment trusts (REITs). FUND POSITIONED FOR MUTED U.S. GROWTH AND OVERSEAS STRENGTH We believe the effects of the credit crunch on U.S. markets will be sharpest in 2007's fourth quarter, temporarily decelerating the long-running economic expansion. We expect real growth (adjusted for inflation) to fall below 2% in the United States. However, we believe it will pick up again in 2008, albeit at a slower pace than in recent years. Higher monthly payments on adjustable-rate mortgages may put a damper on consumer spending, a major economic component. Moderating growth may also bring declining bond yields and higher prices. If credit and economic conditions improve, we believe investment-grade corporate issues will benefit. Investors may also be drawn back to hard-hit mortgage-backed issues, where we believe attractive valuations are emerging. If current supply/demand imbalances fade, we believe the outlook for high-yield bonds should brighten. Consequently, we positioned the fund to benefit from ongoing strength in the global economy that we see ahead, with nearly one-third of the fund's assets committed to non-U.S. holdings. 11 LOOMIS SAYLES STRATEGIC INCOME FUND Investment Results through September 30, 2007 -------------------------------------------------------------------------------- PERFORMANCE IN PERSPECTIVE The charts comparing the fund's performance to an index provide you with a general sense of how it performed. The fund's total return for the period shown below appears with and without sales charges and includes fund expenses and fees. An index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged and does not have expenses that affect the results. It is not possible to invest directly in an index. Investors would incur transaction costs and other expenses if they purchased the securities necessary to match the index. Growth of a $10,000 Investment in Class A Shares/4/ September 30, 1997 through September 30, 2007 [CHART] Lehman U.S. Net Asset Maximum Sales Lehman Aggregate Universal Bond Value/1/ Charge/2/ Bond Index Index --------- ------------- ---------------- --------------- 9/30/1997 $10,000 $ 9,550 $10,000 $10,000 10/31/1997 9,790 9,349 10,145 10,127 11/30/1997 9,843 9,400 10,192 10,184 12/31/1997 9,793 9,352 10,294 10,292 1/31/1998 9,952 9,504 10,427 10,414 2/28/1998 10,134 9,678 10,419 10,411 3/31/1998 10,351 9,885 10,455 10,449 4/30/1998 10,354 9,888 10,509 10,515 5/31/1998 10,186 9,727 10,609 10,640 6/30/1998 10,024 9,573 10,699 10,718 7/31/1998 9,898 9,453 10,722 10,708 8/31/1998 8,683 8,292 10,896 10,758 9/30/1998 8,964 8,561 11,151 11,107 10/31/1998 9,061 8,653 11,092 10,936 11/30/1998 9,669 9,234 11,155 11,142 12/31/1998 9,625 9,191 11,189 11,174 1/31/1999 9,791 9,350 11,269 11,285 2/28/1999 9,651 9,217 11,072 11,017 3/31/1999 10,161 9,703 11,133 11,095 4/30/1999 10,812 10,325 11,168 11,127 5/31/1999 10,477 10,005 11,071 10,978 6/30/1999 10,507 10,034 11,035 10,921 7/31/1999 10,300 9,837 10,988 10,861 8/31/1999 10,171 9,714 10,983 10,834 9/30/1999 10,236 9,776 11,110 10,952 10/31/1999 10,322 9,858 11,151 11,002 11/30/1999 10,509 10,036 11,150 11,014 12/31/1999 10,795 10,309 11,097 10,956 1/31/2000 10,695 10,213 11,060 10,917 2/29/2000 11,116 10,616 11,194 11,018 3/31/2000 11,228 10,723 11,342 11,112 4/30/2000 10,907 10,416 11,309 11,015 5/31/2000 10,555 10,080 11,304 10,974 6/30/2000 10,957 10,464 11,539 11,249 7/31/2000 11,053 10,556 11,644 11,385 8/31/2000 11,297 10,788 11,813 11,534 9/30/2000 10,998 10,504 11,887 11,594 10/31/2000 10,551 10,076 11,966 11,606 11/30/2000 10,496 10,024 12,161 11,756 12/31/2000 10,869 10,379 12,387 11,984 1/31/2001 11,214 10,710 12,589 12,312 2/28/2001 11,197 10,693 12,699 12,420 3/31/2001 10,774 10,289 12,763 12,496 4/30/2001 10,598 10,122 12,710 12,451 5/31/2001 10,835 10,347 12,786 12,566 6/30/2001 10,806 10,319 12,835 12,629 7/31/2001 10,813 10,327 13,122 12,959 8/31/2001 11,052 10,555 13,272 13,133 9/30/2001 10,504 10,031 13,427 13,113 10/31/2001 10,752 10,268 13,708 13,439 11/30/2001 10,904 10,414 13,519 13,322 12/31/2001 10,854 10,366 13,433 13,231 1/31/2002 10,978 10,484 13,541 13,343 2/28/2002 11,110 10,610 13,673 13,443 3/31/2002 11,238 10,732 13,445 13,195 4/30/2002 11,509 10,992 13,706 13,379 5/31/2002 11,753 11,225 13,822 13,556 6/30/2002 11,567 11,046 13,942 13,578 7/31/2002 11,292 10,784 14,110 13,571 8/31/2002 11,609 11,086 14,348 13,923 9/30/2002 11,452 10,937 14,581 14,187 10/31/2002 11,680 11,154 14,514 14,023 11/30/2002 12,117 11,571 14,511 14,204 12/31/2002 12,536 11,972 14,810 14,623 1/31/2003 12,888 12,308 14,823 14,671 2/28/2003 13,236 12,641 15,028 14,964 3/31/2003 13,365 12,763 15,016 14,975 4/30/2003 14,132 13,496 15,140 15,252 5/31/2003 14,838 14,171 15,423 15,733 6/30/2003 15,025 14,349 15,392 15,694 7/31/2003 14,617 13,959 14,875 15,025 8/31/2003 14,785 14,119 14,973 15,143 9/30/2003 15,508 14,810 15,370 15,672 10/31/2003 15,858 15,144 15,226 15,505 11/30/2003 16,299 15,565 15,263 15,576 12/31/2003 16,904 16,143 15,418 15,750 1/31/2004 17,204 16,430 15,542 15,909 2/29/2004 17,192 16,419 15,710 16,109 3/31/2004 17,418 16,634 15,828 16,264 4/30/2004 16,695 15,944 15,416 15,752 5/31/2004 16,416 15,677 15,355 15,641 6/30/2004 16,728 15,975 15,441 15,707 7/31/2004 16,890 16,130 15,594 15,901 8/31/2004 17,410 16,627 15,892 16,276 9/30/2004 17,867 17,063 15,935 16,368 10/31/2004 18,290 17,467 16,069 16,526 11/30/2004 18,729 17,886 15,940 16,361 12/31/2004 19,090 18,231 16,087 16,574 1/31/2005 18,951 18,098 16,188 16,706 2/28/2005 19,199 18,335 16,093 16,607 3/31/2005 18,884 18,035 16,010 16,400 4/30/2005 18,735 17,892 16,227 16,620 5/31/2005 18,923 18,071 16,402 16,853 6/30/2005 19,278 18,411 16,492 16,987 7/31/2005 19,446 18,571 16,341 16,816 8/31/2005 19,672 18,786 16,551 17,072 9/30/2005 19,689 18,803 16,380 16,816 10/31/2005 19,494 18,617 16,251 16,633 11/30/2005 19,592 18,710 16,323 16,734 12/31/2005 19,804 18,912 16,478 16,899 1/31/2006 20,307 19,393 16,479 16,865 2/28/2006 20,528 19,604 16,533 16,939 3/31/2006 20,413 19,494 16,371 16,701 4/30/2006 20,721 19,789 16,342 16,640 5/31/2006 20,504 19,581 16,324 16,611 6/30/2006 20,446 19,526 16,359 16,636 7/31/2006 20,749 19,815 16,580 16,881 8/31/2006 21,251 20,295 16,834 17,194 9/30/2006 21,468 20,502 16,982 17,386 10/31/2006 21,863 20,879 17,094 17,524 11/30/2006 22,149 21,152 17,292 17,772 12/31/2006 22,151 21,154 17,192 17,619 1/31/2007 22,193 21,195 17,185 17,615 2/28/2007 22,573 21,557 17,450 17,970 3/31/2007 22,510 21,497 17,450 17,884 4/30/2007 22,976 21,942 17,544 18,013 5/31/2007 23,169 22,126 17,411 17,837 6/30/2007 22,939 21,907 17,360 17,753 7/31/2007 22,685 21,664 17,505 17,814 8/31/2007 22,882 21,852 17,719 17,978 9/30/2007 23,591 22,530 17,854 18,122 Average Annual Returns -- September 30, 2007/4/
SINCE 1 YEAR 5 YEARS 10 YEARS INCEPTION CLASS A (Inception 5/1/95) Net Asset Value/1/ 9.90% 15.55% 8.96% -- With Maximum Sales Charge/2/ 4.94 14.49 8.45 -- CLASS B (Inception 5/1/95) Net Asset Value/1/ 9.08 14.68 8.15 -- With CDSC/3/ 4.08 14.45 8.15 -- CLASS C (Inception 5/1/95) Net Asset Value/1/ 9.08 14.69 8.15 -- With CDSC/3/ 8.08 14.69 8.15 -- CLASS Y (Inception 12/1/99) Net Asset Value/1/ 10.22 15.87 -- 11.20% --------------------------------------------------------------------------- SINCE CLASS Y COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION/5/ Lehman Aggregate Bond Index 5.14% 4.13% 5.97% 6.19% Lehman U.S. Universal Bond Index 5.30 4.85 6.07 6.45 Morningstar Multisector Bond Fund Avg. 6.33 9.05 5.48 6.73
See page 13 for a description of the indexes. All returns represent past performance and do not guarantee future results. Periods of less than one year are not annualized. Share price and return will vary and you may have a gain or loss when you sell your shares. All results include reinvestment of dividends and capital gains. Current returns may be higher or lower than those shown. Performance history includes periods from a predecessor fund. For performance current to the most recent month-end, visit www.funds.natixis.com. Class Y shares are available to certain investors, as described in the prospectus. The table and graph do not reflect taxes shareholders might owe on any fund distributions or when they redeem their shares. PORTFOLIO FACTS
% of Net Assets as of CREDIT QUALITY 9/30/07 9/30/06 ------------------------------------------ Aaa 32.6 32.1 ------------------------------------------ Aa 2.7 6.1 ------------------------------------------ A 6.5 3.5 ------------------------------------------ Baa 22.7 15.3 ------------------------------------------ Ba 9.9 9.5 ------------------------------------------ B 9.5 13.6 ------------------------------------------ Caa 5.6 3.5 ------------------------------------------ Not Rated* 7.4 5.6 ------------------------------------------ Short-term and other 3.1 10.8 ------------------------------------------
Credit quality is based on ratings from Moody's Investor Service. * Securities that are not rated by Moody's may be rated by another rating agency or by Loomis Sayles.
% of Net Assets as of EFFECTIVE MATURITY 9/30/07 9/30/06 -------------------------------------------------- 1 year or less 10.9 14.5 -------------------------------------------------- 1-5 years 17.6 25.7 -------------------------------------------------- 5-10 years 19.4 18.0 -------------------------------------------------- 10+ years 52.1 41.8 -------------------------------------------------- Average Effective Maturity 15.6 years 12.7 years --------------------------------------------------
Portfolio characteristics will vary. EXPENSE RATIOS AS STATED IN THE MOST RECENT PROSPECTUS
Share Class Gross Expense Ratio/6/ Net Expense Ratio/7/ ------------------------------------------------------- A 1.05% 1.05% ------------------------------------------------------- B 1.80 1.80 ------------------------------------------------------- C 1.80 1.80 ------------------------------------------------------- Y 0.78 0.78 -------------------------------------------------------
NOTES TO CHARTS /1/Does not include a sales charge. /2/Includes maximum sales charge of 4.50%. /3/Performance for Class B shares assumes a maximum of 5% contingent deferred sales charge ("CDSC") applied when you sell shares, which declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1, 0%. Class C share performance assumes a 1.00% CDSC applied when you sell shares within one year of purchase. /4/Fund performance has been increased by expense reductions and reimbursements, if any, without which performance would have been lower. /5/The since-inception comparative performance figures shown for Class Y are calculated from 12/1/99. /6/Before reductions and reimbursements. /7/After reductions and reimbursements. Expense reductions are contractual and are set to expire on 1/31/08. 12 ADDITIONAL INFORMATION The views expressed in this report reflect those of the portfolio managers as of the dates indicated. The managers' views are subject to change at any time without notice based on changes in market or other conditions. References to specific securities or industries should not be regarded as investment advice. Because the funds are actively managed, there is no assurance that they will continue to invest in the securities or industries mentioned. For more complete information on any Natixis Fund, contact your financial professional or call Natixis Funds and ask for a free prospectus, which contains more complete information including charges and other ongoing expenses. Investors should consider a fund's objective, risks and expenses carefully before investing. This and other fund information can be found in the prospectus. Please read the prospectus carefully before investing. INDEX/AVERAGE DESCRIPTIONS Lehman Aggregate Bond Index is an unmanaged index of investment-grade bonds with one- to ten-year maturities issued by the U.S. government, its agencies and U.S. corporations. Lehman High Yield Composite Index is a market-weighted, unmanaged index of fixed-rate, non-investment grade debt. Lehman Municipal Bond Index is an unmanaged index of bonds issued by municipalities and other government entities having maturities of more than one year. Lehman 1-5 Year Government Bond Index is an unmanaged, market-weighted index of bonds issued by the U.S. government and its agencies, with maturities between one and five years. Lehman U.S. Credit Index is an unmanaged index that includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, U.S. investment-grade corporate debt, and foreign debt that meets specific maturity, liquidity and quality requirements. Lehman U.S. Universal Bond Index is an unmanaged index representing a blend of the Lehman Aggregate Bond Index, the High Yield Index, and the Emerging Market Index, among other indexes. Morningstar Fund Averages are the average performance without sales charge of funds with similar investment objectives, as calculated by Morningstar, Inc. PROXY VOTING INFORMATION A description of the funds' proxy voting policies and procedures is available without charge, upon request, by calling Natixis Funds at 800-225-5478; on the funds' website at www.funds.natixis.com; and on the Securities and Exchange Commission's (SEC's) website at www.sec.gov. Information regarding how the funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007 is available from the funds' website and the SEC's website. QUARTERLY PORTFOLIO SCHEDULES The funds file a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 13 UNDERSTANDING FUND EXPENSES As a mutual fund shareholder, you incur different costs: transaction costs, including sales charges (loads) on purchases, redemption fees and certain exchange fees and ongoing costs, including management fees, distribution and/or service fees (12b-1 fees), and other fund expenses. In addition, each fund assesses a minimum balance fee of $20 on an annual basis for accounts that fall below the required minimum to establish an account. Certain exemptions may apply. These costs are described in more detail in the funds' prospectus. The examples below are intended to help you understand the ongoing costs of investing in the funds and help you compare these with the ongoing costs of investing in other mutual funds. The first line in the table of each Class of fund shares shows the actual account values and actual fund expenses you would have paid on a $1,000 investment in the fund from April 1, 2007 through September 30, 2007. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example $8,600 account value divided by $1,000 = 8.60) and multiply the result by the number in the Expenses Paid During Period column as shown below for your Class. The second line in the table of each Class of fund shares provides information about hypothetical account values and hypothetical expenses based on the fund's actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid on your investment for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown reflect ongoing costs only, and do not include any transaction costs such as sales charges, redemption fees, or exchange fees. Therefore, the second line in the table of each fund is useful in comparing ongoing costs only, and will not help you determine the relative costs of owning different funds. If transaction costs were included, total costs would be higher.
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES CORE PLUS BOND FUND 4/1/07 9/30/07 4/1/07 - 9/30/07 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,021.20 $5.17 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.95 $5.16 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,016.60 $9.00 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.14 $9.00 ------------------------------------------------------------------------------------------------------------------ CLASS C ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,017.60 $8.95 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.19 $8.95 ------------------------------------------------------------------------------------------------------------------ CLASS Y ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,022.60 $3.75 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,021.36 $3.75
*Expenses are equal to the Fund's annualized expense ratio (after advisory reduction/reimbursement): 1.02%, 1.78%, 1.77% and 0.74% for Class A, B, C and Y, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 (to reflect the half-year period). 14 UNDERSTANDING FUND EXPENSES
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES HIGH INCOME FUND 4/1/07 9/30/07 4/1/07 - 9/30/07 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,005.10 $5.78 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.30 $5.82 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,001.30 $9.53 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.54 $9.60 ------------------------------------------------------------------------------------------------------------------ CLASS C ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $999.40 $9.52 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,015.54 $9.60
*Expenses are equal to the Fund's annualized expense ratio (after advisory reduction/reimbursement): 1.15%, 1.90% and 1.90% for Class A, B and C, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 (to reflect the half-year period).
LOOMIS SAYLES LIMITED TERM GOVERNMENT AND BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* AGENCY FUND 4/1/07 9/30/07 4/1/07 - 9/30/07 ------------------------------------------------------------------------------------------------------------------- CLASS A ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,020.50 $4.91 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,020.21 $4.91 ------------------------------------------------------------------------------------------------------------------- CLASS B ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,016.60 $8.75 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,016.39 $8.74 ------------------------------------------------------------------------------------------------------------------- CLASS C ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,015.70 $8.69 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,016.44 $8.69 ------------------------------------------------------------------------------------------------------------------- CLASS Y ------------------------------------------------------------------------------------------------------------------- Actual $1,000.00 $1,020.90 $3.65 ------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000.00 $1,021.46 $3.65
*Expenses are equal to the Fund's annualized expense ratio (after advisory reduction/reimbursement): 0.97%, 1.73%, 1.72% and 0.72% for Class A, B, C and Y, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 (to reflect the half-year period). 15 UNDERSTANDING FUND EXPENSES
LOOMIS SAYLES MASSACHUSETTS TAX FREE BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* INCOME FUND 4/1/07 9/30/07 4/1/07 - 9/30/07 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,001.30 $4.77 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,020.31 $4.81 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $998.10 $8.52 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
*Expenses are equal to the Fund's annualized expense ratio (after advisory reduction/reimbursement): 0.95% and 1.70% for Class A and B, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 (to reflect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES MUNICIPAL INCOME FUND 04/01/07 09/30/07 4/1/07 - 9/30/07 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $995.70 $4.75 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,020.31 $4.81 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $992.00 $8.49 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.55 $8.59
*Expenses are equal to the Fund's annualized expense ratio (after advisory reduction/reimbursement): 0.95% and 1.70% for Class A and B, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 (to reflect the half-year period).
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING PERIOD* LOOMIS SAYLES STRATEGIC INCOME FUND 4/1/07 9/30/07 4/1/07 - 9/30/07 ------------------------------------------------------------------------------------------------------------------ CLASS A ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,048.00 $5.29 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,019.90 $5.22 ------------------------------------------------------------------------------------------------------------------ CLASS B ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,043.90 $9.22 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.04 $9.10 ------------------------------------------------------------------------------------------------------------------ CLASS C ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,043.20 $9.07 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,016.19 $8.95 ------------------------------------------------------------------------------------------------------------------ CLASS Y ------------------------------------------------------------------------------------------------------------------ Actual $1,000.00 $1,048.70 $3.90 ------------------------------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000.00 $1,021.26 $3.85
*Expenses are equal to the Fund's annualized expense ratio: 1.03%, 1.80%, 1.77% and 0.76% for Class A, B, C and Y, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 (to reflect the half-year period). 16 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS The Board of Trustees, including the Independent Trustees, considers matters bearing on each Fund's advisory agreement (collectively, the "Agreements") at most of its meetings throughout the year. Once a year, usually in the spring, the Contract Review and Governance Committee of the Board meets to review the Agreements to determine whether to recommend that the full Board approve the continuation of the Agreements, typically for an additional one-year period. After the Committee has made its recommendation, the full Board, including the Independent Trustees, determines whether to approve the continuation of the Agreements. In connection with these meetings, the Trustees receive materials that the Funds' investment adviser believes to be reasonably necessary for the Trustees to evaluate the Agreements. These materials generally include, among other items, (i) information on the investment performance of the Funds and the performance of peer groups of funds and the Funds' performance benchmarks, (ii) information on the Funds' advisory fees and other expenses, including information comparing the Funds' expenses to those of peer groups of funds and information about any applicable expense caps and fee "breakpoints," (iii) sales and redemption data in respect of the Funds, (iv) information about the profitability of the Agreements to the Funds' adviser (the "Adviser"), and (v) information obtained through the completion of a questionnaire by the Adviser (the Trustees are consulted as to the information requested through that questionnaire). The Board of Trustees, including the Independent Trustees, also consider other matters such as (i) the Adviser's financial results and financial condition, (ii) each Fund's investment objective and strategies and the size, education and experience of the Adviser's investment staff and its use of technology, external research and trading cost measurement tools, (iii) arrangements in respect of the distribution of the Funds' shares, (iv) the procedures employed to determine the value of the Funds' assets, (v) the allocation of the Funds' brokerage, if any, including allocations to brokers affiliated with the Adviser and the use of "soft" commission dollars to pay Fund expenses and to pay for research and other similar services, (vii) the resources devoted to, and the record of compliance with, the Funds' investment policies and restrictions, policies on personal securities transactions and other compliance policies, and (viii) the general economic outlook with particular emphasis on the mutual fund industry. Throughout the process, the Trustees are afforded the opportunity to ask questions of and request additional materials from the Adviser. In addition to the materials requested by the Trustees in connection with the annual consideration of the continuation of the Agreements, the Trustees receive materials in advance of each regular quarterly meeting of the Board of Trustees that provide detailed information about each Fund's investment performance and the fees charged to the Funds for advisory and other services. This information generally includes, among other things, an internal performance rating for each Fund based on agreed-upon criteria, graphs showing performance and fee differentials against each Fund's peer group, performance ratings provided by a third-party, total return information for various periods, and third-party performance rankings for various periods comparing a Fund against its peer group. The portfolio management team for each Fund makes periodic presentations to the Contract Review and Governance Committee and/or the full Board of Trustees, and Funds identified as presenting possible performance concerns may be subject to more frequent board presentations and reviews. In addition, each quarter the Trustees are provided with detailed statistical information about each Fund's portfolio. The Board of Trustees most recently approved the continuation of the Agreements at their meeting held in June, 2007. The Agreements were continued for a one-year period for all Funds except Loomis Sayles Strategic Income Fund, whose Agreement was continued for five months. In considering whether to approve the continuation of the Agreements, the Board of Trustees, including the Independent Trustees, did not identify any single factor as determinative. Matters considered by the Trustees, including the Independent Trustees, in connection with their approval of the Agreements included the following: The nature, extent and quality of the services provided to the Funds under the Agreements. The Trustees considered the nature, extent and quality of the services provided by the Adviser and its affiliates to the Funds and the resources dedicated to the Funds by the Adviser and its affiliates, including recent or planned investments by the Adviser in additional personnel or other resources. They also took note of the competitive market for talented personnel, in particular, for personnel who have contributed to the generation of strong investment performance. They considered the need for the Adviser to offer competitive compensation in order to attract and retain capable personnel. In the case of Loomis Sayles Strategic Income Fund, which had experienced substantial net cash inflows and asset growth in recent periods, the Trustees also considered the following factors: (1) the additional efforts required to manage the Fund's portfolio in periods of rapid growth (including the need to identify additional portfolio securities for investment as the Fund's assets grow), (2) the additional personnel and other resources needed in such efforts, (3) the possible effects of such cash inflows on the Fund's ability to achieve attractive investment returns and (4) the benefits to the Fund of such net cash inflows and asset growth (including lower expense ratios). 17 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS (continued) The Trustees considered not only the advisory services provided by the Adviser to the Funds, but also the monitoring and oversight services provided by Natixis Advisors with respect to the Funds for which Natixis Advisors provides advisory oversight services. They also considered the administrative services provided by Natixis Advisors and its affiliates to the Funds. For each Fund, the Trustees also considered the benefits to shareholders of investing in a mutual fund that is part of a family of funds offering a variety of investment disciplines and providing for a variety of fund and shareholder services. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the nature, extent and quality of services provided supported the renewal of the Agreements. Investment performance of the Funds and the Adviser. As noted above, the Trustees received information about the performance of the Funds over various time periods, including information which compared the performance of the Funds to the performance of peer groups of funds and the Funds' respective performance benchmarks. In addition, the Trustees also reviewed data prepared by an independent third party which analyzed the performance of the Funds using a variety of performance metrics, including metrics which also measured the performance of the Funds on a risk adjusted basis. With respect to each Fund, the Board concluded that the Fund's performance or other relevant factors supported the renewal of the Agreements relating to that Fund. The Trustees also considered the Adviser's performance and reputation generally, the Funds' performance as a fund family generally, and the historical responsiveness of the Adviser to Trustee concerns about performance and the willingness of the Adviser to take steps intended to improve performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the performance of the Funds and the Adviser supported the renewal of the Agreements. The costs of the services to be provided and profits to be realized by the Adviser and its affiliates from their respective relationships with the Funds. The Trustees considered the fees charged to the Funds for advisory services as well as the total expense levels of the Funds. This information included comparisons (provided both by management and also by an independent third party) of the Funds' advisory fees and total expense levels to those of their peer groups and information about the advisory fees charged by the Adviser to comparable accounts. In considering the fees charged to comparable accounts, the Trustees considered, among other things, management's representations about the differences between managing mutual funds as compared to other types of accounts, including the additional resources required to effectively manage mutual fund assets. In evaluating each Fund's advisory fees, the Trustees also took into account the demands, complexity and quality of the investment management of such Fund. The Trustees considered that over the past several years, for various Funds in the Natixis Fund Family, management had made recommendations regarding reductions in advisory fee rates, implementation of advisory fee breakpoints and the institution of advisory fee waivers and expense caps. They noted that currently all of the Natixis Funds in this report have expense caps in place, and they considered the amounts waived or reimbursed by the Adviser under these caps. The Trustees noted that several Funds had total expense ratios or advisory fee rates that were above the median of a peer group of Funds. The Trustees considered the circumstances that accounted for such relatively higher expenses. The Trustees also noted that management was proposing reductions to the expense caps for Loomis Sayles Core Plus Bond Fund and Loomis Sayles Limited Term Government and Agency Fund, effective July 1, 2007. The Trustees also considered the compensation directly or indirectly received by the Adviser and its affiliates from their relationships with the Funds. The Trustees reviewed information provided by management as to the profitability of the Adviser's and its affiliates relationships with the Funds, and information about the allocation of expenses used to calculate profitability. They also reviewed information provided by management about the effect of distribution costs and Fund growth on Adviser profitability, including information regarding resources spent on distribution activities and the increase in net sales for the family of funds. When reviewing profitability, the Trustees also considered information about court cases in which adviser profitability was an issue, the performance of the relevant Funds, the expense levels of the Funds, and whether the Adviser had implemented breakpoints and/or expense caps with respect to such Funds. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the advisory fees charged to each of the Funds were fair and reasonable, and that the costs of these services gen- 18 BOARD APPROVAL OF THE EXISTING ADVISORY AGREEMENTS (continued) erally and the related profitability of the Adviser and its affiliates in respect of their relationships with the Funds supported the renewal of the Agreements. Economies of Scale. The Trustees considered the existence of any economies of scale in the provision of services by the Adviser and whether those economies are shared with the Funds through breakpoints in their investment advisory fees or other means, such as expense waivers. The Trustees noted that four of the Natixis Funds in this report had breakpoints in their advisory fees and that of the remaining Funds, all were subject to expense caps. The Trustees also considered management's representation that for certain Funds the Funds' Adviser did not benefit from economies of scale in providing services to the Funds (because of the investment style of the Fund, the small size of the Fund or for other reasons) or were capacity constrained with respect to the relevant investment strategy. For Loomis Sayles Strategic Income Fund, the Trustees received a report and presentation from management on the effect of recent growth in net assets of the Fund and the benefits of economies of scale realized and expected to be realized by the Fund (including decreases in the Fund's expense ratio resulting from increases in assets). The Trustees determined to approve the continuation of the Agreement for the Fund for five months rather than a full year to allow further review of the growth of the Fund's net assets and the effects of such growth on the Fund and the Adviser. In considering these issues, the Trustees also took note of the costs of the services provided (both on an absolute and a relative basis) and the profitability to the Adviser and its affiliates of their relationships with the Funds, as discussed above. After reviewing these and related factors, the Trustees considered, within the context of their overall conclusions regarding each of the Agreements, that the extent to which economies of scale were shared with the Funds supported the renewal of the Agreements. The Trustees also considered other factors, which included but were not limited to the following: . whether each Fund has operated in accordance with its investment objective and the Fund's record of compliance with its investment restrictions, and the compliance programs of the Funds and the Adviser. They also considered the compliance-related resources the Adviser and its affiliates were providing to the Funds. . the nature, quality, cost and extent of administrative and shareholder services performed by the Adviser and its affiliates, both under the Agreements and under separate agreements covering administrative services. . so-called "fallout benefits" to the Adviser, such as the engagement of affiliates of the Adviser to provide distribution, administrative and brokerage services to the Funds, and the benefits of research made available to the Adviser by reason of brokerage commissions generated by the Funds' securities transactions. The Trustees considered the possible conflicts of interest associated with these fallout and other benefits, and the reporting, disclosure and other processes in place to disclose and monitor such possible conflicts of interest. Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Trustees, including the Independent Trustees, concluded that the existing Agreement for Loomis Sayles Strategic Income Fund should be continued through November 30, 2007* and the existing Agreements for each of the other Funds should be continued through June 30, 2008. * Subsequent to September 30, 2007, the Board of Trustees approved the continuation of the existing Agreement for the Loomis Sayles Strategic Income Fund through June 30, 2008. 19 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ---------------------------------------------------------------------------------------------- Bonds and Notes -- 97.3% of Net Assets Asset-Backed Securities -- 3.2% $ 994,446 AmeriCredit Automobile Receivables Trust, Series 2005-CF, Class A-3, 4.470%, 5/06/2010 $ 991,257 286,492 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A2, 3.872%, 3/25/2020 274,530 1,095,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3, 4.615%, 2/25/2035 1,013,526 2,190,000 Countrywide Asset-Backed Certificates, Series 2006-S4, Class A3, 5.804%, 7/25/2034(c) 2,160,865 904,544 Ford Credit Auto Owner Trust, Series 2004-A, Class A4, 3.540%, 11/15/2008 902,182 1,186,342 Residential Asset Securities Corp., Series 2003-KS10, Class AI4, 4.470%, 3/25/2032 1,160,899 57,091 WFS Financial Owner Trust, Series 2004-4, Class A3, 2.980%, 9/17/2009 57,007 515,000 WFS Financial Owner Trust, Series 2004-4, Class A4, 3.440%, 5/17/2012 508,372 --------------- 7,068,638 --------------- Automotive -- 1.1% 1,645,000 Ford Motor Co., 7.450%, 7/16/2031(b) 1,291,325 1,120,000 Ford Motor Credit Co. LLC, 8.000%, 12/15/2016 1,047,766 --------------- 2,339,091 --------------- Banking -- 0.5% 70,000,000 Rabobank Nederland, Series EMTN, 144A, 13.500%, 1/28/2008 (ISK) 1,128,633 --------------- Brokerage -- 0.4% 925,000 Goldman Sachs Group, Inc., 5.300%, 2/14/2012 919,375 --------------- Building Materials -- 1.0% 1,125,000 Owens Corning, Inc., 7.000%, 12/01/2036 1,094,901 1,120,000 USG Corp., 6.300%, 11/15/2016 1,016,460 --------------- 2,111,361 --------------- Diversified Financial Services -- 2.1% 4,560,000 General Electric Cap Corp., Series A (MTN), 5.625%, 9/15/2017 4,558,750 --------------- Diversified Manufacturing -- 0.7% 1,650,000 Crane Co., 6.550%, 11/15/2036 1,620,394 --------------- Electric -- 2.3% 1,455,000 Duke Energy Corp., Senior Note, 4.200%, 10/01/2008 1,440,241 1,325,000 Enersis SA, Chile, 7.375%, 1/15/2014(b) 1,406,311 1,325,000 Ipalco Enterprises, Inc., Senior Secured Note, 8.375%, 11/14/2008 1,351,500 790,000 Southern California Edison Co., 7.625%, 1/15/2010 830,168 --------------- 5,028,220 ---------------
Principal Amount (++) Description Value (+) --------------------------------------------------------------------------------------- Financial Services -- 1.0% $ 1,050,000 HSBC Finance Corp., 7.000%, 5/15/2012 $ 1,103,945 1,185,000 Morgan Stanley, 4.000%, 1/15/2010 1,157,714 --------------- 2,261,659 --------------- Government Guaranteed -- 2.2% 138,000,000 Kreditanstalt fuer Wiederaufbau, 1.850%, 9/20/2010 (JPY) 1,227,122 275,000,000 Kreditanstalt fuer Wiederaufbau, Series EMTN, 2.050%, 9/21/2009 (JPY) 2,439,904 1,325,000 Kreditanstalt fuer Wiederaufbau, 4.000%, 2/15/2012 (CHF) 1,188,256 --------------- 4,855,282 --------------- Government Owned -- No Guarantee -- 1.0% 2,145,000 Pemex Project Funding Master Trust, 7.875%, 2/01/2009 2,214,955 --------------- Healthcare -- 1.0% 575,000 HCA, Inc., 7.500%, 12/15/2023 469,170 485,000 Hospira, Inc., 6.050%, 3/30/2017 477,110 1,250,000 Medco Health Solutions, 7.250%, 8/15/2013 1,317,107 --------------- 2,263,387 --------------- Hybrid ARM -- 0.5% 1,005,173 JPMorgan Mortgage Trust, Series 2006-A7, Class 1A3, 5.921%, 1/25/2037(c) 1,007,032 --------------- Independent Energy -- 0.3% 65,000 Anadarko Petroleum Corp., 6.450%, 9/15/2036 63,992 290,000 Chesapeake Energy Corp., 6.500%, 8/15/2017 282,025 385,000 Chesapeake Energy Corp., 6.875%, 11/15/2020 376,819 --------------- 722,836 --------------- Industrial Other -- 0.4% 785,000 Equifax, Inc., 7.000%, 7/01/2037 786,327 --------------- Media Cable -- 2.5% 2,145,000 Comcast Corp., 6.950%, 8/15/2037 2,251,413 1,060,000 Cox Communications, Inc., 6.750%, 3/15/2011 1,106,468 1,085,000 CSC Holdings, Inc., Senior Note, Series B, 7.625%, 4/01/2011 1,087,713 1,228,000 Time Warner Cable, Inc., 144A, 6.550%, 5/01/2037 1,204,645 --------------- 5,650,239 --------------- Metals & Mining -- 0.4% 1,005,000 United States Steel Corp., 6.650%, 6/01/2037 927,168 --------------- Mortgage Backed Securities -- 6.7% 795,000 Banc of America Commercial Mortgage, Inc., Series 2005-6, Class A2, 5.165%, 9/10/2047(c) 797,110
See accompanying notes to financial statements. 20 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) -------------------------------------------------------------------------------------------- Mortgage Backed Securities -- continued $ 850,000 Banc of America Commercial Mortgage, Inc., Series 2006-1, Class A2, 5.334%, 9/10/2045(c) $ 854,568 1,305,000 Banc of America Commercial Mortgage, Inc., Series 2007-2, Class A2, 5.634%, 4/10/2049 1,319,601 1,245,000 Bear Stearns Commercial Mortgage Securities, Inc., Series 2005-PW10, Class A2, 5.270%, 12/11/2040 1,251,981 2,150,000 Bear Stearns Commercial Mortgage Securities, Inc., Series 2006-PW12, Class A4, 5.711%, 9/11/2038(c) 2,189,708 710,000 Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2006-CD2, Class A2, 5.408%, 1/15/2046 714,898 2,160,000 Commercial Mortgage Pass Through Certificates, Series 2006-C7, Class A4, 5.768%, 6/10/2046(c) 2,206,290 1,500,000 GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A, 4.751%, 7/10/2039 1,431,550 1,710,000 LB-UBS Commercial Mortgage Trust, Series 2005-C3, Class A3, 4.647%, 7/15/2030 1,678,026 2,400,000 Morgan Stanley Capital I, Series 2005-T19, Class A4A, 4.890%, 6/12/2047 2,310,503 --------------- 14,754,235 --------------- Mortgage Related -- 37.7% 2,074,989 FHLMC, 4.000%, 7/01/2019 1,955,854 5,938,218 FHLMC, 4.500%, with various maturities from 2018 to 2034(d) 5,648,173 11,457,680 FHLMC, 5.000%, with various maturities from 2018 to 2037(d) 11,006,747 8,562,869 FHLMC, 5.500%, with various maturities from 2018 to 2037(d) 8,414,572 1,978,543 FHLMC, 5.952%, 11/01/2036(c) 1,992,900 205,805 FHLMC, 6.000%, 6/01/2035 206,781 140,000,000 FNMA, 1.750%, 3/26/2008 (JPY) 1,223,299 825,101 FNMA, 4.000%, 6/01/2019 777,499 5,685,119 FNMA, 4.500%, with various maturities from 2019 to 2035(d) 5,401,928 12,506,784 FNMA, 5.000%, with various maturities from 2035 to 2037(d) 11,938,629 19,172,114 FNMA, 5.500%, with various maturities from 2018 to 2037(d) 18,813,340 4,961,193 FNMA, 6.000%, with various maturities from 2016 to 2036(d) 4,984,439 1,503,701 FNMA, 6.052%, 2/01/2037(c) 1,518,510 4,085,516 FNMA, 6.500%, with various maturities from 2029 to 2036(d) 4,164,528 253,152 FNMA, 7.000%, 10/01/2030(d) 263,803 266,317 FNMA, 7.500%, with various maturities from 2024 to 2032(d) 278,787
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------------------ Mortgage Related -- continued $ 1,063,994 GNMA, 5.500%, 2/20/2034 $ 1,046,630 384,674 GNMA, 6.000%, 1/15/2029 388,465 782,582 GNMA, 6.500%, with various maturities from 2028 to 2032(d) 802,158 450,199 GNMA, 7.000%, with various maturities from 2025 to 2029(d) 472,220 141,171 GNMA, 7.500%, with various maturities from 2025 to 2030(d) 148,318 89,372 GNMA, 8.000%, 11/15/2029 95,038 127,969 GNMA, 8.500%, with various maturities from 2017 to 2023(d) 137,907 22,651 GNMA, 9.000%, with various maturities in 2016(d) 24,286 48,405 GNMA, 11.500%, with various maturities from 2013 to 2015(d) 54,812 1,800,000 Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A2, 5.117%, 4/10/2037 1,803,118 --------------- 83,562,741 --------------- Non Captive Consumer -- 0.5% 245,000 SLM Corp., (MTN), 5.050%, 11/14/2014 207,777 420,000 SLM Corp., (MTN), 5.625%, 8/01/2033(b) 323,307 215,000 SLM Corp., Series A, (MTN), 5.000%, 10/01/2013 187,737 280,000 SLM Corp., Series A, (MTN), 5.000%, 4/15/2015 234,840 35,000 SLM Corp., Series A, (MTN), 5.375%, 5/15/2014 30,544 120,000 SLM Corp.,Series A, (MTN), 5.000%, 6/15/2018 95,318 --------------- 1,079,523 --------------- Non-Captive Diversified -- 1.1% 1,195,000 GMAC LLC, 6.625%, 5/15/2012 1,115,061 1,320,000 GMAC LLC, 8.000%, 11/01/2031(b) 1,295,028 --------------- 2,410,089 --------------- Non-Captive Finance -- 2.8% 431,000,000 General Electric Capital Corp., Series EMTN, 0.550%, 10/14/2008 (JPY) 3,732,006 1,665,000 General Electric Capital Corp., 1.750%, 2/12/2010 (CHF) 1,379,132 1,315,000 General Electric Capital Corp., Series EMTN, 2.500%, 12/23/2010 (CHF) 1,096,204 --------------- 6,207,342 --------------- Oil Field Services -- 0.5% 1,075,000 Weatherford International, Ltd., 6.500%, 8/01/2036 1,058,366 --------------- Paper -- 1.0% 565,000 Georgia-Pacific Corp., 7.375%, 12/01/2025 525,450
See accompanying notes to financial statements. 21 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) --------------------------------------------------------------------------------- Paper -- continued $ 755,000 Georgia-Pacific Corp., 7.750%, 11/15/2029 $ 717,250 735,000 Georgia-Pacific Corp., 8.000%, 1/15/2024 716,625 365,000 Georgia-Pacific Corp., 8.875%, 5/15/2031 365,912 --------------- 2,325,237 --------------- Pharmaceuticals -- 1.2% 2,750,000 Valeant Pharmaceuticals International, Senior Note, 7.000%, 12/15/2011 2,695,000 --------------- Property & Casualty Insurance -- 0.2% 475,000 Willis North America, Inc., 6.200%, 3/28/2017 471,306 --------------- Real Estate Investment Trusts -- 1.8% 195,000 Colonial Realty, LP, Senior Note, 4.750%, 2/01/2010 192,180 1,350,000 Colonial Realty, LP, Senior Note, 5.500%, 10/01/2015 1,268,385 1,250,000 iStar Financial, Inc., Senior Note, 6.000%, 12/15/2010 1,215,201 1,340,000 Simon Property Group, LP, 6.375%, 11/15/2007 1,340,563 --------------- 4,016,329 --------------- Retailers -- 0.1% 305,000 J.C. Penney Corp., Inc., 5.750%, 2/15/2018 292,792 --------------- Sovereigns -- 1.2% 296,000,000 Canadian Government, 1.900%, 3/23/2009 (JPY) 2,609,482 --------------- Technology -- 3.0% 1,040,000 Corning, Inc., 7.250%, 8/15/2036 1,090,565 1,660,000 Freescale Semiconductor, Inc., 10.125%, 12/15/2016(b) 1,543,800 295,000 Nortel Networks Corp., 6.875%, 9/01/2023(b) 238,950 920,000 Northern Telecom Capital Corp., 7.875%, 6/15/2026 777,400 2,075,000 Pitney Bowes, Inc., 5.250%, 1/15/2037 1,990,744 978,000 Xerox Corp., 6.400%, 3/15/2016 990,097 --------------- 6,631,556 --------------- Tobacco -- 0.8% 1,740,000 Reynolds American, Inc., 7.250%, 6/15/2037 1,818,952 --------------- Treasuries -- 11.5% 15,636,599 U.S. Treasury Bond, 2.375%, 1/15/2025(b)(e) 15,774,639 4,701,000 U.S. Treasury Bond, 4.500%, 2/15/2036(b) 4,456,769 1,790,000 U.S. Treasury Bond, 4.750%, 2/15/2037(b) 1,765,248 1,090,000 U.S. Treasury Bond, 5.000%, 5/15/2037(b) 1,118,101
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------------------ Treasuries -- continued $ 715,000 U.S. Treasury Bond, 5.375%, 2/15/2031(b) $ 765,385 160,000 U.S. Treasury Note, 4.375%, 8/15/2012(b) 161,500 1,405,000 U.S. Treasury Note, 4.625%, 11/15/2016(b) 1,411,916 --------------- 25,453,558 --------------- Wireless -- 2.3% 1,925,000 SK Telecom Co., Ltd., 144A, 6.625%, 7/20/2027 1,951,769 730,000 Sprint Capital Corp., 6.125%, 11/15/2008 735,372 1,110,000 Sprint Capital Corp., 6.875%, 11/15/2028 1,071,259 1,420,000 True Move Co., Ltd., 144A, 10.750%, 12/16/2013 1,433,632 --------------- 5,192,032 --------------- Wirelines -- 4.3% 1,380,000 Citizens Communications Co., 7.875%, 1/15/2027 1,345,500 2,760,000 Embarq Corp., 7.995%, 6/01/2036 2,940,761 210,000 Qwest Capital Funding, Inc., Guaranteed Note, 6.500%, 11/15/2018 185,325 1,240,000 Qwest Corp., 7.200%, 11/10/2026 1,193,500 850,000 Qwest Corp., 7.250%, 9/15/2025 835,125 255,000 Qwest Corp., 7.250%, 10/15/2035 245,438 1,675,000 Qwest Corp., 7.500%, 6/15/2023 1,649,875 1,055,000 Telefonica Emisones SAU, 6.421%, 6/20/2016 1,082,592 --------------- 9,478,116 --------------- Total Bonds and Notes (Identified Cost $216,738,844) 215,520,003 --------------- Shares/ Principal Amount (++) ------------------------------------------------------------------------------------------ Short-Term Investments -- 16.5% 31,895,894 State Street Securities Lending Quality Trust(f) 31,895,894 $ 4,778,565 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/28/07 at 3.750% to be repurchased at $4,780,058 on 10/1/07, collateralized by $4,765,000 Federal National Mortgage Association, 6.06% due 6/06/17 valued at $4,878,169, including accrued interest (Note 2f) 4,778,565 --------------- Total Short-Term Investments (Identified Cost $36,674,459) 36,674,459 --------------- Total Investments -- 113.8% (Identified Cost $253,413,303)(a) 252,194,462 Other assets less liabilities -- (13.8)% (30,675,896) --------------- Net Assets -- 100% $ 221,518,566 ===============
See accompanying notes to financial statements. 22 LOOMIS SAYLES CORE PLUS BOND FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007 (++) Principal amount is in U.S. dollars unless otherwise noted. (+) See Note 2a of Notes to Financial Statements. (a) Federal Tax Information: At September 30, 2007, the net unrealized depreciation on investments based on a cost of $253,878,746 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 2,102,654 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (3,786,938) ----------- Net unrealized depreciation $(1,684,284) =========== (b) All or a portion of this security was on loan to brokers at September 30, 2007. (c) Variable rate security whose interest rate varies with changes in a designated base rate (such as prime interest rate) on a specified date (such as coupon date or payment date). The coupon rate shown represents the rate at period end. (d) The Fund's investment in mortgage related securities of the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of each issuer which have the same coupon rate have been aggregated for the purpose of presentation in the Portfolio of investments. (e) Treasury Inflation Protected Security (TIPS). (f) Represents investment of securities lending collateral. 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $5,718,679 or 2.6% of net assets. ARM Adjustable Rate Mortgage EMTN Euro Medium Term Note FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association GNMA Government National Mortgage Association MTN Medium Term Note CHF Swiss Franc ISK Iceland Krona JPY Japanese Yen
Holdings at September 30, 2007 as a Percentage of Net Assets (unaudited) Mortgage Related 37.7% Treasuries 11.5 Mortgage Backed Securities 6.7 Wirelines 4.3 Asset-Backed Securities 3.2 Technology 3.0 Non-Captive Finance 2.8 Media Cable 2.5 Electric 2.3 Wireless 2.3 Government Guaranteed 2.2 Diversified Financial Services 2.1 Other, less than 2% each 16.7
See accompanying notes to financial statements. 23 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ----------------------------------------------------------------------------------------- Bonds and Notes -- 90.5% of Net Assets Airlines -- 0.2% $ 70,525 Continental Airlines, Inc., Series 1997-4, Class 4B, 6.900%, 1/02/2017 $ 66,954 36,768 Continental Airlines, Inc., Series 1999-1, Class C, 6.954%, 8/02/2009 35,941 --------------- 102,895 --------------- Automotive -- 3.5% 420,000 Ford Motor Co., 6.375%, 2/01/2029 308,700 65,000 Ford Motor Co., 6.625%, 2/15/2028 48,425 1,220,000 Ford Motor Co., 6.625%, 10/01/2028 908,900 210,000 Ford Motor Co., 7.450%, 7/16/2031(b) 164,850 40,000 Ford Motor Co., 7.500%, 8/01/2026 30,100 10,000 General Motors Corp., 8.375%, 7/15/2033(b) 8,763 --------------- 1,469,738 --------------- Banking -- 3.3% 250,000,000 Barclays Financial LLC, 144A, 4.060%, 9/16/2010 (KRW) 269,531 400,000,000 Barclays Financial LLC, 144A, 4.470%, 12/04/2011 (KRW) 432,824 500,000 HSBC Bank USA, 144A, 3.310%, 8/25/2010 553,350 1,436,358,000 JPMorgan Chase & Co., 144A, Zero Coupon, 3/28/2011 (IDR) 118,034 --------------- 1,373,739 --------------- Chemicals -- 3.4% 450,000 Borden, Inc., 7.875%, 2/15/2023 362,250 550,000 Borden, Inc., 9.200%, 3/15/2021 467,500 130,000 Georgia Gulf Corp., 10.750%, 10/15/2016(b) 113,100 380,000 Hercules, Inc., Subordinated Note, 6.500%, 6/30/2029 307,800 155,000 Mosaic Co., (The), 144A, 7.625%, 12/01/2016 165,269 --------------- 1,415,919 --------------- Construction Machinery -- 0.3% 120,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note, 7.750%, 12/15/2013(b) 115,200 --------------- Electric -- 3.5% 375,000 Dynegy Holdings, Inc., 7.125%, 5/15/2018 342,188 180,000 Dynegy Holdings, Inc., 7.625%, 10/15/2026 162,000 165,000 Dynegy Holdings, Inc., 144A, 7.750%, 6/01/2019 157,781 140,000 NGC Corp. Capital Trust I, Series B, 8.316%, 6/01/2027 129,500 515,000 TXU Corp., Series Q, 6.500%, 11/15/2024 412,772
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------- Electric -- continued $ 365,000 TXU Corp., Series R, 6.550%, 11/15/2034 $ 286,256 --------------- 1,490,497 --------------- Food & Beverage -- 0.4% 200,000 Aramark Services, Inc., 5.000%, 6/01/2012 176,500 --------------- Gaming -- 0.1% 45,000 Harrah's Operating Co., Inc., 5.750%, 10/01/2017 34,425 --------------- Government Guaranteed -- 2.5% 28,000,000 Kreditanstalt fuer Wiederaufbau, 1.850%, 9/20/2010 (JPY) 248,981 1,205,000 Kreditanstalt fuer Wiederaufbau, Series E, (MTN), 8.500%, 7/16/2010 (ZAR) 168,517 70,000,000 Oesterreichische Kontrollbank AG, 1.800%, 3/22/2010 (JPY) 620,260 --------------- 1,037,758 --------------- Government Sponsored -- 1.4% 70,000,000 Federal National Mortgage Association, 1.750%, 3/26/2008 (JPY) 611,649 --------------- Healthcare -- 4.1% 5,000 Boston Scientific Corp., 5.450%, 6/15/2014 4,488 105,000 Boston Scientific Corp., 6.400%, 6/15/2016 95,812 95,000 Boston Scientific Corp., 7.000%, 11/15/2035 82,412 220,000 Community Health Systems, Inc., 144A, 8.875%, 7/15/2015 226,050 25,000 HCA, Inc., 6.375%, 1/15/2015 21,313 205,000 HCA, Inc., 6.500%, 2/15/2016(b) 174,250 15,000 HCA, Inc., 7.050%, 12/01/2027 11,360 170,000 HCA, Inc., 7.500%, 12/15/2023 138,711 700,000 HCA, Inc., 7.500%, 11/06/2033 563,500 315,000 HCA, Inc., 7.580%, 9/15/2025 256,700 35,000 HCA, Inc., 7.690%, 6/15/2025 28,747 40,000 HCA, Inc., 7.750%, 7/15/2036 32,036 40,000 HCA, Inc., 8.360%, 4/15/2024 34,779 40,000 Invitrogen Corp., 1.500%, 2/15/2024 39,150 --------------- 1,709,308 --------------- Home Construction -- 4.4% 410,000 Desarrolladora Homex SAB de CV, 7.500%, 9/28/2015 407,950 385,000 K. Hovnanian Enterprises, Inc., 6.250%, 1/15/2015 292,600 365,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.250%, 1/15/2016 281,050
See accompanying notes to financial statements. 24 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------ Home Construction -- continued $ 30,000 K. Hovnanian Enterprises, Inc., Guaranteed Note, 6.500%, 1/15/2014 $ 23,325 100,000 KB Home, Guaranteed Note, 5.875%, 1/15/2015 85,000 590,000 KB Home, Guaranteed Note, 7.250%, 6/15/2018 513,300 155,000 Pulte Homes, Inc., 6.000%, 2/15/2035 112,982 180,000 Pulte Homes, Inc., 6.375%, 5/15/2033 136,786 --------------- 1,852,993 --------------- Independent Energy -- 2.7% 625,000 Chesapeake Energy Corp., 6.500%, 8/15/2017 607,812 175,000 Chesapeake Energy Corp., 6.875%, 11/15/2020 171,281 10,000 Hilcorp Energy I LP, 144A, 7.750%, 11/01/2015 9,775 65,000 Pioneer Natural Resources Co., 6.875%, 5/01/2018 61,033 310,000 Pioneer Natural Resources Co., 7.200%, 1/15/2028 277,087 --------------- 1,126,988 --------------- Industrial Other -- 0.3% 140,000 Ranhill Labuan Ltd., 144A, 12.500%, 10/26/2011(b) 138,499 --------------- Media Non-Cable -- 1.1% 175,000 Intelsat Corp., 6.875%, 1/15/2028 152,250 455,000 Tribune Co., 5.250%, 8/15/2015(b) 317,107 --------------- 469,357 --------------- Metals & Mining -- 2.0% 740,000 Algoma Acquistion Corp., 144A, 9.875%, 6/15/2015 658,600 195,000 Vale Overseas, Ltd., 6.875%, 11/21/2036 200,902 --------------- 859,502 --------------- Non Captive Consumer -- 1.4% 60,000 SLM Corp., (MTN), 5.050%, 11/14/2014 50,884 5,000 SLM Corp., (MTN), 5.625%, 8/01/2033 3,849 20,000 SLM Corp., Series A, (MTN), 5.000%, 10/01/2013 17,464 10,000 SLM Corp., Series A, (MTN), 5.000%, 6/15/2018 7,943 735,000 SLM Corp., Series A, (MTN), 6.500%, 6/15/2010 (NZD) 502,100 --------------- 582,240 --------------- Non-Captive Diversified -- 3.5% 1,300,000 General Electric Capital Corp., Series A, (MTN), 2.960%, 5/18/2012 (SGD) 869,590 330,000 GMAC LLC, 6.625%, 5/15/2012 307,925
Principal Amount (++) Description Value (+) ----------------------------------------------------------------------------------------------- Non-Captive Diversified -- continued $ 330,000 GMAC LLC, (MTN), 6.750%, 12/01/2014 $ 299,104 20,000 GMAC LLC, 8.000%, 11/01/2031 19,622 --------------- 1,496,241 --------------- Packaging -- 0.3% 135,000 Owens-Illinois, Inc., Senior Note, 7.800%, 5/15/2018 132,975 --------------- Paper -- 4.7% 195,000 Abitibi-Consolidated, Inc., 7.500%, 4/01/2028(b) 129,675 250,000 Abitibi-Consolidated, Inc., 8.500%, 8/01/2029 170,938 685,000 Bowater, Inc., 6.500%, 6/15/2013 500,050 75,000 Georgia-Pacific Corp., 7.250%, 6/01/2028 68,625 155,000 Georgia-Pacific Corp., 7.375%, 12/01/2025 144,150 370,000 Georgia-Pacific Corp., 7.750%, 11/15/2029 351,500 170,000 Georgia-Pacific Corp., 8.000%, 1/15/2024 165,750 430,000 Georgia-Pacific Corp., 8.875%, 5/15/2031 431,075 --------------- 1,961,763 --------------- Pharmaceuticals -- 5.3% 110,000 Elan Finance PLC, 8.875%, 12/01/2013 108,075 500,000 Elan Finance PLC, Senior Note, 7.750%, 11/15/2011 490,000 127,000 EPIX Pharmaceuticals, Inc., Senior Note, 3.000%, 6/15/2024 98,425 210,000 Human Genome Sciences, Inc., 2.250%, 8/15/2012 180,600 265,000 Incyte Corp., Convertible 3.500%, 2/15/2011 242,475 69,000 Inhale Therapeutic Systems, Inc., Subordinated Note, Convertible, 3.500%, 10/17/2007 68,137 96,000 Nektar Therapeutics, 3.250%, 9/28/2012 82,320 345,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, Convertible 5.500%, 10/17/2008 351,900 190,000 Valeant Pharmaceuticals International, Subordinated Note, Convertible 3.000%, 8/16/2010 172,425 505,000 Valeant Pharmaceuticals International, Subordinated Note, Convertible, 4.000%, 11/15/2013 456,394 --------------- 2,250,751 --------------- Pipelines -- 2.1% 415,000 El Paso Corp., 6.950%, 6/01/2028 385,504 575,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 6.400%, 1/05/2036 490,011 --------------- 875,515 ---------------
See accompanying notes to financial statements. 25 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------- Retailers -- 2.9% $ 250,000 Dillard's, Inc., 6.625%, 1/15/2018(b) $ 224,042 105,000 Dillard's, Inc., 7.130%, 8/01/2018 96,731 30,000 Macys Retail Holdings, Inc., 6.790%, 7/15/2027 27,472 1,070,000 Toys R Us, Inc., 7.375%, 10/15/2018 858,675 20,000 Toys R Us, Inc., 7.875%, 4/15/2013 17,400 --------------- 1,224,320 --------------- Sovereigns -- 5.2% 44,200(++) Mexican Fixed Rate Bonds, Series M-20, 8.000%, 12/07/2023 (MXN) 405,856 148,500(++) Mexican Fixed Rate Bonds, Series M-10, 9.000%, 12/20/2012 (MXN) 1,428,193 1,050,000 Republic of South Africa, 13.000%, 8/31/2010 (ZAR) 167,864 3,911,323 Republic of Uruguay, 4.250%, 4/05/2027 (UYU) 178,420 --------------- 2,180,333 --------------- Supermarkets -- 3.1% 190,000 Albertson's, Inc., 7.750%, 6/15/2026 188,892 750,000 Albertson's, Inc., Senior Note, 7.450%, 8/01/2029 721,953 130,000 Albertson's, Inc., Senior Note, 8.000%, 5/01/2031 131,954 25,000 Albertson's, Inc., Senior Note, 8.700%, 5/01/2030 26,983 245,000 Albertson's, Inc., Series C, (MTN), 6.625%, 6/01/2028 217,298 --------------- 1,287,080 --------------- Supranational -- 2.5% 1,900,000 Inter-American Development Bank, Series E, (MTN), Zero Coupon, 5/11/2009 (BRL) 845,826 13,400,000 Inter-American Development Bank, Series INTL 13.000%, 6/20/2008 (ISK) 215,183 --------------- 1,061,009 --------------- Technology -- 5.7% 325,000 Freescale Semiconductor, Inc., 10.125%, 12/15/2016(b) 302,250 345,000 JDS Uniphase Corp., Convertible, Zero Coupon, 11/15/2010 324,300 215,000 Kulicke & Soffa Industries, Inc., Convertible, 0.500%, 11/30/2008 199,950 35,000 Kulicke & Soffa Industries, Inc., Convertible, 1.000%, 6/30/2010 31,281 910,000 Lucent Technologies, Inc., 6.450%, 3/15/2029 755,300 266,000 Maxtor Corp., Subordinated Note, 5.750%, 3/01/2012(d) 250,040 500,000 Nortel Networks Corp., 6.875%, 9/01/2023 405,000 40,000 Northern Telecom Capital Corp., 7.875%, 6/15/2026 33,800
Principal Amount (++) Description Value (+) --------------------------------------------------------------------------------- Technology -- continued $ 85,000 Unisys Corp., Senior Note, 8.000%, 10/15/2012 $ 80,538 --------------- 2,382,459 --------------- Transportation Services -- 2.8% 275,000 APL Ltd., Senior Note, 8.000%, 1/15/2024(d) 231,000 300,000 Overseas Shipholding Group, Senior Note, 7.500%, 2/15/2024 291,000 295,000 Stena AB, Senior Note, 7.000%, 12/01/2016 293,525 350,000 Stena AB, Senior Note, 7.500%, 11/01/2013 351,750 --------------- 1,167,275 --------------- Treasuries -- 7.6% 3,390,000 U.S. Treasury Bond, 4.500%, 2/15/2036(b) 3,213,879 --------------- Wireless -- 0.5% 160,000 ALLTEL Corp., 7.875%, 7/01/2032 129,638 98,000 Sprint Capital Corp., 6.875%, 11/15/2028 94,580 --------------- 224,218 --------------- Wirelines -- 9.7% 255,000 Bell Canada, Series M-17, 6.100%, 3/16/2035 (CAD) 210,568 5,000 Bell Canada, 144A, 6.550%, 5/01/2029 (CAD) 4,353 65,000 Cincinnati Bell Telephone Co., 6.300%, 12/01/2028(b) 56,875 50,000 Cincinnati Bell, Inc., 8.375%, 1/15/2014 49,875 95,000 Citizens Communications Co., 7.000%, 11/01/2025(b) 76,238 410,000 Embarq Corp., 7.995%, 6/01/2036 436,852 435,000 Level 3 Communications, Inc., Convertible, 2.875%, 7/15/2010 417,600 350,000 Level 3 Communications, Inc., Convertible, 6.000%, 9/15/2009 332,937 320,000 Level 3 Communications, Inc., Convertible, 6.000%, 3/15/2010 296,800 145,000 Level 3 Financing, Inc., 8.750%, 2/15/2017 139,925 375,000 Qwest Capital Funding, Inc., Guaranteed Note, 6.875%, 7/15/2028 321,563 1,890,000 Qwest Capital Funding, Inc., 7.750%, 2/15/2031 1,724,625 --------------- 4,068,211 --------------- Total Bonds and Notes (Identified Cost $37,488,143) 38,093,236 --------------- Shares --------------------------------------------------------------------------------- Common Stocks -- 2.5% Chemicals -- 0.6% 11,695 Hercules, Inc.(b) 245,829 --------------- Home Construction -- 0.1% 1,775 KB Home(b) 44,482 ---------------
See accompanying notes to financial statements. 26 LOOMIS SAYLES HIGH INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Shares Description Value (+) --------------------------------------------------------------------------------------------- Pharmaceuticals -- 1.8% 6,875 Merck & Co., Inc. $ 355,369 1,717 Teva Pharmaceutical Industries, Ltd., ADR 76,355 8,147 Vertex Pharmaceuticals, Inc.(b)(e) 312,926 --------------- 744,650 --------------- Total Common Stocks (Identified Cost $708,494) 1,034,961 --------------- Shares --------------------------------------------------------------------------------------------- Preferred Stocks -- 3.8% Electric -- 1.7% 6,475 AES Trust III, Convertible, 6.750%(b) 315,592 8,000 CMS Energy Trust I, Convertible, 7.750% 399,000 --------------- 714,592 --------------- Packaging -- 0.7% 6,500 Owens-Illinois, Inc., Convertible, 4.750% 292,500 --------------- Pipelines -- 0.9% 9,500 El Paso Energy Capital Trust I, Convertible, 4.750%(b) 391,305 --------------- Technology -- 0.5% 225 Lucent Technologies Capital Trust I, Convertible, 7.750% 218,250 --------------- Total Preferred Stocks (Identified Cost $1,411,773) 1,616,647 --------------- Shares --------------------------------------------------------------------------------------------- Closed-End Investment Companies -- 0.1% 3,835 Morgan Stanley Emerging Markets Debt Fund, Inc. 36,931 2,175 Western Asset High Income Opportunity Fund, Inc. 14,072 --------------- Total Closed-End Investment Companies (Identified Cost $45,443) 51,003 --------------- Shares/ Principal Amount (++) --------------------------------------------------------------------------------------------- Short-Term Investments -- 15.1% 5,572,870 State Street Securities Lending Quality Trust(c) 5,572,870 $ 764,921 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/28/2007 at 3.750% to be repurchased at $765,160 on 10/01/2007, collateralized by $765,000 Federal National Mortgage Association, 6.060% due 06/06/2017 valued at $783,169, including accrued interest (Note 2f) 764,921 --------------- Total Short-Term Investments (Identified Cost $6,337,791) 6,337,791 --------------- Total Investments -- 112.0% (Identified Cost $45,991,644)(a) 47,133,638 Other assets less liabilities -- (12.0)% (5,054,758) --------------- Net Assets -- 100% $ 42,078,880 =============== (++) Principal amount is in U.S. dollars unless otherwise noted. (+) See Note 2a of Notes to Financial Statements. (++) Amount shown represents units. One unit represents a principal amount of 100.
(a) Federal Tax Information: At September 30, 2007, the net unrealized appreciation on investments based on a cost of $46,011,060 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 2,542,170 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (1,419,592) ----------- Net unrealized appreciation $ 1,122,578 =========== (b) All or a portion of this security was on loan to brokers at September 30, 2007. (c) Represents investment of securities lending collateral. (d) Illiquid security. At September 30, 2007, the value of these securities amounted to $481,040 or 1.1% of net assets. (e) Non-income producing security. ADR An American Depositary Receipt is a certificate issued by a custodian bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States. MTN Medium Term Note 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $2,734,066 or 6.5% of net assets. BRL Brazilian Real CAD Canadian Dollar IDR Indonesian Rupiah ISK Iceland Krona JPY Japanese Yen KRW South Korean Won MXN Mexican Peso NZD New Zealand Dollar SGD Singapore Dollar UYU Uruguayan Peso ZAR South African Rand
Holdings at September 30, 2007 as a Percentage of Net Assets (unaudited) Wirelines 9.7% Treasuries 7.6 Pharmaceuticals 7.1 Technology 6.2 Electric 5.2 Sovereigns 5.2 Paper 4.7 Home Construction 4.5 Healthcare 4.1 Chemicals 4.0 Non-Captive Diversified 3.5 Automotive 3.5 Banking 3.3 Supermarkets 3.1 Pipelines 3.0 Retailers 2.9 Transportation Services 2.8 Independent Energy 2.7 Supranational 2.5 Government Guaranteed 2.5 Metals & Mining 2.0 Other, less than 2% each 6.8
See accompanying notes to financial statements. 27 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND PORTFOLIO OF INVESTMENTS Investments as of September 30, 2007
Principal Amount Description Value (+) ---------------------------------------------------------------------------------------------- Bonds and Notes -- 82.8% of Net Assets Agency -- 3.3% $ 4,200,000 Federal Home Loan Bank, 3.625%, 11/14/2008(b) $ 4,158,084 --------------- Asset-Backed Securities -- 5.7% 905,000 Americredit Automobiles Receivables Trust, Series 2007-DF, Class A2A, 5.660%, 1/06/2011 905,990 1,155,000 CNH Equipment Trust, Series 2007-B, Class A2A, 5.460%, 6/15/2010 1,155,000 1,035,000 Countrywide Asset-Backed Certificates, Series 2004-S1, Class A3, 4.615%, 2/25/2035 957,991 2,200,000 Countrywide Asset-Backed Certificates, Series 2006-S1, Class A2, 5.549%, 8/25/2021 2,183,066 375,935 Residential Funding Mortgage Securities II, Series 2004-HI3, Class A4, 4.630%, 1/25/2020 371,223 660,000 Residential Funding Mortgage Securities II, Series 2005-HI3, Class A4, 5.490%, 9/25/2035 637,770 853,476 Residential Funding Mortgage Securities II, Series 2002-HI5, Class A7, 5.700%, 1/25/2028 847,491 --------------- 7,058,531 --------------- Collateralized Mortgage Obligation -- 0.2% 198,785 Federal Home Loan Mortgage Corporation, Series 3145, Class KA, 5.000%, 8/15/2024 199,091 --------------- Hybrid ARMs -- 2.5% 1,292,365 JPMorgan Mortgage Trust, Series 2006-A7, Class 1A3, 5.921%, 1/25/2037(c) 1,294,755 1,893,440 Morgan Stanley Mortgage Loan Trust, Series 2005-3AR, Class 5A, 5.587%, 7/25/2035(c) 1,863,259 --------------- 3,158,014 --------------- Mortgage Backed Securities -- 1.1% 1,400,000 Commercial Mortgage Pass Through Certificates, Series 2006-C7, Class A4, 5.768%, 6/10/2046(c) 1,430,003 --------------- Mortgage Related -- 60.7% 815,459 FHLMC, 4.500%, 5/01/2034 757,723 6,950,462 FHLMC, 5.000%, with various maturities from 2019 to 2030(d)(e) 6,847,577 2,492,560 FHLMC, 5.500%, 12/01/2034 2,445,754 6,497,395 FHLMC, 6.000%, with various maturities from 2019 to 2021(d)(e) 6,579,542 10,575,926 FHLMC, 6.500%, with various maturities from 2014 to 2034(e) 10,826,549 244,319 FHLMC, 7.000%, 2/01/2016 253,256 41,406 FHLMC, 7.500%, with various maturities from 2012 to 2026(e) 42,814 21,412 FHLMC, 8.000%, with various maturities from 2010 to 2015(e) 22,485 6,352 FHLMC, 10.000%, 7/01/2019 7,123 250,006 FHLMC, 11.500%, with various maturities from 2014 to 2020(e) 274,258
Principal Amount Description Value (+) --------------------------------------------------------------------------------------------- Mortgage Related -- continued $ 13,497,499 FNMA, 4.000%, with various maturities from 2018 to 2019(e) $ 12,741,521 2,765,769 FNMA, 4.500%, with various maturities from 2019 to 2035(e) 2,608,513 2,056,548 FNMA, 5.000%, 6/01/2035 1,964,907 4,507,650 FNMA, 5.500%, with various maturities from 2017 to 2036(e) 4,438,724 4,276,911 FNMA, 6.000%, with various maturities from 2017 to 2034(e) 4,324,383 3,430,167 FNMA, 6.052%, 2/01/2037(c) 3,463,949 6,988,640 FNMA, 6.500%, with various maturities from 2017 to 2036(e) 7,127,746 600,000 FNMA, 6.625%, 9/15/2009(b) 624,805 293,689 FNMA, 7.000%, 12/01/2022 308,198 567,628 FNMA, 7.500%, with various maturities from 2015 to 2032(e) 591,644 101,779 FNMA, 8.000%, with various maturities from 2015 to 2016(e) 106,867 7,000,000 FNMA (TBA), 6.000%, 10/15/2022(g) 7,091,875 135,956 GNMA, 6.000%, 12/15/2031 137,214 510,758 GNMA, 6.500%, 5/15/2031 523,563 438,753 GNMA, 7.000%, with various maturities from 2028 to 2029(e) 459,849 14,855 GNMA, 9.000%, with various maturities from 2008 to 2009(e) 15,086 4,393 GNMA, 9.500%, 8/15/2009 4,547 8,879 GNMA, 12.500%, with various maturities from 2014 to 2015(e) 10,100 110,971 GNMA, 16.000%, with various maturities from 2011 to 2012(e) 128,600 46,996 GNMA, 17.000%, with various maturities in 2011(e) 55,308 985,000 Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A2, 5.117%, 4/10/2037 986,706 --------------- 75,771,186 --------------- Treasuries -- 9.3% 7,945,000 U.S. Treasury Note, 3.125%, 10/15/2008(b) 7,872,375 4,000,000 U.S. Treasury STRIPS, Zero Coupon, 11/15/2009 3,681,748 --------------- 11,554,123 --------------- Total Bonds and Notes (Identified Cost $104,281,373) 103,329,032 ---------------
See accompanying notes to financial statements. 28 LOOMIS SAYLES LIMITED TERM GOVERNMENT AND AGENCY FUND PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Shares/ Principal Amount Description Value (+) ------------------------------------------------------------------------------------------------------- Short-Term Investments -- 30.8% 8,886,334 State Street Securities Lending Quality Trust(f) $ 8,886,334 $ 3,800,000 Federal Home Loan Bank Discount Note, Zero Coupon, 10/11/2007 3,794,867 21,000,000 Federal National Mortgage Association, Discount Note, Zero Coupon, 11/28/2007 20,847,750 4,942,338 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/28/2007 at 3.750% to be repurchased at $4,943,883 on 10/01/2007, collateralized by $4,925,000 Federal National Mortgage Association, 6.060% due 6/06/2017 valued at $5,041,969 including accrued interest (Note 2f) 4,942,338 --------------- Total Short-Term Investments (Identified Cost $38,457,756) 38,471,289 --------------- Total Investments -- 113.6% (Identified Cost $142,739,129)(a) 141,800,321 Other assets less liabilities -- (13.6)% (17,015,427) --------------- Net Assets -- 100% $ 124,784,894 =============== (+) See Note 2a of Notes to Financial Statements. (a) Federal Tax Information: At September 30, 2007, the net unrealized depreciation on investments based on a cost of $142,789,416 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 388,306 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (1,377,401) --------------- Net unrealized depreciation $ (989,095) =============== (b) All or a portion of this security was on loan to brokers at September 30, 2007. (c) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). The coupon rate shown represents the rate at period end. (d) All or a portion of this security has been segregated to cover collateral requirements on TBA obligations. (e) The Fund's investment in mortgage related securities of the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of each issuer which have the same coupon rate have been aggregated for the purpose of presentation in the Portfolio of Investments. (f) Represents investment of securities lending collateral. (g) Delayed delivery security (Note 2h) ARM Adjustable Rate Mortgage FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association GNMA Government National Mortgage Association STRIPS Separate Trading of Registered Interest and Principal of Securities TBA To Be Announced (Note 2h)
Holdings at September 30, 2007 as a Percentage of Net Assets (unaudited) Mortgage Related 60.7% Treasuries 9.3 Asset-Backed Securities 5.7 Agency 3.3 Hybrid ARMs 2.5 Other, less than 2% each 1.3
See accompanying notes to financial statements. 29 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS Investments as of September 30, 2007
Principal Amount Description Value (+) -------------------------------------------------------------------------------- Tax Exempt Obligations -- 98.1% of Net Assets Commonwealth of Massachusetts -- 9.2% $ 2,000,000 Consolidated Loan, Series C, 5.250%, 8/01/2022 (FSA insured) $ 2,162,520 3,500,000 State Refunding, Series A, 6.500%, 11/01/2014 (AMBAC insured) 4,114,740 --------------- 6,277,260 --------------- Martha's Vineyard, MA -- 1.5% 1,000,000 Land Bank Revenue, 5.000%, 5/01/2032 (AMBAC insured) 1,026,870 --------------- Massachusetts Bay Transportation Authority -- 0.4% 250,000 Series A, Unrefunded, 5.250%, 7/01/2030 257,178 --------------- Massachusetts Development Finance Agency -- 15.8% 1,000,000 Cambridge Street Development, Series A, 5.125%, 2/01/2034 (MBIA insured) 1,032,600 1,450,000 Curry College, Series A, 5.000%, 3/01/2036 (ACA insured) 1,390,536 1,000,000 Hampshire College, 5.625%, 10/01/2024 1,047,320 1,000,000 Mount Holyoke College, 5.250%, 7/01/2031 1,036,320 2,000,000 Simmons College, Series H, 5.250%, 10/01/2033 (XLCA insured) 2,183,700 2,800,000 Springfield Resource Recovery, Series A, 5.625%, 6/01/2019 2,895,508 1,100,000 Visual and Performing Arts, 6.000%, 8/01/2021 1,275,703 --------------- 10,861,687 --------------- Massachusetts Health & Educational Facilities Authority -- 39.0% 1,160,000 Baystate Medical Center, Series F, 5.700%, 7/01/2027 1,201,250 1,500,000 Berklee College of Music, Series A, 5.000%, 10/01/2032 1,537,965 2,000,000 Boston University, Series S, 5.000%, 10/01/2039 (FGIC insured) 2,047,380 1,000,000 Catholic Health East, 5.500%, 11/15/2032 1,088,020 3,000,000 Harvard University, Series N, 6.250%, 4/01/2020 3,622,440 1,000,000 Lahey Clinic Medical Center, Series D, 5.250%, 8/15/2037 1,017,660 750,000 Milford Regional Medical Center, Series E, 5.000%, 7/15/2032 685,342 850,000 Milford Regional Medical Center, Series E, 5.000%, 7/15/2037 763,997 2,716,000 Nichols College, Series C, 6.000%, 10/01/2017 2,775,806 2,000,000 Partners Healthcare Systems, Series B, 5.250%, 7/01/2029 2,041,560 2,500,000 Partners Healthcare Systems, Series C, 5.750%, 7/01/2021 2,643,500 1,500,000 Sterling & Francine Clark, Series A, 5.000%, 7/01/2036 1,548,150 2,000,000 University of Massachusetts, Series C, 5.125%, 10/01/2034 (FGIC insured) 2,076,180 1,000,000 Wellesley College, Series F, 5.125%, 7/01/2039 1,020,910
Principal Amount Description Value (+) ----------------------------------------------------------------------------------------- Massachusetts Health & Educational Facilities Authority -- continued $ 1,315,000 Wheaton College, Series E, 5.000%, 7/01/2017 $ 1,384,037 1,030,000 Williams College, Series H, 5.000%, 7/01/2017 1,088,288 --------------- 26,542,485 --------------- Massachusetts Housing Finance Agency -- 3.8% 545,000 Series A, 5.200%, 12/01/2037 551,567 2,000,000 Single Family Housing, Series 126, 4.700%, 6/01/2038(b) 1,853,460 230,000 Single Family Mortgage, Series 21, 7.125%, 6/01/2025 230,794 --------------- 2,635,821 --------------- Massachusetts Port Authority -- 4.5% 1,750,000 Delta Air Lines, Inc. Project, Series A, 5.500%, 1/01/2019 (AMBAC insured) 1,820,525 1,200,000 Series A, 5.000%, 7/01/2033 (MBIA insured) 1,225,728 --------------- 3,046,253 --------------- Massachusetts Water Resources Authority -- 6.8% 1,000,000 General Series A, 5.250%, 8/01/2020 (MBIA insured) 1,089,660 3,000,000 Series A, 6.500%, 7/15/2019 (FGIC insured) 3,536,970 --------------- 4,626,630 --------------- Michigan Hospital Finance Authority -- 1.5% 1,000,000 Oakwood Obligated Group, 5.500%, 11/01/2017 1,055,890 --------------- New Jersey Economic Development Authority -- 1.5% 1,000,000 Cigarette Tax, 5.625%, 6/15/2018 1,013,720 --------------- New Jersey Transportation Trust Fund Authority -- 0.8% 500,000 Series A, 5.500%, 12/15/2023 564,450 --------------- Puerto Rico Commonwealth Aqueduct & Sewer Authority -- 4.9% 3,000,000 Aqueduct & Sewer Authority, 6.250%, 7/01/2013 3,346,410 --------------- Puerto Rico Commonwealth Infrastructure Financing Authority -- 2.2% 1,500,000 Series B, 5.000%, 7/01/2031 1,514,700 --------------- Puerto Rico Public Finance Corp. -- 4.7% 3,000,000 Commonwealth Appropriation, Series A, 5.750%, 8/01/2027(b) 3,193,050 --------------- Tarrant County, TX, Cultural Educational Facilities Finance Corp. -- 1.5% 1,000,000 Buckner Retirement Services, Inc. Project, 5.250%, 11/15/2037 1,008,530 --------------- Total Tax Exempt Obligations (Identified Cost $65,205,944) 66,970,934 ---------------
See accompanying notes to financial statements. 30 LOOMIS SAYLES MASSACHUSETTS TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount Description Value (+) ------------------------------------------------------------------------------------------------------ Short-Term Investments -- 0.7% $ 466,986 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/28/2007 at 3.750% to be repurchased at $467,132 on 10/01/2007, collateralized by $470,000 Federal National Mortgage Association, 6.060% due 6/06/2017 valued at $481,163 including accrued interest (Note 2f) (Identified Cost $466,986) $ 466,986 --------------- Total Investments -- 98.8% (Identified Cost $65,672,930)(a) 67,437,920 Other assets less liabilities -- 1.2% 806,732 --------------- Net Assets -- 100% $ 68,244,652 =============== (+) See Note 2a of Notes to Financial Statements. (a) Federal Tax Information: At September 30, 2007, the net unrealized appreciation on investments based on a cost of $65,810,631 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 2,302,850 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (675,561) --------------- Net unrealized appreciation $ 1,627,289 =============== (b) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). The coupon rate shown represents the rate at period end. ACA American Capital Access AMBAC American Municipal Bond Assurance Corp. FGIC Financial Guarantee Insurance Company FSA Financial Security Assurance, Inc. MBIA Municipal Bond Investors Assurance Corp. XLCA XL Capital Assurance, Inc.
Holdings at September 30, 2007 as a Percentage of Net Assets (unaudited) College & Universities 32.0% State Appropriation 14.7 Water & Sewer 13.9 Hospital 13.8 Airport 4.5 Resource Recovery 4.2 Single-Family Housing 3.9 Insurance 3.2 Other, less than 2% each 7.9
See accompanying notes to financial statements. 31 LOOMIS SAYLES MUNICIPAL INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2007
Principal Amount Description Value (+) ------------------------------------------------------------------------------------------- Tax Exempt Obligations -- 98.8% of Net Assets California -- 8.9% $ 1,000,000 California Health Facilities Financing Authority (Catholic Healthcare West), Series I, 4.950%, 7/01/2026(b) $ 1,038,830 1,000,000 California Health Facilities Financing Authority (Cedar-Sinai Medical Center), 5.000%, 11/15/2027 1,010,580 2,655,000 California Statewide Communities Development Authority (California Endowment), 5.250%, 7/01/2023 2,805,512 1,500,000 California Statewide Communities Development Authority (Sutter Health), Series A, 5.000%, 11/15/2043 1,510,860 1,200,000 Long Beach California Bond Financing Authority (Natural Gas Purchase), Series A, 5.500%, 11/15/2027 1,275,492 --------------- 7,641,274 --------------- Colorado -- 2.7% 2,500,000 Colorado Health Facilities Authority, 5.000%, 12/01/2035 2,301,750 --------------- District of Columbia -- 3.6% 3,000,000 Metropolitan Washington D.C. Airports Authority, 5.125%, 10/01/2029 (FGIC insured) 3,065,940 --------------- Florida -- 1.2% 1,000,000 Jacksonville, FL, Economic Development Community Health Care Facilities (Mayo Clinic), 5.000%, 11/15/2036 1,016,750 --------------- Guam -- 1.2% 1,000,000 Guam Government Waterworks Authority, 5.875%, 7/01/2035 1,040,230 --------------- Illinois -- 2.4% 2,000,000 Metropolitan Pier & Exposition Authority, IL, 5.250%, 6/15/2042 (MBIA insured) 2,086,800 --------------- Louisiana -- 5.9% 4,000,000 DeSoto Parish, LA, Environmental Improvement, 5.000%, 11/01/2018 3,962,960 1,000,000 Ernest N. Morial, New Orleans, LA, Exhibit Hall Authority, 5.000%, 7/15/2033 (AMBAC Insured) 1,071,370 --------------- 5,034,330 --------------- Massachusetts -- 2.4% 1,000,000 Massachusetts Development Finance Agency (Simmons College), Series H, 5.250%, 10/01/2033 (XLCA Insured) 1,091,850 1,045,000 Massachusetts State Health & Educational Facilities Authority (Lahey Clinic Medical Center), 4.500%, 8/15/2035 (FGIC insured) 1,009,512 --------------- 2,101,362 --------------- Michigan -- 6.8% 1,500,000 Michigan State Hospital Finance Authority Revenue (Henry Ford Health System), Series A, 5.000%, 11/15/2038 1,502,100 1,100,000 Michigan State Hospital Finance Authority Revenue (Oakwood Obligated Group), 5.500%, 11/01/2014 1,168,090 1,000,000 Taylor Brownfield Redevelopment Authority, MI, 5.000%, 5/01/2025 (MBIA insured) 1,042,860
Principal Amount Description Value (+) ------------------------------------------------------------------------------------------------ Michigan -- continued $ 2,000,000 University of Michigan Hospital, 5.250%, 12/01/2020 $ 2,092,640 --------------- 5,805,690 --------------- Minnesota -- 3.7% 1,000,000 Chaska Minnesota Electric Revenue, 5.250%, 10/01/2025 1,056,770 2,000,000 Minnesota State Municipal Power Agency, 5.250%, 10/01/2024 2,105,080 --------------- 3,161,850 --------------- Mississippi -- 4.6% 2,500,000 Lowndes County, MS, Solid Waste Disposal & Pollution Control, 6.800%, 4/01/2022 2,900,925 1,000,000 Mississippi, Hospital Equipment & Facilities Authority (Delta Regional Medical Center), 5.000%, 2/01/2035 (MBIA, FHA insured) 1,018,600 --------------- 3,919,525 --------------- New Jersey -- 5.0% 1,000,000 New Jersey Economic Development Authority Revenue, Cigarette Tax, 5.500%, 6/15/2024 1,022,320 1,000,000 New Jersey Economic Development Authority Revenue, Cigarette Tax, 5.625%, 6/15/2018 1,013,720 2,000,000 New Jersey Transportation Trust Fund Authority, Series A, 5.500%, 12/15/2023 2,257,800 --------------- 4,293,840 --------------- New York -- 16.3% 1,020,000 New York, NY, 6.000%, 1/15/2020 1,115,707 1,000,000 New York, NY, City Health & Hospital Corp., 5.000%, 2/15/2020 (FSA insured) 1,036,410 1,000,000 New York, NY, City Industrial Development Agency, 5.500%, 1/01/2024(b) 1,061,800 2,000,000 New York, NY, City Municipal Water Finance Authority, Series C, 5.000%, 6/15/2025 (MBIA insured) 2,092,160 1,000,000 New York, NY, City Municipal Water Finance Authority, Series A, 5.125%, 6/15/2034 (FSA insured) 1,034,710 2,000,000 New York State Dormitory Authority, 5.500%, 5/15/2013 2,148,180 2,200,000 New York State Dormitory Authority, 5.750%, 7/01/2013 2,359,588 3,000,000 New York State Municipal Bond Bank Agency, Series C, 5.250%, 6/01/2020 3,174,120 --------------- 14,022,675 --------------- North Carolina -- 1.6% 1,300,000 North Carolina Eastern Municipal Power Agency, Series A, 5.500%, 1/01/2012 1,376,388 --------------- Oregon -- 3.2% 1,750,000 Multnomah County, OR, Hospital Facilities Authority (Providence Health System), 5.250%, 10/01/2012 1,849,767 500,000 Oregon, Western Generation Agency, Wauna Cogeneration Project, Series A, 5.000%, 1/01/2020 469,405 485,000 Oregon, Western Generation Agency, Wauna Cogeneration Project, Series A, 5.000%, 1/01/2021 451,554 --------------- 2,770,726 ---------------
See accompanying notes to financial statements. 32 LOOMIS SAYLES MUNICIPAL INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount Description Value (+) ------------------------------------------------------------------------------------------------ Pennsylvania -- 3.1% $ 2,500,000 Pennsylvania State Industrial Development Authority, 5.500%, 7/01/2019 (AMBAC insured) $ 2,698,025 --------------- Puerto Rico -- 3.7% 1,000,000 Puerto Rico Commonwealth Infrastructure Financing Authority, Series A, 5.500%, 10/01/2040 1,058,950 2,000,000 Puerto Rico Public Finance Corp., Commonwealth Appropriation, Series A, 5.750%, 8/01/2027(b) 2,128,700 --------------- 3,187,650 --------------- South Carolina -- 3.6% 1,100,000 Charleston Educational Excellence Finance Corp., 5.250%, 12/01/2030 1,141,305 1,155,000 Lexington One School Facilities Corp., 5.000%, 12/01/2026 1,172,741 800,000 Newberry Investing in Children's Education (Newberry County School District), 5.250%, 12/01/2022 814,824 --------------- 3,128,870 --------------- South Dakota -- 1.5% 1,250,000 South Dakota Health & Educational Facilities Authority (Sioux Valley Hospital), 5.250%, 11/01/2027 1,279,600 --------------- Tennessee -- 5.3% 2,000,000 Knox County, TN Health Educational & Housing Facilities Board, Hospital Facilities Revenue, Series A, Zero Coupon, 1/01/2035 469,600 2,500,000 Tennessee Energy Acquisition Corp., Gas Revenue, Series A, 5.250%, 9/01/2026 2,569,575 1,500,000 Tennessee Housing Development Agency, Series A, 5.200%, 7/01/2023 1,546,020 --------------- 4,585,195 --------------- Texas -- 9.5% 1,130,000 Conroe, TX, Independent School District, 4.500%, 2/15/2030 1,100,394 2,000,000 Dallas-Fort Worth, TX, International Airport, 5.500%, 11/01/2033 (MBIA insured) 2,076,160 1,260,000 Keller, TX, Independent School District, Series A, 4.500%, 8/15/2031 1,222,250 1,650,000 SA Energy Acquisition Public Facility Corp., Texas Gas Supply Revenue, 5.500%, 8/01/2027 1,742,202 1,000,000 Tarrant County, TX, Cultural Educational Facilities Finance Corp., Buckner Retirement Services, Inc. Project, 5.250%, 11/15/2037 1,008,530 1,000,000 Tarrant County, TX, Cultural Education Facilities Finance Corp. Revenue (Texas Health Resources), Series A, 5.000%, 2/15/2036 1,005,890 --------------- 8,155,426 --------------- Washington -- 2.6% 2,000,000 Energy Northwest, WA, Electric, Project No. 1, Series A, 5.500%, 7/01/2014 2,208,000 --------------- Total Tax Exempt Obligations (Identified Cost $84,058,799) 84,881,896 ---------------
Principal Amount Description Value (+) ------------------------------------------------------------------------------------------------------ Short-Term Investments -- 1.6% $ 1,409,095 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/28/07 at 3.750% to be repurchased at $1,409,536 on 10/01/07, collateralized by $1,405,000 Federal National Mortgage Association, 6.060% due 6/06/17 valued at $1,438,369, including accrued interest (Note 2f) (Identified Cost $1,409,095) $ 1,409,095 --------------- Total Investments -- 100.4% (Identified Cost $85,467,894)(a) 86,290,991 Other assets less liabilities -- (0.4)% (349,750) --------------- Net Assets -- 100% $ 85,941,241 =============== (+) See Note 2a of Notes to Financial Statements. (a) Federal Tax Information: At September 30, 2007, the net unrealized appreciation on investments based on a cost of $85,523,729 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 1,637,898 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (870,636) --------------- Net unrealized appreciation $ 767,262 =============== (b) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). The coupon rate shown represents the rate at period end. AMBAC American Municipal Bond Assurance Corp. FHA Federal Housing Administration FGIC Financial Guarantee Insurance Company FSA Financial Security Assurance, Inc. MBIA Municipal Bond Investors Assurance Corp. XLCA XL Capital Assurance, Inc.
Holdings at September 30, 2007 as a Percentage of Net Assets (unaudited) Corporate Backed/Industrial Revenue/Pollution Control 11.1% Hospital 9.5 Hospital Obligated Group 9.1 Electric 8.9 Special Tax 6.0 Airport 6.0 College & Universities 5.3 State Appropriation 5.1 Gas 5.0 Lease 4.9 Water & Sewage 4.9 Bond Bank/Pooled Loan Program 3.7 Non-Profit 3.3 School District 2.7 Senior Living 2.7 City & Town 2.5 Health Care -- Services 2.3 Other, less than 2% each 5.8
See accompanying notes to financial statements. 33 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ---------------------------------------------------------------------------------- Bonds and Notes -- 92.9% of Net Assets Convertible Bonds -- 3.0% Canada -- 0.1% $ 5,385,000 Nortel Networks Corp., 144A, 2.125%, 4/15/2014 $ 4,375,312 3,187,000 Nortel Networks Corp., Guaranteed Senior Note, 4.250%, 9/01/2008(b) 3,127,244 --------------- 7,502,556 --------------- United States -- 2.9% 12,755,000 Avnet, Inc., 2.000%, 3/15/2034 16,358,288 4,395,000 Bristol-Myers Squibb Co., 5.194%, 9/15/2023(c) 4,411,701 200,000 Builders Transport, Inc., Subordinated Note, 6.500%, 5/01/2011(d) -- 1,000,000 Builders Transport, Inc., Subordinated Note, 8.000%, 8/15/2005(d) -- 750,000 Ciena Corp., 3.750%, 2/01/2008 744,375 139,000 Dixie Group, Inc., Subordinated Note, 7.000%, 5/15/2012 130,834 11,899,000 Enzon Pharmaceuticals, Inc., 4.500%, 7/01/2008 11,690,768 5,111,000 EPIX Pharmaceuticals, Inc., Senior Note, 3.000%, 6/15/2024 3,961,025 9,885,000 Host Hotels & Resorts, Inc., 144A, 2.625%, 4/15/2027 8,908,856 26,700,000 Human Genome Sciences, Inc., 2.250%, 8/15/2012 22,962,000 30,860,000 Incyte Corp., 3.500%, 2/15/2011(b) 28,236,900 12,005,000 Invitrogen Corp., 1.500%, 2/15/2024(b) 11,749,894 2,360,000 IVAX Corp., Senior Subordinated Note, 4.500%, 5/15/2008 2,436,700 14,015,000 Kellwood Co., (step to 0.000% on 6/15/2011), 3.500%, 6/15/2034(e) 12,771,169 6,670,000 Kulicke & Soffa Industries, Inc., Subordinated Note, 0.500%, 11/30/2008 6,203,100 3,540,000 Kulicke & Soffa Industries, Inc., Subordinated Note, 1.000%, 6/30/2010 3,163,875 26,488,000 Level 3 Communications, Inc., 6.000%, 9/15/2009 25,196,710 35,395,000 Level 3 Communications, Inc., 6.000%, 3/15/2010(b) 32,828,862 6,117,164 Liberty Media LLC, 3.500%, 1/15/2031 5,926,002 4,591,000 Maxtor Corp., Subordinated Note, 5.750%, 3/01/2012(f) 4,315,540 22,401,000 Nektar Therapeutics, 3.250%, 9/28/2012 19,208,857 625,000 Nextel Communications, Inc., Senior Note, 5.250%, 1/15/2010 623,438 500,000 Preston Corp., Subordinated Note, 7.000%, 5/01/2011 483,975 20,000,000 Regeneron Pharmaceuticals, Inc., Subordinated Note, 5.500%, 10/17/2008 20,400,000 311,000 Richardson Electronics Ltd., 7.750%, 12/15/2011 304,780
Principal Amount (++) Description Value (+) ----------------------------------------------------------------------------------------------- United States -- continued $ 7,716,000 Sinclair Broadcast Group, Inc., (step to 2.000% on 1/15/2011), 4.875%, 7/15/2018(e) $ 7,281,975 22,735,000 Valeant Pharmaceuticals International, Subordinated Note, 3.000%, 8/16/2010 20,632,012 28,222,000 Valeant Pharmaceuticals International, Subordinated Note, 4.000%, 11/15/2013 25,505,632 12,095,000 Wells Fargo & Co., 5.106%, 5/01/2033(b)(c) 12,039,363 --------------- 308,476,631 --------------- Total Convertible Bonds (Identified Cost $307,957,948) 315,979,187 --------------- Non-Convertible Bonds -- 89.9% Australia -- 0.7% 1,500,000 Qantas Airways, Ltd., 144A, 5.125%, 6/20/2013 1,457,852 32,710,000 Qantas Airways, Ltd., 144A, 6.050%, 4/15/2016 32,473,016 50,000,000 Queensland Treasury Corp., 144A, 7.125%, 9/18/2017, (NZD) 37,499,479 --------------- 71,430,347 --------------- Bermuda -- 0.1% 11,855,000 Weatherford International, Ltd., 6.500%, 8/01/2036 11,671,568 --------------- Brazil -- 2.0% 9,922,000 Republic of Brazil, 8.250%, 1/20/2034(b) 12,496,759 6,000,000 Republic of Brazil, 8.875%, 4/15/2024(b) 7,725,000 55,200,000 Republic of Brazil, 10.250%, 1/10/2028, (BRL) 30,774,075 140,235,000 Republic of Brazil, 12.500%, 1/05/2016, (BRL)(b) 90,200,254 107,840,000 Republic of Brazil, 12.500%, 1/05/2022, (BRL) 72,163,963 --------------- 213,360,051 --------------- Canada -- 16.0% 250,000 Abitibi-Consolidated, Inc., 6.000%, 6/20/2013 175,000 8,125,000 Abitibi-Consolidated, Inc., 7.400%, 4/01/2018 5,525,000 12,060,000 Abitibi-Consolidated, Inc., 7.500%, 4/01/2028(b) 8,019,900 2,960,000 Abitibi-Consolidated, Inc., 8.500%, 8/01/2029 2,023,900 39,846,000 Abitibi-Consolidated, Inc., 8.850%, 8/01/2030(b) 27,493,740 9,785,000 Algoma Acquistion Corp., 144A, 9.875%, 6/15/2015 8,708,650 750,000 Avenor, Inc., 10.850%, 11/30/2014, (CAD) 684,030 4,370,000 Bell Canada, 144A, 6.550%, 5/01/2029, (CAD) 3,804,863 5,925,000 Bell Canada, (MTN), 5.000%, 2/15/2017, (CAD) 4,987,687 7,690,000 Bell Canada, (MTN), 7.300%, 2/23/2032, (CAD) 7,257,121 18,775,000 Bell Canada, Series M-17, 6.100%, 3/16/2035, (CAD) 15,503,603
See accompanying notes to financial statements. 34 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ---------------------------------------------------------------------------------------- Canada -- continued $ 2,795,000 Bombardier, Inc., 7.350%, 12/22/2026, (CAD) $ 2,725,733 15,600,000 Bombardier, Inc., 144A, 7.450%, 5/01/2034(b) 15,444,000 121,095,000 Canada Housing Trust, 4.100%, 12/15/2008, (CAD) 121,334,840 269,440,000 Canadian Government, 2.750%, 12/01/2007, (CAD)(b) 270,212,034 14,525,000 Canadian Government, 4.000%, 6/01/2016, (CAD) 14,276,017 441,205,000 Canadian Government, 4.250%, 9/01/2008, (CAD)(b) 443,666,859 436,930,000 Canadian Government, 4.250%, 12/01/2008, (CAD)(b) 439,337,255 21,565,000 Canadian Government, 4.250%, 9/01/2009, (CAD)(b) 21,733,028 35,580,000 Canadian Government, 5.750%, 6/01/2033, (CAD)(b) 42,854,110 24,200,000 Canadian Government, 6.000%, 6/01/2008, (CAD) 24,600,961 7,955,000 Domtar, Inc., 5.375%, 12/01/2013 7,278,825 335,000 GMAC Canada, Ltd., Series E, (MTN), 6.625%, 12/17/2010, (GBP) 630,577 945,000 GMAC Canada, Ltd., 7.750%, 9/26/2008, (NZD) 667,067 9,790,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 5.700%, 1/05/2016 8,898,552 49,135,000 Kinder Morgan Finance Co. ULC, Guaranteed Note, 6.400%, 1/05/2036 41,872,503 9,975,000 Nortel Networks Corp., 6.875%, 9/01/2023 8,079,750 22,320,000 Nortel Networks, Ltd., 144A, 10.125%, 7/15/2013 22,961,700 22,930,000 North American Energy Partners, Inc., Senior Note, 8.750%, 12/01/2011 23,159,300 7,365,000 Northern Telecom Capital Corp., 7.875%, 6/15/2026 6,223,425 2,525,000 Rogers Wireless Communications, Inc., Senior Secured Note, 6.375%, 3/01/2014 2,550,694 7,430,000 Rogers Wireless Communications, Inc., Senior Note, 7.625%, 12/15/2011, (CAD)(b) 8,053,891 10,000,000 Shaw Communications, Inc., 5.700%, 3/02/2017, (CAD) 9,449,555 9,170,000 Talisman Energy, Inc., 5.850%, 2/01/2037 8,176,183 23,515,000 Talisman Energy, Inc., 6.250%, 2/01/2038 22,152,729 31,690,000 Telus Corp., 4.950%, 3/15/2017, (CAD) 28,978,675 --------------- 1,679,501,757 --------------- Cayman Islands -- 0.0% 555,000 Enersis SA, Cayman Island, 7.400%, 12/01/2016 597,777 --------------- Chile -- 0.1% 4,875,000 Empresa Nacional de Electricidad SA, Chile, 7.875%, 2/01/2027(b) 5,451,381 250,000 Empresa Nacional de Electricidad SA, Chile, 8.350%, 8/01/2013 279,582 --------------- 5,730,963 ---------------
Principal Amount (++) Description Value (+) ----------------------------------------------------------------------------------------- Finland -- 0.6% $ 3,680,200,000 Nordic Investment Bank, 13.000%, 9/12/2008, (ISK) $ 59,555,042 --------------- France -- 0.2% 224,520,000,000 BNP Paribas SA, Series E, (MTN), 144A, Zero Coupon, 6/13/2011, (IDR) 18,111,362 --------------- Germany -- 0.1% 565,300,000 Kreditanstalt fuer Wiederaufbau, Series E, (MTN), 10.000%, 10/27/2008, (ISK) 8,912,247 --------------- India -- 0.1% 9,090,000 ICICI Bank Ltd., 144A, 6.375%, 4/30/2022(c) 8,500,059 --------------- Ireland -- 0.7% 32,520,000 Elan Finance PLC, 8.875%, 12/01/2013 31,950,900 44,765,000 Elan Finance PLC, Senior Note, 7.750%, 11/15/2011 43,869,700 --------------- 75,820,600 --------------- Luxembourg -- 0.4% 23,000,000 Telecom Italia Capital, 6.000%, 9/30/2034 21,385,722 19,635,000 Telecom Italia Capital, 6.375%, 11/15/2033 18,949,444 --------------- 40,335,166 --------------- Malaysia -- 0.2% 20,000,000 Ranhill Labuan Ltd., 144A, 12.500%, 10/26/2011(b) 19,785,620 --------------- Mexico -- 2.4% 11,265,000 Desarrolladora Homex SAB de CV, 7.500%, 9/28/2015 11,208,675 3,245,000(++) Mexican Fixed Rate Bonds, Series M-10, 8.000%, 12/17/2015, (MXN) 29,823,121 18,127,200(++) Mexican Fixed Rate Bonds, Series M-20, 8.000%, 12/07/2023, (MXN) 166,448,580 4,738,000(++) Mexican Fixed Rate Bonds, Series M-10, 9.000%, 12/20/2012, (MXN) 45,567,522 --------------- 253,047,898 --------------- Netherlands -- 1.4% 1,800,000 Koninklijke (Royal) KPN NV, Series G, (MTN), 4.000%, 6/22/2015, (EUR) 2,340,095 1,120,000 Koninklijke (Royal) KPN NV, Series E, (MTN), 5.750%, 3/18/2016, (GBP) 2,191,630 8,098,000 Koninklijke (Royal) KPN NV, 8.375%, 10/01/2030 9,322,758 8,580,000,000 Rabobank Nederland, Series EMTN, 144A, 13.500%, 1/28/2008, (ISK) 138,338,142 --------------- 152,192,625 --------------- Norway -- 0.0% 10,000,000 Kingdom of Norway, 5.500%, 5/15/2009, (NOK) 1,873,289 --------------- Philipines -- 0.1% 3,700,000 Philippine Long Distance Telephone Co., Series E, (MTN), 8.350%, 3/06/2017 4,046,690 1,691,125 Quezon Power (Philippines), Ltd., Senior Secured Note, 8.860%, 6/15/2017 1,708,036 --------------- 5,754,726 ---------------
See accompanying notes to financial statements. 35 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) --------------------------------------------------------------------------------- Republic of Korea -- 0.1% $ 5,470,000 Hanarotelecom, Inc., 144A, 7.000%, 2/01/2012 $ 5,278,550 300,000 Samsung Electronics Co., Ltd., 144A, 7.700%, 10/01/2027 339,676 --------------- 5,618,226 --------------- Scotland -- 1.7% 169,620,000 Astrazeneca PLC, 6.450%, 9/15/2037(b) 175,873,211 --------------- Singapore -- 0.0% 1,050,000 SP PowerAssets, Ltd., Series E, (MTN), 3.730%, 10/22/2010, (SGD) 724,987 --------------- South Africa -- 0.5% 320,500,000 Republic of South Africa, 13.000%, 8/31/2010, (ZAR)(b) 51,238,689 --------------- Spain -- 1.1% 113,785,000 Telefonica Emisiones SAU, Guaranteed Note, 7.045%, 6/20/2036 121,201,620 --------------- Supranational -- 2.3% 15,543,570 European Investment Bank, 144A, Zero Coupon, 9/12/2008, (BRL) 7,686,147 128,250,000 European Investment Bank, Senior Note, Zero Coupon, 3/10/2021, (AUD) 48,999,206 134,330,000 European Investment Bank, 144A, 4.600%, 1/30/2037, (CAD) 128,056,810 80,000,000 Inter-American Development Bank, Series E, (MTN), Zero Coupon, 5/11/2009, (BRL) 35,613,748 24,450,000 Inter-American Development Bank, Series E, (MTN), 6.000%, 12/15/2017, (NZD) 16,891,507 12,125,000 Inter-American Development Bank, Series G, (MTN), 6.250%, 6/22/2016, (NZD) 8,537,381 --------------- 245,784,799 --------------- Sweden -- 0.3% 207,265,000 Kingdom of Sweden, 6.500%, 5/05/2008, (SEK) 32,642,766 --------------- Switzerland -- 0.1% 346,700,000 Eurofima, Series EMTN, 10.000%, 11/03/2008, (ISK) 5,442,838 --------------- Thailand -- 0.3% 28,355,000 True Move Co., Ltd., 144A, 10.750%, 12/16/2013 28,627,208 --------------- United Kingdom -- 0.2% 72,717,436,000 JPMorgan Chase Bank, 144A, Zero Coupon, 10/21/2010, (IDR) 6,208,614 1,000,000 Virgin Media Finance PLC, 9.125%, 8/15/2016 1,037,500 4,570,000 Virgin Media Finance PLC, 9.750%, 4/15/2014, (GBP) 9,350,211 1,605,000 Vodafone Group PLC, 6.150%, 2/27/2037 1,540,142 --------------- 18,136,467 --------------- United States -- 58.2% 5,565,000 AES Corp. (The), 8.375%, 3/01/2011, (GBP) 11,044,400 4,020,000 AES Corp. (The), Senior Note, 7.750%, 3/01/2014(b) 4,080,300
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------ United States -- continued $ 1,190,000 Affiliated Computer Services, Inc., 5.200%, 6/01/2015 $ 1,050,175 17,735,000 Albertson's, Inc., 7.750%, 6/15/2026 17,631,552 69,896,000 Albertson's, Inc., Senior Note, 7.450%, 8/01/2029 67,282,169 4,895,000 Albertson's, Inc., Senior Note, 8.000%, 5/01/2031 4,968,587 1,510,000 Albertson's, Inc., Senior Note, 8.700%, 5/01/2030 1,629,784 13,242,000 Albertson's, Inc., Series C, (MTN), 6.625%, 6/01/2028 11,744,714 4,785,000 Allstate Corp., 5.950%, 4/01/2036 4,564,426 46,570,000 ALLTEL Corp., Senior Note, 7.875%, 7/01/2032 37,732,784 825,000 American Airlines, Inc., Series 1999-1, Class B, 7.324%, 4/15/2011 819,844 995,863 American Airlines, Inc., Series 93A6, 8.040%, 9/16/2011 990,882 6,950,000 Amkor Technology, Inc., Senior Note, 7.125%, 3/15/2011 6,741,500 9,570,000 Amkor Technology, Inc., Senior Note, 7.750%, 5/15/2013 9,235,050 37,190,000 Anadarko Petroleum Corp., 5.950%, 9/15/2016 36,833,311 45,910,000 Anadarko Petroleum Corp., 6.450%, 9/15/2036 45,198,349 10,503,000 APL Ltd., Senior Note, 8.000%, 1/15/2024(f) 8,822,520 1,585,000 Aramark Services, Inc., 5.000%, 6/01/2012 1,398,763 4,640,000 Arrow Electronics, Inc., 6.875%, 6/01/2018 4,797,022 8,000,000 ASIF Global Financing, 144A, 2.380%, 2/26/2009, (SGD) 5,351,739 10,245,000 AT&T Corp., 6.500%, 3/15/2029 10,317,842 8,500,000 AT&T, Inc., 6.150%, 9/15/2034(b) 8,402,632 127,100,000 AT&T, Inc., 6.500%, 9/01/2037 131,052,429 17,574,841 Atlas Air, Inc., Series 1998-1, Class 1B, 7.680%, 1/02/2014(g) 20,211,067 323,312 Atlas Air, Inc., Series 1999-1, Class A2, 6.880%, 7/02/2009 316,846 12,740,207 Atlas Air, Inc., Series 1999-1, Class B, 7.630%, 1/02/2015(g) 14,651,238 4,744,556 Atlas Air, Inc., Series 1999-1, Class C, 8.770%, 1/02/2011(g) 4,602,219 5,323,737 Atlas Air, Inc., Series 2000-1, Class B, 9.057%, 1/02/2014(g) 6,494,959 6,862,758 Atlas Air, Inc., Series C, 8.010%, 1/02/2010(g) 5,901,972 30,125,000 Avnet, Inc., 5.875%, 3/15/2014 30,026,341 35,630,000 Avnet, Inc., 6.000%, 9/01/2015 34,830,106 11,345,000 Avnet, Inc., 6.625%, 9/15/2016 11,454,865
See accompanying notes to financial statements. 36 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------- United States -- continued $ 22,125,000 BAC Capital Trust VI, 5.625%, 3/08/2035 $ 19,763,953 17,310,000,000 Barclays Financial LLC, 144A, 4.060%, 9/16/2010, (KRW) 18,662,344 1,006,000,000 Barclays Financial LLC, 144A, 4.160%, 2/22/2010, (THB) 30,378,677 21,340,000,000 Barclays Financial LLC, 144A, 4.460%, 9/23/2010, (KRW) 23,261,346 56,650,000,000 Barclays Financial LLC, 144A, 4.470%, 12/04/2011, (KRW) 61,298,618 135,000,000 Barclays Financial LLC, Series E, (MTN),, 144A, 4.100%, 3/22/2010, (THB) 4,069,044 15,195,000 BellSouth Corp., 6.000%, 11/15/2034(b) 14,627,634 23,584,000 Borden, Inc., 7.875%, 2/15/2023 18,985,120 6,920,000 Borden, Inc., 8.375%, 4/15/2016 5,882,000 8,757,000 Borden, Inc., 9.200%, 3/15/2021 7,443,450 2,765,000 Boston Scientific Corp., 5.450%, 6/15/2014 2,481,588 10,590,000 Boston Scientific Corp., 6.400%, 6/15/2016 9,663,375 15,755,000 Boston Scientific Corp., 7.000%, 11/15/2035 13,667,462 2,685,000 Bowater, Inc., 6.500%, 6/15/2013(b) 1,960,050 71,400,000 Bruce Mansfield Unit 1 2, 6.850%, 6/01/2034 72,646,644 2,840,000 Centex Corp., 5.250%, 6/15/2015(b) 2,416,056 21,365,000 Chesapeake Energy Corp., 6.500%, 8/15/2017 20,777,462 22,690,000 Chesapeake Energy Corp., 6.875%, 11/15/2020 22,207,837 15,325,000 CIGNA Corp., 6.150%, 11/15/2036 14,490,584 425,000 Cincinnati Bell, Inc., 8.375%, 1/15/2014 423,938 1,220,000 CIT Group, Inc., 5.000%, 2/13/2014 1,101,595 2,500,000 CIT Group, Inc., Series E, Senior Note, (MTN), 5.500%, 12/01/2014, (GBP) 4,418,640 3,055,000 CIT Group, Inc., 6.000%, 4/01/2036 2,702,102 4,545,000 CIT Group, Inc., (MTN), 5.125%, 9/30/2014 4,145,317 4,100,000 CIT Group, Inc., Series E, (MTN), 5.500%, 12/20/2016, (GBP) 7,058,992 18,650,000 Citibank NA, 144A, 15.000%, 7/02/2010, (BRL) 11,587,734 35,260,000 Citizens Communications Co., 7.875%, 1/15/2027 34,378,500 7,805,000 Clear Channel Communications, Inc., 4.900%, 5/15/2015 5,878,570 4,165,000 Clear Channel Communications, Inc., 5.500%, 9/15/2014 3,270,208 10,765,000 Clear Channel Communications, Inc., 5.500%, 12/15/2016(b) 8,199,442
Principal Amount (++) Description Value (+) ---------------------------------------------------------------------------------- United States -- continued $ 2,080,000 Clear Channel Communications, Inc., 5.750%, 1/15/2013 $ 1,740,920 16,170,000 Cleveland Electric Illuminating Co., 5.950%, 12/15/2036 15,035,109 2,935,000 Colonial Realty LP, 6.050%, 9/01/2016 2,834,447 2,405,000 Colorado Interstate Gas Co., 5.950%, 3/15/2015 2,365,390 2,670,000 Colorado Interstate Gas Co., 6.800%, 11/15/2015 2,764,019 41,635,000 Comcast Corp., 5.650%, 6/15/2035 37,170,104 34,570,000 Comcast Corp., 6.450%, 3/15/2037 34,128,576 20,175,000 Comcast Corp., 6.500%, 11/15/2035 19,921,743 172,500,000 Comcast Corp., 6.950%, 8/15/2037 181,057,725 6,319,005 Continental Airlines, Inc., Series 1997-4, Class 4B, 6.900%, 1/02/2017 5,999,105 7,466,633 Continental Airlines, Inc., Series 1998-1, Class 1B, 6.748%, 3/15/2017 7,223,967 6,925,049 Continental Airlines, Inc., Series 1999-1, Class B, 6.795%, 8/02/2018 6,453,280 2,374,176 Continental Airlines, Inc., Series 1999-1, Class C, 6.954%, 8/02/2009 2,320,758 4,342,313 Continental Airlines, Inc., Series 1999-2, Class B, 7.566%, 3/15/2020 4,255,467 7,586,247 Continental Airlines, Inc., Series 2000-2, Class B, 8.307%, 10/02/2019 7,567,282 2,803,874 Continental Airlines, Inc., Series 2001-1, Class B, 7.373%, 6/15/2017 2,712,748 300,438 Continental Airlines, Inc., Series 96-A, 6.940%, 10/15/2013 297,433 2,753,368 Continental Airlines, Inc., Series 971A, 7.461%, 4/01/2015 2,724,113 5,625,000 Continental Airlines, Inc., Series A, 5.983%, 4/19/2022 5,450,288 23,710,000 Corn Products International, Inc., 6.625%, 4/15/2037 23,511,761 6,225,000 Corning, Inc., 5.900%, 3/15/2014 6,285,793 6,220,000 Corning, Inc., 6.200%, 3/15/2016 6,350,813 650,000 Corning, Inc., 6.750%, 9/15/2013 697,596 6,150,000 Corning, Inc., 6.850%, 3/01/2029 6,260,626 4,725,000 Corning, Inc., 7.250%, 8/15/2036 4,954,730 400,000 CSC Holdings, Inc., Senior Note, 7.875%, 2/15/2018 388,000 250,000 CSC Holdings, Inc., Series B, Senior Note, 8.125%, 7/15/2009 254,375 250,000 CSC Holdings, Inc., Series B, Senior Note, 8.125%, 8/15/2009 254,375 37,345,000 CSX Corp., 6.000%, 10/01/2036(b) 34,967,767 5,000,000 CSX Corp., 6.250%, 3/15/2018 5,026,250
See accompanying notes to financial statements. 37 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------ United States -- continued $ 1,853,000 Cummins, Inc., 6.750%, 2/15/2027 $ 1,831,129 2,145,000 Cummins, Inc., 7.125%, 3/01/2028 2,213,936 19,745,000 DCP Midstream LP, 144A, 6.450%, 11/03/2036 18,901,434 8,758,000 Dillard's, Inc., 6.625%, 1/15/2018(b) 7,848,622 4,187,000 Dillard's, Inc., 7.130%, 8/01/2018 3,857,274 1,500,000 Dillard's, Inc., 7.750%, 7/15/2026 1,351,875 425,000 Dillard's, Inc., 7.875%, 1/01/2023 386,219 3,325,000 Dillard's, Inc., Class A, 7.000%, 12/01/2028 2,763,906 1,935,000 Dole Food Co., Inc., 8.625%, 5/01/2009 1,939,838 8,180,000 Dominion Resources, Inc., Senior Note, Series B, 5.950%, 6/15/2035 7,666,214 4,335,000 DR Horton, Inc., 5.625%, 9/15/2014 3,685,292 1,625,000 DR Horton, Inc., 6.500%, 4/15/2016 1,423,339 16,160,000 DR Horton, Inc., Guaranteed Note, 5.625%, 1/15/2016(b) 13,579,232 43,470,000 DR Horton, Inc., Senior Note, 5.250%, 2/15/2015 36,391,997 11,275,000 Dynegy Holdings, Inc., 7.125%, 5/15/2018(b) 10,288,437 10,185,000 Dynegy Holdings, Inc., 7.625%, 10/15/2026 9,166,500 500,000 Dynegy Holdings, Inc., 144A, 7.750%, 6/01/2019 478,125 7,455,000 Dynegy Holdings, Inc., 8.375%, 5/01/2016 7,492,275 95,200,000 Edison Mission Energy, Senior Note, 144A,, 7.625%, 5/15/2027 91,868,000 15,685,000 El Paso Corp., 6.950%, 6/01/2028 14,570,189 750,000 El Paso Corp., Senior Note, (MTN), 7.800%, 8/01/2031 761,463 1,000,000 El Paso Energy Corp., (MTN), 7.750%, 1/15/2032 1,015,442 5,330,000 Embarq Corp., 7.995%, 6/01/2036 5,679,078 5,255,000 Energy Transfer Partners LP, 6.125%, 2/15/2017 5,071,501 11,315,000 Energy Transfer Partners LP, 6.625%, 10/15/2036 10,670,656 13,175,000 Enterprise Products Operating L.P., 6.300%, 9/15/2017 13,193,010 14,385,000 Equifax, Inc., 7.000%, 7/01/2037 14,409,311 35,900,000 FNMA, 2.290%, 2/19/2009, (SGD) 24,021,317 17,816,000 Ford Motor Co., 6.375%, 2/01/2029(b) 13,094,760 1,705,000 Ford Motor Co., 6.500%, 8/01/2018(b) 1,372,525
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------ United States -- continued $ 500,000 Ford Motor Co., 6.625%, 2/15/2028 $ 372,500 73,114,000 Ford Motor Co., 6.625%, 10/01/2028 54,469,930 1,940,000 Ford Motor Co., 7.125%, 11/15/2025(b) 1,445,300 86,090,000 Ford Motor Co., 7.450%, 7/16/2031(b) 67,580,650 800,000 Ford Motor Co., 7.500%, 8/01/2026 602,000 35,237,000 Ford Motor Credit Co. LLC, 5.700%, 1/15/2010 33,136,981 10,685,000 Ford Motor Credit Co. LLC, 7.000%, 10/01/2013 9,656,034 15,465,000 Ford Motor Credit Co. LLC, 7.250%, 10/25/2011 14,492,468 14,595,000 Ford Motor Credit Co. LLC, 8.000%, 12/15/2016(b) 13,653,695 9,905,000 Ford Motor Credit Co. LLC, 8.625%, 11/01/2010 9,819,460 25,255,000 Freescale Semiconductor, Inc., 10.125%, 12/15/2016(b) 23,487,150 243,057,000 General Electric Capital Corp., 6.500%, 9/28/2015, (NZD) 169,943,868 30,350,000 General Electric Capital Corp., Series A, (MTN), 6.625%, 2/04/2010, (NZD) 22,202,612 500,000 General Electric Capital Corp., Series E, (MTN), 1.725%, 6/27/2008, (SGD) 334,178 3,100,000 General Electric Capital Corp., Series E, (MTN), 6.125%, 5/17/2012, (GBP)(b) 6,360,214 66,645,000 General Electric Capital Corp., Series E, (MTN), 6.750%, 9/26/2016, (NZD) 47,744,130 60,900,000 General Electric Capital Corp., Series G, (MTN), 2.960%, 5/18/2012, (SGD) 40,736,955 115,000,000 General Electric Capital Corp., Series G, (MTN), 3.485%, 3/08/2012, (SGD) 79,055,978 14,920,000 General Motors Corp., 8.250%, 7/15/2023(b) 13,055,000 1,035,000 General Motors Corp., 8.375%, 7/15/2033(b) 906,919 4,775,000 Georgia Gulf Corp., 10.750%, 10/15/2016(b) 4,154,250 11,520,000 Georgia-Pacific Corp., 7.250%, 6/01/2028 10,540,800 11,605,000 Georgia-Pacific Corp., 7.375%, 12/01/2025 10,792,650 120,000 Georgia-Pacific Corp., 7.700%, 6/15/2015 119,400 42,010,000 Georgia-Pacific Corp., 7.750%, 11/15/2029 39,909,500 14,535,000 Georgia-Pacific Corp., 8.000%, 1/15/2024 14,171,625 15,063,000 Georgia-Pacific Corp., 8.875%, 5/15/2031 15,100,657 32,965,000 GMAC LLC, 6.000%, 12/15/2011(b) 30,426,003 11,710,000 GMAC LLC, 6.625%, 5/15/2012 10,926,660 16,806,000 GMAC LLC, (MTN), 6.750%, 12/01/2014 15,232,572
See accompanying notes to financial statements. 38 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ---------------------------------------------------------------------------------------- United States -- continued $ 6,585,000 GMAC LLC, 6.875%, 9/15/2011 $ 6,266,707 17,935,000 GMAC LLC, 8.000%, 11/01/2031(b) 17,595,706 4,360,000 Goodyear Tire & Rubber Co., 7.000%, 3/15/2028 3,684,200 1,427,000 Goodyear Tire & Rubber Co., 9.000%, 7/01/2015(b) 1,523,323 2,590,000 Great Lakes Dredge & Dock Corp., Senior Subordinated Note, 7.750%, 12/15/2013 2,486,400 5,790,000 GTE Corp., 6.940%, 4/15/2028 6,017,414 185,000 Hawaiian Telcom Communications, Inc., 12.500%, 5/01/2015(b) 199,800 8,205,000 HCA, Inc., 6.375%, 1/15/2015 6,994,762 45,075,000 HCA, Inc., 6.500%, 2/15/2016(b) 38,313,750 12,875,000 HCA, Inc., 7.050%, 12/01/2027 9,750,276 9,307,000 HCA, Inc., 7.500%, 12/15/2023 7,594,019 18,745,000 HCA, Inc., 7.500%, 11/06/2033 15,089,725 12,040,000 HCA, Inc., 7.580%, 9/15/2025 9,811,649 27,892,000 HCA, Inc., 7.690%, 6/15/2025 22,908,620 4,490,000 HCA, Inc., 7.750%, 7/15/2036 3,596,081 6,155,000 HCA, Inc., 8.360%, 4/15/2024 5,351,619 1,000,000 HCA, Inc., Senior Note, 5.750%, 3/15/2014 838,750 14,550,000 Hercules, Inc., Subordinated Note, 6.500%, 6/30/2029 11,785,500 35,790,000 Highwoods Properties, Inc., 5.850%, 3/15/2017 33,915,785 9,995,000 Hilcorp Energy I LP, 144A, 7.750%, 11/01/2015 9,770,112 52,975,000 Home Depot, Inc., 5.875%, 12/16/2036 45,249,073 11,370,000 Hospira, Inc., 6.050%, 3/30/2017 11,185,044 66,372,000 HSBC Bank PLC, 144A, Zero Coupon, 4/18/2012, (MYR) 16,429,870 119,806,078 HSBC Bank USA, 144A, Zero Coupon, 11/28/2011(c) 83,444,933 16,050,000 HSBC Bank USA, 144A, 3.310%, 8/25/2010 17,762,535 3,940,000 iStar Financial, Inc., 5.150%, 3/01/2012 3,645,682 5,310,000 ITC Holdings Corp., 144A, 6.375%, 9/30/2036 5,078,760 45,790,000 J.C. Penney Corp., Inc., Senior Note, 6.375%, 10/15/2036 42,844,925 350,000 J.C. Penney Corp., Inc., 7.125%, 11/15/2023(b) 368,384 3,445,000 Jefferson Smurfit Corp., 7.500%, 6/01/2013 3,333,038
Principal Amount (++) Description Value (+) ---------------------------------------------------------------------------------------- United States -- continued $ 1,425,000 Joy Global, Inc., 6.625%, 11/15/2036 $ 1,431,286 599,726,100,000 JPMorgan Chase & Co., 144A Zero Coupon, 3/28/2011, (IDR) 49,283,123 109,312,000,000 JPMorgan Chase & Co., 144A Zero Coupon, 3/28/2011, (IDR) 8,980,438 229,157,783,660 JPMorgan Chase & Co., 144A, Zero Coupon, 4/12/2012, (IDR) 17,034,605 149,232,225 JPMorgan Chase & Co., Series E, (MTN), 144A, 1.000%, 6/08/2012, (MYR) 36,393,831 92,000,000 JPMorgan Chase Bank, 144A, Zero Coupon, 5/17/2010, (BRL) 38,297,698 3,565,000 K N Capital Trust III, 7.630%, 4/15/2028(b) 3,190,843 4,300,000 K N Energy, Inc., 6.670%, 11/01/2027 3,756,669 2,365,000 K. Hovnanian Enterprises, Inc., Guaranteed Note, 6.250%, 1/15/2015 1,797,400 15,055,000 K. Hovnanian Enterprises, Inc., Senior Note, 6.250%, 1/15/2016(b) 11,592,350 5,080,000 K. Hovnanian Enterprises, Inc., Guaranteed Note, 6.375%, 12/15/2014(b) 3,937,000 2,490,000 K. Hovnanian Enterprises, Inc., Guaranteed Note, 6.500%, 1/15/2014 1,935,975 6,290,000 K. Hovnanian Enterprises, Inc., 7.500%, 5/15/2016(b) 5,000,550 1,935,000 K. Hovnanian Enterprises, Inc., 7.750%, 5/15/2013(b) 1,383,525 8,340,000 KB Home, Guaranteed Note, 5.875%, 1/15/2015 7,089,000 2,940,000 KB Home, Guaranteed Note, 6.250%, 6/15/2015 2,510,025 11,315,000 KB Home, Guaranteed Note, 7.250%, 6/15/2018 9,844,050 7,515,000 Kellwood Co., 7.625%, 10/15/2017 6,575,625 1,915,000 Kimball Hill Homes, Inc., 10.500%, 12/15/2012(b) 1,321,350 500,000 Kinder Morgan Energy Partners, LP, 5.800%, 3/15/2035 441,548 11,288,000 Kinder Morgan, Inc., Senior Note, 5.150%, 3/01/2015 10,075,161 1,650,000 Koppers Holdings, Inc., (step to 9.875% on 11/15/2009), Zero Coupon, 11/15/2014(e) 1,410,750 37,705,000 Kraft Foods, Inc., 6.500%, 8/11/2017 38,947,417 30,680,000 Kraft Foods, Inc., 7.000%, 8/11/2037 32,185,836 1,600,000 Lennar Corp., Series B, Guaranteed Note, 5.600%, 5/31/2015 1,376,538 23,885,000 Lennar Corp., Series A, 6.500%, 4/15/2016 21,590,655 11,970,000 Lennar Corp., Series B, 5.500%, 9/01/2014 10,444,603 33,965,000 Level 3 Communications, Inc., 2.875%, 7/15/2010 32,606,400 29,195,000 Level 3 Financing, Inc., 8.750%, 2/15/2017 28,173,175 8,525,000 Level 3 Financing, Inc., 9.250%, 11/01/2014 8,397,125
See accompanying notes to financial statements. 39 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------------------ United States -- continued $ 41,535,000 Lowes Cos., Inc., 6.650%, 9/15/2037 $ 41,964,929 39,875,000 Lucent Technologies, Inc., 6.450%, 3/15/2029 33,096,250 2,840,000 Lucent Technologies, Inc., 6.500%, 1/15/2028 2,357,200 11,645,000 Macy's Retail Holdings, Inc., 6.375%, 3/15/2037 10,647,617 2,660,000 Marsh & McLennan Cos., Inc., 5.375%, 7/15/2014 2,566,836 11,710,000 Marsh & McLennan Cos., Inc., 5.750%, 9/15/2015(b) 11,309,776 6,905,000 Marsh & McLennan Cos., Inc., 5.875%, 8/01/2033(b) 5,952,897 1,250,000 McDonalds Corp., Series E, (MTN), 3.628%, 10/10/2010, (SGD) 858,224 51,500,000 Merrill Lynch & Co., Inc., 10.710%, 3/08/2017, (BRL) 28,834,943 5,350,000 Methanex Corp., Senior Note, 6.000%, 8/15/2015 5,045,729 13,405,000 Michigan Tobacco Settlement Finance Authority, Taxable Turbo Series A, 7.309%, 6/01/2034 13,229,797 1,000,000 MidAmerican Energy Holdings Co., 6.125%, 4/01/2036(b) 970,785 40,255,000 Midamerican Energy Holdings Co., 144A, 6.500%, 9/15/2037 40,689,915 1,153,000 Missouri Pacific Railroad Co., 5.000%, 1/01/2045 795,570 6,465,000 Mosaic Global Holdings, Inc., 7.300%, 1/15/2028 6,206,400 5,820,000 Mosaic Global Holdings, Inc., 7.375%, 8/01/2018 5,645,400 7,655,000 Motorola, Inc., 6.500%, 9/01/2025 7,412,482 3,346,000 New England Telephone & Telegraph Co., 7.875%, 11/15/2029 3,717,834 54,190,000 News America, Inc., 6.150%, 3/01/2037 50,536,781 11,140,000 News America, Inc., 6.200%, 12/15/2034 10,488,265 14,360,000 News America, Inc., 6.400%, 12/15/2035 13,868,271 4,305,000 Nextel Communications, Inc., Series E, 6.875%, 10/31/2013 4,322,216 25,790,000 Nextel Communications, Inc., Series F, 5.950%, 3/15/2014 24,621,971 31,735,000 NGC Corp. Capital Trust I, Series B, 8.316%, 6/01/2027 29,354,875 48,500,000 Nisource Finance Corp., 6.400%, 3/15/2018 48,856,135 2,500,000 NRG Energy, Inc., 7.250%, 2/01/2014 2,506,250 5,000,000 NRG Energy, Inc., 7.375%, 2/01/2016 5,012,500 4,530,000 ONEOK Partners LP, 6.650%, 10/01/2036 4,468,116 3,260,000 Owens & Minor, Inc., 6.350%, 4/15/2016 3,307,009 9,480,000 Owens Corning, Inc., 6.500%, 12/01/2016 9,156,030
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------ United States -- continued $ 14,200,000 Owens Corning, Inc., 7.000%, 12/01/2036 $ 13,820,079 225,000 Owens-Illinois, Inc., Senior Note, 7.500%, 5/15/2010(b) 226,688 42,043,000 Owens-Illinois, Inc., Senior Note, 7.800%, 5/15/2018 41,412,355 3,000,000 Pemex Project Funding Master Trust, 8.625%, 12/01/2023(b) 3,709,500 4,350,000 Pemex Project Funding Master Trust, 9.500%, 9/15/2027(b) 5,911,650 7,175,000 Pioneer Natural Resources Co., 5.875%, 7/15/2016 6,442,662 3,898,000 Pioneer Natural Resources Co., 7.200%, 1/15/2028 3,484,145 20,770,000 Plains All American Pipeline LP, 6.125%, 1/15/2017 20,789,482 44,730,000 Plains All American Pipeline LP, 6.650%, 1/15/2037(b) 44,495,481 1,948,000 Ply Gem Industries, Inc., 9.000%, 2/15/2012(b) 1,577,880 4,240,000 Pulte Homes, Inc., 5.200%, 2/15/2015 3,535,401 45,470,000 Pulte Homes, Inc., 6.000%, 2/15/2035 33,143,901 12,730,000 Pulte Homes, Inc., 6.375%, 5/15/2033 9,673,794 950,000 Qwest Capital Funding, Inc., 7.250%, 2/15/2011(b) 954,750 26,205,000 Qwest Capital Funding, Inc., 7.750%, 2/15/2031 23,912,062 13,170,000 Qwest Capital Funding, Inc., Guaranteed Note, 6.500%, 11/15/2018 11,622,525 42,455,000 Qwest Capital Funding, Inc., Guaranteed Note, 6.875%, 7/15/2028(b) 36,405,162 2,025,000 Qwest Capital Funding, Inc., Guaranteed Note, 7.000%, 8/03/2009(b) 2,035,125 6,455,000 Qwest Capital Funding, Inc., Guaranteed Note, 7.625%, 8/03/2021 6,035,425 20,420,000 Qwest Corp., 6.875%, 9/15/2033 19,092,700 2,785,000 Qwest Corp., 7.250%, 9/15/2025(b) 2,736,263 25,230,000 Reliant Energy, Inc., Senior Note, 7.875%, 6/15/2017(b) 25,387,687 18,420,000 Residential Capital LLC, 7.375%, 5/17/2013, (GBP) 28,830,773 46,050,000 Residential Capital LLC, 7.500%, 4/17/2013 37,185,375 11,260,000 Residential Capital LLC, 7.875%, 6/30/2015 9,092,450 15,205,000 Residential Capital LLC, Series E, (MTN), 8.875%, 7/01/2014, (GBP) 24,576,427 52,930,000 Reynolds American, Inc., 6.750%, 6/15/2017 54,135,481 13,400,000 Reynolds American, Inc., 7.250%, 6/15/2037(b) 14,008,025 10,480,000 Sara Lee Corp., 6.125%, 11/01/2032(b) 9,776,174
See accompanying notes to financial statements. 40 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Principal Amount (++) Description Value (+) ------------------------------------------------------------------- United States -- continued $ 1,200,000 Six Flags, Inc., 9.625%, 6/01/2014(b) $ 991,500 2,785,000 Six Flags, Inc., 9.750%, 4/15/2013(b) 2,360,288 10,400,000 SLM Corp., (MTN), 5.050%, 11/14/2014 8,819,907 22,205,000 SLM Corp., Series A, (MTN), 5.000%, 10/01/2013 19,389,317 33,190,000 SLM Corp., Series A, (MTN), 5.000%, 4/15/2015 27,836,951 11,510,000 SLM Corp., Series A, (MTN), 5.000%, 6/15/2018 9,142,566 4,145,000 SLM Corp., Series A, (MTN), 5.375%, 5/15/2014 3,617,300 25,080,000 SLM Corp., Series A, (MTN), 5.625%, 8/01/2033(b) 19,306,032 6,100,000 SLM Corp., Series A, (MTN), 6.500%, 6/15/2010, (NZD) 4,167,086 2,550,000 Southern Natural Gas Co., 7.350%, 2/15/2031 2,670,350 6,326,000 Sprint Capital Corp., 6.875%, 11/15/2028 6,105,210 11,309,000 Sprint Nextel Corp., 6.000%, 12/01/2016 10,862,577 4,035,000 Stanley-Martin Communities LLC, 9.750%, 8/15/2015(b) 3,006,075 1,810,000 Sungard Data Systems, Inc., 9.125%, 8/15/2013 1,882,400 16,514,000 Tenet Healthcare Corp., 6.875%, 11/15/2031 12,344,215 4,480,000 Tenet Healthcare Corp., 9.250%, 2/01/2015(b) 3,953,600 7,872,000 Tennessee Gas Pipeline Co., 7.000%, 10/15/2028(b) 8,012,869 9,240,000 Time Warner, Inc., 6.500%, 11/15/2036 8,914,539 11,145,000 Time Warner, Inc., 6.625%, 5/15/2029 10,914,789 4,795,000 Time Warner, Inc., 6.950%, 1/15/2028 4,905,851 3,150,000 Time Warner, Inc., 7.625%, 4/15/2031 3,426,208 2,025,000 Time Warner, Inc., 7.700%, 5/01/2032 2,223,478 8,785,000 Toledo Edison Co., 6.150%, 5/15/2037 8,199,559 4,245,000 Toll Brothers Financial Corp., 5.150%, 5/15/2015(b) 3,635,690 31,625,000 Toys R Us, Inc., 7.375%, 10/15/2018(b) 25,379,062 8,355,000 Toys R Us, Inc., 7.875%, 4/15/2013 7,268,850 31,135,000 Travelers Cos., Inc. (The), (MTN), 6.250%, 6/15/2037 30,032,603 4,000,000 Travelers Cos., Inc. (The), 6.750%, 6/20/2036 4,062,136 1,000,000 Travelers Property Casualty Corp., 6.375%, 3/15/2033 993,776 35,615,000 Tribune Co., 5.250%, 8/15/2015(b) 24,821,482
Principal Amount (++) Description Value (+) ------------------------------------------------------------------------------------------ United States -- continued $ 315,000 TXU Corp., 5.550%, 11/15/2014 $ 254,051 6,925,000 TXU Corp., Series Q, 6.500%, 11/15/2024 5,550,388 2,225,000 TXU Corp., Series R, 6.550%, 11/15/2034 1,744,985 469,945,000 U.S. Treasury Bond, 4.500%, 2/15/2036(b) 445,529,947 19,965,000 U.S. Treasury Bond, 4.750%, 2/15/2037(b) 19,688,924 516,825,000 U.S. Treasury Bond, 5.375%, 2/15/2031(b) 553,245,141 7,000,000 United States Steel Corp., 6.050%, 6/01/2017 6,698,440 4,130,000 United States Steel Corp., 6.650%, 6/01/2037 3,810,152 24,880,000 USG Corp., 6.300%, 11/15/2016 22,579,944 12,880,000 USG Corp., 7.750%, 1/15/2018 12,899,964 51,815,000 Verizon Global Funding Corp., Senior Note, 5.850%, 9/15/2035(b) 49,498,040 5,530,000 Verizon Maryland, Inc., Series B, 5.125%, 6/15/2033 4,563,057 12,050,000 Verizon New York, Inc., Series A, 7.375%, 4/01/2032 12,828,852 32,790,000 Viacom, Inc., Senior Note, 6.875%, 4/30/2036 32,653,397 132,865,000 Virginia Tobacco Settlement Financing Corp., Series A-1, 6.706%, 6/01/2046 123,347,880 50,000,000 WellPoint, Inc., 6.375%, 6/15/2037(b) 49,565,300 101,985,000 Western Union Co., 6.200%, 11/17/2036 98,256,836 7,300,000 White Pine Hydro LLC, 6.310%, 7/10/2017(f) 7,432,765 10,935,000 White Pine Hydro LLC, 6.960%, 7/10/2037(f) 11,130,212 4,000,000 White Pine Hydro LLC, 7.260%, 7/20/2015(f) 4,099,648 600,000 Williams Cos., Inc., 7.875%, 9/01/2021 652,500 965,000 Williams Cos., Inc., Senior Note, 7.750%, 6/15/2031 1,014,456 8,600,000 Williams Cos., Inc., Series A, 7.500%, 1/15/2031 8,922,400 11,205,000 Willis North America, Inc., 6.200%, 3/28/2017 11,117,870 10,270,000 Woolworth Corp., 8.500%, 1/15/2022 9,807,850 18,050,000 Xerox Capital Trust I, Guaranteed Note, 8.000%, 2/01/2027 18,209,941 1,730,000 Xerox Corp., (MTN), 7.200%, 4/01/2016 1,804,767 8,885,000 XTO Energy, Inc., 6.750%, 8/01/2037 9,270,876 --------------- 6,093,502,631 --------------- Total Non-Convertible Bonds (Identified Cost $9,002,294,070) 9,404,974,539 --------------- Total Bonds and Notes (Identified Cost $9,310,252,018) 9,720,953,726 ---------------
See accompanying notes to financial statements. 41 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007
Shares Description Value (+) ---------------------------------------------------------------------------------- Common Stocks -- 2.2% of Net Assets Israel -- 0.0% 2,288 Teva Pharmaceutical Industries, Ltd., ADR $ 101,747 --------------- United States -- 2.2% 200,925 Apartment Investment & Management Co., Class A(b) 9,067,745 889,730 Associated Estates Realty Corp., (REIT)(b) 11,602,079 2,238,800 Bristol-Myers Squibb Co.(b) 64,522,216 53,260 Chesapeake Energy Corp.(b) 1,877,948 2,309,175 ConAgra Foods, Inc.(b) 60,338,743 41,343 Corning, Inc.(b) 1,019,105 182,500 Developers Diversified Realty Corp., (REIT) 10,196,275 282,500 Duke Energy Corp.(b) 5,279,925 460,000 Equity Residential, (REIT)(b) 19,485,600 477,725 KB Home(b) 11,971,789 549,450 Lennar Corp., Class A(b) 12,445,042 117,700 Simon Property Group, Inc., (REIT)(b) 11,770,000 141,249 Spectra Energy Corp.(b) 3,457,776 359,449 Vertex Pharmaceuticals, Inc.(b)(g) 13,806,436 --------------- 236,840,679 --------------- Total Common Stocks (Identified Cost $211,935,348) 236,942,426 --------------- Shares ---------------------------------------------------------------------------------- Preferred Stocks -- 1.6% United States -- 1.6% 302,400 AES Trust III, Convertible, 6.750%(b) 14,738,976 52,020 Chesapeake Energy Corp., 4.500%(b) 5,241,015 278,685 Chesapeake Energy Corp., Convertible, 5.000%(b) 31,073,378 107,725 CMS Energy Trust I, Convertible, 7.750% 5,372,785 143,875 El Paso Energy Capital Trust I, Convertible, 4.750% 5,926,211 393 Entergy New Orleans, Inc., 4.750% 29,438 42,700 FelCor Lodging Trust, Inc., (REIT) Convertible, $1.95 1,001,742 1,447,000 Ford Motor Co. Capital Trust II, Convertible, 6.500% 54,624,250 15,600 Lucent Technologies Capital Trust I, Convertible, 7.750% 15,132,000 81,975 Newell Financial Trust I, 5.250% 3,822,084 469,300 Owens-Illinois, Inc., Convertible, 4.750% 21,118,500 332,275 Six Flags, Inc., 7.250%(b) 6,954,516 9,381 United Rentals Trust I, Convertible, 6.500% 452,632 --------------- Total Preferred Stocks (Identified Cost $155,205,634) 165,487,527 ---------------
Shares Description Value (+) ------------------------------------------------------------------------------------------------------ Closed-End Investment Companies -- 0.2% 203,625 BlackRock Senior High Income Fund, Inc. $ 1,142,336 110,211 Morgan Stanley Emerging Markets Debt Fund, Inc. 1,061,332 1,969,750 Western Asset High Income Opportunity Fund, Inc. 12,744,283 1,368,400 Western Asset Managed High Income Fund, Inc.(b) 8,484,080 --------------- Total Closed-End Investment Companies (Identified Cost $22,753,639) 23,432,031 --------------- Shares/ Principal Amount (++) ------------------------------------------------------------------------------------------------------ Short-Term Investments -- 21.7% of Net Assets 2,135,549,007 State Street Securities Lending Quality Trust(h) 2,135,549,007 $ 132,117,601 Tri-Party Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/28/2007 at 3.750% to be repurchased at $132,158,888 on 10/1/2007, collateralized by $96,625,000 Federal National Mortgage Association, 5.750% due 3/07/2022 with a value of $95,175,625 and $38,670,000 Federal National Mortgage Association, 6.060% due 6/06/2017 with a value of $39,588,413 including accrued interest (Note 2f) 132,117,601 --------------- Total Short-Term Investments (Identified Cost $2,267,666,608) 2,267,666,608 --------------- Total Investments -- 118.6% (Identified Cost $11,967,813,247)(a) 12,414,482,318 Other assets less liabilities -- (18.6)% (1,949,058,963) --------------- Net Assets -- 100% $10,465,423,355 =============== (++) Principal amount is in U.S. dollars unless otherwise noted. (+) See Note 2a of Notes to Financial Statements. (++) Amounts shown represent units. One unit represents a principal amount of 100. (a) Federal Tax Information: At September 30, 2007, the net unrealized appreciation on investments based on a cost of $11,976,371,468 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 592,285,251 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (154,174,401) --------------- Net unrealized appreciation $ 438,110,850 =============== (b) All or a portion of this security was on loan to brokers at September 30, 2007. (c) Variable rate security whose interest rate varies with changes in a designated base rate (such as the prime interest rate) on a specified date (such as coupon date or interest payment date). The coupon rate shown represents the rate at period end. (d) Non-income producing security due to default or bankruptcy filing. (e) Step Bond: Coupon is a fixed rate for an initial period then resets at a specified date and rate. (f) Illiquid security. At September 30, 2007, the value of these securities amounted to $35,800,685 or 0.3% of net assets. (g) Non-income producing security. (h) Represents investment of security lending collateral.
See accompanying notes to financial statements. 42 LOOMIS SAYLES STRATEGIC INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) Investments as of September 30, 2007 144A Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $1,085,588,797 or 10.4% of net assets. ADR An American Depositary Receipt is a certificate issued by a custodian bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States. EMTN Euro Medium Term Note FNMA Federal National Mortgage Association MTN Medium Term Note REIT Real Estate Investment Trust AUD Australian Dollar BRL Brazilian Real CAD Canadian Dollar EUR Euro GBP British Pound IDR Indonesian Rupiah ISK Iceland Krona KRW South Korean Won MXN Mexican Peso MYR Malaysian Ringgit NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona SGD Singapore Dollar THB Thailand Baht ZAR South African Rand
Holdings at September 30, 2007 as a Percentage of Net Assets (unaudited) Sovereigns 18.3% Treasuries 9.7 Banking 6.2 Wirelines 5.9 Pharmaceuticals 4.7 Electric 4.4 Non-Captive Finance 3.1 Supranational 3.0 Automotive 2.8 Technology 2.8 Media Cable 2.8 Healthcare 2.3 Pipelines 2.1 Independent Energy 2.1 Home Construction 2.1 Other, less than 2% each 24.6
See accompanying notes to financial statements. 43 This Page Intentionally Left Blank 44 STATEMENTS OF ASSETS AND LIABILITIES September 30, 2007
Limited Term Government Core Plus Bond Fund High Income Fund and Agency Fund --------------------- --------------------- ----------------------- ASSETS Investments at cost $ 253,413,303 $ 45,991,644 $ 142,739,129 Net unrealized appreciation (depreciation) (1,218,841) 1,141,994 (938,808) --------------------- --------------------- --------------------- Investments at value(a) 252,194,462 47,133,638 141,800,321 Cash -- -- -- Foreign currency at value (identified cost $10,602, $5,297, $0, $0, $0, $10,441,500) 10,665 5,332 -- Receivable for Fund shares sold 459,038 26,662 208,170 Receivable for securities sold -- 13,404 -- Dividends and interest receivable 2,170,057 686,988 569,566 Tax reclaims receivable -- -- -- Securities lending income receivable 8,641 2,829 4,704 --------------------- --------------------- --------------------- TOTAL ASSETS 254,842,863 47,868,853 142,582,761 --------------------- --------------------- --------------------- LIABILITIES Collateral on securities loaned, at value (Note 2) 31,895,894 5,572,870 8,886,334 Payable for securities purchased 640,343 -- -- Payable for delayed delivery security purchased (Note 2) -- -- 7,119,219 Payable for Fund shares redeemed 260,784 86,102 1,285,694 Dividends payable -- -- 157,226 Management fees payable (Note 4) 22,058 5,356 44,450 Deferred Trustees' fees (Note 4) 279,432 81,276 244,169 Administrative fees payable (Note 4) 10,214 2,033 5,555 Other accounts payable and accrued expenses 215,572 42,336 55,220 --------------------- --------------------- --------------------- TOTAL LIABILITIES 33,324,297 5,789,973 17,797,867 --------------------- --------------------- --------------------- NET ASSETS $ 221,518,566 $ 42,078,880 $ 124,784,894 ===================== ===================== ===================== NET ASSETS CONSIST OF: Paid-in capital $ 243,520,421 $ 122,213,756 $ 142,955,766 Undistributed (overdistributed) net investment income 286,929 44,230 (130,422) Accumulated net realized gain (loss) on investments and foreign currency transactions (21,078,017) (81,322,639) (17,101,642) Net unrealized appreciation (depreciation) on investments and foreign currency translations (1,210,767) 1,143,533 (938,808) --------------------- --------------------- --------------------- NET ASSETS $ 221,518,566 $ 42,078,880 $ 124,784,894 ===================== ===================== ===================== COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE: Class A shares: Net assets $ 105,780,312 $ 32,602,986 $ 108,536,108 ===================== ===================== ===================== Shares of beneficial interest 9,353,621 6,367,626 9,868,144 ===================== ===================== ===================== Net asset value and redemption price per share $ 11.31 $ 5.12 $ 11.00 ===================== ===================== ===================== Offering price per share (100/[100-maximum sales charge] of net asset value) (Note 1) $ 11.84 $ 5.36 $ 11.34 ===================== ===================== ===================== Class B shares: (redemption price per share is equal to net asset value less any applicable contingent deferred sales charge) (Note 1) Net assets $ 87,101,310 $ 4,200,520 $ 6,786,867 ===================== ===================== ===================== Shares of beneficial interest 7,698,452 819,262 617,767 ===================== ===================== ===================== Net asset value and offering price per share $ 11.31 $ 5.13 $ 10.99 ===================== ===================== ===================== Class C shares: (redemption price per share is equal to net asset value less any applicable contingent deferred sales charge) (Note 1) Net assets $ 12,690,465 $ 5,275,374 $ 5,260,951 ===================== ===================== ===================== Shares of beneficial interest 1,120,972 1,029,474 478,112 ===================== ===================== ===================== Net asset value and offering price per share $ 11.32 $ 5.12 $ 11.00 ===================== ===================== ===================== Class Y shares: Net assets $ 15,946,479 $ -- $ 4,200,968 ===================== ===================== ===================== Shares of beneficial interest 1,403,705 -- 380,830 ===================== ===================== ===================== Net asset value, offering and redemption price per share $ 11.36 $ -- $ 11.03 ===================== ===================== ===================== (a) Including securities on loan with market values of: $ 31,264,559 $ 5,465,101 $ 8,731,477 ===================== ===================== =====================
See accompanying notes to financial statements. 45
Massachusetts Tax Municipal Income Strategic Income Free Income Fund Fund Fund --------------------- --------------------- --------------------- $ 65,672,930 $ 85,467,894 $ 11,967,813,247 1,764,990 823,097 446,669,071 --------------------- --------------------- --------------------- 67,437,920 86,290,991 12,414,482,318 -- -- 8,663 -- -- 10,770,100 2,720 3,683 67,247,918 -- -- 1,152,300 1,059,746 1,367,316 147,521,117 -- -- 3,180 -- -- 560,097 --------------------- --------------------- --------------------- 68,500,386 87,661,990 12,641,745,693 --------------------- --------------------- --------------------- -- -- 2,135,549,007 -- 1,270,704 23,276,220 -- -- -- 41,191 129,784 10,489,368 53,141 88,267 -- 22,083 20,289 4,671,414 92,638 170,624 393,037 3,224 4,357 445,360 43,457 36,724 1,497,932 --------------------- --------------------- --------------------- 255,734 1,720,749 2,176,322,338 --------------------- --------------------- --------------------- $ 68,244,652 $ 85,941,241 $ 10,465,423,355 ===================== ===================== ===================== $ 66,958,010 $ 84,350,902 $ 9,992,363,120 17,656 236,715 26,601,961 (496,004) 530,527 (2,290,496) 1,764,990 823,097 448,748,770 --------------------- --------------------- --------------------- $ 68,244,652 $ 85,941,241 $ 10,465,423,355 ===================== ===================== ===================== $ 66,584,736 $ 82,144,212 $ 5,749,314,842 ===================== ===================== ===================== 4,081,741 11,202,720 378,740,752 ===================== ===================== ===================== $ 16.31 $ 7.33 $ 15.18 ===================== ===================== ===================== $ 17.03 $ 7.68 $ 15.90 ===================== ===================== ===================== $ 1,659,916 $ 3,797,029 $ 233,418,256 ===================== ===================== ===================== 101,983 517,191 15,306,640 ===================== ===================== ===================== $ 16.28 $ 7.34 $ 15.25 ===================== ===================== ===================== $ -- $ -- $ 3,843,822,561 ===================== ===================== ===================== -- -- 252,149,852 ===================== ===================== ===================== $ -- $ -- $ 15.24 ===================== ===================== ===================== $ -- $ -- $ 638,867,696 ===================== ===================== ===================== -- -- 42,104,822 ===================== ===================== ===================== $ -- $ -- $ 15.17 ===================== ===================== ===================== $ -- $ -- $ 2,097,963,205 ===================== ===================== =====================
46 STATEMENTS OF OPERATIONS For the Year Ended September 30, 2007
Limited Term Government Core Plus Bond Fund High Income Fund and Agency Fund --------------------- --------------------- ----------------------- INVESTMENT INCOME Dividends $ -- $ 110,571 $ -- Interest 11,932,113 3,071,037 6,419,896 Securities lending income (Note 2) 69,741 13,570 20,273 Less net foreign taxes withheld -- (253) -- --------------------- --------------------- --------------------- 12,001,854 3,194,925 6,440,169 --------------------- --------------------- --------------------- Expenses Management fees (Note 4) 952,707 252,979 629,029 Service fees - Class A (Note 4) 242,355 78,888 273,749 Service and distribution fees - Class B (Note 4) 1,003,755 60,229 81,324 Service and distribution fees - Class C (Note 4) 92,871 45,851 46,659 Trustees' fees and expenses (Note 4) 65,307 23,359 56,354 Administrative fees (Note 4) 122,399 23,539 69,276 Custodian fees and expenses 34,344 22,697 27,755 Transfer agent fees and expenses - Class A (Note 4) 210,244 44,996 125,366 Transfer agent fees and expenses - Class B (Note 4) 235,267 9,824 10,047 Transfer agent fees and expenses - Class C (Note 4) 18,049 5,989 5,091 Transfer agent fees and expenses - Class Y (Note 4) 17,834 -- 268 Audit fees 46,662 46,625 50,312 Legal fees 6,665 2,213 3,599 Shareholder reporting expenses 62,341 11,356 19,169 Registration fees 63,782 44,848 59,091 Miscellaneous expenses 18,214 8,073 11,224 --------------------- --------------------- --------------------- Total expenses 3,192,796 681,466 1,468,313 Less fee reduction and/or expense reimbursement (Note 4) (128,194) (103,143) (139,668) --------------------- --------------------- --------------------- Net expenses 3,064,602 578,323 1,328,645 --------------------- --------------------- --------------------- Net investment income 8,937,252 2,616,602 5,111,524 --------------------- --------------------- --------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain on: Investments - net 3,043,606 2,070,919 65,262 Foreign currency transactions - net 13,847 234 -- Change in unrealized appreciation (depreciation) on: Investments - net (463,863) (1,571,353) 261,814 Foreign currency translations - net 8,786 1,133 -- --------------------- --------------------- --------------------- Total net realized and unrealized gain (loss) on investments and foreign currency transactions 2,602,376 500,933 327,076 --------------------- --------------------- --------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 11,539,628 $ 3,117,535 $ 5,438,600 ===================== ===================== =====================
See accompanying notes to financial statements. 47
Massachusetts Tax Municipal Strategic Free Income Fund Income Fund Income Fund --------------------- --------------------- --------------------- $ -- $ -- $ 19,532,993 3,430,191 4,380,690 484,453,445 -- -- 2,953,743 -- -- (207,865) --------------------- --------------------- --------------------- 3,430,191 4,380,690 506,732,316 --------------------- --------------------- --------------------- 425,028 468,737 44,720,043 172,258 222,720 10,869,737 19,347 46,593 2,134,858 -- -- 29,151,864 26,207 41,640 254,282 39,395 52,381 4,368,976 19,892 20,868 704,297 44,715 47,076 4,044,313 1,365 2,555 224,489 -- -- 2,690,350 -- -- 358,862 44,963 42,892 54,674 2,164 2,846 258,742 11,812 8,011 1,067,761 20,468 36,748 633,202 9,250 8,998 235,087 --------------------- --------------------- --------------------- 836,864 1,002,065 101,771,537 (149,393) (76,521) -- --------------------- --------------------- --------------------- 687,471 925,544 101,771,537 --------------------- --------------------- --------------------- 2,742,720 3,455,146 404,960,779 --------------------- --------------------- --------------------- 915,434 635,763 69,597,188 -- -- 2,458,019 (2,461,854) (2,985,337) 226,353,834 -- -- 2,094,707 --------------------- --------------------- --------------------- (1,546,420) (2,349,574) 300,503,748 --------------------- --------------------- --------------------- $ 1,196,300 $ 1,105,572 $ 705,464,527 ===================== ===================== =====================
48 STATEMENTS OF CHANGES IN NET ASSETS
Core Plus Bond Fund -------------------------------------------- Year Ended Year Ended September 30, 2007 September 30, 2006 --------------------- --------------------- FROM OPERATIONS: Net investment income $ 8,937,252 $ 9,304,763 Net realized gain (loss) on investments and foreign currency transactions 3,057,453 (250,058) Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (455,077) (1,346,777) --------------------- --------------------- Net increase in net assets resulting from operations 11,539,628 7,707,928 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (4,791,156) (5,268,788) Class B (4,164,404) (5,666,228) Class C (393,045) (281,535) Class Y (746,123) (518,162) Net realized capital gain Class A -- -- Class B -- -- --------------------- --------------------- Total distributions (10,094,728) (11,734,713) --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 8) (150,880) (28,217,204) --------------------- --------------------- Redemption fees Class A 4,164 707 Class B 3,852 886 Class C 451 42 Class Y 627 61 --------------------- --------------------- 9,094 1,696 --------------------- --------------------- Net increase (decrease) in net assets 1,303,114 (32,242,293) --------------------- --------------------- NET ASSETS Beginning of the year 220,215,452 252,457,745 --------------------- --------------------- End of the year $ 221,518,566 $ 220,215,452 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 286,929 $ 784,748 ===================== =====================
High Income Fund -------------------------------------------- Year Ended Year Ended September 30, 2007 September 30, 2006 --------------------- --------------------- FROM OPERATIONS: Net investment income $ 2,616,602 $ 2,541,904 Net realized gain (loss) on investments and foreign currency transactions 2,071,153 588,883 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (1,570,220) 285,142 --------------------- --------------------- Net increase in net assets resulting from operations 3,117,535 3,415,929 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (2,276,050) (1,818,161) Class B (385,580) (563,592) Class C (290,234) (204,085) Class Y -- -- Net realized capital gain Class A -- -- Class B -- -- --------------------- --------------------- Total distributions (2,951,864) (2,585,838) --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 8) 2,103,465 (2,428,478) --------------------- --------------------- Redemption fees Class A 1,239 866 Class B 221 337 Class C 191 116 Class Y -- -- --------------------- --------------------- 1,651 1,319 --------------------- --------------------- Net increase (decrease) in net assets 2,270,787 (1,597,068) --------------------- --------------------- NET ASSETS Beginning of the year 39,808,093 41,405,161 --------------------- --------------------- End of the year $ 42,078,880 $ 39,808,093 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ 44,230 $ (82,641) ===================== =====================
Limited Term Government and Agency Fund -------------------------------------------- Year Ended Year Ended September 30, 2007 September 30, 2006 --------------------- --------------------- FROM OPERATIONS: Net investment income $ 5,111,524 $ 5,075,427 Net realized gain (loss) on investments and foreign currency transactions 65,262 (845,533) Net change in unrealized appreciation (depreciation) on investments and foreign currency translations 261,814 (145,704) --------------------- --------------------- Net increase in net assets resulting from operations 5,438,600 4,084,190 --------------------- --------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (4,778,111) (4,997,550) Class B (288,517) (381,270) Class C (166,306) (153,472) Class Y (164,290) (105,197) Net realized capital gain Class A -- -- Class B -- -- --------------------- --------------------- Total distributions (5,397,224) (5,637,489) --------------------- --------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 8) (6,079,674) (32,402,336) --------------------- --------------------- Redemption fees Class A -- -- Class B -- -- Class C -- -- Class Y -- -- --------------------- --------------------- -- -- --------------------- --------------------- Net increase (decrease) in net assets (6,038,298) (33,955,635) --------------------- --------------------- NET ASSETS Beginning of the year 130,823,192 164,778,827 --------------------- --------------------- End of the year $ 124,784,894 $ 130,823,192 ===================== ===================== UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME (LOSS) $ (130,422) $ (152,331) ===================== =====================
See accompanying notes to financial statements. 49
Massachusetts Tax Free Income Fund Municipal Income Fund -------------------------------------------- -------------------------------------------- Year Ended Year Ended Year Ended Year Ended September 30, 2007 September 30, 2006 September 30, 2007 September 30, 2006 --------------------- --------------------- --------------------- --------------------- $ 2,742,720 $ 2,919,705 $ 3,455,146 $ 3,899,552 915,434 345,282 635,763 1,173,164 (2,461,854) (133,389) (2,985,337) (395,083) --------------------- --------------------- --------------------- --------------------- 1,196,300 3,131,598 1,105,572 4,677,633 --------------------- --------------------- --------------------- --------------------- (2,677,791) (2,838,521) (3,282,541) (3,654,019) (60,488) (86,605) (136,525) (192,325) -- -- -- -- -- -- -- -- -- -- (425,469) -- -- -- (23,297) -- --------------------- --------------------- --------------------- --------------------- (2,738,279) (2,925,126) (3,867,832) (3,846,344) --------------------- --------------------- --------------------- --------------------- (5,036,768) (5,608,072) (9,932,346) (12,060,212) --------------------- --------------------- --------------------- --------------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --------------------- --------------------- --------------------- --------------------- -- -- -- -- --------------------- --------------------- --------------------- --------------------- (6,578,747) (5,401,600) (12,694,606) (11,228,923) --------------------- --------------------- --------------------- --------------------- 74,823,399 80,224,999 98,635,847 109,864,770 --------------------- --------------------- --------------------- --------------------- $ 68,244,652 $ 74,823,399 $ 85,941,241 $ 98,635,847 ===================== ===================== ===================== ===================== $ 17,656 $ 13,263 $ 236,715 $ 177,784 ===================== ===================== ===================== =====================
Strategic Income Fund -------------------------------------------- Year Ended Year Ended September 30, 2007 September 30, 2006 --------------------- --------------------- $ 404,960,779 $ 147,505,882 72,055,207 6,215,522 228,448,541 138,319,873 --------------------- --------------------- 705,464,527 292,041,277 --------------------- --------------------- (239,664,878) (93,282,911) (10,008,544) (7,447,638) (137,066,220) (55,187,294) (26,439,067) (7,523,452) -- -- -- -- --------------------- --------------------- (413,178,709) (163,441,295) --------------------- --------------------- 5,126,647,863 2,980,503,923 --------------------- --------------------- 182,774 110,642 8,908 9,525 122,627 75,367 19,120 9,065 --------------------- --------------------- 333,429 204,599 --------------------- --------------------- 5,419,267,110 3,109,308,504 --------------------- --------------------- 5,046,156,245 1,936,847,741 --------------------- --------------------- $ 10,465,423,355 $ 5,046,156,245 ===================== ===================== $ 26,601,961 $ 3,854,962 ===================== =====================
50 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
Income (Loss) from Investment Operations Less Distributions --------------------------------------- --------------------------- Net asset value, Dividends beginning Net Net realized Total from from of investment and unrealized investment net investment Total Redemption period income (c) gain (loss) operations income distributions fees (e) ---------- ---------- -------------- ---------- -------------- ------------- ---------- CORE PLUS BOND FUND Class A 9/30/2007 $ 11.23 $ 0.50 $ 0.14 $ 0.64 $ (0.56) $ (0.56) $ 0.00 9/30/2006 11.41 0.50 (0.07) 0.43 (0.61) (0.61) 0.00 9/30/2005 11.69 0.46 (0.18) 0.28 (0.56) (0.56) 0.00 9/30/2004 11.63 0.47 0.13 0.60 (0.54) (0.54) 0.00 9/30/2003(i) 11.28 0.37 0.34 0.71 (0.36) (0.36) -- 12/31/2002 11.59 0.63 (0.32) 0.31 (0.62) (0.62) -- Class B 9/30/2007 11.24 0.41 0.13 0.54 (0.47) (0.47) 0.00 9/30/2006 11.41 0.41 (0.05) 0.36 (0.53) (0.53) 0.00 9/30/2005 11.70 0.37 (0.18) 0.19 (0.48) (0.48) 0.00 9/30/2004 11.62 0.38 0.14 0.52 (0.44) (0.44) 0.00 9/30/2003(i) 11.28 0.30 0.34 0.64 (0.30) (0.30) -- 12/31/2002 11.59 0.55 (0.32) 0.23 (0.54) (0.54) -- Class C 9/30/2007 11.25 0.41 0.13 0.54 (0.47) (0.47) 0.00 9/30/2006 11.42 0.41 (0.05) 0.36 (0.53) (0.53) 0.00 9/30/2005 11.71 0.37 (0.18) 0.19 (0.48) (0.48) 0.00 9/30/2004 11.63 0.38 0.14 0.52 (0.44) (0.44) 0.00 9/30/2003(i) 11.29 0.30 0.34 0.64 (0.30) (0.30) -- 12/31/2002 11.60 0.55 (0.32) 0.23 (0.54) (0.54) -- Class Y 9/30/2007 11.29 0.54 0.13 0.67 (0.60) (0.60) 0.00 9/30/2006 11.46 0.51 (0.04) 0.47 (0.64) (0.64) 0.00 9/30/2005 11.74 0.49 (0.18) 0.31 (0.59) (0.59) 0.00 9/30/2004 11.69 0.50 0.13 0.63 (0.58) (0.58) 0.00 9/30/2003(i) 11.33 0.41 0.35 0.76 (0.40) (0.40) -- 12/31/2002 11.63 0.69 (0.32) 0.37 (0.67) (0.67) -- HIGH INCOME FUND* Class A 9/30/2007 $ 5.09 $ 0.33 $ 0.08 $ 0.41 $ (0.38) $ (0.38) $ 0.00 9/30/2006 4.98 0.34 0.11 0.45 (0.34) (0.34) 0.00 9/30/2005 4.82 0.33 0.16 0.49 (0.33) (0.33) 0.00 9/30/2004 4.65 0.33 0.17 0.50 (0.33) (0.33) 0.00 9/30/2003(i) 4.12 0.25 0.53 0.78 (0.25) (0.25) -- 12/31/2002 4.94 0.39 (0.82) (0.43) (0.39) (0.39) -- Class B 9/30/2007 5.10 0.29 0.07 0.36 (0.33) (0.33) 0.00 9/30/2006 4.98 0.30 0.12 0.42 (0.30) (0.30) 0.00 9/30/2005 4.83 0.29 0.15 0.44 (0.29) (0.29) 0.00 9/30/2004 4.65 0.30 0.18 0.48 (0.30) (0.30) 0.00 9/30/2003(i) 4.12 0.23 0.53 0.76 (0.23) (0.23) -- 12/31/2002 4.95 0.36 (0.83) (0.47) (0.36) (0.36) --
(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 periods less than one year. (c)Per share net investment income has been calculated using the average shares outstanding during the period. (d)Represents the total expenses prior to advisory fee reductions and/or reimbursement of a portion of the Fund's expenses. (e)Amount rounds to less than $0.01, if applicable. (f)Had certain expenses not been reduced during the period, if applicable, total return would have been lower. See accompanying notes to financial statements. 51
Ratios to Average Net Assets ------------------------------------------ Net asset Net assets, value, Total end of Net Gross Net investment Portfolio end of return period expenses expenses income turnover period (%) (a) (f) (000's) (%) (b) (g) (%) (b) (d) (loss) (%) (b) rate (%) ---------- ----------- ----------- ----------- ----------- -------------- --------- $ 11.31 5.7 $ 105,780 1.04 1.09 4.41 69 11.23 4.0 91,464 1.05 1.08 4.46 91 11.41 2.4 105,111 1.13 1.18 3.93 64 11.69 5.3 120,009 1.19 1.22 4.05 69 11.63 6.4 133,887 1.28 1.28 4.31 61 11.28 2.8 147,647 1.18 1.18 5.65 65 11.31 4.9 87,101 1.79 1.85 3.64 69 11.24 3.3 109,782 1.80 1.83 3.72 91 11.41 1.6 132,221 1.88 1.93 3.18 64 11.70 4.6 148,556 1.94 1.97 3.29 69 11.62 5.8 161,317 2.03 2.03 3.55 61 11.28 2.1 141,188 1.93 1.93 4.90 65 11.32 4.9 12,690 1.78 1.82 3.66 69 11.25 3.3 6,983 1.80 1.82 3.63 91 11.42 1.6 6,065 1.88 1.93 3.17 64 11.71 4.6 6,162 1.94 1.98 3.30 69 11.63 5.8 7,612 2.03 2.03 3.55 61 11.29 2.1 9,024 1.93 1.93 4.90 65 11.36 6.1 15,946 0.70 0.75 4.75 69 11.29 4.3 11,986 0.80(h) 0.80(h) 4.58 91 11.46 2.7 9,060 0.88 0.99 4.18 64 11.74 5.5 10,941 0.94 0.98 4.30 69 11.69 6.9 17,889 0.73 0.73 4.85 61 11.33 3.5 18,346 0.67 0.67 6.15 65 $ 5.12 8.1 $ 32,603 1.18 1.43 6.40 41 5.09 9.4 29,069 1.31 1.48 6.70 41 4.98 10.3 25,817 1.58 1.72 6.60 42 4.82 11.1 24,641 1.65 1.65 6.97 51 4.65 19.5 23,809 1.71 1.71 7.62 41 4.12 (8.9) 22,454 1.58 1.58 8.85 114 5.13 7.2 4,201 1.94 2.18 5.63 41 5.10 8.8 7,283 2.08 2.25 6.00 41 4.98 9.3 12,034 2.33 2.47 5.85 42 4.83 10.5 17,967 2.40 2.40 6.22 51 4.65 18.8 23,405 2.46 2.46 6.89 41 4.12 (9.7) 23,031 2.33 2.33 8.10 114
(g)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or reduce its management fee during the period. Without this reimbursement/reduction, expenses would have been higher. See Note 4. (h)Includes expense recapture of 0.06%. See note 4. (i)For the nine months ended September 30, 2003. * The financial information for periods prior to September 30, 2004 reflects the financial information for the CDC Nvest 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. 52 FINANCIAL HIGHLIGHTS (continued) For a share outstanding throughout each period.
Income (Loss) from Investment Operations Less Distributions --------------------------------------- --------------------------- Net asset value, beginning Net Net realized Total from Dividends from of investment and unrealized investment net investment Total period income (c) gain (loss) operations income distributions ---------- ---------- -------------- ---------- -------------- ------------- HIGH INCOME FUND* (continued) Class C 9/30/2007 $ 5.09 $ 0.29 $ 0.07 $ 0.36 $ (0.33) $ (0.33) 9/30/2006 4.98 0.30 0.11 0.41 (0.30) (0.30) 9/30/2005 4.83 0.29 0.15 0.44 (0.29) (0.29) 9/30/2004 4.65 0.30 0.18 0.48 (0.30) (0.30) 9/30/2003(d) 4.12 0.23 0.53 0.76 (0.23) (0.23) 12/31/2002 4.94 0.36 (0.82) (0.46) (0.36) (0.36) LIMITED TERM GOVERNMENT AND AGENCY FUND** Class A 9/30/2007 $ 11.00 $ 0.45 $ 0.03 $ 0.48 $ (0.48) $ (0.48) 9/30/2006 11.09 0.39 (0.05) 0.34 (0.43) (0.43) 9/30/2005 11.30 0.28 (0.16) 0.12 (0.33) (0.33) 9/30/2004 11.51 0.30 (0.09) 0.21 (0.42) (0.42) 9/30/2003(d) 11.73 0.21 (0.07) 0.14 (0.36) (0.36) 12/31/2002 11.36 0.42 0.49 0.91 (0.54) (0.54) Class B 9/30/2007 10.98 0.37 0.03 0.40 (0.39) (0.39) 9/30/2006 11.07 0.31 (0.05) 0.26 (0.35) (0.35) 9/30/2005 11.28 0.20 (0.17) 0.03 (0.24) (0.24) 9/30/2004 11.49 0.22 (0.09) 0.13 (0.34) (0.34) 9/30/2003(d) 11.71 0.15 (0.06) 0.09 (0.31) (0.31) 12/31/2002 11.34 0.35 0.48 0.83 (0.46) (0.46) Class C 9/30/2007 10.99 0.37 0.03 0.40 (0.39) (0.39) 9/30/2006 11.08 0.31 (0.05) 0.26 (0.35) (0.35) 9/30/2005 11.30 0.20 (0.18) 0.02 (0.24) (0.24) 9/30/2004 11.50 0.22 (0.08) 0.14 (0.34) (0.34) 9/30/2003(d) 11.72 0.15 (0.06) 0.09 (0.31) (0.31) 12/31/2002 11.35 0.35 0.48 0.83 (0.46) (0.46) Class Y 9/30/2007 11.03 0.49 0.03 0.52 (0.52) (0.52) 9/30/2006 11.13 0.43 (0.06) 0.37 (0.47) (0.47) 9/30/2005 11.34 0.31 (0.17) 0.14 (0.35) (0.35) 9/30/2004 11.55 0.32 (0.09) 0.23 (0.44) (0.44) 9/30/2003(d) 11.78 0.25 (0.08) 0.17 (0.40) (0.40) 12/31/2002 11.41 0.48 0.48 0.96 (0.59) (0.59)
Redemption fees (e) ---------- HIGH INCOME FUND* (continued) Class C 9/30/2007 $ 0.00 9/30/2006 0.00 9/30/2005 0.00 9/30/2004 0.00 9/30/2003(d) -- 12/31/2002 -- LIMITED TERM GOVERNMENT AND AGENCY FUND** Class A 9/30/2007 $ -- 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(d) -- 12/31/2002 -- Class B 9/30/2007 -- 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(d) -- 12/31/2002 -- Class C 9/30/2007 -- 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(d) -- 12/31/2002 -- Class Y 9/30/2007 -- 9/30/2006 -- 9/30/2005 -- 9/30/2004 -- 9/30/2003(d) -- 12/31/2002 --
(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)For the nine months ended September 30, 2003. (e)Amount rounds to less than $0.01 per share, if applicable. (f)Represents the total expenses prior to reduction of a portion of the class's transfer agent expenses. (g)Had certain expenses not been reduced during the period, if applicable, total return would have been lower. (h)Represents total expenses prior to advisory fee reduction and/or reimbursement of a portion of the Fund's expenses, if applicable. See accompanying notes to financial statements. 53
Ratios to Average Net Assets ---------------------------------------- Net asset Net assets, value, Total end of Net Gross Net investment Portfolio end of return period expenses expenses income (loss) turnover period (%) (a) (g) (000's) (%) (b) (i) (%) (b) (h) (%) (b) rate (%) ---------- ----------- ----------- ----------- ----------- -------------- --------- $ 5.12 7.2 $ 5,275 1.93 2.17 5.63 41 5.09 8.6 3,457 2.07 2.23 5.96 41 4.98 9.3 3,554 2.33 2.47 5.82 42 4.83 10.5 2,608 2.40 2.40 6.22 51 4.65 18.8 2,858 2.46 2.46 6.89 41 4.12 (9.5) 2,605 2.33 2.33 8.10 114 $ 11.00 4.5 $ 108,536 0.99 1.10 4.13 45 11.00 3.2 114,180 1.04 1.09 3.57 50 11.09 1.1 141,417 1.24 1.24 2.50 93 11.30 1.9 106,701 1.32 1.32 2.60 80 11.51 1.2 117,225 1.37 1.37 2.41 53 11.73 8.2 106,013 1.35 1.35 3.66 88 10.99 3.7 6,787 1.74 1.85 3.37 45 10.98 2.4 9,952 1.79 1.84 2.79 50 11.07 0.3 15,114 1.99 1.99 1.75 93 11.28 1.2 10,107 2.00 2.00 1.95 80 11.49 0.7 14,637 2.02 2.02 1.77 53 11.71 7.5 16,263 2.00 2.00 3.01 88 11.00 3.6 5,261 1.74 1.85 3.38 45 10.99 2.5 4,230 1.79 1.84 2.81 50 11.08 0.2 5,715 1.99 1.99 1.75 93 11.30 1.3 6,949 2.00 2.00 1.94 80 11.50 0.7 8,704 2.02 2.02 1.77 53 11.72 7.5 8,079 2.02 2.00 3.01 88 11.03 4.8 4,201 0.71 0.75 4.43 45 11.03 3.4 2,461 0.74 0.74 3.89 50 11.13 1.2 2,533 1.02 1.59(f) 2.77 93 11.34 2.1 4,233 1.13 1.13 2.82 80 11.55 1.5 6,886 0.93 0.93 2.87 53 11.78 8.6 8,529 0.88 0.88 4.14 88
(i)The investment advisor agreed to reimburse a portion of the Fund's expenses and/or reduce its management fee during the period. Without this reimbursement/reduction, expenses would have been higher. See Note 4. * The financial information for periods prior to September 30, 2004 reflects the financial information for the CDC Nvest High Income Fund's Class A and Class B shares, which were reorganized into Class A and Class B shares, respectively, of the Loomis Sayles High Income Fund, effective September 12, 2003. Prior to September 1, 2003, the predecessor Fund was advised by CDC IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles & Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003, had a December 31 fiscal year end. The Fund's current fiscal year end is September 30. ** The financial information for periods prior to September 30, 2004 reflects the financial information for the CDC Nvest Limited Term U.S. Government Fund's Class A, Class B, Class C, and Class Y shares which were reorganized into Class A, Class B, Class C, and Class Y shares, respectively, of the Loomis Sayles Limited Term Government and Agency Fund, effective September 12, 2003. Prior to September 1, 2003, the predecessor Fund was advised by CDC IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles & Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003, had a December 31 fiscal year end. The Fund's current fiscal year end is September 30. 54 FINANCIAL HIGHLIGHTS (continued) 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 period income gain (loss) operations income capital gains ---------- ---------- -------------- ---------- -------------- ------------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2007 $ 16.67 $ 0.64(h) $ (0.36) $ 0.28 $ (0.64) $ -- 9/30/2006 16.62 0.64 0.05 0.69 (0.64) -- 9/30/2005 16.58 0.60 0.04 0.64 (0.60) -- 9/30/2004 16.41 0.61 0.17 0.78 (0.61) -- 9/30/2003(e) 16.40 0.49 0.01 0.50 (0.49) -- 12/31/2002 15.82 0.67 0.59 1.26 (0.68) -- Class B 9/30/2007 16.64 0.52(h) (0.36) 0.16 (0.52) -- 9/30/2006 16.58 0.51 0.06 0.57 (0.51) -- 9/30/2005 16.54 0.46 0.05 0.51 (0.47) -- 9/30/2004 16.37 0.49 0.18 0.67 (0.50) -- 9/30/2003(e) 16.36 0.41 0.01 0.42 (0.41) -- 12/31/2002 15.78 0.57 0.58 1.15 (0.57) -- MUNICIPAL INCOME FUND Class A 9/30/2007 $ 7.55 $ 0.28(h) $ (0.19) $ 0.09 $ (0.28) $ (0.03) 9/30/2006 7.48 0.28 0.07 0.35 (0.28) -- 9/30/2005 7.47 0.28 0.01 0.29 (0.28) -- 9/30/2004 7.41 0.29 0.06 0.35 (0.29) -- 9/30/2003(e) 7.43 0.23 (0.02) 0.21 (0.23) -- 12/31/2002 7.25 0.34 0.18 0.52 (0.34) -- Class B 9/30/2007 7.56 0.22(h) (0.19) 0.03 (0.22) (0.03) 9/30/2006 7.49 0.23 0.07 0.30 (0.23) -- 9/30/2005 7.48 0.22 0.01 0.23 (0.22) -- 9/30/2004 7.41 0.24 0.07 0.31 (0.24) -- 9/30/2003(e) 7.44 0.19 (0.03) 0.16 (0.19) -- 12/31/2002 7.25 0.29 0.19 0.48 (0.29) --
Total distributions ------------- MASSACHUSETTS TAX FREE INCOME FUND Class A 9/30/2007 $ (0.64) 9/30/2006 (0.64) 9/30/2005 (0.60) 9/30/2004 (0.61) 9/30/2003(e) (0.49) 12/31/2002 (0.68) Class B 9/30/2007 (0.52) 9/30/2006 (0.51) 9/30/2005 (0.47) 9/30/2004 (0.50) 9/30/2003(e) (0.41) 12/31/2002 (0.57) MUNICIPAL INCOME FUND Class A 9/30/2007 $ (0.31) 9/30/2006 (0.28) 9/30/2005 (0.28) 9/30/2004 (0.29) 9/30/2003(e) (0.23) 12/31/2002 (0.34) Class B 9/30/2007 (0.25) 9/30/2006 (0.23) 9/30/2005 (0.22) 9/30/2004 (0.24) 9/30/2003(e) (0.19) 12/31/2002 (0.29)
(a)A sales charge for Class A 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 reductions and/or reimbursement of a portion of the Fund's expenses, if applicable. (d)Had certain expenses not been reduced during the period, if applicable, total return would have been lower. See accompanying notes to financial statements. 55
Ratios to Average Net Assets ---------------------------------------- Net asset Net assets, value, Total end of Net Gross Net investment Portfolio end of return period expenses expenses income (loss) turnover period (%) (a) (d) (000's) (%) (b) (f) (%) (b) (c) (%) (b) rate (%) ---------- ----------- ----------- ----------- ----------- -------------- --------- $ 16.31 1.7 $ 66,585 0.95 1.16 3.89 23 16.67 4.2 72,479 1.02 1.14(g) 3.86 8 16.62 3.9 77,018 1.22 1.22 3.59 5 16.58 4.9 81,427 1.33 1.33 3.74 21 16.41 3.1 86,368 1.38 1.38 3.99 9 16.40 8.1 92,053 1.34 1.34 4.19 33 16.28 0.9 1,660 1.70 1.91 3.13 23 16.64 3.5 2,345 1.77 1.89(g) 3.10 8 16.58 3.1 3,207 1.97 1.97 2.84 5 16.54 4.2 4,435 2.00 2.00 3.08 21 16.37 2.6 6,185 2.03 2.03 3.34 9 16.36 7.4 6,742 1.99 1.99 3.54 33 $ 7.33 1.2 $ 82,144 0.95 1.03 3.72 17 7.55 4.8 93,448 0.97 0.99 3.83 14 7.48 3.9 102,255 1.07 1.07 3.65 29 7.47 4.9 111,801 1.11 1.11 4.00 35 7.41 2.9 126,906 1.10 1.10 4.14 42 7.43 7.3 133,005 1.06 1.06 4.67 33 7.34 0.4 3,797 1.70 1.78 2.97 17 7.56 4.0 5,188 1.72 1.75 3.07 14 7.49 3.1 7,610 1.82 1.82 2.90 29 7.48 4.2 9,087 1.86 1.86 3.25 35 7.41 2.2 10,884 1.85 1.85 3.39 42 7.44 6.7 12,326 1.81 1.81 3.92 33
(e)For the nine months ended September 30, 2003. (f)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or reduce its management fee during the period. Without this reimbursement/reduction, expenses would have been higher. See Note 4. (g)Includes expense recapture of 0.01%. See Note 4. (h)Per share net investment income has been calculated using the average shares outstanding during the period. 56 FINANCIAL HIGHLIGHTS (continued) For a share outstanding throughout each period.
Income (Loss) from Investment Operations: Less Distributions: ----------------------------------------- --------------------------- Net asset value, Dividends beginning Net Net realized Total from from of investment and unrealized investment net investment Total Redemption period income (c) gain (loss) operations income distributions fees (f) ---------- ---------- -------------- ---------- -------------- ------------- ---------- STRATEGIC INCOME FUND* Class A 9/30/2007 $ 14.60 $ 0.80 $ 0.60 $ 1.40 $ (0.82) $ (0.82) $ 0.00 9/30/2006 14.17 0.71 0.53 1.24 (0.81) (0.81) 0.00 9/30/2005 13.57 0.66 0.70 1.36 (0.76) (0.76) 0.00 9/30/2004 12.57 0.75 1.11 1.86 (0.86) (0.86) 0.00 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) -- Class B 9/30/2007 14.66 0.69 0.60 1.29 (0.70) (0.70) 0.00 9/30/2006 14.22 0.61 0.52 1.13 (0.69) (0.69) 0.00 9/30/2005 13.60 0.56 0.71 1.27 (0.65) (0.65) 0.00 9/30/2004 12.59 0.65 1.10 1.75 (0.74) (0.74) 0.00 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) -- Class C 9/30/2007 14.65 0.69 0.60 1.29 (0.70) (0.70) 0.00 9/30/2006 14.22 0.61 0.51 1.12 (0.69) (0.69) 0.00 9/30/2005 13.60 0.55 0.72 1.27 (0.65) (0.65) 0.00 9/30/2004 12.58 0.64 1.11 1.75 (0.73) (0.73) 0.00 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) -- Class Y 9/30/2007 14.59 0.85 0.59 1.44 (0.86) (0.86) 0.00 9/30/2006 14.17 0.76 0.51 1.27 (0.85) (0.85) 0.00 9/30/2005 13.57 0.70 0.70 1.40 (0.80) (0.80) 0.00 9/30/2004 12.58 0.78 1.11 1.89 (0.90) (0.90) 0.00 9/30/2003(d) 10.74 0.60 1.93 2.53 (0.69) (0.69) -- 12/31/2002 9.90 0.80 0.71 1.51 (0.67) (0.67) --
(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)For the nine months ended September 30, 2003. (e)Had certain expenses not been reduced during the period, if applicable, total return would have been lower. (f)Amount rounds to less than $0.01 per share, if applicable. See accompanying notes to financial statements. 57
Ratios to Average Net Assets -------------------------------------- Net asset Net assets, value, Total end of Net Gross Net investment Portfolio end of return period expenses expenses income turnover period (%) (a) (e) (000's) (%) (b) (h) (%) (b) (g) (loss) (%) (b) rate (%) ---------- ----------- ----------- ----------- ----------- -------------- --------- $ 15.18 9.9 $5,749,315 1.00 1.00 5.39 22 14.60 9.0 2,782,887 1.05 1.05 5.01 21 14.17 10.2 977,198 1.18 1.18 4.71 14 13.57 15.2 343,586 1.23 1.23 5.66 28 12.57 23.7 140,576 1.28 1.31 6.49 27 10.72 15.5 92,303 1.33 1.33 7.38 30 15.25 9.1 233,418 1.76 1.76 4.61 22 14.66 8.2 179,927 1.79 1.79 4.26 21 14.22 9.5 144,081 1.93 1.93 3.98 14 13.60 14.3 128,714 1.98 1.98 4.91 28 12.59 23.0 118,217 2.03 2.06 5.73 27 10.71 14.6 98,501 2.08 2.08 6.63 30 15.24 9.1 3,843,823 1.75 1.75 4.63 22 14.65 8.1 1,812,278 1.79 1.79 4.24 21 14.22 9.5 765,200 1.93 1.93 3.93 14 13.60 14.3 255,705 1.98 1.98 4.87 28 12.58 23.0 66,394 2.03 2.06 5.73 27 10.70 14.7 27,727 2.08 2.08 6.63 30 15.17 10.2 638,868 0.74 0.74 5.67 22 14.59 9.3 271,065 0.78 0.78 5.30 21 14.17 10.5 50,369 0.91 0.91 4.98 14 13.57 15.5 10,833 1.00 1.08 5.93 28 12.58 24.0 2,193 0.97 0.97 6.83 27 10.74 15.9 1,039 0.94 0.94 7.77 30
(g)Represents the total expenses prior to advisory fee reduction and/or reimbursement of a portion of the Fund's expenses, if applicable. (h)The investment adviser agreed to reimburse a portion of the Fund's expenses and/or reduce its management fee during the period. Without this reimbursement/reduction, expenses would have been higher. See Note 4. * The financial information for periods prior to September 30, 2004 reflects the financial information for CDC Nvest Strategic Income Fund's Class A, Class B, Class C and Class Y shares, which were reorganized into Class A, Class B, Class C and Class Y shares, respectively, of Loomis Sayles Strategic Income Fund, effective September 12, 2003. Prior to September 1, 2003, the predecessor Fund was advised by CDC IXIS Asset Management Advisers, L.P. and subadvised by Loomis, Sayles & Company, L.P. (the Fund's current adviser) and, prior to September 12, 2003, had a December 31 fiscal year end. The Fund's current fiscal year end is September 30. 58 NOTES TO FINANCIAL STATEMENTS September 30, 2007 1. Organization. Natixis Funds Trust I (formerly IXIS Advisor Funds Trust I), Natixis Funds Trust II (formerly IXIS Advisor Funds Trust II) and Loomis Sayles Funds II (the "Trusts" and each a "Trust") are each organized as a Massachusetts business trust. Each Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company. Each Declaration of Trust permits the Board of Trustees to authorize the issuance of an unlimited number of shares of the Trust in multiple series. Information presented in these financial statements pertains to certain fixed income funds of the Trusts; the financial statements for the other funds of the Trusts are presented in separate reports. The following funds (individually, a "Fund" and collectively, the "Funds") are included in this report: Natixis Funds Trust I: Loomis Sayles Core Plus Bond Fund (the "Core Plus Bond Fund") Natixis Funds Trust II: Loomis Sayles Massachusetts Tax Free Income Fund (the "Massachusetts Tax Free Income Fund") Loomis Sayles Funds II: Loomis Sayles High Income Fund (the "High Income Fund") Loomis Sayles Limited Term Government and Agency Fund (the "Limited Term Government and Agency Fund") Loomis Sayles Municipal Income Fund (the "Municipal Income Fund") Loomis Sayles Strategic Income Fund (the "Strategic Income Fund") Core Plus Bond Fund, Limited Term Government and Agency Fund and Strategic Income Fund each offer Class A, Class B, Class C and Class Y shares. High Income Fund offers Class A, Class B and Class C shares. Massachusetts Tax Free Income Fund and Municipal Income Fund each offer Class A and Class B shares. On June 1, 2007 the Board of Trustees of the Trust approved the termination of offering of Class B shares. Effective July 30, 2007, no new accounts may be opened in Class B shares. No additional investments into Class B shares may be made after October 12, 2007. Existing Class B shareholders may continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Natixis Funds subject to existing exchange privileges as described in the Prospectus. Class A shares of all Funds except Limited Term Government and Agency Fund and Massachusetts Tax Free Income Fund are sold with a maximum front-end sales charge of 4.50%. Class A shares of Limited Term Government and Agency Fund are sold with a maximum front-end sales charge of 3.00% and Class A shares of Massachusetts Tax Free Income Fund are sold with a maximum front-end sales charge of 4.25%. Class B shares do not pay a front-end sales charge, but pay higher Rule 12b-1 fees than Class A shares for eight years (at which point they automatically convert to Class A shares), and are subject to a contingent deferred sales charge ("CDSC") if those shares are redeemed within six years of purchase. Class C shares do not pay a front-end sales charge, do not convert to any other Class of shares and pay higher Rule 12b-1 fees than Class A shares and may be subject to a CDSC of 1.00% if those shares are redeemed within one year. Class Y shares do not pay a front-end sales charge, a CDSC or Rule 12b-1 fees. They are generally intended for institutional investors with a minimum initial investment of $100,000, though some categories of investors are excepted from the minimum investment amount as outlined in the Fund's prospectus. Prior to March 16, 2007 the minimum initial investment for Class Y was $1,000,000. Most expenses of the Trusts can be directly attributed to a fund. Expenses which cannot be directly attributed to a fund are generally apportioned based on the relative net assets of each of the funds in the Trusts. Expenses of a fund are borne pro rata by the holders of each Class of shares, except that each Class bears expenses unique to that Class (including the Rule 12b-1 service and distribution fees and transfer agent fees applicable to such class). In addition, each Class votes as a Class only with respect to its own Rule 12b-1 Plan. Shares of each Class would receive their pro rata share of the net assets of a fund if the fund were liquidated. The Trustees approve separate dividends from net investment income on each Class of shares. 2. Significant Accounting Policies. The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements. The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. a. Security Valuation. Debt securities (other than short-term obligations purchased with an original or remaining maturity of sixty days or less) are generally valued on the basis of evaluated bids furnished to the Funds by a pricing service recommended by the investment adviser and approved by the Board of Trustees, which service determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Equity securities, including closed-end investment companies and exchange-traded funds, for which market quotations are readily available are valued at market value, as reported by pricing services recommended by the investment adviser 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 Global Select Market, NASDAQ Global Market and NASDAQ Capital Market are valued at the NASDAQ Official Closing Price ("NOCP"), or if lacking a NOCP, at the most recent bid quotation on the applicable NASDAQ market. Broker-dealer bid quotations may also be used to value debt and equity securities where a pricing service does not price a security or where a pricing service does not provide a reliable price for the security. In instances where broker-dealer bid quotations are not available, certain securities held by the Funds may be valued on the basis of a price provided by a principal market maker. The prices provided by the principal market makers may differ from the value that would be realized if the securities were sold. Short-term obligations purchased with an original or remaining maturity of sixty 59 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by the Funds' investment adviser using consistently applied procedures under the general supervision of the Board of Trustees. Investments in other open-end investment companies are valued at their net asset value each day. Certain Funds may hold securities traded in foreign markets. Foreign securities are valued at the market price in the foreign market. However, if events occurring after the close of the foreign market (but before the close of regular trading on the New York Stock Exchange) are believed to materially affect the value of those securities, such securities are fair valued pursuant to procedures approved by the Board of Trustees. When fair valuing securities, the Funds may, among other things, use modeling tools or other processes that may take into account factors such as securities market activity and/or significant events that occur after the close of the foreign market and before the Funds calculate their net asset values. b. Security Transactions and Related Investment Income. Security transactions are accounted for on trade date. Dividend income is recorded on ex-dividend date, or in the case of certain foreign securities, as soon as the Fund is notified, and interest income is recorded on an accrual basis. Interest income is increased by the accretion of discount and decreased by the amortization of premium. Investment income is recorded net of foreign taxes withheld when applicable. In determining net gain or loss on securities sold, the cost of securities has been determined on an identified cost basis. Investment income, non-class specific expenses and realized and unrealized gains and losses are allocated on a pro rata basis to each Class based on the relative net assets of each Class to the total net assets of the Fund. c. Foreign Currency Translation. The books and records of the Funds are maintained in U.S. dollars. The value of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign exchange rates prevailing at the end of the period. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. Since the values of investment securities are presented at the foreign exchange rates prevailing at the end of the period, it is not practical to isolate that portion of the results of operations arising from changes in exchange rates from fluctuations arising from changes in market prices of the investment securities. Such changes are included with the net realized and unrealized gain or loss on investments. Net realized foreign exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investment securities, at the end of the fiscal period, resulting from changes in exchange rates. Each Fund may use foreign currency exchange contracts to facilitate transactions in foreign-denominated investments. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. Each Fund (except Massachusetts Tax Free Income Fund and Municipal Income Fund) may purchase investments of foreign issuers. Investing in securities of foreign issuers involves special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include revaluation of currencies and the risk of appropriation. Moreover, the markets for securities of many foreign issuers may be less liquid and the prices of such securities may be more volatile than those of comparable U.S. companies and the U.S. government. d. Federal and Foreign Income Taxes. The Trusts treat each Fund as a separate entity for federal income tax purposes. Each Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders substantially all of its net investment income and any net realized capital gains at least annually. Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement 109 ("FIN 48") was issued and became effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Subsequent thereto, the United States Securities and Exchange Commission ("SEC") indicated that it would not object if a fund first adopts FIN 48 on the last business day of the first required financial reporting period for fiscal years beginning after December 15, 2006. Notwithstanding the projected regulatory implementation date of March 31, 2008 for the Funds, Management has already implemented FIN 48 and has performed an analysis of the Funds' tax positions taken or that will be taken on federal and state tax returns that remain subject to examination (tax years ended September 30, 2004 - 2007) in connection with the adoption of FIN 48 and has concluded that no provision for income tax is required. Accordingly, there is no impact on the Funds' net assets at September 30, 2007 or results of operations for the year then ended. Additionally, Fund Management is not aware of any events that are reasonably possible to occur in the next twelve months that would result in the amounts of any unrecognized tax benefits significantly increasing or decreasing for the Funds. A Fund may be subject to foreign taxes on income and gains on investments that are accrued based upon the Fund's understanding of the tax rules and regulations that exist in the countries in which the Fund invests. Foreign governments may also impose taxes or other payments on investments with respect to foreign securities. Such taxes are accrued as applicable. 60 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 e. Dividends and Distributions to Shareholders. Dividends and distributions are recorded on ex-dividend date. The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations, which may differ from accounting principles generally accepted in the United States of America. Permanent differences are primarily due to differing treatments for book and tax purposes of items such as foreign currency transactions, premium amortization, paydown gains and losses, expired capital loss carryforwards, return of capital and capital gains distributions from REITS and market discount adjustments. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to capital accounts. Temporary differences between book and tax distributable earnings are primarily due to deferred Trustees' fees, wash sales, premium amortization accruals, dividends payable, straddle loss deferrals, REIT basis adjustments, TIP discount accretion, defaulted bond interest, capital loss carryforwards and post-October capital loss deferrals. Distributions from net investment income and short-term capital gains are considered to be ordinary income for tax purposes. The tax characterization of distributions is determined on an annual basis. The tax character of distributions paid to shareholders during the years ended September 30, 2007 and 2006 was as follows:
2007 Distributions Paid From: - ----------------------------- Exempt Ordinary Long-Term Interest Fund Income Capital Gains Dividends Total ---- ------ ------------- --------- ----- Core Plus Bond Fund $ 10,094,728 $ -- $ -- $ 10,094,728 High Income Fund 2,951,864 -- -- 2,951,864 Limited Term Government and Agency Fund 5,397,224 -- -- 5,397,224 Massachusetts Tax Free Income Fund 42,308 -- 2,695,971 2,738,279 Municipal Income Fund 80,874 448,766 3,338,192 3,867,832 Strategic Income Fund 413,178,709 -- -- 413,178,709
2006 Distributions Paid From: - ----------------------------- Exempt Ordinary Long-Term Interest Fund Income Capital Gains Dividends Total ---- ------ ------------- --------- ----- Core Plus Bond Fund $ 11,734,713 $-- $ -- $ 11,734,713 High Income Fund 2,585,838 -- -- 2,585,838 Limited Term Government and Agency Fund 5,637,489 -- -- 5,637,489 Massachusetts Tax Free Income Fund 19,311 -- 2,905,815 2,925,126 Municipal Income Fund 52,251 -- 3,794,093 3,846,344 Strategic Income Fund 163,441,295 -- -- 163,441,295
Differences between these amounts and those reported in the Statement of Changes in Net Assets are primarily attributable to different book and tax treatment for short-term capital gains. 61 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 As of September 30, 2007, the components of distributable earnings on a tax basis were as follows:
Limited Term Government Massachusetts Municipal Strategic Core Plus High Income and Agency Tax Free Income Income Bond Fund Fund Fund Income Fund Fund Fund - --------- ---- ---- ----------- ---- ---- Undistributed ordinary income/tax exempt income $ 549,765 $ 126,678 $ 270,973 $ 163,437 $ 495,606 $ 30,372,778 Undistributed long-term capital gains -- -- -- -- 586,361 6,267,725 Capital loss carryforward: Expires September 30, 2008 -- (11,101,868) (4,165,768) -- -- -- Expires September 30, 2009 -- (43,374,721) (4,128,091) -- -- -- Expires September 30, 2010 (20,430,847) (26,826,634) (663,109) (204,147) -- -- Expires September 30, 2011 -- -- (425,323) -- -- -- Expires September 30, 2012 -- -- (193,904) -- -- -- Expires September 30, 2013 -- -- -- (154,156) -- -- Expires September 30, 2014 (181,728) -- (2,770,324) -- -- -- Expires September 30, 2015 -- -- (4,336,746) -- -- -- ------------ ------------ ------------ ---------- ---------- ------------ Total capital loss carryforward (20,612,575) (81,303,223) (16,683,265) (358,303) -- -- Deferred net capital losses (post-October 2006) -- -- (368,090) -- -- -- Unrealized appreciation (depreciation) (1,676,210) 1,124,117 (989,095) 1,627,289 767,262 440,190,549 ------------ ------------ ------------ ---------- ---------- ------------ Total accumulated earnings (losses) (21,739,020) (80,052,428) (17,769,477) 1,432,423 1,849,229 476,831,052 ============ ============ ============ ========== ========== ============ Capital loss carryforward utilized in the current year $ 530,108 $ 1,622,295 $ -- $ 915,793 $ -- $ 36,293,441
The Limited Term Government and Agency Fund had carry forward losses expire in the current year for the amount of $9,755,614. The Massachusetts Tax Free Income Fund had carry forward losses expire in the current year for the amount of $804,173. f. Repurchase Agreements. Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 102% of the repurchase price, including interest. The repurchase agreements are tri-party arrangements whereby the collateral is held at the custodian bank in a segregated account for the benefit of the Fund and on behalf of the counterparty. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. g. Securities Lending. The Funds have entered into an agreement with State Street Bank and Trust Company ("State Street Bank"), as agent of the Funds, to lend securities to certain designated borrowers. The loans are collateralized with cash or securities in an amount equal to at least 105% or 102% of the market value of the loaned international or domestic securities, respectively, when the loan is initiated. Thereafter, the value of the collateral must remain at least 102% of the market value of loaned securities for U.S. equities and U.S. corporate debt; at least 105% of the market value of loaned securities for non-U.S. equities; and at least 100% of the market value of loaned securities for U.S. government securities, sovereign debt issued by non-U.S. governments and non-U.S. corporate debt. In the event that the market value of the collateral falls below the required percentages described above, the borrower will deliver additional collateral on the next business day. As with other extensions of credit, the Funds may bear the risk of loss with respect to the investment of the collateral. The Funds invest cash collateral in short-term investments, a portion of the income from which is remitted to the borrowers and the remainder allocated between the Funds and State Street Bank as lending agent. The value of securities on loan to borrowers and the value of collateral held by the Funds with respect to such loans at September 30, 2007 were as follows:
Value of Value of Collateral Fund Securities on Loan Received ---- ------------------ ------------------- Core Plus Bond Fund $ 31,264,559 $ 31,895,894 High Income Fund 5,465,101 5,572,870 Limited Term Government and Agency Fund 8,731,477 8,886,334 Massachusetts Tax Free Income Fund -- -- Municipal Income Fund -- -- Strategic Income Fund 2,097,963,205 2,135,549,007
62 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 h. Delayed Delivery Commitments. Each Fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. Collateral consisting of liquid securities or cash and cash equivalents is maintained in an amount at least equal to these commitments with the custodian. i. Indemnifications. Under the Trusts' organizational documents, their officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. j. New Accounting Pronouncement. In September, 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact, if any, the adoption of FAS 157 will have on the Funds' financial statements. 3. Purchases and Sales of Securities. For the year ended September 30, 2007, purchases and sales of securities (excluding short-term investments and including paydowns) were as follows:
U.S. Government and Agency Securities Other Securities - ----------------------------- --------------------------- Fund Purchases Sales Purchases Sales ---- --------- ----- --------- ----- Core Plus Bond Fund $ 89,574,124 $ 60,855,209 $ 59,782,171 $ 92,079,813 High Income Fund 3,111,384 782,884 15,736,965 15,769,222 Limited Term Government and Agency Fund 46,669,322 61,905,050 4,928,981 15,496,437 Massachusetts Tax Free Income Fund -- -- 15,767,975 19,886,246 Municipal Income Fund -- -- 15,807,606 25,492,467 Strategic Income Fund 1,279,563,142 1,012,531,546 5,399,459,879 635,719,750
4. Management Fees and Other Transactions with Affiliates. a. Management Fees. Loomis, Sayles & Company, L.P. ("Loomis Sayles") serves as investment adviser to each Fund. Under the terms of the management agreements, each Fund pays a management fee at the following annual rates, calculated daily and payable monthly, based on each Fund's average daily net assets:
Percentage of Average Daily Net Assets - ------------------------------------------------- First Next Next Over Fund $100 million $100 million $1.8 billion $2 billion ---- ------------ ------------ ------------ ---------- Core Plus Bond Fund 0.2500% 0.1875% 0.1875% 0.1875% High Income Fund 0.6000% 0.6000% 0.6000% 0.6000% Limited Term Government and Agency Fund 0.5000% 0.5000% 0.5000% 0.5000% Massachusetts Tax Free Income Fund 0.3000% 0.2500% 0.2500% 0.2500% Municipal Income Fund 0.5000% 0.3750% 0.3750% 0.3750% Strategic Income Fund 0.6500% 0.6500% 0.6000% 0.5500%
Natixis Asset Management Advisors, L.P. ("Natixis Advisors") (formerly IXIS Asset Management Advisors, L.P.), serves as the advisory administrator to Core Plus Bond Fund and Massachusetts Tax Free Income Fund. Under the terms of the advisory administration agreements, each pays an advisory administration fee at the following annual rates, calculated daily and payable monthly, based on its average daily net assets:
Percentage of Average Daily Net Assets - -------------------------------------- First Over Fund $100 million $100 million ---- ------------ ------------ Core Plus Bond Fund 0.2500% 0.1875% Massachusetts Tax Free Income Fund 0.3000% 0.2500%
63 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 Management and advisory administration fees are presented in the Statements of Operations as management fees. Loomis Sayles has given binding undertakings to the Funds to reduce its management fees and/or reimburse certain expenses associated with these Funds to limit their operating expenses. These undertakings are in effect until January 31, 2008 and will be reevaluated on an annual basis. For the period from July 1, 2007 to September 30, 2007, the expense limits as a percentage of average daily net assets under the expense limitation agreements were as follows:
Expense Limits as a Percentage of Average Daily Net Assets - ------------------------------- Fund Class A Class B Class C Class Y ---- ------- ------- ------- ------- Core Plus Bond Fund 1.00% 1.75% 1.75% 0.75% High Income Fund 1.15% 1.90% 1.90% -- Limited Term Government and Agency Fund 0.95% 1.70% 1.70% 0.70% Massachusetts Tax Free Income Fund 0.95% 1.70% -- -- Municipal Income Fund 0.95% 1.70% -- -- Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
Prior to July 1, 2007, the expense limits as a percentage of average daily net assets were as follows:
Fund Class A Class B Class C Class Y ---- ------- ------- ------- ------- Core Plus Bond Fund 1.05% 1.80% 1.80% 0.80% High Income Fund 1.15% 1.90% 1.90% -- Limited Term Government and Agency Fund 1.00% 1.75% 1.75% 0.75% Massachusetts Tax Free Income Fund 0.95% 1.70% -- -- Municipal Income Fund 0.95% 1.70% -- -- Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
Prior to February 1, 2007, the expense limits as a percentage of average daily net assets were as follows:
Fund Class A Class B Class C Class Y ---- ------- ------- ------- ------- Core Plus Bond Fund 1.05% 1.80% 1.80% 0.80% High Income Fund 1.25% 2.00% 2.00% -- Limited Term Government and Agency Fund 1.00% 1.75% 1.75% 0.75% Massachusetts Tax Free Income Fund 0.95% 1.70% -- -- Municipal Income Fund 0.95% 1.70% -- -- Strategic Income Fund 1.25% 2.00% 2.00% 1.00%
Loomis Sayles and Natixis Advisors have agreed to equally bear the fee reductions and/or expense reimbursements for the Core Plus Bond Fund and Massachusetts Tax Free Income Fund. For the year ended September 30, 2007, the management fees and management fee reductions for each Fund were as follows:
Percentage of Average Gross Reduction of Net Daily Net Assets Management Management Management ---------------- Fund Fee Fee Fee Gross Net ---- --- --- --- ----- --- Core Plus Bond Fund $ 476,354 $ -- $ 476,354 0.216% 0.216% High Income Fund 252,979 47,318 205,661 0.600% 0.488% Limited Term Government and Agency Fund 629,029 44,936 584,093 0.500% 0.464% Massachusetts Tax Free Income Fund 212,514 51,695 160,819 0.300% 0.227% Municipal Income Fund 468,737 27,023 441,714 0.500% 0.471% Strategic Income Fund 44,720,043 -- 44,720,043 0.564% 0.564%
64 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 For the year ended September 30, 2007, the advisory administration fees and fee reductions for each Fund were as follows:
Percentage of Gross Reduction of Net Average Advisory Advisory Advisory Daily Net Assets Administration Administration Administration ---------------- Fund Fee Fee Fee Gross Net ---- --- --- --- ----- --- Core Plus Bond Fund $476,353 $ -- $476,353 0.216% 0.216% Massachusetts Tax Free Income Fund 212,514 51,695 160,819 0.300% 0.227%
For the year ended September 30, 2007, in addition to the reduction of management fees and/or advisory administration fees, expenses have been reimbursed as follows:
Fund Reimbursement ---- ------------- Core Plus Bond Fund $128,194 High Income Fund 55,825 Limited Term Government and Agency Fund 94,732 Massachusetts Tax Free Income Fund 46,003 Municipal Income Fund 49,498
Loomis Sayles and Natixis Advisors shall be permitted to recover management fees/advisory administration fees reduced and/or expenses borne under the expense limitation agreements on a Class by Class basis in later periods to the extent a Class' expenses fall below a Class' expense limits, provided, however, that a Class is not obligated to pay such fees/expenses more than one year after the end of the fiscal year in which the fee was reduced or the expense borne. The amounts subject to possible reimbursement under the expense limitation agreements at September 30, 2007 were as follows:
Expenses Subject to Possible Reimbursement until September 30, 2008 - ----------------------------------------- Fund Class A Class B Class C Class Y Total ---- ------- ------- ------- ------- ----- Core Plus Bond Fund $ 53,063 $63,776 $ 3,785 $7,570 $128,194 High Income Fund 77,322 14,686 11,135 -- 103,143 Limited Term Government and Agency Fund 123,524 9,302 5,322 1,520 139,668 Massachusetts Tax Free Income Fund 145,281 4,112 -- -- 149,393 Municipal Income Fund 72,756 3,765 -- -- 76,521
Certain officers and directors of Loomis Sayles and Natixis Advisors are also Trustees of the Funds. Loomis Sayles and Natixis Advisors are both limited partnerships whose sole general partner is indirectly owned by Natixis Global Asset Management, L.P. ("Natixis US") (formerly IXIS Asset Management US Group, L.P.), which is part of Natixis Global Asset Management (formerly IXIS Asset Management Group), an international asset management group based in Paris, France. b. Administrative Fees. Natixis Asset Management Advisors, L.P. ("Natixis Advisors") (formerly IXIS Asset Management Advisors, L.P.) provides certain administrative services for the Funds and has subcontracted with State Street Bank to serve as sub-administrator. Natixis Advisors is an indirect wholly-owned subsidiary of Natixis US. Pursuant to an agreement among Natixis Funds Trust I, Natixis Funds Trust II, Natixis Funds Trust III (formerly IXIS Advisors Funds Trust III), Natixis Funds Trust IV (formerly IXIS Advisors Funds Trust IV), Natixis Cash Management Trust (formerly IXIS Advisor Cash Management Trust), ("Natixis Funds Trusts"), Loomis Sayles Funds I, Loomis Sayles Funds II ("Loomis Sayles Funds Trusts") and Natixis Advisors (the "Administrative Service Agreement"), each Fund pays Natixis Advisors monthly its pro rata portion of fees equal to an annual rate of 0.0675% of the first $5 billion of the average daily net assets of the Natixis Funds Trusts and Loomis Sayles Funds Trusts, 0.0625% of the next $5 billion, 0.0500% of the next $20 billion and 0.045% of such assets in excess of $30 billion, subject to an annual aggregate minimum fee for the Natixis Funds Trusts and Loomis Sayles Funds Trusts of $5 million, which is reevaluated on an annual basis. Effective September 17, 2007, pursuant to an amendment to the Administrative Service Agreement, the Hansberger International Series was added to the Agreement and pays Natixis advisors monthly its pro rata fees equal to its prorated portion of the above mentioned fees. Prior to July 1, 2007, each Fund paid Natixis Advisors monthly its pro rata portion of fees equal to an annual rate of 0.0675% of the first $5 billion of the average daily net assets of the Natixis Funds Trusts and Loomis Sayles Funds Trusts, 0.0625% of the next $5 billion and 0.0500% of such assets in excess of $10 billion, subject to an annual aggregate minimum fee for the Natixis Funds Trusts and Loomis Sayles Funds Trusts of $5 million. New funds are subject to an annual fee of $50,000 plus $12,500 per class and an additional $50,000 if managed by multiple subadvisers in their first calendar year of operations. 65 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 For the year ended September 30, 2007, amounts paid to Natixis Advisors for administrative fees were as follows:
Administrative Fund Fees ---- -------------- Core Plus Bond Fund $ 122,399 High Income Fund 23,539 Limited Term Government and Agency Fund 69,276 Massachusetts Tax Free Income Fund 39,395 Municipal Income Fund 52,381 Strategic Income Fund 4,368,976
Effective October 1,2007, State Street Bank has agreed to reduce the fees it receives from Natixis Advisors for serving as sub-administrator to the Funds. Also effective October 1,2007, Natixis Advisors has given a binding contractual undertaking to the Funds to waive the administrative fees paid by the Funds in an amount equal to the reduction in sub-administrative fees discussed above. The waiver is in effect through June 30,2008. c. Service and Distribution Fees. Natixis Distributors, L.P. ("Natixis Distributors") (formerly IXIS Asset Management Distributor L.P.), a wholly owned subsidiary of Natixis U.S., has entered into a distribution agreement with the Trust. Pursuant to this agreement, Natixis Distributors serves as principal underwriter of each fund. Pursuant to Rule 12b-1 under the 1940 Act, the Trusts have adopted a Service Plan relating to each Fund's Class A shares (the "Class A Plan") and Service and Distribution Plans relating to each Fund's Class B and Class C shares (the "Class B and Class C Plans"). Under the Class A Plan, each Fund pays Natixis Distributors a monthly service fee at an annual rate not to exceed 0.25% of the average daily net assets attributable to the Fund's Class A shares, as reimbursement for expenses incurred by Natixis Distributors in providing personal services to investors in Class A shares and/or the maintenance of shareholder accounts. Under the Class B and Class C Plans, each Fund pays Natixis Distributors a monthly service fee at an annual rate not to exceed 0.25% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses incurred by Natixis Distributors in providing personal services to investors in Class B and Class C shares and/or the maintenance of shareholder accounts. Also under the Class B and Class C Plans, each Fund pays Natixis Distributors a monthly distribution fee at the annual rate of 0.75% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses incurred by Natixis Distributors in connection with the marketing or sale of Class B and Class C shares. For the year ended September 30, 2007, the Funds paid the following service and distribution fees:
Service Fee Distribution Fee - ------------------------------- ---------------------- Fund Class A Class B Class C Class B Class C ---- ------- ------- ------- ------- ------- Core Plus Bond Fund $ 242,355 $250,938 $ 23,218 $ 752,817 $ 69,653 High Income Fund 78,888 15,057 11,463 45,172 34,388 Limited Term Government and Agency Fund 273,749 20,331 11,665 60,993 34,994 Massachusetts Tax Free Income Fund 172,258 4,836 -- 14,511 -- Municipal Income Fund 222,720 11,648 -- 34,945 -- Strategic Income Fund 10,869,737 533,714 7,287,966 1,601,144 21,863,898
d. Sub-Transfer Agent Fees and Expenses. Natixis Distributors has entered into agreements with financial intermediaries to provide certain recordkeeping, processing, shareholder communications and other services to customers of the intermediaries and have agreed to compensate the intermediaries for providing those services. Certain services would be provided by the Funds if the shares of those customers were registered directly with the Funds' transfer agent. Accordingly, the Funds agreed to pay a portion of the intermediary fees attributable to shares of the Fund held by the intermediary (which generally are a percentage of the value of shares held) not exceeding what the Funds would have paid its transfer agent had each customer's shares been registered directly with the transfer agent instead of held through the intermediary. Natixis Distributors pay the remainder of the fees. Listed below are the fees incurred by the Funds which are included in the transfer agent fees and expenses in the Statements of Operations.
Sub-Transfer Agent Expense - --------------------------------------- Fund Class A Class B Class C Class Y ---- ------- ------- ------- ------- Core Plus Bond Fund $ 148,444 $167,548 $ 12,487 $ 15,807 High Income Fund 5,946 1,314 746 -- Limited Term Government and Agency Fund 8,250 610 354 70 Massachusetts Tax Free Income Fund 2,561 76 -- -- Municipal Income Fund 1,963 105 -- -- Strategic Income Fund 2,045,490 105,299 1,369,976 310,170
66 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 e. Commissions. The Funds have been informed that commissions (including CDSCs) on Fund shares paid to Natixis Distributors by investors in shares of the Funds during the year ended September 30, 2007 were as follows:
Fund Commission ---- ----------- Core Plus Bond Fund $ 85,997 High Income Fund 71,235 Limited Term Government and Agency Fund 89,158 Massachusetts Tax Free Income Fund 33,929 Municipal Income Fund 30,374 Strategic Income Fund 12,435,541
f. Trustees Fees and Expenses. The Funds do not pay any compensation directly to their officers or Trustees who are directors, officers or employees of Natixis Advisors, Natixis Distributors, Natixis US, Loomis Sayles or their affiliates. The Chairperson of the Board receives a retainer fee at the annual rate of $200,000. The Chairperson does not receive any meeting attendance fees for Board of Trustees meetings or committee meetings that she attends. Each Independent Trustee (other than the Chairperson) receives, in the aggregate, a retainer fee at the annual rate of $55,000. Each Independent Trustee also receives a meeting attendance fee of $6,000 for each meeting of the Board of Trustees that he or she attends in person and $3,000 for each meeting of the Board of Trustees that he or she attends telephonically. In addition, each committee chairman receives an additional retainer fee at the annual rate of $10,000. Each Contract Review and Governance Committee member is compensated $4,000 for each Committee meeting that he or she attends in person and $2,000 for each meeting that he or she attends telephonically. Each Audit Committee member is compensated $5,000 for each Committee meeting that he or she attends in person and $2,500 for each meeting that he or she attends telephonically. These fees are allocated among the funds in the Natixis Funds Trusts' the Loomis Sayles Funds Trusts and the Hansberger International Series (effective September 12, 2007) based on a formula that takes into account, among other factors, the relative net assets of each fund. Trustees are reimbursed for travel expenses in connection with attendance at meetings. A deferred compensation plan (the "Plan") is available to the Trustees on a voluntary basis. Each participating Trustee will receive an amount equal to the value that such deferred compensation would have been had it been invested in a designated fund or certain other funds of the Natixis Funds Trusts, the Loomis Sayles Funds Trusts and the Hansberger International Series on the normal payment date. Deferred amounts remain in the Funds until distributed in accordance with the Plan. g. Redemption Fees. Shareholders of Class A shares of Core Plus Bond Fund, High Income Fund and Strategic Income Fund and shareholders of Class Y shares of Core Plus Bond Fund and Strategic Income Fund are charged a 2% redemption fee if they redeem, including redeeming by exchange, Class A shares and Class Y shares within 60 days of their acquisition (including acquisition by exchange). The redemption fee is intended to offset the costs to the Funds of short-term trading, such as portfolio transaction and market impact costs associated with redemption activity and administrative costs associated with processing redemptions. The redemption fee is deducted from the shareholder's redemption or exchange proceeds and is paid to the Fund. The "first-in, first-out" (FIFO) method is used to determine the holding period of redeemed or exchanged shares, which means that if a shareholder acquired shares on different days, the shares acquired first will be redeemed or exchanged first for purposes of determining whether the redemption fee applies. A new holding period begins with each purchase or exchange. These fees are accounted for as an addition to paid-in capital and are presented on the Statements of Changes in Net Assets. 5. Line of Credit. High Income Fund and Strategic Income Fund, together with certain other funds of Natixis Funds Trusts and Loomis Sayles Funds Trusts, participate in a $75,000,000 committed line of credit provided by State Street Bank. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.09% per annum, payable at the end of each calendar quarter, is accrued and apportioned among the participating funds based on their average daily unused portion of the line of credit. For the year ended September 30, 2007, the Funds had no borrowings under this agreement. 6. Concentration of Credit. Massachusetts Tax Free Income Fund primarily invests in debt obligations issued by the Commonwealth of Massachusetts and its political subdivisions, agencies and public authorities to obtain funds for various public purposes. The Fund is more susceptible to factors adversely affecting issuers of Massachusetts municipal securities than is a comparable municipal bond fund that is not so concentrated. Uncertain economic and fiscal conditions may affect the ability of issuers of Massachusetts municipal securities to meet their financial obligations. 7. Shareholders. At September 30, 2007, the Loomis Sayles Employees' Profit Sharing Plan held 32,220 shares of beneficial interest of the Limited Term Government and Agency Fund. In addition, at September 30, 2007, 1 shareholder individually owned more than 5% of the Limited Term Government and Agency Fund's total outstanding shares, representing 8.3% of the Fund and 1 shareholder individually owned more than 5% of the Massachusetts Tax Free Income Fund's total outstanding shares, representing 5.1% of the Fund. 67 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 8. Capital Shares. Each Fund may issue an unlimited number of shares of beneficial interest, without par value. Transactions in capital shares were as follows: Year Ended September 30, 2007 ----------------------------------- Core Plus Bond Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 2,862,355 $ 32,253,428 Issued in connection with the reinvestment of distributions 327,958 3,693,825 ---------------- ----------------- 3,190,313 35,947,253 Redeemed (1,977,946) (22,285,053) ---------------- ----------------- Net change 1,212,367 $ 13,662,200 ---------------- ----------------- Class B Issued from the sale of shares 2,199,092 $ 24,806,440 Issued in connection with the reinvestment of distributions 70,968 800,778 ---------------- ----------------- 2,270,060 25,607,218 Redeemed (4,340,292) (48,938,825) ---------------- ----------------- Net change (2,070,232) $ (23,331,607) ---------------- ----------------- Class C Issued from the sale of shares 686,381 $ 7,745,373 Issued in connection with the reinvestment of distributions 13,038 146,800 ---------------- ----------------- 699,419 7,892,173 Redeemed (199,397) (2,240,505) ---------------- ----------------- Net change 500,022 $ 5,651,668 ---------------- ----------------- Class Y Issued from the sale of shares 598,492 $ 6,770,657 Issued in connection with the reinvestment of distributions 36,251 410,202 ---------------- ----------------- 634,743 7,180,859 Redeemed (293,171) (3,314,000) ---------------- ----------------- Net change 341,572 $ 3,866,859 ---------------- ----------------- Increase (decrease) from capital share transactions (16,271) $ (150,880) ================ ================= Year Ended September 30, 2007 ----------------------------------- High Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 2,247,757 $ 11,689,925 Issued in connection with the reinvestment of distributions 295,946 1,539,928 ---------------- ----------------- 2,543,703 13,229,853 Redeemed (1,884,840) (9,783,658) ---------------- ----------------- Net change 658,863 $ 3,446,195 ---------------- ----------------- Class B Issued from the sale of shares 106,656 $ 557,060 Issued in connection with the reinvestment of distributions 39,879 208,208 ---------------- ----------------- 146,535 765,268 Redeemed (756,563) (3,941,404) ---------------- ----------------- Net change (610,028) $ (3,176,136) ---------------- ----------------- Class C Issued from the sale of shares 479,271 $ 2,499,368 Issued in connection with the reinvestment of distributions 30,663 159,675 ---------------- ----------------- 509,934 2,659,043 Redeemed (159,243) (825,637) ---------------- ----------------- Net change 350,691 $ 1,833,406 ---------------- ----------------- Increase (decrease) from capital share transactions 399,526 $ 2,103,465 ================ =================
Year Ended September 30, 2006 ----------------------------------- Core Plus Bond Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 1,382,171 $ 15,380,850 Issued in connection with the reinvestment of distributions 372,669 4,153,500 ---------------- ----------------- 1,754,840 19,534,350 Redeemed (2,825,473) (31,498,913) ---------------- ----------------- Net change (1,070,633) $ (11,964,563) ---------------- ----------------- Class B Issued from the sale of shares 2,443,291 $ 27,246,501 Issued in connection with the reinvestment of distributions 124,023 1,383,392 ---------------- ----------------- 2,567,314 28,629,893 Redeemed (4,382,113) (48,867,417) ---------------- ----------------- Net change (1,814,799) $ (20,237,524) ---------------- ----------------- Class C Issued from the sale of shares 217,848 $ 2,421,818 Issued in connection with the reinvestment of distributions 13,202 147,350 ---------------- ----------------- 231,050 2,569,168 Redeemed (141,074) (1,577,745) ---------------- ----------------- Net change 89,976 $ 991,423 ---------------- ----------------- Class Y Issued from the sale of shares 531,672 $ 5,901,516 Issued in connection with the reinvestment of distributions 36,711 411,038 ---------------- ----------------- 568,383 6,312,554 Redeemed (296,854) (3,319,094) ---------------- ----------------- Net change 271,529 $ 2,993,460 ---------------- ----------------- Increase (decrease) from capital share transactions (2,523,927) $ (28,217,204) ================ ================= Year Ended September 30, 2006 ----------------------------------- High Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 1,613,908 $ 8,110,484 Issued in connection with the reinvestment of distributions 225,645 1,132,995 ---------------- ----------------- 1,839,553 9,243,479 Redeemed (1,315,469) (6,579,692) ---------------- ----------------- Net change 524,084 $ 2,663,787 ---------------- ----------------- Class B Issued from the sale of shares 139,925 $ 704,223 Issued in connection with the reinvestment of distributions 49,894 250,269 ---------------- ----------------- 189,819 954,492 Redeemed (1,175,776) (5,886,573) ---------------- ----------------- Net change (985,957) $ (4,932,081) ---------------- ----------------- Class C Issued from the sale of shares 245,364 $ 1,234,623 Issued in connection with the reinvestment of distributions 16,606 83,348 ---------------- ----------------- 261,970 1,317,971 Redeemed (296,889) (1,478,155) ---------------- ----------------- Net change (34,919) $ (160,184) ---------------- ----------------- Increase (decrease) from capital share transactions (496,792) $ (2,428,478) ================ =================
68 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 Year Ended September 30, 2007 ----------------------------------- Limited Term Government and Agency Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 1,309,019 $ 14,378,605 Issued in connection with the reinvestment of distributions 292,426 3,213,916 ---------------- ----------------- 1,601,445 17,592,521 Redeemed (2,117,193) (23,272,778) ---------------- ----------------- Net change (515,748) $ (5,680,257) ---------------- ----------------- Class B Issued from the sale of shares 52,757 $ 579,223 Issued in connection with the reinvestment of distributions 22,869 251,120 ---------------- ----------------- 75,626 830,343 Redeemed (364,484) (3,999,981) ---------------- ----------------- Net change (288,858) $ (3,169,638) ---------------- ----------------- Class C Issued from the sale of shares 217,432 $ 2,387,379 Issued in connection with the reinvestment of distributions 9,729 106,924 ---------------- ----------------- 227,161 2,494,303 Redeemed (133,821) (1,470,673) ---------------- ----------------- Net change 93,340 $ 1,023,630 ---------------- ----------------- Class Y Issued from the sale of shares 217,392 $ 2,396,763 Issued in connection with the reinvestment of distributions 12,038 132,694 ---------------- ----------------- 229,430 2,529,457 Redeemed (71,670) (782,866) ---------------- ----------------- Net change 157,760 $ 1,746,591 ---------------- ----------------- Increase (decrease) from capital share transactions (553,506) $ (6,079,674) ================ ================= Year Ended September 30, 2007 ----------------------------------- Massachusetts Tax Free Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 138,166 $ 2,283,448 Issued in connection with the reinvestment of distributions 122,828 2,029,190 ---------------- ----------------- 260,994 4,312,638 Redeemed (526,246) (8,703,580) ---------------- ----------------- Net change (265,252) $ (4,390,942) ---------------- ----------------- Class B Issued from the sale of shares 5,884 $ 96,247 Issued in connection with the reinvestment of distributions 2,630 43,409 ---------------- ----------------- 8,514 139,656 Redeemed (47,481) (785,482) ---------------- ----------------- Net change (38,967) $ (645,826) ---------------- ----------------- Increase (decrease) from capital share transactions (304,219) $ (5,036,768) ================ =================
Year Ended September 30, 2006 ----------------------------------- Limited Term Government and Agency Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 555,196 $ 6,098,078 Issued in connection with the reinvestment of distributions 317,378 3,476,250 ---------------- ----------------- 872,574 9,565,328 Redeemed (3,237,220) (35,466,514) ---------------- ----------------- Net change (2,364,646) $ (25,901,186) ---------------- ----------------- Class B Issued from the sale of shares 74,303 $ 814,183 Issued in connection with the reinvestment of distributions 29,021 317,417 ---------------- ----------------- 103,324 1,132,230 Redeemed (562,347) (6,150,376) ---------------- ----------------- Net change (459,023) $ (5,018,146) ---------------- ----------------- Class C Issued from the sale of shares 63,287 $ 692,417 Issued in connection with the reinvestment of distributions 8,700 95,297 ---------------- ----------------- 71,987 787,714 Redeemed (202,763) (2,222,285) ---------------- ----------------- Net change (130,776) $ (1,434,571) ---------------- ----------------- Class Y Issued from the sale of shares 16,475 $ 181,528 Issued in connection with the reinvestment of distributions 9,128 100,325 ---------------- ----------------- 25,603 281,853 Redeemed (30,025) (330,286) ---------------- ----------------- Net change (4,422) $ (48,433) ---------------- ----------------- Increase (decrease) from capital share transactions (2,958,867) $ (32,402,336) ================ ================= Year Ended September 30, 2006 ----------------------------------- Massachusetts Tax Free Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 116,584 $ 1,927,090 Issued in connection with the reinvestment of distributions 128,646 2,122,198 ---------------- ----------------- 245,230 4,049,288 Redeemed (533,421) (8,795,072) ---------------- ----------------- Net change (288,191) $ (4,745,784) ---------------- ----------------- Class B Issued from the sale of shares 3,138 $ 51,637 Issued in connection with the reinvestment of distributions 3,663 60,307 ---------------- ----------------- 6,801 111,944 Redeemed (59,258) (974,232) ---------------- ----------------- Net change (52,457) $ (862,288) ---------------- ----------------- Increase (decrease) from capital share transactions (340,648) $ (5,608,072) ================ =================
69 NOTES TO FINANCIAL STATEMENTS (continued) September 30, 2007 Year Ended September 30, 2007 ----------------------------------- Municipal Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 441,328 $ 3,284,696 Issued in connection with the reinvestment of distributions 348,809 2,605,901 ---------------- ----------------- 790,137 5,890,597 Redeemed (1,967,484) (14,568,025) ---------------- ----------------- Net change (1,177,347) $ (8,677,428) ---------------- ----------------- Class B Issued from the sale of shares 23,490 $ 176,022 Issued in connection with the reinvestment of distributions 13,044 97,685 ---------------- ----------------- 36,534 273,707 Redeemed (205,834) (1,528,625) ---------------- ----------------- Net change (169,300) $ (1,254,918) ---------------- ----------------- Increase (decrease) from capital share transactions (1,346,647) $ (9,932,346) ================ ================= Year Ended September 30, 2007 ----------------------------------- Strategic Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 227,999,564 $ 3,401,598,542 Issued in connection with the reinvestment of distributions 11,338,684 169,415,802 ---------------- ----------------- 239,338,248 3,571,014,344 Redeemed (51,264,181) (764,388,527) ---------------- ----------------- Net change 188,074,067 $ 2,806,625,817 ---------------- ----------------- Class B Issued from the sale of shares 5,257,203 $ 78,803,755 Issued in connection with the reinvestment of distributions 304,859 4,574,346 ---------------- ----------------- 5,562,062 83,378,101 Redeemed (2,532,198) (37,899,012) ---------------- ----------------- Net change 3,029,864 $ 45,479,089 ---------------- ----------------- Class C Issued from the sale of shares 144,314,933 $ 2,160,951,327 Issued in connection with the reinvestment of distributions 3,151,961 47,297,035 ---------------- ----------------- 147,466,894 2,208,248,362 Redeemed (19,028,982) (284,966,223) ---------------- ----------------- Net change 128,437,912 $ 1,923,282,139 ---------------- ----------------- Class Y Issued from the sale of shares 29,854,706 $ 445,418,950 Issued in connection with the reinvestment of distributions 346,573 5,174,756 ---------------- ----------------- 30,201,279 450,593,706 Redeemed (6,672,173) (99,332,888) ---------------- ----------------- Net change 23,529,106 $ 351,260,818 ---------------- ----------------- Increase (decrease) from capital share transactions 343,070,949 $ 5,126,647,863 ================ =================
Year Ended September 30, 2006 ----------------------------------- Municipal Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 462,407 $ 3,433,795 Issued in connection with the reinvestment of distributions 334,961 2,490,096 ---------------- ----------------- 797,368 5,923,891 Redeemed (2,091,235) (15,530,757) ---------------- ----------------- Net change (1,293,867) $ (9,606,866) ---------------- ----------------- Class B Issued from the sale of shares 53,879 $ 401,621 Issued in connection with the reinvestment of distributions 15,598 116,046 ---------------- ----------------- 69,477 517,667 Redeemed (399,386) (2,971,013) ---------------- ----------------- Net change (329,909) $ (2,453,346) ---------------- ----------------- Increase (decrease) from capital share transactions (1,623,776) $ (12,060,212) ================ ================= Year Ended September 30, 2006 ----------------------------------- Strategic Income Fund Shares Amount -------------------------------------------------------------- ---------------- ----------------- Class A Issued from the sale of shares 138,264,882 $ 1,969,973,470 Issued in connection with the reinvestment of distributions 4,434,461 63,237,389 ---------------- ----------------- 142,699,343 2,033,210,859 Redeemed (20,978,934) (298,257,925) ---------------- ----------------- Net change 121,720,409 $ 1,734,952,934 ---------------- ----------------- Class B Issued from the sale of shares 4,378,474 $ 62,611,798 Issued in connection with the reinvestment of distributions 254,799 3,636,750 ---------------- ----------------- 4,633,273 66,248,548 Redeemed (2,489,164) (35,488,933) ---------------- ----------------- Net change 2,144,109 $ 30,759,615 ---------------- ----------------- Class C Issued from the sale of shares 76,685,324 $ 1,097,132,921 Issued in connection with the reinvestment of distributions 1,024,379 14,656,353 ---------------- ----------------- 77,709,703 1,111,789,274 Redeemed (7,823,598) (111,619,466) ---------------- ----------------- Net change 69,886,105 $ 1,000,169,808 ---------------- ----------------- Class Y Issued from the sale of shares 16,186,079 $ 231,166,734 Issued in connection with the reinvestment of distributions 92,338 1,318,567 ---------------- ----------------- 16,278,417 232,485,301 Redeemed (1,256,435) (17,863,735) ---------------- ----------------- Net change 15,021,982 $ 214,621,566 ---------------- ----------------- Increase (decrease) from capital share transactions 208,772,605 $ 2,980,503,923 ================ =================
70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees of Natixis Funds Trust I (formerly, IXIS Advisor Funds Trust I), Natixis Funds Trust II (formerly, IXIS Advisor Funds Trust II), and Loomis Sayles Funds II and Shareholders of Loomis Sayles Core Plus Bond Fund, Loomis Sayles Massachusetts Tax Free Income Fund, Loomis Sayles High Income Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis Sayles Municipal Income Fund and Loomis Sayles Strategic Income Fund: In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Loomis Sayles Core Plus Bond Fund, a series of Natixis Funds Trust I; the Loomis Sayles Massachusetts Tax Free Income Fund, a series of Natixis Funds Trust II; and the Loomis Sayles High Income Fund, Loomis Sayles Limited Term Government and Agency Fund, Loomis Sayles Municipal Income Fund and Loomis Sayles Strategic Income Fund, each a series of Loomis Sayles Funds II (collectively, "the Funds"), at September 30, 2007, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts November 21, 2007 71 2007 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited) Corporate Dividends Received Deduction. For the fiscal year ended September 30, 2007, a percentage of dividends distributed by the Funds listed below qualify for the dividends received deduction for corporate shareholders. These percentages are as follows:
Qualifying Fund Percentage ---- ---------- High Income Fund 3.66% Strategic Income Fund 3.38%
Capital Gains Distributions. Pursuant to Internal Revenue Section 852(b), the following Funds paid distributions, which have been designated as capital gains distributions for the fiscal year ended September 30, 2007.
Fund Amount ---- -------- Municipal Income Fund $448,766
Qualified Dividend Income. For the fiscal year ended September 30, 2007, the Funds below will designate up to the maximum amount allowable pursuant to the Internal Revenue Code as qualified dividend income eligible for reduced tax rates. These lower rates range from 5% to 15% depending on an individual's tax bracket. If the Funds pay a distribution during calendar year 2007, complete information will be reported in conjunction with Form 1099-DIV.
Fund ---- High Income Fund Strategic Income Fund
Tax Exempt Income. For the fiscal year ended September 30, 2007, a percentage of dividends distributed by the Funds listed below qualify as tax exempt income for Federal income tax purposes. These percentages are as follows:
Qualifying Fund Percentage ---- ---------- Massachusetts Tax Free Income Fund 98.45% Municipal Income Fund 97.63%
72 TRUSTEE AND OFFICER INFORMATION The tables below provide certain information regarding the Trustees and officers of Natixis Funds Trust I, Natixis Funds Trust II and Loomis Sayles Funds II (the "Trusts"). Unless otherwise indicated, the address of all persons below is 399 Boylston Street, Boston, MA 02116. The Trusts' Statements of Additional Information include additional information about the Trustees of the Trusts and are available by calling Loomis Sayles at 800-314-2029.
Position(s) Held with the Number of Portfolios in Trusts, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Year of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- INDEPENDENT TRUSTEES Graham T. Allison, Jr. Trustee, since 1984 Natixis Douglas Dillon Professor and 41; (1940) Funds Trust I (including Director of the Belfer Center Director, Taubman Centers, predecessors); since 1995 for Science and International Inc. (real estate investment for Natixis Funds Trust II; Affairs, John F. Kennedy trust) since 2003 for Loomis School of Government, Sayles Funds II Harvard University Contract Review and Governance Committee Member Charles D. Baker Trustee, since 2005 for President and Chief Executive 41; (1956) Natixis Funds Trust I, Officer, Harvard Pilgrim None Natixis Funds Trust II and Health Care (health plan) Loomis Sayles Funds II Contract Review and Governance Committee Member Edward A. Benjamin Trustee, since 2003 for Retired 41; (1938) Natixis Funds Trust I and None Natixis Funds Trust II; since 2002 for Loomis Sayles Funds II Chairman of the Contract Review and Governance Committee Daniel M. Cain Trustee, since 1996 for President and Chief Executive 41; (1945) Natixis Funds Trust I and Officer, Cain Brothers & Director, Sheridan Natixis Funds Trust II; Company, Incorporated Healthcare Inc. (physician since 2003 for Loomis (investment banking) practice management) Sayles Funds II Trustee, Lexington Strategic Asset Corporation (realty Chairman of the Audit investment trust) Committee
73 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trusts, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Year of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- INDEPENDENT TRUSTEES continued Richard Darman Trustee, since 1996 for Partner, The Carlyle Group 41; (1943) Natixis Funds Trust I and (investments); formerly, Director and Chairman of the Natixis Funds Trust II; Professor, John F. Kennedy Board of Directors, AES since 2003 for Loomis School of Government, Corporation (international Sayles Funds II Harvard University power company) Contract Review and Governance Committee Member Jonathan P. Mason Trustee, since 2007 for Chief Financial Officer, Cabot 41; (1958) Natixis Funds Trust I, Corp. (specialty chemicals); None Natixis Funds Trust II and formerly, Vice President and Loomis Sayles Funds II Treasurer, International Paper Company; formerly, Chief Audit Committee Member Financial Officer, Carter Holt Harvey (forest products) Sandra O. Moose Chairperson of the Board President, Strategic Advisory 41; (1942) of Trustees since Services (management Director, Verizon November 2005 consulting); formerly, Senior Communications; Director, Vice President and Director, Rohm and Haas Company Trustee since 1982 for The Boston Consulting Group, (specialty chemicals); Natixis Funds Trust I Inc. (management consulting) Director, AES Corporation (including predecessors); (international power since 1993 for Natixis company) Funds Trust II; since 2003 for Loomis Sayles Funds II Ex officio member of the Audit Committee and Contract Review and Governance Committee Cynthia L. Walker Trustee, since 2005 for Executive Dean for 41; (1956) Natixis Funds Trust I, Administration (formerly, None Natixis Funds Trust II and Dean for Finance & CFO), Loomis Sayles Funds II Harvard Medical School Audit Committee Member
74 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in Trusts, Length of Time Principal Occupation(s) Fund Complex Overseen*** Name and Year of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held ---------------------- -------------------------- --------------------- ---------------------------- INTERESTED TRUSTEES Robert J. Blanding/1/ Trustee, since 2003 for President, Chairman, Director 41; (1947) Natixis Funds Trust I and and Chief Executive Officer, None 555 California Street Natixis Funds Trust II Loomis, Sayles & Company, San Francisco, CA 94104 L.P.; President and Chief Chief Executive Officer and Executive Officer -- Loomis Trustee, since 2002 for Sayles Funds I Loomis Sayles Funds II John T. Hailer/2/ President, Chief Executive President and Chief Executive 41; (1960) Officer and Trustee, since Officer, Natixis Asset None 2000 for Natixis Funds Management Advisors, L.P., Trust I and Natixis Funds Natixis Distributors, L.P., Trust II Natixis Global Associates, Inc. and Natixis Global Asset President and Trustee, since Management North America; 2003 for Loomis Sayles President and Chief Executive Funds II Officer, Natixis Funds Trust III, Natixis Funds Trust IV, Natixis Cash Management Trust and Hansberger International Series; Executive Vice President of Loomis Sayles Funds I
* 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. Ms. Moose was re-appointed to serve an additional two-year term as the Chairperson of the Board of Trustees on September 14, 2007. ** Each person listed above, except as noted, holds the same position(s) with the Natixis Funds and Loomis Sayles Funds Trusts. Previous positions during the past five years with Natixis Distributors, L.P. (the "Distributor"), Natixis Asset Management Advisors, L.P. ("Natixis 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 Natixis Funds Trust I, Natixis Funds Trust II, Natixis Funds Trust III, Natixis Funds Trust IV, Natixis Cash Management Trust, Loomis Sayles Funds I, Loomis Sayles Funds II and Hansberger International Series (the "Funds' Trusts"). The number of portfolios overseen does not include AEW Real Estate Income Fund which liquidated on April 13, 2007, or IXIS Equity Diversified Portfolio, which liquidated on August 3, 2007. The number of portfolios overseen includes, as of September 14, 2007, the five series of the Hansberger International Series. /1/ Mr. Blanding is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: President, Chairman, Director and Chief Executive Officer of Loomis, Sayles & Company, L.P. /2/ Mr. Hailer is deemed an "interested person" of the Trusts because he holds the following positions with affiliated persons of the Trusts: Chairman of the Board, President and Chief Executive Officer of Natixis Distribution Corporation; President and Chief Executive Officer of Natixis Global Asset Management North America, Natixis Global Associates, Inc., Natixis Asset Management Advisors, L.P. and the Distributor. 75 TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Trusts and Term of Office Name and Year of Birth and Length of Time Served* Principal Occupation(s) During Past 5 Years** ---------------------- -------------------------- --------------------------------------------- OFFICERS OF THE TRUST Coleen Downs Dinneen Secretary, Clerk and Chief Senior Vice President, General Counsel, Secretary and (1960) Legal Officer, since 2004 Clerk (formerly, Deputy General Counsel, Assistant Secretary and Assistant Clerk), Natixis Distribution Corporation, Natixis Distributors, L.P. and Natixis Asset Management Advisors, L.P. Daniel J. Fuss Executive Vice President Vice Chairman and Director, Loomis, Sayles & (1933) of Loomis Sayles Funds II, Company, L.P.; Executive Vice President of Loomis One Financial Center since June 2003 Sayles Funds I Boston, MA 02111 Russell L. Kane Chief Compliance Officer, Chief Compliance Officer for Mutual Funds, Senior (1969) since May 2006; Assistant Vice President, Deputy General Counsel, Assistant Secretary since June 2004; Secretary and Assistant Clerk, Natixis Distributors, Anti-Money Laundering L.P. and Natixis Asset Management Advisors, L.P.; Officer since April 2007 Vice President, Associate General Counsel, Assistant Secretary and Assistant Clerk, Natixis Distribution Corporation; formerly, Senior Counsel, Columbia Management Group. Michael C. Kardok Treasurer, Principal Senior Vice President, Natixis Asset Management (1959) Financial and Accounting Advisors, L.P. and Natixis Distributors, L.P.; Officer, since October, formerly, Senior Director, PFPC Inc. 2004 Robert Krantz Executive Vice President, Executive Vice President, Natixis Distributors, L.P. (1964) since September 2007 and Natixis Asset Management Advisors, L.P.
* Each officer of the Trusts serve for an indefinite term in accordance with the Trusts' 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 Natixis Funds Trusts, Loomis Sayles Funds Trusts and Hansberger International Series. Previous positions during the past five years with the Distributor, Natixis Advisors or Loomis Sayles are omitted, if not materially different from a Trustee's or officer's current position with such entity. 76 Item 2. Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer and persons performing similar functions. Item 3. Audit Committee Financial Expert. The Board of Trustees of the Registrant has established an audit committee. Ms. Cynthia L. Walker, Mr. Daniel M. Cain and Mr. Jonathan P. Mason are members of the audit committee and have been designated as "audit committee financial experts" by the Board of Trustees. Each of these individuals is also an Independent Trustee of the Registrant. Item 4. Principal Accountant Fees and Services. Fees billed by the Principal Accountant for services rendered to the Registrant. The table below sets forth fees billed by the principal accountant, PricewaterhouseCoopers LLP, for the past two fiscal years for professional services rendered in connection with a) the audit of the Registrant's annual financial statements and services provided in connection with regulatory filings; b) audit-related services (including services that are reasonably related to the performance of the audit of the Registrant's financial statements and but not reported under "Audit Fees"); c) tax compliance, tax advice and tax planning and d) all other fees billed for professional services rendered by the principal accountant to the Registrant, other than the services provided reported as a part of (a) through (c) of this Item.
Audit-related Audit fees fees/1/ Tax fees/2/ All other fees/3/ --------------- ------------- -------------- ----------------- 2006 2007 2006 2007 2006 2007 2006 2007 ------- ------- ------ ---- ------- ------ -------- -------- Loomis Sayles Massachusetts Tax Free Income Fund $26,935 $37,064 $1,829 $-- $10,279 $7,988 $2,755 $--
-------- 1. Audit-related fees consist of the performance of agreed-upon procedures related to the Registrant's deferred compensation plan and a change in the Registrant's custodian. 2. The tax fees consist of review of year-end shareholder reporting (2006 and 2007), a review of tax compliance (2006) and a review of the Registrant's tax returns (2006 and 2007). 3. Other fees consist of a review of income and expense allocation methods in conjunction with the annual renewal of the management contract. Aggregate fees billed to the Registrant for non-audit services during 2006 and 2007 were $14,863 and $7,988, respectively. Fees billed by the Principal Accountant for services rendered to the Adviser and Control Affiliates. The following table sets forth the non-audit services provided by the Registrant's principal accountant to Loomis, Sayles & Company, L.P. and entities controlling, controlled by or under common control with Loomis, Sayles & Company, L.P. that provide ongoing services to the Registrant ("Control Affiliates") for the last two fiscal years.
Audit-related fees Tax fees All other fees ------------------ --------- -------------- 2006 2007 2006 2007 2006 2007 --------- ------- ---- ---- ------- ----- Control Affiliates $17,250 $12,000 $-- $-- $45,800 $--
Aggregate fees billed to Control Affiliates for non-audit services during 2006 and 2007 were $63,050 and $12,000, respectively. None of the audit-related, tax and other services provided by the Registrant's principal accountant were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Audit Committee Pre Approval Policies. Annually, the Registrant's Audit Committee reviews the audit, audit-related, tax and other non-audit services together with the projected fees, for services proposed to be rendered to the Trust and/or other entities for which pre-approval is required during the upcoming year. Any subsequent revisions to already pre-approved services or fees (including fee increases) and requests for pre-approval of new services would be presented for consideration quarterly as needed. If, in the opinion of management, a proposed engagement by the Registrant's independent accountants needs to commence before the next regularly scheduled Audit Committee meeting, any member of the Audit Committee who is an independent Board member is authorized to pre-approve the engagement, but only for engagements to provide audit, audit related and tax services. This approval is subject to review of the full Audit Committee at its next quarterly meeting. All other engagements require the approval of all the members of the Audit Committee. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Included as part of the Report to Shareholders filed as Item 1 herewith. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Securities Holders. There were no material changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees. Item 11. Controls and Procedures. The Registrant's principal executive officer and principal financial officer have concluded that the Registrant's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no changes in the Registrant's internal control over financial reporting that occurred during the Registrant's last fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 12. Exhibits. (a) (1) Code of Ethics required by Item 2 hereof, filed herewith as exhibit (a)(1). (a) (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)), filed herewith as exhibits (a)(2)(1) and (a)(2)(2), respectively. (a) (3) Not applicable. (b) Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 are filed herewith as Exhibit (b). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Natixis Funds Trust II By: /s/ John T. Hailer ------------------------------ Name: John T. Hailer Title: President and Chief Executive Officer Date: November 28, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ John T. Hailer ------------------------------ Name: John T. Hailer Title: President and Chief Executive Officer Date: November 28, 2007 By: /s/ Michael C. Kardok ------------------------------ Name: Michael C. Kardok Title: Treasurer Date: November 28, 2007